<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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only
[ ] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
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:
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<PAGE> 2
REMEDYTEMP, INC.
101 ENTERPRISE
ALISO VIEJO, CA 92656
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 17, 1999
To the Shareholders of REMEDYTEMP, INC.
The 1999 Annual Meeting of Shareholders (the "Meeting") of RemedyTemp,
Inc., a California corporation (the "Company"), will be held at the Company's
corporate headquarters located at 101 Enterprise, Aliso Viejo, California, on
February 17, 1999, at 9:00 a.m. for the following purposes:
1. To elect a Board of Directors of seven (7) directors to serve until
the next annual meeting of shareholders of the Company and until their
successors are elected and qualified;
2. To approve an amendment to the Company's Amended and Restated 1996
Stock Incentive Plan (the "Incentive Plan") providing for a 575,000 share
increase of the aggregate number of shares of Class A Common Stock of the
Company ("Common Stock") reserved for issuance under the Incentive Plan so that
the total number of shares of Common Stock that may be issued under the
Incentive Plan may not exceed 1,800,000; and
3. 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 of Directors of the Company has
fixed the close of business on December 21, 1998 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
Aliso Viejo, California
January 7, 1999
<PAGE> 3
REMEDYTEMP, INC.
101 ENTERPRISE
ALISO VIEJO, CA 92656
------------
PROXY STATEMENT FOR THE
1999 ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 17, 1999
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 1999 Annual Meeting of Shareholders (the "Meeting") to be held on
February 17, 1999, 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 corporate
headquarters located at 101 Enterprise, Aliso Viejo, California. This Proxy
Statement and the accompanying form of proxy will be first mailed to
shareholders on or about January 8, 1999.
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 21, 1998 as the
record date for the determination of shareholders entitled to notice of and to
vote at the Meeting. On that date, there were 7,062,524 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 at 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. 1, Election of Directors, which is determined by plurality. With respect to
Proposal No. 2, approval of an amendment to the Company's Amended and Restated
1996 Stock Incentive Plan (the "Incentive Plan"), abstentions and broker
non-votes will not be considered as having voted for purposes of determining the
outcome of Proposal No. 2 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 proxy
card enclosed 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 identifying text 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 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 that executed it is present at the Meeting and elects to vote
the shares represented thereby in person.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the following information as of December 21,
1998: (i) the number of shares of the Company's Class A Common Stock
beneficially owned 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 Common
Stock; and (ii) the number of shares of the Company's Class A and Class B Common
Stock beneficially owned by each of the present directors, executive officers
named in the Summary Compensation Table on page 10 of this Proxy Statement, and
by all directors and executive officers of the Company as a group. On December
21, 1998, there were 7,062,524 shares of Class A Common Stock outstanding and
1,805,539 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 AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS(%) OWNERSHIP(1)(2) CLASS(%)
- ------------------------------- ----------------- ---------- ------------------ -----------
<S> <C> <C> <C> <C>
William D. Cvengros(3)(4) 21,000 * -- --
James L. Doti(3)(4) 21,500 * -- --
Jeffrey A. Elias(5) 5,000 * -- --
Robert A. Elliott(4)(6) 20,000 * -- --
J. Michael Hagan(7) 12,500 * -- --
Robert E. McDonough, Sr.(4)(8) 2,031,081 28.6% 195,568 10.8%
101 Enterprise
Aliso Viejo, CA 92656
Paul W. Mikos(4)(8)(9) 64,121 * 1,290,970 71.5%
101 Enterprise
Aliso Viejo, CA 92656
Susan M. Mikos(4)(9)(10) 36,240 * 1,290,970 71.5%
101 Enterprise
Aliso Viejo, CA 92656
Greg Palmer(11)(4)(9) 32,430 *
Alan M. Purdy(12) 13,861 * -- --
John B. Zaepfel(3) 20,000 * -- --
Franklin Advisers, Inc. 759,913 10.8% -- --
901 Mariners Island Blvd
San Mateo, CA 94404
Wasatch Advisors, Inc. 697,247 9.9% -- --
150 East Social Hall Ave
Salt Lake City Utah 84111
Mid-Continent Capital, L.L.C 510,525 7.2% -- --
55 W. Monroe, Suite 3560
Chicago, IL 60603
All directors and executive 2,266,376 31.2% 1,486,538 82.3%
officers as a group(13 persons)
</TABLE>
2
<PAGE> 5
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* Less than one percent (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 (60) days of December 21,
1998 are deemed outstanding for the purposes of calculating the number
and percentage owned by such shareholder, but are 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 15,000 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 shares held by certain trusts established for the benefit of
the shareholder and/or the shareholder's family.
(5) All shares are issuable upon exercise of vested stock options.
(6) 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.
(7) Includes 5,000 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.
(8) Includes 27,881 shares of Class A Common Stock that are issuable upon
exercise of vested stock options.
(9) Includes shares held in community property.
(10) Excluding the 27,881 shares of Class A Common Stock that are issuable
upon exercise of vested stock options granted to Paul W. Mikos, Mr.
Mikos and Susan McDonough Mikos have beneficial ownership of the same
shares.
(11) Includes 25,000 shares of Class A Common Stock that are issuable upon
exercise of vested stock options.
(12) Includes 12,774 shares of Class A Common Stock that are issuable upon
exercise of vested stock options.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
In general, the Company's directors are elected at each annual meeting
of shareholders. Currently, the number of directors of the Company is eight (8).
Susan McDonough Mikos, a director of the Company since November 1992 and the
Company's Corporate Secretary since January 1996, has chosen not to run for
re-election to the Board. Ms. Mikos's term of office as a director of the
Company will expire immediately prior to the Meeting. At such time, the number
of directors of the Company will be fixed at seven (7). Accordingly, at the
Meeting, the Company's shareholders are being asked to elect seven (7) directors
to serve until the next annual meeting of shareholders and until their
successors are elected and qualified. The nominees receiving the greatest number
of votes at the Meeting up to the number of authorized directors will be
elected.
The seven (7) nominees for election as directors at the Meeting set
forth in the table on the following page are all incumbent directors. Messrs.
Cvengros, Elliott, McDonough, Mikos, Zaepfel and Dr. Doti were re-elected
3
<PAGE> 6
at the Company's 1998 Annual Meeting of Shareholders. Mr. Hagan was elected by
the Board on March 16, 1998 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 following biographical information is furnished with respect to the
seven (7) nominees for election at the Meeting as of December 21, 1998:
<TABLE>
<CAPTION>
DIRECTOR
NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ------- --- -------------------- --------
<S> <C> <C> <C>
William D. Cvengros 50 Chief Executive Officer and President 1996
of PIMCO Advisors Holdings L.P.
James L. Doti 52 President, Chapman University 1996
Robert A. Elliott 59 Chairman, Elliott Investment Company 1997
J. Michael Hagan 59 President and Chief Executive Officer 1998
of Furon Company
Robert E. McDonough, Sr. 76 Chairman of the Board of the Company 1978
Paul W. Mikos 54 Chief Executive Officer and President 1993
of the Company
John B. Zaepfel 62 Chief Executive Officer of the 1995
Zaepfel Group
</TABLE>
William D. Cvengros has served as a director of the Company since August
1996. Mr. Cvengros has been the Chief Executive Officer, President and a
director of PIMCO Advisors Holdings L.P., a publicly traded investment
management firm, 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 Company.
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 President and 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 1984 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. Additionally, Mr. Elliott is a director of WestMed Venture
Partners, L.P. and WestMed Venture Partners 2, L.P.
J. Michael Hagan has served as a director of the Company since March
1998. Since 1991, Mr. Hagan has served as Chairman of the Board of Directors and
Chief Executive Officer of Furon Company, having previously served as President
of Furon Company from 1980 to 1991. Mr. Hagan is also a director of Freedom
Communications, Inc. and Ameron, Inc.
Robert E. McDonough, Sr. has served as Chairman of the Board of the
Company since August 1978. Mr. McDonough founded the Company in 1965 and has
been continuously involved in the management, long-term operation and strategic
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.
4
<PAGE> 7
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 and the son-in-law of Robert E. McDonough,
Sr.
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 Chief
Executive Officer of the Zaepfel Group, a private investment and consulting
firm. Mr. Zaepfel is a director of Pro-Dex, Inc.
ELIMINATION OF CUMULATIVE VOTING
The Company's Amended and Restated Bylaws (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. The Company had more
than 800 shareholders on February 19, 1997. Consequently, cumulative voting
rights were eliminated on February 19, 1997.
BOARD COMMITTEES AND MEETINGS
The Audit Committee of the Board ("Audit Committee") currently consists
of Messrs. Cvengros, Elliott and 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. Hagan. The Compensation Committee sets the performance goals, annual
salary and incentive compensation of the Company's executive officers and its
key employees. Additionally, the Compensation Committee administers the
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 the performance of the Company's Chief Executive Officer and
reports its evaluation of the Chief Executive Officer's performance to the
Compensation Committee. The Executive Committee also advises the Board regarding
strategic and acquisition planning recommendations.
The Nominating Committee of the Board ("Nominating") currently consists
of Mr. Cvengros (Chairman), Dr. Doti and Mr. Elliott. 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 27, 1998, there were
five (5) meetings of the Board, two (2) meetings of the Audit Committee, three
(3) meetings of the Compensation Committee, three (3) meetings of the Nominating
Committee, and one (1) 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. Zaepfel who missed one (1) Board meeting.
5
<PAGE> 8
DIRECTORS' COMPENSATION
Directors who are also employees or officers of the Company receive no
extra compensation for their service on the Board. Prior to March 16, 1998,
non-employee, non-officer directors received an annual cash retainer of $18,000.
Pursuant to the Company's Non-Employee Director Compensation and Deferral Plan,
effective March 16, 1998 (the "Director Plan"), non-employee, non-officer
directors receive an annual retainer in the form of shares of Common Stock
valued at $18,000 on the date of their election or re-election to the Board
(the "Director Shares"). Once issued, the Director Shares are held in trust, on
a deferred basis until a director is no longer a director of the Company. The
Director Shares are issued to such trust no later than ten (10) business days
after the next annual meeting of shareholders following election or re-election,
provided that the director has remained a director during such time.
Participation in the Director Plan is mandatory. Additionally, cash fees of
$2,000 per Board meeting attended and $750 for each meeting of a committee of
the Board are paid by the Company to each non-employee director. Non-employee
directors also receive reimbursement for out-of-pocket expenses relating to
Company business.
Pursuant to 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 (10) 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 also will receive, upon each re-election to 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 (10) 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 its current limit of 1,225,000 shares of Common Stock.(1) Shares
underlying non-employee directors' options that expire or are terminated or
canceled will become available for further awards under the Incentive 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 the director 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 Messrs.
Elliott and Hagan 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 and February 18, 1998, Messrs. Cvengros, Zaepfel and Dr. Doti
were re-elected to the Board at the 1997 and 1998 Annual Meeting of Shareholders
and therefore each received automatic option grants to purchase up to an
additional 5,000 shares of Common Stock after each such meeting.
- ----------
(1) Shareholder approval of Proposal No. 2 will increase this limit to
1,800,000 shares of Common Stock.
6
<PAGE> 9
RECOMMENDATION OF THE BOARD
The Board recommends that the shareholders vote FOR the seven (7)
nominees listed above. Proxies received will be so voted unless shareholders
specify otherwise in the proxy.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT
TO THE STOCK INCENTIVE PLAN
The Company's shareholders are being asked to 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 575,000 shares, bringing the total amount reserved under the
Incentive Plan to 1,800,000 shares of Common Stock (the "Incentive
Amendment").(2)
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 enables 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
further aligning their interests with the interests of the Company and its
shareholders. Additionally, the Company believes that having sufficient reserve
of Common Stock available under the Incentive Plan is necessary to attract high
quality new employees to the Company.
The Incentive Plan was originally adopted by the Board and shareholders
in April 1996. The Incentive Plan was amended by the Board and shareholders in
February 1998 and by the Compensation Committee in December 1998. The following
is a summary of the principal features of the Incentive Plan:
INCENTIVE PLAN
In connection with the Company's initial public offering, the Company
implemented its Incentive Plan for officers (approximately 20), directors
(approximately five), key employees (approximately 20) and consultants
(approximately 2) of the Company. Initially, a total of 900,000 shares of Common
Stock were reserved for issuance under the Incentive Plan. At the February 18,
1998 Annual Meeting of the Company's Shareholders, the shareholders approved of
an amendment to reserve an additional 325,000 shares of Common Stock. Thus, a
total of 1,225,000 shares of Common Stock are currently reserved for issuance
under the Incentive Plan.(3) As of January 2, 1999, after accounting for
expired, terminated or cancelled options, options to purchase an aggregate of up
to 1,141,988 shares of Common Stock have been granted to employees/consultants
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 Compensation
Committee to select eligible persons to receive awards and generally to
determine the terms and
- ----------
(2) 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.
(3) Shareholder approval of Proposal No. 2 will increase this limit to
1,800,000 shares of Common Stock.
7
<PAGE> 10
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 Compensation 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; (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 (6)
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, 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 (10) 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. Hagan. The Compensation Committee
members are disinterested directors within the meaning of Rule 16b-3 and are
eligible to receive only automatic, nondiscretionary stock option awards
thereunder. The Board or the Compensation Committee may amend, suspend or
terminate the Incentive Plan at any time. However, only the Compensation
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 Incentive 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. Additionally, in
December 1998, the Compensation Committee amended the Incentive Plan to also
require approval of the holders of the Common Stock to adjust or reduce the
purchase or exercise price of granted stock options, restricted stock, or stock
appreciation rights granted under the Incentive Plan. 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
8
<PAGE> 11
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.
Incentive Stock Options. Stock options granted under the Incentive
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 (2) years from the date of
the grant of the Incentive Stock Option nor within one (1) 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 the Incentive Amendment is a necessary
incentive to attract new employees of the highest caliber to the Company.
Accordingly, the Board recommends shareholders vote FOR Proposal No. 2.
9
<PAGE> 12
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned for the last
three (3) fiscal years by (i) each person who served as the Company's Chief
Executive Officer ("CEO") during the fiscal year ended September 27, 1998 and
(ii) the Company's four (4) most highly compensated executive officers other
than the CEO who were serving as executive officers at the end of the fiscal
year ended September 27, 1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options(#) Compensation($)
- --------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Paul W. Mikos(1) 1998 410,000 410,000 25,000 *
President and 1997 390,000 390,000 40,000 108,449
Chief Executive Officer 1996 390,000 390,000 23,872 108,449
Robert E. McDonough, Sr.(2) 1998 410,000 410,000 25,000 *
Chairman of the 1997 390,000 390,000 40,000 87,404
Board of Directors 1996 390,000 390,000 23,872 80,879
Greg Palmer 1998 237,500 188,906 125,000 *
Chief Operations Officer and 1997 -- -- -- --
Executive Vice President 1996 -- -- -- --
Alan M. Purdy 1998 221,401 139,100 15,000 *
Senior Vice President, Chief 1997 200,902 110,000 20,000 *
Financial Officer, and 1996 162,966 100,000 23,872 *
Assistant Secretary
Jeffrey A. Elias 1998 215,892 129,363 15,000 *
Senior Vice President, Human 1997 191,983 110,000 20,000 *
Resources and Risk Management 1996 149,439 105,000 23,872 *
</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 fiscal year. Insurance premiums cover
life insurance policies with cash surrender values owned by Mr. Mikos
and death benefits payable to Mr. Mikos's beneficiaries. Upon
termination of certain of the policies, a portion of the premiums paid
is refundable to the Company.
(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 $22,425 in use of
Company-owned vehicles. Insurance premiums cover life insurance policies
with cash surrender values owned by Mr. McDonough and death benefits
payable to Mr. McDonough's beneficiaries. Upon termination of certain of
the policies, a portion of the premiums paid is refundable to the
Company.
10
<PAGE> 13
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended September
27, 1998:
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------
Potential Realizable Value at
Number % of Total Assumed Annual Rates of
of Securities Options Stock Price Appreciation for
Underlying Granted to Exercise Of Option Term($)(4)
Options Employees in Base Price Expiration -----------------------------
Name Granted(#)(1) Fiscal Year ($/share)(2) Date(3) 5%($) 10%($)
---- ------------- ------------ ------------ ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Paul W. Mikos 25,000 7.2% $21.63 January 7, 2008 $881,000 $1,402,750
Robert E. McDonough, Sr. 25,000 7.2% $21.63 January 7, 2008 $881,000 $1,402,750
Greg Palmer 125,000 35.9% $20.72 December 16, 2007 $4,216,250 $6,718,750
Alan M. Purdy 15,000 4.3% $20.25 December 18, 2007 $494,850 $787,950
Jeffrey A. Elias 15,000 4.3% $20.25 December 18, 2007 $494,850 $787,950
</TABLE>
- ----------
(1) The option to purchase 125,000 shares of Common Stock granted to Mr.
Palmer was outside of the Incentive Plan and received shareholder
approval at the 1998 Annual Meeting of Shareholders. Mr. Palmer's grant
is exercisable with respect to twenty percent (20%) of the shares
covered thereby starting on the first anniversary of the grant date, and
thereafter, with respect to twenty percent (20%) of the shares covered
thereby on each successive anniversary. All other options set forth in
the above table were granted under the Incentive Plan. The option grants
to Messrs. Mikos and McDonough are exercisable with respect to twenty
percent (20%) of the shares covered thereby starting on the first
anniversary of the grant date, and thereafter, with respect to twenty
percent (20%) of the shares covered thereby on each successive
anniversary. The option grants to Mr. Purdy and Dr. Elias are
exercisable with respect to thirty-three and one third percent (33 1/3%)
of the shares covered thereby starting on the first anniversary of the
grant date, and thereafter with respect to an additional thirty-three
and one third percent (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 Compensation Committee to amend outstanding options;
provided, however, prior approval of the Company's shareholders is
required to lower the exercise price of outstanding options.
(3) All of the options were granted for a term of ten (10) years from the
grant date, 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 table on the following page 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 27, 1998 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 27, 1998, and the
aggregate gains that would have been realized had these options
11
<PAGE> 14
been exercised on September 27, 1998, even though these options were not
exercised, and the unexercisable options could not have been exercised, on that
date.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Shares Year End(#) At Fiscal Year End($)(1)
Acquired on Value --------------------------- -----------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul W. Mikos -- -- 22,881 65,991 $175,130 $316,693
Robert E. McDonough, Sr. -- -- 22,881 65,991 $175,130 $316,693
Greg Palmer -- -- -- 125,000 -- $160,000
Alan M. Purdy 8,440 $ 90,772 7,774 42,658 $ 69,966 $223,745
Jeffrey A. Elias 14,214 $194,800 -- 42,658 -- $223,745
</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 25, 1998 (the last trading day of fiscal 1998). The closing
price of the Company's Common Stock on that day on The Nasdaq National
Market was $22.00. 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 has an employment agreement with Paul W. Mikos that expires
on May 1, 1999, pursuant to which the Company employs Mr. Mikos as its CEO and
President. As amended, the agreement provides for a base salary set annually by
the Compensation Committee; provided, however that Mr. Mikos's annual base
salary shall not be less than $390,000. Additionally, the agreement provides for
an annual performance bonus in an amount to be determined by the Compensation
Committee based upon satisfaction of certain performance goals set annually by
the Compensation Committee. The amount of Mr. Mikos's annual performance bonus
shall not exceed 100% of Mr. Mikos's base salary in any particular year.
Pursuant to the employment agreement, if the Company terminates Mr. Mikos's
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 (2) years, payable on
a semi-monthly basis.
The Company has an employment agreement with Robert E. McDonough, Sr.
that expires on December 4, 2001, pursuant to which the Company employs Mr.
Robert McDonough as Chairman of the Board. As amended, the agreement provides
for a base salary set annually by the Compensation Committee; provided, however
that Mr. McDonough's annual base salary shall not be less than $390,000.
Additionally, the agreement provides for an annual performance bonus in an
amount to be determined by the Compensation Committee based upon satisfaction of
certain performance goals set annually by the Compensation Committee. The amount
of Mr. McDonough's annual performance bonus shall be no less than $160,000 and
no more than 100% of Mr. McDonough's base salary in any particular year.
Additionally, pursuant to the terms of the 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 has an employment agreement with Greg Palmer that expires
January 5, 2003, pursuant to which the Company employs Mr. Palmer as its Chief
Operations Officer and Executive Vice President ("COO"). The 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 agreement, the Company granted
to Mr. Palmer on December 16, 1997 an option grant to purchase up to 125,000
shares of Common Stock at $20.72, the fair market value of the Common Stock on
the grant date. Such grant vests and becomes exercisable at a rate of twenty
percent (20%) per year over a five (5) year period with the first twenty percent
(20%) exercisable on December 16, 1998. The grant, once vested, will become
exercisable until December 16, 2007. Under the agreement, Mr. Palmer shall also
receive an annual grant from
12
<PAGE> 15
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 to the other officers of the
Company. Pursuant to the agreement, if the Company terminates Mr. Palmer's
employment as COO without cause (as defined in the 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
one hundred percent (100%) of Mr. Palmer's then annual salary and granted
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 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 (1) 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 entered into a consulting agreement with R. Emmett
McDonough, the Company's former co-Chief Executive Officer, 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, plus certain benefits.
The Company has agreements with Alan M. Purdy and Jeffrey A. Elias, each
providing for a severance payment of at least twelve (12) months' salary and
bonus if employment with the Company is terminated within twenty-four (24)
months of certain changes in ownership or management.
CERTAIN TRANSACTIONS
Prior to July 1997, the Company leased its national headquarters
corporate facility from its largest 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 (2) years.
Subsequently, in September 1998, the Company moved into its new corporate
headquarters under a lease agreement with Parker-Summit, LLC, a non-affiliated
third party.
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.
On June 9, 1998, Mr. Mikos paid to the Company all outstanding amounts owed
under such loan.
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 Meaghan Mikos, an employee of the Company from June
1992 to July 1995. Meaghan Mikos is the daughter of Paul and Susan Mikos and the
granddaughter of Robert E. McDonough, Sr. The entire amount of the scholarship
remains outstanding and will be forgiven if Ms. Mikos works for the Company for
at least three (3) years after receipt of an M.B.A. degree. Ms. Mikos obtained
her M.B.A. degree in 1997 and has been working for the Company since November
1997.
13
<PAGE> 16
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of three (3) non-employee,
non-officer, directors and is responsible for setting and administering the
policies governing annual compensation and performance goals of the executive
officers of the Company.
Compensation Policies and Philosophy
The Compensation Committee believes that the compensation for the
executive officers of the Company should be designed to attract, motivate and
retain talented executives responsible for the success of the Company. The
Compensation Committee determines the executive officers' compensation levels
after examining competitive market levels of similarly situated temporary
staffing companies and based upon the achievement of pre-established objectives,
individual contribution to the Company and the financial performance of the
Company. 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. Additionally, the
Company strives to link its executive officers' compensation with the financial
performance of the Company and align the financial interests of the executive
officers with those of the Company's shareholders by providing equity-based
long-term incentives in the form of stock option grants.
Compensation Components and Process
BASE SALARY. The base salary for each executive officer is determined at
levels considered appropriate for comparable positions at other similarly
situated temporary staffing companies.
PERFORMANCE BASED COMPENSATION. The Compensation Committee believes that
a substantial portion of the annual compensation of each executive officer
should be in the form of a cash bonus based on the satisfaction of certain
pre-established goals, including the financial performance of the Company. The
pre-established goals are a product of the Company's Management By Objective
Program ("MBO") in which the Compensation Committee establishes each executive
officer's pre-established goals after receiving suggestions from each executive
officer.
STOCK OPTIONS. The goal of the Company's stock option grants is to align
the interests of executive officers with the interests of the Company's
shareholders and to provide each executive officer with a significant incentive
to manage the Company from the perspective of an owner with an equity stake in
the business. The Compensation Committee determines the amount of stock options
according to the executive's position within the Company, recent performance,
potential for future responsibility and promotion, and comparable awards made to
individuals in similar positions within the staffing industry. 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 serve to align the interests of the Company's officers with
the interests of its shareholders. 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 Common
Stock. Such grants, if any, are generally determined by the Compensation
Committee at the end of a fiscal year with the input and recommendation of the
Company's CEO.
Executive Officer Compensation
In December 1998, the Compensation Committee granted bonuses to certain
executive officers based upon the executive's achievement of such individual and
Company pre-established performance goals, which include the Company's financial
performance, based on revenue, income before income taxes, and net income. 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,
14
<PAGE> 17
which concluded that the Company's executive base salaries were competitive with
other temporary staffing companies, and that executive bonuses were competitive
on a percentage basis to the levels identified by surveys for other temporary
staffing companies.
Regarding compensation to executive officers 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 the interests 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. In fiscal 1998, the
Compensation Committee awarded each executive officer stock options based upon
each officer's respective work performance, level of responsibility, initiative
and achievement of individual performance goals and Company goals. The options
typically vest in periodic installments over a three year period contingent upon
the executive officer's continued employment with the Company. Accordingly, the
option will provide a return only if the executive officer remains with the
Company and only if the market price of the Company's Common Stock appreciates
over the option term.
CEO Compensation
The Compensation Committee set the performance goals, salary, bonus
amount and stock option grant for fiscal 1998 of the Company's Chief Executive
Officer, Paul Mikos, with reference to market standards and satisfaction of
certain pre-established performance objectives. Mr. Mikos's annual base salary
of $410,000 for fiscal 1998 was an increase of $20,000 from his base salary of
$390,000 for fiscal 1997, reflecting competitive market standards, the
Compensation Committee's favorable evaluation of Mr. Mikos's individual
performance and his contributions to the strategic management of the
Company-owned and independently-managed offices. Mr. Mikos's incentive
compensation for fiscal 1998 consisted of a cash bonus of $410,000 (up from
$390,000 paid in fiscal 1997) and an option grant to purchase up to 25,000
shares of Common Stock (collectively the "Incentive Compensation") exercisable
in the future at the fair market value at the time of grant. The Compensation
Committee based the Incentive Compensation primarily on Mr. Mikos's satisfaction
of certain pre-established performance goals based on quantitative factors such
as the Company's actual financial performance, number of office openings and the
satisfaction of quarterly budgets. The Company's actual financial performance
for fiscal 1998, including its total revenues, income before income taxes, and
net income, was above the pre-established targeted levels. Additionally, the
Company satisfied its office openings goals and quarterly budget amounts.
Consequently, in recognition of Mr. Mikos's ability to satisfy and exceed the
pre-established target levels, the Compensation Committee set Mr. Mikos's
Incentive Compensation.
COMPENSATION COMMITTEE:
William D. Cvengros
James L. Doti (Chairman)
J. Michael Hagan
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During fiscal year 1998, Mr. Cvengros, Dr. Doti and Mr. Zaepfel served
as members of the Compensation Committee. Mr. Zaepfel resigned from the
Compensation Committee in November 1998, at such time the Board appointed Mr.
Hagan to the Compensation Committee. No current member of the Compensation
Committee is a current or former officer or employee of the Company. No
executive officer of the Company served on the board of directors or
compensation committee of any entity that includes one or more members of the
Company's Board.
15
<PAGE> 18
STOCK PERFORMANCE GRAPH
The stock performance graph set forth below 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 September 27, 1998 with the Nasdaq Stock Market Composite
Index, peer issuers in the temporary staffing industry and the Russell 2000
Index. The Company has selected to compare its shareholder return with that of
the Russell 2000 Index because the Company believes that the Russell 2000 Index
includes companies with comparable market capitalization. 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.
[GRAPH]
(a) Staffing Composite Index consists of the following temporary staffing
companies: Modis Professional Services (formerly Accustaff), Metamor
Worldwide (formerly COREstaff), Interim Services, Kelly Services,
Manpower, Norrell, Olsten, On Assignment, RemedyTemp, Inc., Robert Half
International and Western Staff.
<TABLE>
<CAPTION>
7/11/96 9/27/96 9/26/97 9/25/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
RemedyTemp, Inc. $100 $152 $172 $169
Nasdaq Composite Index $100 $111 $153 $158
Russell 2000 Index $100 $106 $138 $114
Temporary Staffing Industry Index $100 $107 $131 $101
</TABLE>
16
<PAGE> 19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, the
directors and officers of the Company and persons who own more than ten percent
(10%) 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
27, 1998. 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 27, 1998, all of these reports were timely filed, except for the
following inadvertent late filings: one late Form 4 report for Greg Palmer with
respect to the purchase of the Company's Common Stock by Mr. Palmer and his
spouse; one late Form 4 report for William D. Cvengros with respect to the
purchase of the Company's Common Stock by the Cvengros Living Trust; one late
Form 4 report for Robert A. Elliott with respect to the purchase of the
Company's Common Stock by the Elliott Charitable Trust; and one late Form 4
report for J. Michael Hagan with respect to the purchase of the Company's Common
Stock by Mr. Hagan.
SHAREHOLDER PROPOSALS
Shareholders who wish to include proposals for action at the Company's
2000 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 10, 1999. 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. Additionally,
the proxy solicited by the Board for the 2000 Annual Meeting of Shareholders
will confer discretionary authority to vote on any shareholder proposal
presented at that meeting unless the Company is provided with notice of such
proposal no later than November 24, 1999.
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 PUBLIC ACCOUNTANTS
By selection of the Board, the firm of PricewaterhouseCoopers LLP has
served as the Company's independent accountants since 1989. The Board has again
selected PricewaterhouseCoopers LLP to serve as the Company's independent
accountants for the fiscal year ending September 26, 1999. One or more
representatives of PricewaterhouseCoopers 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.
ANNUAL REPORT AND FORM 10-K
The Company's 1998 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. The Company will mail without charge, upon written request, a copy of
its Annual Report on Form 10-K, including the financial statements, schedules,
and list of exhibits. Requests should be sent to RemedyTemp, Inc., 101
Enterprise, Aliso Viejo, California 92656, Attention: Investor Relations.
Aliso Viejo, California
January 7, 1999
SHAREHOLDERS ARE URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS
APPRECIATED.
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<PAGE> 20
APPENDIX TO PROXY STATEMENT
1996 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED EFFECTIVE AS OF FEBRUARY 17, 1999 UPON
SHAREHOLDER APPROVAL OF 575,000 SHARE RESERVE INCREASE)
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 (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.
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<PAGE> 21
(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.
(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.
(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.
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<PAGE> 22
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 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 1,800,000 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
3
<PAGE> 23
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 the express provisions of the Plan and
applicable laws or regulations.
(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. Notwithstanding the above, upon obtaining prior approval by
the Company's shareholders, the Committee may adjust or reduce the purchase or
exercise price of Incentive Awards 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 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.
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<PAGE> 24
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.
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
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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. Upon
obtaining prior approval by the Company's shareholders, 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) pursuant to Section 2.07(b), 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.
(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 $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.
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(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 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;
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(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 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.
(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.
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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 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
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<PAGE> 29
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 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
without regard to any vesting
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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
(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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REVOCABLE PROXY
REMEDYTEMP, INC.
101 ENTERPRISE
ALISO VIEJO, CALIFORNIA 92656
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 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 17, 1999 and at any adjournments or
postponements thereof (the "1999 Annual Meeting"). The matters referred to on
this proxy are described in the Proxy Statement for the Annual Meeting of
Shareholders dated February 17, 1999.
CONTINUED ON REVERSE -- PLEASE SIGN, DATE AND RETURN
<PAGE> 32
[X] Please mark your votes as in this example
The Board of Directors recommends a vote FOR the following proposals:
1. Election of Directors
FOR all nominees listed NOMINEES:
below (except as indicated William D. Cvengros, James L. Doll,
to the contrary below) [ ] Robert A. Elliott, J. Michael Hagan,
Robert E. McDonough, Sr.,
WITHHOLD AUTHORITY to vote Paul W. Mikos, and John B. Zaepfel
for all nominees listed below [ ]
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name below:
-----------------------------------------
2. Approval of an amendment to the Company's 1006
Stock Incentive Plan (the "Plan") to authorize FOR AGAINST ABSTAIN
and reserve for issuance an additional 575,000 [ ] [ ] [ ]
shares of Common Stock under the Plan.
3. 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
1999 Annual Meeting or any adjournments or postponements thereof.
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 ACCORDING TO THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS ON
SUCH PROPOSAL.
The undersigned acknowledges receipt of the Notice of Annual Meeting and Proxy
Statement for the 1999 Annual Meeting.
Please sign, date and promptly return this proxy card using the enclosed reply
envelope. Whether or not you plan to attend the 1999 Annual Meeting, you are
urged to execute, date and return this proxy, which may be revoked at any time
prior to its use.
SIGNATURES(S) DATE 1999
---------------------------------------- -----------------
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.
