<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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
STERILE RECOVERIES, 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
STERILE RECOVERIES, INC.
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 19, 1998
Dear Shareholder:
The Annual Meeting of Shareholders of Sterile Recoveries, Inc. (the
"Company") will be held on Tuesday, May 19, 1998, at 10:00 a.m., local time, at
The Coastal Building, Fourth Floor, located at 28100 U.S. Highway 19 North,
Clearwater, Florida 33761, for the following purposes:
1. To elect two directors to serve until the 2001 Annual Meeting of
Shareholders and to hold office until their successors are duly
elected and qualified.
2. To approve the Company's 1998 Stock Option Plan.
3. To ratify the appointment of independent auditors.
4. To transact other business that properly comes before the
meeting or any adjournment of the meeting.
These items of business are more fully described in the Proxy Statement
accompanying this Notice.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy.
THE BOARD OF DIRECTORS
Clearwater, Florida
April 7, 1998
- --------------------------------------------------------------------------------
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
- --------------------------------------------------------------------------------
<PAGE> 3
STERILE RECOVERIES, INC.
------------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of Sterile Recoveries, Inc.
(the "Company"), a Florida corporation, for use at the Annual Meeting of
Shareholders to be held on Tuesday, May 19, 1998, at 10:00 a.m., local time, and
at any adjournment of the meeting for the purposes set forth in this Proxy
Statement and in the accompanying Notice of Annual Meeting of Shareholders. The
Annual Meeting will be held at The Coastal Building, Fourth Floor, located at
28100 U.S. Highway 19 North, Clearwater, Florida. The Company's principal
executive office is located at 28100 U.S. Highway 19 North, Suite 201,
Clearwater, Florida 33761 and its telephone number at that location is (813)
726-4421.
These proxy solicitation materials were mailed on or about April 7,
1998, together with the Company's 1998 Annual Report to Shareholders, to all
shareholders entitled to vote at the meeting.
RECORD DATE
Only shareholders of record at the close of business on March 31, 1998
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
As of the Record Date, 5,659,894 shares of the Company's Common Stock, $.001 par
value, were issued and outstanding. No shares of preferred stock were
outstanding. For information regarding security ownership by management and by
the beneficial owners of 5% or more of the Company's Common Stock, see "Other
Information - Share Ownership by Principal Shareholders and Management."
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Each shareholder is entitled to one vote for each share of Common Stock
on all matters presented at the Annual Meeting. Shareholders do not have the
right to cumulate their votes in the election of directors.
1
<PAGE> 4
The cost of soliciting proxies will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers, and regular employees, without
additional compensation, personally or by telephone, telegram, letter or
facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual
Meeting is a majority of the shares of Common Stock outstanding on the Record
Date. Shares that are voted "FOR," "AGAINST," or "WITHHELD" from a matter are
treated as being present at the meeting for purposes of establishing a quorum
and are also treated as votes eligible to be cast by the holders of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote on the subject matter with respect to such matter. Abstentions are counted
in determining whether a quorum is present, but are not counted in determining
the number of shares voted for or against any nominee for director or any
proposal. Broker non-votes are not counted for purposes of determining whether a
quorum is present or the number of shares for or against any nominee for
election as a director or any proposal.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be
presented by such shareholders at the Company's 1999 Annual Meeting of
Shareholders must be received by the Company no later than December 9, 1998, to
be considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
FISCAL YEAR END
The Company's fiscal year ends on the Sunday nearest December 31.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
The Company's Board of Directors has been divided into three classes of
two directors each, with the members of each class serving three-year terms
expiring at the third annual meeting of shareholders after their election. Two
directors are to be elected at the Annual Meeting, each to serve a term of three
years. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's two nominees named below, both of whom are
presently directors of the Company. In the event that any nominee of the Company
is unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. It is not expected that any nominee will
be unable or will decline to serve as a director. The term of office of each
person elected as a director will continue until a successor has been elected
and qualified.
2
<PAGE> 5
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED
BELOW:
<TABLE>
<CAPTION>
TERM
NAME AGE PRINCIPAL OCCUPATION EXPIRES
- ---- --- -------------------- -------
<S> <C> <C> <C>
Bertram T. Martin, Jr....... 48 President and Chief 2001
Operating Officer of
the Company
Wayne R. Peterson........... 47 Executive Vice President 2001
of the Company
</TABLE>
Bertram T. Martin, Jr. has been President of the Company since January
2, 1998, Chief Operating Officer of the Company since July 18, 1996, and a
director of the Company since May 2, 1996. Mr. Martin served as an Executive
Vice President of the Company from July 18, 1996 to November 21, 1997. Between
July 1995 and his joining the Company, Mr. Martin provided consulting services
to the Company (from October 1995) and other businesses through Corporate
Strategic Directions, Inc. From 1993 until 1995, he was President and Chief
Operating Officer of Pharmacy Management Services, Inc., a nationwide provider
of medical cost containment and managed care services and a Nasdaq-listed
company, until its acquisition by Beverly Enterprises, Inc. in June 1995. He
served as a director during the five years Pharmacy Management was a public
company.
Wayne R. Peterson has been the Company's Executive Vice President and a
director since the Company's inception. Mr. Peterson in 1991 co-founded the
Company's predecessor, AMSCO Sterile Recoveries, Inc. ("Amsco Sterile") and
served as a Vice President until the Company acquired Amsco Sterile in August
1994 (the "Acquisition"). Before joining Amsco Sterile, Mr. Peterson was
President of Agora Development, Inc., a real estate development company that
from 1987 to 1991 developed projects totaling 2,000,000 square feet in four
states (California, Nevada, Arizona, and Illinois) for a total combined value of
$278 million. Mr. Peterson is the brother-in-law of Richard T. Isel, the
Company's Chairman and Chief Executive Officer.
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING
The following directors will continue to serve after the Annual Meeting
for terms that expire in 1999 or 2000 as specified:
<TABLE>
<CAPTION>
TERM
NAME AGE PRINCIPAL OCCUPATION EXPIRES
- ---- --- -------------------- -------
<S> <C> <C> <C>
Richard T. Isel............. 54 Chairman and Chief Executive Officer 1999
James T. Boosales........... 54 Executive Vice President, Chief Financial 2000
Officer, and Secretary of the Company
Lee R. Kemberling........... 72 Owner and President of Kemco 2000
Systems, Inc.
James M. Emanuel............ 48 Consultant 1999
</TABLE>
3
<PAGE> 6
Richard T. Isel has been the Company's Chairman and Chief Executive
Officer since January 1998 and a director since the Company's inception in 1994.
Mr. Isel was the Company's President and Chief Executive Officer from the
Company's inception through December, 1997. Mr. Isel in 1991 co-founded Amsco
Sterile, and served as its President and a director until November, 1993. From
November, 1993 until August 1994, Mr. Isel engaged in private investment
activities and arranged the Acquisition. Before starting Amsco Sterile, Mr. Isel
was a founder and the chief executive officer of Sterile Design, Inc., a
manufacturer of sterile custom procedure trays.
James T. Boosales has been the Company's Executive Vice President and
principal financial officer and a director since the Company's inception in
1994. He served as President, International, of Fisher-Price, Inc., a $200
million division of this toy and juvenile products company, from 1990 through
1993. Before joining Fisher-Price, Inc., Mr. Boosales served in several senior
executive capacities with General Mills, Inc., including President,
International, for Kenner Parker Toys, Inc./Tonka Corp. from 1985 to 1989,
during and after its spinoff as a public company, and President of Foot-Joy,
Inc. from 1982 to 1985.
Lee R. Kemberling, an initial investor in the Company, has been a
director of the Company since its inception. Mr. Kemberling is the founder, and
since 1969 has been sole shareholder and President of, Kemco Systems, Inc., a
developer and manufacturer of commercial and industrial waste water heat
recovery systems, including systems used in the Company's operations.
James M. Emanuel has been a director of the Company since May 2, 1996.
Between January 1984, and June 1997, he served as the Chief Financial Officer of
Lincare Inc., a national provider of respiratory therapy services for patients
with pulmonary disorders. He also served as the Chief Financial Officer of
Lincare Holdings, Inc. between November 1990 and June 1997. Mr. Emanuel also
served as a director of Lincare Inc. and Lincare Holdings, Inc. from November
1990 to June 1997. Mr. Emanuel has engaged in private investment activities
since his retirement from Lincare Inc. in June 1997.
REQUIRED VOTE
The two nominees receiving the highest number of affirmative votes of
the shares present or represented and entitled to be voted for them shall be
elected as directors. Votes withheld from any director are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, but have no further legal effect under Florida law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five meetings and
took action by written consent seven times during the 1997 fiscal year. Each
director who served as such during the fiscal year ended December 31, 1997,
attended at least 75% of the meetings of the Board and the committees of the
Board on which he served during that year. The Board of Directors has a
Compensation Committee and an Audit Committee.
The Compensation Committee, which currently consists of Messrs.
Kemberling and Emanuel, reviews specific compensation plans, salaries, bonuses,
and other benefits payable to the Company's executive officers and makes
recommendations to the Board of Directors with respect to those matters. During
1997, the Compensation Committee did not hold a meeting.
4
<PAGE> 7
The Audit Committee, which currently consists of Messrs. Emanuel and
Kemberling, reviews and evaluates the results and scope of the audit and other
services provided by the Company's independent auditors. During 1997, the Audit
Committee held one meeting.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $1,000 per Board
or committee meeting attended. In addition, for each year of any term to which
he is elected, each outside director receives options to purchase 4,000 shares
of Common Stock under the 1996 Non-Employee Director Stock Option Plan. All
options become exercisable ratably over the director's term and have an exercise
price equal to the fair market value of the Company's Common Stock on the date
of grant. Upon becoming a director of the Company, James M. Emanuel was granted
options to purchase 7,500 shares of Common Stock at an exercise price equal to
$8.00 per share, which vested one-third on the closing of the Company's public
offering and one-third at the 1997 Annual Meeting, and will vest one-third at
the 1998 Annual Meeting of Shareholders.
PROPOSAL NO. 2
APPROVAL OF 1998 STOCK OPTION PLAN
PROPOSAL
In February 1998, the Board of Directors adopted a 1998 Stock Option
Plan (the "1998 Plan"). The 1998 Plan provides for the granting to employees of
the Company of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") and for the granting of
nonqualified stock options of the Company. At the Annual Meeting, the
shareholders are being requested to approve the 1998 Plan.
The Company believes that grants of stock options motivate high levels
of performance and provide an effective means of recognizing employee
contributions to the success of the Company. Moreover, option grants align the
interests of the employees with the interests of the shareholders. When the
Company performs well, employees are rewarded along with other shareholders. The
Company believes that option grants are of great value in recruiting and
retaining key personnel. The Board of Directors believes that the ability to
grant options will be important to the future success of the Company by allowing
it to remain competitive in attracting and retaining such key personnel.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Affirmative votes constituting a majority of the shares present or
represented by proxy at the Annual Meeting will be required in order to approve
the 1998 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
SUMMARY OF 1998 STOCK OPTION PLAN
Certain features of the 1998 Plan are outlined below. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF THE 1998 PLAN THAT WAS FILED
ELECTRONICALLY WITH THIS PROXY STATEMENT
5
<PAGE> 8
WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS TEXT IS NOT INCLUDED AS AN
EXHIBIT IN THE PRINTED VERSION OF THIS PROXY STATEMENT.
Purpose. The purposes of the 1998 Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to employees of the Company, and to promote the success of
the Company's business.
Administration. The 1998 Plan is currently administered by the Board (in
this capacity, the "Administrator"). Subject to the other provisions of the 1998
Plan, the Administrator has the power to determine the terms of any options
granted, including the exercise price, the number of shares subject to the
option, and the exercisability of the option. Only one Board member is expected
to participate in the 1998 Plan.
Eligibility. The 1998 Plan provides that stock options may be granted
only to employees. An optionee who has been granted an option may, if he or she
is otherwise eligible, be granted additional options. The term of options
granted under the 1998 Plan may not exceed ten years. The Administrator selects
the optionees and determines the number of shares to be subject to each option.
In making this determination, there is taken into account the duties and
responsibilities of the employee, the value of his or her services, his or her
potential contribution to the success of the Company, the anticipated number of
years of future service, and other relevant factors.
Terms and Conditions of Options. Each option granted under the 1998 Plan
is evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following terms and conditions:
(a) Exercise Price. The Administrator determines the exercise
price of options to purchase shares of Common Stock at the time the
options are granted. However, the exercise price of an incentive stock
option must not be less than 100% of the fair market value of the Common
Stock on the date when the option is granted. For so long as the
Company's Common Stock is traded on the Nasdaq National Market, the fair
market value of a share of Common Stock is the mean average of the high
and low prices of the shares as quoted in the Wall Street Journal on the
date of grant.
(b) Exercise of the Option. Each stock option agreement
specifies the term of the option and the date when the option is to
become exercisable. The terms of such vesting are determined by the
Administrator. An option is exercised by giving written notice of
exercise to the Company, specifying the number of full shares of Common
Stock to be purchased and by tendering full payment of the purchase
price to the Company.
(c) Termination of Employment. In the event that an optionee's
continuous status as an employee terminates for any reason (other than
upon the optionee's death or disability), unless otherwise provided in
the option agreement, the optionee may exercise his or her option for 90
days from the date of such termination, but only to the extent that the
optionee was entitled to exercise it at the date of such termination
(but in no event may the option be exercised later than the expiration
of the term of such option as set forth in the option agreement).
(d) Disability. In the event an optionee's continuous status as
an employee terminates as a result of permanent and total disability (as
defined in Section 22(e)(3) of the
6
<PAGE> 9
Code), the optionee may exercise his or her option, but only within one
year from the date of such termination, and only to the extent that the
optionee was entitled to exercise it at the date of such termination
(but in no event may the option be exercised later than the expiration
of the term of such option as set forth in the stock option agreement).
(e) Death. In the event of an optionee's death, the optionee's
estate or a person who acquired the right to exercise the deceased
optionee's option by bequest or inheritance may exercise the option, but
only within one year following the date of death, and only to the extent
that the optionee was entitled to exercise it at the date of death (but
in no event may the option be exercised later than the expiration of the
term of such option as set forth in the stock option agreement).
(f) Termination of Options. Options granted under the 1998 Plan
expire ten years from the date of grant. No option may be exercised by
any person after the expiration of its term.
(g) Nontransferability of Options. Unless the stock option
agreement provides otherwise, an option is not transferable by the
optionee, other than by will or the laws of descent and distribution,
and is exercisable during the optionee's lifetime only by the optionee.
In the event of the optionee's death, options may be exercised by a
person who acquires the right to exercise the option by bequest or
inheritance.
(h) Other Provisions. The stock option agreement may contain
such other terms, provisions and conditions not inconsistent with the
1998 Plan as may be determined by the Administrator. Shares covered by
options which have terminated and which are not exercised prior to
termination will be returned to the 1998 Plan.
Adjustment Upon Changes in Capitalization; Corporate Transactions.
In the event of changes in the outstanding Common Stock of the Company by reason
of any stock splits, reverse stock splits, stock dividends, mergers,
recapitalizations or other change in the capital structure of the Company, an
appropriate adjustment shall be made by the Board of Directors in: (i) the
number and class of shares of stock subject to any option outstanding under the
1998 Plan and (ii) the exercise price of any such outstanding option.
The 1998 Plan provides for full vesting of the stock options on certain
"Change in Control" transactions, which include a liquidation or acquisition of
the Company. Also, if a Change of Control occurs, at the election of the Board
of Directors, the Company may terminate the 1998 Plan, in which case the holder
of each outstanding stock option will be entitled to receive the spread between
the exercise price of the stock option and the market value of the Common Stock
issuable on exercise of the stock option on the date of termination.
Amendment and Termination of the 1998 Plan. The Board may at any time
amend, alter, suspend or terminate the 1998 Plan. The Company must obtain
shareholder approval of any amendment to the 1998 Plan that (i) materially
increases the benefits under the Plan, (ii) materially modifies the eligibility
requirements for participation in the Plan, (iii) reduces the minimum exercise
price per share of granted stock options, (iv) increases the number of shares
issuable on exercise of stock options, or (v) amends the foregoing requirements
for amendment of the 1998 Plan. Any amendment or termination of the 1998 Plan
shall not affect options already granted and such options shall remain in full
force and effect as if the 1998 Plan had not been amended or terminated, unless
7
<PAGE> 10
mutually agreed otherwise between the optionee and the Company, which agreement
must be in writing and signed by the optionee and the Company. In any event, the
1998 Plan shall terminate in February 2008. Any options outstanding under the
1998 Plan at the time of its termination shall remain outstanding until they
expire by their terms.
FEDERAL TAX INFORMATION
Pursuant to the 1998 Plan, the Company may grant either "incentive stock
options," as defined in Section 422 of the Code, or nonqualified options.
An optionee who is granted an incentive stock option will not recognize
regular taxable income either at the time the option is granted or upon its
exercise, although the exercise may subject the optionee to the alternative
minimum tax. Upon the sale or other disposition of the shares more than two
years after grant of the option and one year after the exercise of the option,
any gain or loss will be treated as long-term capital gain or loss. If these
holding periods are not satisfied, the optionee will recognize ordinary income
at the time of sale or disposition equal to the difference between the exercise
price and the lower of (i) the fair market value of the shares at the date of
the option exercise or (ii) the sale price of the shares. A different rule for
measuring ordinary income upon such a premature disposition may apply if the
optionee is also an officer, director, or 10% shareholder of the Company
(collectively "Corporate Insiders"). The Company will be entitled to a deduction
in the same amount as the ordinary income recognized by the optionee. Any gain
or loss recognized on such a premature disposition of the shares in excess of
the amount treated as ordinary income will be characterized as long-term or
short-term capital gain or loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonqualified options. An optionee will not recognize any taxable
income at the time he or she is granted a nonqualified option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee will be subject to tax withholding by the Company. Upon resale of such
shares by the optionee, any difference between the sales price and the
optionee's purchase price, to the extent not recognized as taxable income as
described above, will be treated as long-term or short-term capital gain or
loss, depending on the holding period. The Company will be entitled to a tax
deduction in the same amount as the ordinary income recognized by the optionee
with respect to shares acquired upon exercise of a nonqualified option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the 1998 Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Grant Thornton, LLP to audit the
financial statements of the Company for the fiscal year ending December 31,
1998. Grant Thornton, LLP has audited the Company's financial statements since
its inception in 1994. A representative of Grant Thornton,
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<PAGE> 11
LLP is expected to be present at the meeting, will have the opportunity to make
a statement, and is expected to be available to respond to appropriate
questions.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the shares represented, in person or by proxy, and voting at the Annual Meeting,
which shares voting affirmatively also constitute at least a majority of the
required quorum. In the event that the shareholders do not approve the selection
of Grant Thornton, LLP, the appointment of the independent auditors will be
reconsidered by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
OTHER INFORMATION
SHARE OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of February 26, 1998, with respect to:
(i) each of the Company's directors and the executive officers named in the
Summary Compensation Table below, (ii) all directors and officers of the Company
at fiscal year end as a group; and (iii) each person known by the Company to own
beneficially more than 5% of the Common Stock. Each of the shareholders listed
below has sole voting and investment power over the shares beneficially owned.
The number and percentage of shares beneficially owned is determined under rules
of the Securities and Exchange Commission ("SEC"), and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares for which the individual
has sole or shared voting power or investment power and also any shares as to
which the individual has the right to acquire within 60 days of February 26,
1998, through the exercise of any stock option or other right. A total of
5,659,894 shares of the Company's Common Stock were issued and outstanding as of
February 26, 1998.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIAL OWNER (1) BENEFICIALLY OWNED BENEFICIALLY OWNED
- -------------------- ------------------ ------------------
<S> <C> <C>
Richard T. Isel(2) ............................... 920,829 16.3%
Wayne R. Peterson(3).............................. 897,200 15.9
James T. Boosales(4).............................. 833,100 14.7
Bertram T. Martin, Jr.(5)......................... 178,126 3.1
Lee R. Kemberling(6).............................. 344,012 6.1
James M. Emanuel(7)............................... 25,500 *
The Kaufmann Fund, Inc............................ 688,700 12.2
All directors and officers
as a group (6 persons)(8)....................... 3,198,767 55.5%
</TABLE>
- -----------------------
* Indicates less than 1%.
9
<PAGE> 12
(1) The business address for Richard T. Isel, Wayne R. Peterson, James T.
Boosales, and Bertram T. Martin, Jr. is 28100 U.S. Highway 19 North,
Suite 201, Clearwater, Florida 33761. The business address for Lee R.
Kemberling is 11500 47th Street North, Clearwater, Florida 34622. The
business address for James M. Emanuel is 120 14th Street, Belleair
Beach, Florida 33786. The business address for The Kaufmann Fund, Inc.
is 140 E. 45th Street, 43rd Floor, New York, New York 10017.
(2) Includes 720,829 shares of Common Stock owned by Isel Family Limited
Partnership, a Colorado limited partnership of which Isel Holdings,
Inc., a Colorado corporation, is the general partner. Mr. Isel and his
wife, Marcy, jointly own all of the issued and outstanding voting stock
of Isel Holdings, Inc.
(3) Includes 75,000 shares of Common Stock owned by the Wayne R. Peterson
Grantor Retained Annuity Trust, as to which Mr. Peterson has sole voting
and dispositive power as trustee, and 75,000 shares of Common Stock
owned by the Theresa A. Peterson Grantor Retained Annuity Trust, as to
which Mrs. Peterson, Mr. Peterson's wife, has sole voting and
dispositive power as trustee. Also includes 747,200 shares of Common
Stock owned by the Peterson Partners, Ltd., a Colorado limited
partnership of which Peterson Holdings, Inc. a Colorado corporation, is
the general partner. Mr. and Mrs. Peterson jointly own all of the issued
and outstanding voting stock of Peterson Holdings, Inc.
(4) Includes 800,000 shares of Common Stock owned by the Boosales Family
Limited Partnership, a Colorado limited partnership of which Boosales
Holdings, Inc., a Colorado corporation, is the general partner. Mr.
Boosales and his wife, Bonny, jointly own all of the issued and
outstanding voting stock of Boosales Holdings, Inc.
(5) Includes 80,000 shares of Common Stock issuable on the exercise of
outstanding stock options that are currently exercisable or that will
become exercisable within 60 days. Excludes 146,000 shares of Common
Stock issuable on the exercise of stock options that are not exercisable
within 60 days.
(6) Includes 8,000 shares of Common Stock issuable on exercise of stock
options that are currently exercisable or will become exercisable at the
1998 Annual Meeting. Excludes 8,000 shares of Common Stock issuable on
exercise of stock options that are not exercisable within 60 days.
(7) Includes 15,500 shares of Common Stock issuable pursuant to the exercise
of outstanding stock options that are currently exercisable or that will
become exercisable at the 1998 Annual Meeting. Excludes 4,000 shares of
Common Stock issuable on exercise of stock options that are not
exercisable within 60 days.
(8) Includes 80,000 shares of Common Stock issuable upon the exercise of
outstanding stock options held by Bertram T. Martin, Jr., 15,500 shares
of Common Stock issuable upon the exercise of outstanding stock options
held by James M. Emanuel, and 8,000 shares of Common Stock issuable on
exercise of stock options held by Lee R. Kemberling.
10
<PAGE> 13
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's officers and directors and persons who own ten percent or more of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC
and the National Association of Securities Dealers, Inc. Such officers,
directors and ten percent or more shareholders are also required by SEC rules to
furnish the Company with copies of all such forms that they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons that no Forms
5 were required for such persons, the Company believes that, during the period
from January 1, 1997 until December 31, 1997, all Section 16(a) filing
requirements applicable to its officers, directors, and ten-percent or more
shareholders were complied with; except that one report covering one option
award was filed late by Mr. Martin.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is composed of Messrs. Kemberling
and Emanuel. No member of the Compensation Committee is or was formerly an
officer or an employee of the Company. No interlocking relationship exists
between the Company's Board of Directors or Compensation Committee and the board
of directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
In March 1996, the Company borrowed $1,000,000 from Lee R. Kemberling, a
director of the Company, for working capital pursuant to a secured Convertible
Demand Promissory Note (the "Convertible Note"), $750,000 of which was
convertible into Common Stock of the Company at $5.85 per share. The Convertible
Note bore interest at an annual rate of 8.5%, and the entire principal amount of
the Convertible Note was payable on demand on or after March 1, 1997. On
February 24, 1997, Mr. Kemberling converted $750,000 of the principal amount of
the Convertible Note into 128,205 shares of the Company's Common Stock at $5.85
per share in accordance with its terms, and the Company repaid the remaining
$250,000 principal balance of the Convertible Note. The Convertible Note was
secured by a first lien on the Company's Houston facility and the equipment
located there, which was released in connection with the conversion and
repayment transaction.
Mr. Kemberling is also the director, President, and sole shareholder of
Kemco, Inc., a developer and manufacturer of commercial and industrial waste
water and heat recovery systems that originally furnished the Company's
predecessor with the water and heat reclamation equipment installed at each of
its facilities. The Company paid $76,000 to Kemco in 1997 to design and supply
new components for water reclamation systems. The Company believes that the
terms of its transactions with Kemco approximate those that would be available
from an independent third party.
11
<PAGE> 14
EXECUTIVE OFFICER COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation paid to or earned by the Company's Chairman and Chief Executive
Officer and each of the Company's other executive officers (the "Named
Officers") for the years ended December 31, 1995, 1996, and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------- COMPENSATION
OTHER ANNUAL ------------
NAME AND PRINCIPAL POSITIONS YEAR SALARY COMPENSATION OPTIONS GRANTED
- ---------------------------- ---- ------ ------------ ---------------
<S> <C> <C> <C> <C>
Richard T. Isel, Chairman and Chief Executive .............. 1997 $220,000 8,482 ---
Officer 1996 220,000 6,413 ---
1995 220,000 3,741 ---
Bertram T. Martin, Jr., President and Chief ................ 1997 200,000 --- 90,000
Operating Officer* 1996 80,000 --- 70,000
Wayne R. Peterson, Executive Vice President................. 1997 200,000 --- ---
1996 200,000 --- ---
1995 200,000 --- ---
James T. Boosales, Executive Vice President................. 1997 200,000 --- ---
and Chief Financial Officer 1996 200,000 --- ---
1995 200,000 --- ---
</TABLE>
- --------------------------
* Mr. Martin became President of the Company in January 1998. He was previously
an Executive Vice President. Mr. Martin retained his title of Chief Operating
Officer of the Company.
None of the foregoing officers received any bonus compensation in 1997.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with all of the Named Officers
that provide for annual salary as follows:
<TABLE>
<CAPTION>
NAME SALARY
---- ------
<S> <C>
Richard T. Isel.......................................................$220,000
Bertram T. Martin, Jr.................................................$200,000
Wayne R. Peterson.....................................................$200,000
James T. Boosales.....................................................$200,000
</TABLE>
12
<PAGE> 15
The agreements can be terminated by either party without cause at any time,
subject to certain notice requirements. Each officer is prohibited from
competing with the Company during the three year period following termination of
the officer's employment. The Company also has severance agreements with each of
its executive officers that provide for a severance compensation benefit equal
to two times the executive officer's annual cash compensation (payable in a lump
sum) for an involuntary or constructive termination of employment following a
"change of control."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE VALUE (1)
---- ------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Bertram T. Martin, Jr............ 40,000 16.6% $17.31 May 2, 2007 $326,118
50,000 20.8% $15.06 Nov 21, 2007 $360,555
------ ---- --------
Total: 90,000 37.4% $686,773
</TABLE>
(1) In accordance with SEC rules, the binomial option pricing method was
chosen to estimate the Grant Date Value of the options set forth in this
table. The Company's use of this model should not be construed as an
endorsement of its accuracy at valuing options. All stock option
valuation models, including the binomial model, require a prediction
about the future movement of the stock price. The following assumptions
were made for purposes of collecting the original Grant Date Value: an
option term of five years, volatility at 47.49%, no dividend yield, and
interest rate at 6.50%. The real value of the options in this table
depends on the actual performance of the Common Stock during the
applicable period.
FISCAL YEAR END OPTION VALUES
The following table sets forth the aggregate value of unexercised
options at December 31, 1997, for each Named Officer. There were no options
exercised during the year ended December 31, 1997, by any Named Officer.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
-------------------------- ---------------------
NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Richard T. Isel......................... -- -- -- --
Bertram T. Martin, Jr.(2)............... 146,000 80,000 $536,675 --
Wayne R. Peterson....................... -- -- -- --
James T. Boosales....................... -- -- -- --
</TABLE>
(1) Amounts represent the $3,870,250 market value of the underlying
securities relating to "in-the-money" options at December 31, 1997,
minus the exercise price of such options.
(2) Mr. Martin's exercisable options include options to purchase 66,000
shares of the Company's Common Stock at $4.43 per share that he received
in October 1995 as a
13
<PAGE> 16
consultant to the Company, before he joined the Company as an officer.
These options were not awarded to Mr. Martin as compensation for his
service as a Named Officer.
CERTAIN TRANSACTIONS
The Company engaged in transactions in 1997 with Kemco, Inc., a company
owned by Lee R. Kemberling, a director of the company. See "Other Information -
Compensation Committee Interlocks and Insider Participation."
All future transactions between the Company and its officers, directors,
principal shareholders and their affiliates will continue to be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will continue to
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee")
has furnished the following report on the Company's executive compensation
program. The Committee, which consists of the two outside directors listed at
the end of this report, reviews and establishes specific compensation plans,
salaries, option grants, and other benefits payable to the Company's executive
officers. Following review and approval by the Committee, all issues pertaining
to executive compensation are submitted to the entire Board of Directors for its
review and approval.
The Committee's primary objective with respect to executive compensation
is to establish programs that attract and retain executive officers and align
their compensation with the Company's overall business strategies, values, and
performance. For executive officers and key managers other than Messrs. Isel,
Peterson, and Boosales, the Company's founders and largest shareholders, the
Company grants stock options as a component of total consideration to closely
align their interests with the shareholders' long-term interests. Further, in
evaluating annual compensation of executive officers (other than Messrs. Isel,
Peterson, and Boosales) and key managers, the Committee places a relatively
heavy emphasis on stock options as a percentage of total compensation,
consistent with its philosophy that stock incentives more closely align the
interests of company managers with the long-term interests of shareholders.
The two components of the Company's total compensation program for
executive officers have been:
1. Salary: Base salary is intended to be competitive with that paid to
comparable executives and is also intended to reflect consideration of an
officer's experience, business judgment, and role in developing and implementing
overall business strategy for the Company. Base salaries are based on
qualitative and subjective factors, and no specific formula is applied to
determine the weight of each factor.
The Company's executive officers have not historically participated in
its incentive compensation program, and did not in 1997 receive any bonus in
addition to base salary. The
14
<PAGE> 17
Committee believes that the absence of incentive bonus has been more than offset
by the substantial incentives associated with the executive officers' stock
ownership.
2. Long-Term Stock Incentives: The Company's 1995 Stock Option Plan and
1998 Stock Option Plan provide for the grant to employees of incentive or
nonqualified stock options. Grants to executives are designed to align a
significant portion of the executive compensation package with the long-term
interests of the Company's shareholders by providing an incentive that focuses
attention on managing the Company from the perspective of an owner with an
equity stake in the business.
Grants of stock options generally are limited to officers (other than
Messrs. Isel, Peterson, and Boosales) and other key employees and managers of
the Company who are in a position to contribute substantially to the growth and
success of the Company. Incentive stock options and nonqualified stock options
are granted for terms up to ten years, and are designed to reward exceptional
performance with a long-term benefit, facilitate stock ownership, and deter
recruitment of key Company personnel by competitors and others. Vesting
requirements encourage loyalty to the Company.
The Company did not grant stock options in 1997 to Messrs. Isel,
Peterson, and Boosales because as the Company's founders and largest
shareholders, their interests are already closely aligned with those of the
Company's other shareholders. The remaining executive officer, Mr. Martin, was
granted options to acquire 90,000 shares of the Company's Common Stock in 1997,
which vest ratably over five years. He beneficially owned or had rights to
acquire 324,126 shares on the Record Date. The Named Officers appearing in the
Summary Compensation Table held a total of 2,975,255 shares representing 50.5%
of the Company's outstanding Common Stock on February 26, 1998, assuming
exercise of all of Mr. Martin's vested and unvested stock options.
In conclusion, the Company's executive officers' stock ownership and
stock option awards closely align their interests with the Company's
shareholders' long-term interests, consistent with the compensation philosophies
set forth above. This close alignment has existed since the Company's inception
and has contributed significantly to the Company's growth and profitability.
By the Compensation Committee
Lee R. Kemberling
James M. Emanuel
15
<PAGE> 18
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
return for the Company, the Nasdaq Stock Market (U.S.) Index, and the Nasdaq
Health Index for the period since the Company's Common Stock began trading on
July 18, 1996. This graph assumes that $100 was invested on July 18, 1996, in
the Company's Common Stock and in the other indices. Note that historic stock
price performance is not necessarily indicative of future stock price
performance.
[GRAPH]
<TABLE>
<CAPTION>
7/18/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sterile Recoveries, $100.00 $152.63 $155.92 $184.21 $186.64 $151.32 $180.26
Inc.
Nasdaq Stock Market $100.00 $110.76 $116.21 $109.91 $130.06 $152.06 $140.60
(U.S. Index)
Nasdaq Health Index $100.00 $110.15 $ 97.58 $ 91.12 $101.70 $110.65 $ 99.45
</TABLE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Company may recommend.
It is important that your shares be represented at the meeting,
regardless of the number of shares which you hold. You are, therefore, urged to
execute and return at your earliest convenience, the accompanying proxy card in
the envelope which has been enclosed.
THE BOARD OF DIRECTORS
Clearwater, Florida
April 7, 1998
16
<PAGE> 19
EXHIBIT "A"
STERILE RECOVERIES, INC.
1998 STOCK OPTION PLAN
Sterile Recoveries, Inc. establishes the following 1998 Stock Option Plan
for the exclusive benefit of its eligible employees:
ARTICLE I
PURPOSE AND INTERPRETATION
1.1 PURPOSE. The purpose of this Plan is to further the interests of
the Company, its Subsidiaries (if any), and its shareholders by providing
incentives in the form of Stock Options to key employees who contribute
materially to the success and profitability of the Company. The Plan will enable
the Company to attract and retain key employees, to reward outstanding
individual contributions, and to give selected key employees an interest in the
Company parallel to that of its shareholders, thus enhancing their proprietary
interest in the Company's continued success and progress.
1.2 DEFINITIONS. As used in this Plan, the following capitalized terms
have the respective definitions attributed to them:
"ADMINISTRATIVE COMMITTEE" means the Board of Directors or any
Board Committee to whom the Board of Directors has delegated the
administration of this Plan pursuant to section 2.1.
"AFFILIATE" means a Subsidiary, a parent corporation of the
Company, or a corporation of which 50% or more of the total combined
voting power of all classes of its stock is owned directly or indirectly
by a parent corporation of the Company.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means any of the following: (a) the
shareholders of the Company approve a liquidation of all or substantially
all the consolidated assets of the Company and its Subsidiaries, other
than a liquidation of a Subsidiary into the Company or another Subsidiary
(unless the transaction is subsequently abandoned or otherwise fails to
occur); (b) the shareholders of the Company approve a sale, lease,
exchange, or other transfer to any person other than the Company or a
Subsidiary (in a single transaction or related series of transactions) of
all or substantially all of consolidated assets of the Company and its
Subsidiaries, excluding the creation (but not the
<PAGE> 20
foreclosure) of a lien, mortgage, or security interest (unless the
transaction is subsequently abandoned or otherwise fails to occur); (c)
the shareholders of the Company approve a merger, consolidation,
reorganization, tender offer, exchange offer, or share exchange in which
the Company will not be the surviving corporation or will become a
majority-owned subsidiary of a person other than a Subsidiary (unless the
transaction is subsequently abandoned or otherwise fails to occur); or
(d) the occurrence of any event, transaction, or arrangement that results
in any person or group becoming a beneficial owner of (i) a majority of
the outstanding Common Stock of the Company or any Subsidiary that
contributed more than 50% of the Company's consolidated revenues for its
last fiscal year, (ii) securities of the Company representing a majority
of the combined voting power of all the outstanding securities of the
Company that are entitled to vote generally in the election of its
directors, or (iii) with respect to any Subsidiary that contributed more
than 50% of the Company's consolidated revenues for its last fiscal year,
securities of that Subsidiary representing a majority of the combined
voting power of all the outstanding securities of that Subsidiary that
are entitled to vote generally in the election of its directors, unless
in each case enumerated in this clause (d) the beneficial owner is the
Company, a Subsidiary, an employee benefit plan sponsored by the Company,
a person or group who is a record or beneficial owner of 25% or more of
the outstanding Shares on the Date of Grant, or a person who becomes a
beneficial owner of 25% or more of the outstanding Shares solely by
becoming a trustee of an inter vivos trust created by a person who is the
record or beneficial owner of 25% or more of the outstanding Shares on
the Date of Grant.
"COMMON STOCK" means the common stock, $.001 par value, of the
Company.
"COMPANY" means Sterile Recoveries, Inc., a Florida corporation
and the sponsor of this Plan.
"DATE OF GRANT" means, with respect to a Stock Option, the date as
of when it is granted to a Participant.
"EMPLOYEE" means a person who is employed by the Company or a
Subsidiary on a full-time, salaried basis for at least 30 hours each
week.
"EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended, and includes all rules and regulations of the
Securities and Exchange Commission promulgated under that act.
-2-
<PAGE> 21
"INCENTIVE OPTION" means a Stock Option granted under this Plan
that is intended to qualify as an "incentive stock option," as defined in
section 422 of the Internal Revenue Code, as in effect on the Date of
Grant of the Stock Option.
"INTERNAL REVENUE CODE" means the United States Internal Revenue
Code of 1986, as amended from time to time, or any United States income
tax law subsequently enacted in substitution for that code.
"MARKET VALUE" means, as of any particular date, the mean average
of the high and low prices of the Shares as quoted in the Wall Street
Journal on that date
"NONQUALIFIED OPTION" means a Stock Option granted under this Plan
that is not designated as an Incentive Option.
"OPTION AGREEMENT" means an agreement between the Company and a
Participant that sets forth the terms, conditions, limitations, and
restrictions applicable to the Participant's Stock Option.
"OPTION YEAR" means, with respect to a Stock Option granted under
this Plan, a period of 12 consecutive months beginning on its Date of
Grant or an anniversary of its Date of Grant.
"PARTICIPANT" means an Employee who is selected by the
Administrative Committee to receive a Stock Option pursuant to this Plan,
in the person's capacity as a participant under the Plan.
"PLAN" means this 1998 Stock Option Plan of Sterile Recoveries,
Inc., as originally adopted and as subsequently amended, modified, or
supplemented in accordance with its terms.
"SECURITIES ACT" means the United States Securities Act of 1933,
as amended, and includes all rules and regulations of the Securities and
Exchange Commission promulgated under that Act.
"SHARES" means shares of the Common Stock or any securities issued
in exchange or substitution for those shares pursuant to a transaction
described in section 5.1.
"STOCK OPTION" means an option to purchase Shares from the Company
that is granted to a Participant pursuant to this Plan, whether as an
Incentive Option or a Nonqualified Option.
-3-
<PAGE> 22
"SUBSIDIARY" means a corporation of which 80% of its voting
securities are owned directly or indirectly by the Company and includes
any corporation that qualifies as a "subsidiary corporation" as defined
in section 424(f) of the Internal Revenue Code.
1.3 OTHER WORDS. As used in this Plan, (a) the word "or" is not
exclusive, (b) the words "consent" and "approval" are synonymous, (c) the word
"including" is always without limitation, (d) words in the singular number
include words in the plural number and vice versa, and (e) the following
uncapitalized words and terms have the respective meanings ascribed to them:
"AFFILIATE" has the meaning attributed to it in Rule 12b-2 under
the Exchange Act.
"BENEFICIAL OWNER" has the meaning attributed to it under Rule
13d-3 under the Exchange Act, and the terms "BENEFICIALLY OWNED" and
"BENEFICIAL OWNERSHIP" have the same meaning as "BENEFICIAL OWNER."
"BUSINESS DAY" has the meaning attributed to it in Rule
14d-1(c)(6) under the Exchange Act.
"DISABILITY" means a total and permanent disability as defined in
section 22(e)(3) of the Internal Revenue Code.
"GROUP" has the meaning attributed to that term in Rule
13d-5(b)(1) under the Exchange Act and includes two or more persons who
agree to act in concert for the purpose of voting, acquiring, or holding
any securities of the Company or any Subsidiary.
"PARENT CORPORATION" has the meaning attributed to that term in
section 424(e) of the Internal Revenue Code.
1.4 HEADINGS AND REFERENCES. The titles and headings preceding the
text of the articles and sections of this Plan are solely for convenient
reference and neither constitute a part of this Plan nor affect its meaning,
interpretation, or effect. Unless otherwise expressly stated, a reference in
this Plan to a section refers to a section of this Plan.
1.5 LIMITATION OF RIGHTS. Nothing in this Plan, whether express or
implied, is intended or should be construed to confer upon, or to grant to, any
person (other than the Participants and their respective heirs, guardians, and
personal representatives) any claim, right, remedy, or privilege under or
because of this Plan or any provision of it, except that every member of the
Administrative Committee is a third-party beneficiary of the provisions of
sections 2.2 and 2.4. An employee of the Company or any Subsidiary does
-4-
<PAGE> 23
not have any claim or right to participate in this Plan, and the grant of a
Stock Option to a Participant does not create or extend any right of the
Participant to continue to serve as an employee of the Company or any
Subsidiary, to participate in any other stock option or employee benefit plan of
the Company or any Subsidiary, or to receive the same employee benefits as any
other employee of the Company or any Subsidiary. Furthermore, an employee's
selection as a Participant does not restrict in any way the right of the Company
or a Subsidiary to terminate at any time the Participant's employment with it
either at will or as provided in any written employment agreement between it and
the Participant.
1.6 GOVERNING LAW. The validity, construction, enforcement, and
interpretation of this Plan are governed by the laws of the United States of
America and the State of Florida, excluding the laws of those jurisdictions
relating to resolution of conflicts with laws of other jurisdictions.
ARTICLE II
PLAN ADMINISTRATION
2.1 ADMINISTRATIVE COMMITTEE. This Plan will be administered by the
Board of Directors, or, at its election, the Board of Directors may delegate
administration of this Plan to an Administrative Committee consisting of two or
more directors who are appointed by the Board of Directors and satisfy the
criteria described below. The members of the Administrative Committee will serve
for unspecified terms at the discretion of the Board of Directors. The Board of
Directors has the exclusive power to increase or decrease the size of the
Administrative Committee, appoint additional members of the Administrative
Committee, remove a member of the Administrative Committee (as such) at any
time, with or without cause, and appoint a successor to fill any vacancy on the
Administrative Committee. The Board of Directors shall not appoint as a member
of the Administrative Committee any director who (a) is an officer or employee
of the Company, any Subsidiary, or any parent corporation of the Company or who
does not qualify as an "outside director" for purposes of section 162(m) of the
Internal Revenue Code, (b) receives directly or indirectly from the Company, and
Subsidiary, or any parent corporation of the Company a dollar amount of
compensation for services rendered as a consultant or in any capacity other than
as a director for which disclosure would be required pursuant to Item 404(a) of
Regulation S-K under the Exchange Act and the Securities Act, (c) possesses an
interest in any other transaction to which the Company or any Subsidiary was or
will be a party and for which disclosure would be required pursuant to Item
404(a) of Regulation S-K under the Exchange Act and the Securities Act, or (d)
has a business relationship for which disclosure would be required pursuant to
Item 404(b) of Regulation S-K under the Exchange Act and the Securities Act. If
the Board of Directors is unable to appoint an Administrative Committee
comprising two or more directors who satisfy the foregoing criteria, or if the
Administrative Committee ceases at any time to comprise directors who satisfy
those
-5-
<PAGE> 24
criteria, the Board of Directors shall serve as the Administrative Committee for
this Plan, and all grants of Stock Options under this Plan must be approved by
the Board of Directors.
2.2 POWER AND AUTHORITY. Subject to compliance with all applicable
rules and regulations of any relevant authorities, including stock exchanges and
the Securities and Exchange Commission, the Administrative Committee has the
exclusive power and authority, and the sole and absolute discretion, to do the
following: (a) construe and interpret this Plan; (b) select the Employees who
will be Participants in this Plan; (c) adopt, amend, and rescind forms, rules,
procedures, and regulations relating to this Plan (all of which must be approved
by the Board of Directors if a Board Committee serves as the Administrative
Committee); (d) grant Stock Options under the Plan, either conditionally or
unconditionally; (e) determine when Stock Options will be granted under the
Plan; (f) determine the number of Shares subject to each Stock Option; (g)
determine the Market Value of a Share in accordance with the provisions of this
Plan; (h) determine the terms and conditions of each Stock Option, including the
exercise price (which must comply with section 3.4), the methods of exercising
the Stock Option, the methods for payment of the exercise price, the time or
times when the Stock Option will become exercisable and the duration of the
exercise period (which must not exceed the limitations specified in section
3.4), the conditions under which the Stock Option will vest and become
exercisable, and any limitations, restrictions, performance criteria, or
forfeiture conditions applicable to the Stock Option or any Shares purchased
pursuant to it; (i) determine the consideration for the grant of each Stock
Option and the consideration to be paid for Shares purchased pursuant to a Stock
Option, which may consist of cash, other Shares, or any combination of the
foregoing; (j) to approve and recommend amendments to the Plan for adoption by
the Board of Directors and (if necessary or desirable) the shareholders of the
Company; (k) authorize any officer or director of the Company to execute in the
name and on behalf of the Company any agreement, certificate, instrument, or
other document required to carry out the purposes of this Plan; (l) engage the
services of any agent, expert, or professional advisor in furtherance of the
Plan's purposes; (m) amend any outstanding Option Agreement, subject to
complying with applicable legal restrictions and obtaining the approval of the
Participant who is a party to the Option Agreement; and (n) take all other
actions, and make all other determinations, that are advisable or necessary for
the Plan's administration. In the absence of fraud or mistake, any action,
decision, interpretation, or determination by the Administrative Committee will
be final and binding on all persons.
The Board of Directors may reserve to itself any of the power and
authority conferred on the Administrative Committee, and it may exercise all the
power and authority of the Administrative Committee at any time to the exclusion
of any Board Committee. All references in this Plan to the Administrative
Committee include the Board of Directors whenever it is exercising the power and
authority of the Administrative Committee.
2.3 APPROVAL PROCEDURES. All actions and determinations of the
Administrative Committee must be unanimous, unless the Board of Directors is
exercising
-6-
<PAGE> 25
the power and authority of the Administrative Committee. All actions and
determinations of the Board of Directors with respect to this Plan must be
approved in the manner provided by the Company's Bylaws and applicable corporate
law. Every action or determination of the Administrative Committee that is
expressly required or permitted under this Plan will be valid only if undertaken
pursuant to a vote, consent, or approval that is evidenced by either (a) a
resolution adopted by the affirmative vote of the requisite number of members of
the Administrative Committee at a meeting, or (b) a written consent signed by
the requisite number of members of the Administrative Committee. The members of
the Administrative Committee may execute a written consent in counterparts. Each
executed counterpart will constitute an original document, and all of them,
together, will constitute the same document. A properly executed written consent
will be effective as of the date specified in it or, if an effective date is not
so specified, on the date when it is signed by the last director whose signature
is necessary to validate it, and will be valid if it is executed before, after,
or concurrently with the action or determination to which it applies.
2.4 INDEMNIFICATION. A member of the Administrative Committee is not
liable for, and the Company releases each member of the Administrative Committee
from all liability for, any punitive, incidental, compensatory, consequential,
or other damages or obligation to the Company or any Employee, Participant, or
other person for any act or omission by the member of the Administrative
Committee (including the person's own negligence), or by any agent, employee,
professional advisor, or other expert used or engaged by the Administrative
Committee, if the act or omission does not constitute gross negligence or
willful misconduct and is done or omitted in good faith, on behalf of the
Company, and in a manner reasonably believed by the member of the Administrative
Committee to be both in the best interests of the Company and within the scope
of the authority granted to the Administrative Committee by this Plan. The
Company shall indemnify each member of the Administrative Committee, and shall
reimburse the member from the Company's assets, for any cost, loss, damage,
expense, or liability (including fines, amounts paid in settlement, and legal
fees and expenses) incurred by the member by reason of any act or omission for
which the member is released from liability pursuant to this section.
ARTICLE III
STOCK OPTIONS AND PARTICIPANTS
3.1 STOCK OPTIONS. Benefits under this Plan will consist of Stock
Options. The Administrative Committee may designate any Stock Option as an
Incentive Option, in which case the Stock Option must comply with the
requirements of section 3.5. If no designation is made, a Stock Option will
constitute a Nonqualified Option. The Administrative Committee may grant a
Participant both Incentive Options and Nonqualified Options, at the same time or
at different times.
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<PAGE> 26
3.2 PARTICIPANTS. Every Employee is eligible to be selected by the
Administrative Committee to participate in this Plan. The Administrative
Committee's designation of an Employee as a Participant at any particular time
does not require the Administrative Committee to designate that Employee to
receive any Stock Options at any other time or to receive the same Stock Options
as any other Participant at any time. The Administrative Committee may consider
factors that it considers pertinent in selecting Participants and in determining
the terms and conditions of Stock Options awarded to them, including the
following: (a) the consolidated financial condition of the Company; (b) the
expected net income of the Company for the current or future years; (c) the
contributions of an Employee to the success and profitability of the Company;
and (d) the adequacy of the Employee's other compensation. The Administrative
Committee may award Stock Options to an Employee even if Stock Options
previously were granted to the Employee under this or another plan of the
Company or an Affiliate, and whether or not the previously granted benefits have
been fully exercised. An Employee who participates in another benefit plan of
the Company or an Affiliate also may participate in this Plan.
3.3 BENEFIT LIMITATIONS. The total number of Shares that are
authorized to be issued pursuant to the exercise of Stock Options granted under
this Plan is limited to 300,000 Shares. This amount will be adjusted
automatically in accordance with section 5.1. If a Stock Option lapses, expires,
or is cancelled, forfeited, or terminated as a whole or in part for any reason
other than its exercise, the forfeited Shares or the Shares subject to the
unexercised portion of that Stock Option (or the part of it so cancelled,
forfeited, or terminated) will be available for the future grant of Stock
Options under this Plan. If a Participant pays the exercise price for Shares
purchased pursuant to the exercise of a Stock Option by delivering to the
Company previously acquired Shares, the number of Shares available for future
grants of Stock Options under this Plan will be reduced only by the net amount
of Shares issued in connection with the exercise of the Stock Option (that is
the number of Shares issuable pursuant to the exercise of the Stock Option, less
the number of Shares retained by, or delivered to, the Company in payment of the
exercise price).
3.4 EXERCISE PRICE AND DATES. The purchase price for each Share
issuable pursuant to the exercise of a Stock Option must be not less than the
Market Value of a Share on the Date of Grant of the Stock Option. Every Stock
Option must expire not later than ten years after its Date of Grant, and, except
as otherwise provided in sections 4.4 and 5.2 or in the Option Agreement, it
will expire on the 90th day following the date when the Participant ceases to be
an Employee. However, if a Participant owns (within the meaning of section
422(b)(6) of the Internal Revenue Code) at the time when an Incentive Option is
granted to the Participant stock representing more than 10% of the total
combined voting power of all classes of outstanding stock of the Company, any
Subsidiary, or any parent corporation of the Company, then: (a) the Incentive
Option must expire not later than five years after its Date of Grant; and (b)
the exercise price of the Incentive Option must be not less than 110% of the
Market Value of a Share on the Date of Grant of the Incentive Option. Stock
Options are not exercisable until they have been accepted by the Participant. An
-8-
<PAGE> 27
award of a Stock Option to a Participant will be cancelled automatically if the
Participant does not accept the award within 30 calendar days following the date
when the Participant is given written notice of the award. Unless a
Participant's Option Agreement expressly provides otherwise, every Stock Option
will be exercisable in serial increments after each Option Year as follows:
<TABLE>
<CAPTION>
Percentage Exercisable
After Option Year Per Option Year Cumulatively
----------------- --------------- ------------
<S> <C> <C> <C>
1 20% 20%
2 20% 40%
3 20% 60%
4 20% 80%
5 20% 100%
</TABLE>
Subject to the foregoing limitations, the Administrative Committee may impose on
an award of a Stock Option any terms and conditions that it determines to be
desirable, including performance criteria, forfeiture provisions, and additional
or different vesting conditions. Extension of the expiration date of a Stock
Option is not permitted. In calculating the stock ownership of any person for
purposes of the foregoing, the attribution rules of section 424(d) of the
Internal Revenue Code will apply.
3.5 INCENTIVE OPTIONS. Notwithstanding anything in this Plan to the
contrary, an Incentive Option must satisfy the following additional
requirements:
(a) The Incentive Option must be designated as an "incentive stock
option" by the Administrative Committee when it is granted;
(b) This Plan must be approved by the shareholders of the Company
within 12 months before or after its effective date;
(c) The maximum number of Shares subject to any Stock Options granted
to a Participant must not result in the Participant having the right to exercise
for the first time during any one calendar year, under all incentive stock
options granted to the Participant under all benefit plans of the Company, its
Subsidiaries, and any parent corporation of the Company, options to purchase
Shares having a Market Value in excess of $100,000 (determined as of the date of
grant of each incentive stock option); and
(d) The Incentive Option must satisfy all conditions and requirements
imposed by the Internal Revenue Code for incentive stock options and any
policies adopted by the Administrative Committee with respect to incentive stock
options.
-9-
<PAGE> 28
If an Incentive Option is granted for a number of Shares having an
aggregate Market Value on the Date of Grant in excess of $100,000, then,
notwithstanding anything in this or the relevant Option Agreement to the
contrary, the Incentive Option will be exercisable in each calendar year as to
only that number of Shares having a Market Value on the Date of Grant of not
more than $100,000. However, the number of Shares as to which an Incentive
Option is exercisable in any one calendar year is cumulative, so, if the
Incentive Option is not exercised to the fullest extent allowed in any one
calendar year, the unexercised portion will accumulate and carry forward to
ensuing years. For example, if in 1998, the Company were to grant an Employee an
Incentive Option to purchase 100,000 Shares at an exercise price of $5.00 per
share (which was the then current Market Value), the Incentive Option would be
exercisable with respect to only 20,000 Shares during 1998, and the Incentive
Option would become exercisable with respect to 20,000 additional Shares in each
successive year (1999 through 2002). If the Participant elected to purchase only
10,000 Shares pursuant to the Incentive Option during 1998, the Participant
could purchase up to 30,000 Shares in 1999, and, if no additional purchases were
made in 1999, the Participant could purchase up to 50,000 Shares in 2000 (carry
forward of 10,000 Shares from 1998 and 20,000 Shares from 1999; plus 20,000
Shares in 2000).
3.6. NONTRANSFERABILITY OF STOCK OPTIONS. EXCEPT TO THE EXTENT PROVIDED
IN THE OPTION AGREEMENT, A Participant is prohibited from transferring a Stock
Option, any interest in it, or any right under an Option Agreement by any means
other than by will or the law of descent and distribution. Any prohibited
transfer (whether by gift, sale, pledge, assignment, hypothecation, or
otherwise) will be invalid and ineffective as to the Company. In addition, a
Stock Option and the Participant's rights under it and the related Option
Agreement are not subject to any lien, levy, attachment, execution, or similar
process by creditors. The Company may cancel any Stock Option by notice to the
Participant to whom it was granted, if the Participant attempts to make a
prohibited transfer, or if the Stock Option, any interest in it, or any right
under the related Option Agreement becomes subject to a lien, levy, attachment,
execution, or similar process by any creditor.
ARTICLE IV
EXERCISE OF STOCK OPTIONS
4.1 EXERCISE METHOD. Subject to limitations imposed by this Plan and
the Option Agreement, a Participant may exercise a Stock Option as a whole or in
part in increments of at least 100 shares at any time and from time to time
before it expires. A partial exercise of a Stock Option will not affect a
Participant's subsequent right to exercise the Stock Option as to the remaining
Shares subject to the Stock Option. A Stock Option must be exercised for a
number of whole Shares and is not exercisable for a fraction of a Share. To
exercise a Stock Option, a Participant must do the following: (a) deliver to the
Company a written notice of exercise in such form as prescribed by the
Administrative Committee; (b) tender to the Company full payment for the Shares
to be purchased pursuant to the exercise of the Stock Option; (c) pay to the
Company, or make an arrangement satisfactory to the Administrative Committee for
the payment of, any tax withholding
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<PAGE> 29
required in connection with the exercise of the Stock Option (including FICA,
Medicare, and local, state, or federal income taxes); and (d) comply with any
and all other reasonable requirements established by the Administrative
Committee for the exercise of Stock Options. The exercise date of a Stock Option
will be the date when (i) the Company has received the written notice of
exercise and full payment of the exercise price, (ii) the Participant has paid
to the Company or made a satisfactory arrangement for the payment of any
requisite tax withholding, and (iii) any and all other requirements of exercise
established by the Administrative Committee have been satisfied.
4.2 PAYMENT OF EXERCISE PRICE. A Participant may pay all or any part
of the exercise price and any applicable tax withholding for any Shares to be
purchased pursuant to exercise of a Stock Option by any combination of the
following methods:
(a) By bank draft, money order, or personal check payable to the
order of the Company; or
(b) By transferring to the Company outstanding Shares that have
been owned by the Participant for more than six months on the exercise
date of the Stock Option.
Shares that are transferred to, or withheld by, the Company in payment of the
exercise price or any tax withholding will be valued for purposes of payment at
their Market Value on the exercise date of the Stock Option, as determined
pursuant to section 4.1. The foregoing provision does not preclude the exercise
of a Stock Option by any other proper legal method specifically approved in
advance by the Administrative Committee. The Administrative Committee shall
determine the acceptable methods for tendering or withholding Shares as payment
of the exercise price of a Stock Option and may impose limitations and
prohibitions on the use of Shares to pay the exercise price of a Stock Option as
it considers appropriate for tax, legal, business, or accounting reasons. No one
has the rights of a shareholder with respect to Shares subject to a Stock Option
until a certificate representing those Shares has been delivered to the person
exercising the Stock Option.
4.3 TAX WITHHOLDING. The Administrative Committee, in its sole
discretion, may require a Participant to pay to the Company when the Participant
exercises a Stock Option the amount (if any) that the Company considers
necessary to satisfy its legal obligation to withhold any local, state, or
federal taxes (including FICA, income, and Medicare taxes) imposed by any
governmental authority as a result of the exercise of the Stock Option, and the
Company may defer delivery of any Shares purchased pursuant to the Stock Option
until it has been paid or indemnified to its satisfaction for those taxes. A
Participant may pay to the Company any requisite tax withholding by any of the
methods of payment authorized for payment of the exercise price for Shares
purchased pursuant to the Stock Option. If an exercise of a Stock Option does
not give rise to any tax withholding obligation on the date of exercise but is
reasonably expected to do so at a future time, the
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<PAGE> 30
Administrative Committee (in its sole discretion) may require the Participant to
place the Shares purchased pursuant to the Stock Option in escrow for the
benefit of the Company until tax withholding is required for the amounts
included in the Participant's gross income as a result of the Participant's
exercise of the Stock Option. At that time, the Administrative Committee (in its
discretion) may require the Participant to pay to it an amount that it considers
sufficient to satisfy the tax withholding obligation incurred by it as a result
of the Participant's exercise of the Stock Option, in which case the Company
shall promptly release to the Participant the escrowed Shares.
4.4 EXERCISE CONDITIONS. A Stock Option expires and ceases to be
exercisable on the 90th day after the Participant to whom it was granted ceases
to be an Employee, except as otherwise provided in this Plan and in the Option
Agreement. If a Participant's employment with the Company or a Subsidiary is
terminated (voluntarily or involuntarily), the Participant may exercise her or
his Stock Option within 90 calendar days following the date of termination of
employment. If a Participant dies or ceases to be an Employee because of a
disability at a time when the Participant is entitled to exercise a Stock
Option, the Stock Option will continue to be exercisable for one year after the
Participant's death or disability by the Participant or the Participant's
guardian (in the case of disability) or the Participant's heir or personal
representative (in the case of death). Notwithstanding the foregoing, a Stock
Option is never exercisable later than its stated expiration date. After the
death, disability, or termination of employment of a Participant, a Stock Option
of the Participant will be exercisable only with respect to the number of Shares
(if any) that could have been exercised as of the date when the Participant
ceased to be an Employee (subject to any adjustment required by section 5.1). A
Stock Option will terminate to the extent that it ceases to be exercisable for
any of the Shares subject to it.
4.5 RESERVATION, LISTING, AND DELIVERY OF SHARES. The Company shall
reserve from its authorized but unissued Shares and keep available until the
termination of this Plan, solely for issuance upon the exercise of Stock
Options, the number of Shares issuable at any time pursuant to the exercise of
Stock Options granted or available for grant under this Plan. In addition, the
Company shall take all requisite action to assure that it validly and legally
may issue fully-paid, nonassessable Shares upon the exercise of each Stock
Option. Also, if the Shares are traded in the Nasdaq Stock Market or on any
United States national securities exchange, the Company, at its sole expense,
shall reserve for quotation or listing on that market or exchange, upon official
notice of issuance pursuant to the exercise of Stock Options, the number of
Shares issuable at any time upon the exercise of Stock Options granted or
available for grant under this Plan, and the Company shall maintain that listing
until this Plan terminates. Promptly after a Stock Option is validly exercised,
the Company shall issue and deliver to the order of the person who exercised the
Stock Option a stock certificate representing that number of fully-paid and
nonassessable Shares that were purchased pursuant to the exercise of the Stock
Option, plus, instead of any fractional Share to which that person otherwise
would be entitled, a cash sum equal to the product of (a) that fraction,
multiplied by (b) the Market Value of one full Share as of the exercise date of
the
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<PAGE> 31
Stock Option. The Company shall pay all costs and excise taxes associated with
the original issuance of stock certificates representing Shares purchased
pursuant to the exercise of Stock Options.
4.6 LEGAL COMPLIANCE. Stock Options are exercisable, and Shares are
issuable under this Plan, only in compliance with all applicable state and
federal laws and regulations (including securities laws) and the rules of all
stock markets or exchanges on which the Shares are quoted or listed for trading.
Any certificate representing Shares issued under the Plan will bear such legends
and statements as the Administrative Committee considers advisable to assure
compliance with those laws, rules, and regulations. In addition, the
Administrative Committee may require a Participant, as a condition to the grant
or exercise of a Stock Option, to provide to the Company any agreements,
representations, and warranties that, in the opinion of counsel for the Company,
are desirable or necessary to comply with applicable laws and all rules and
regulations of any stock market or exchange on which the Shares are traded or
quoted, including a representation that the Shares issuable pursuant to exercise
of the Stock Option are or will be acquired for investment purposes without a
view to distribute them to others. A Stock Option is not exercisable, and the
Company shall not issue any Shares under this Plan, until the Company has
obtained any consent or approval required from any state or federal regulatory
body having jurisdiction. Upon the exercise of a Stock Option by an heir,
guardian, or personal representative of a Participant, the Administrative
Committee may require reasonable evidence of the person's legal ownership of the
Stock Option and any consents and releases of governmental authorities as it
determines are advisable.
ARTICLE V
ADDITIONAL PROVISIONS
5.1 ANTIDILUTION. If the Company does any of the following (a "Dilutive
Event") at any time before the exercise or expiration of a Stock Option: (a)
splits or subdivides its then-outstanding Shares into a greater or different
number of Shares; (b) reduces the then-outstanding number of Shares by a reverse
stock-split or by otherwise combining those Shares into a smaller number of
Shares; (c) effects any other capital adjustment, recapitalization,
reorganization, or reclassification that has the effect of increasing or
decreasing proportionately the number of outstanding Shares then held by each
shareholder; (d) distributes any of its assets to its shareholders pro rata as a
partial liquidation or return of capital; or (e) declares, issues, or
distributes to the holders of its Common Stock, without separate payment
therefor, (i) a noncash dividend payable in any property or securities of the
Company, including additional Shares, or (ii) any cash, property, or securities
in connection with a spin-off, split-up, reclassification, recapitalization,
combination of shares, or similar rearrangement of the Company's capital stock;
then, upon the subsequent exercise of a Stock Option after the record date for,
or the occurrence of, each Dilutive Event, the Participant will be entitled to
receive, in exchange for the exercise price specified in the Stock Option, and
in addition to (or in substitution for
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<PAGE> 32
in the case of a reduced number of Shares), the Shares otherwise issuable upon
exercise of the Stock Option, the additional (or reduced) amount of Shares and
other securities and property (including cash) resulting from the Dilutive Event
that he would have been entitled to receive if (A) he had exercised the Stock
Option on the Date of Grant (even if the Stock Option was not exercisable then)
and had been the record owner of the number of Shares resulting from the
exercise during the period beginning on that date and ending on the actual
exercise date of the Stock Option, and (B) he had retained all Shares and other
securities and property (including cash) receivable by him during that period,
after giving effect to all the Dilutive Events that occurred during that period.
5.2 CHANGE IN CONTROL.
(a) Generally. If a Change in Control occurs, all outstanding
Stock Options will become fully vested and exercisable as of the earlier of the
effective date of the shareholder approval or the effective date of any of the
Change in Control transaction (the "Effective Date") and, at the election of the
Board of Directors, the Company may terminate the Plan, in which case the holder
of each outstanding Stock Option will be entitled to payment of the amount by
which the Market Value of all Shares subject to the Stock Option on the
Effective Date exceeds the Market Value of all those Shares as of the Date of
Grant of the Stock Option, in full settlement of all the holder's rights and
interests in the Stock Option.
(b) Special Rules Governing Mergers and Stock Exchanges. In the
case of a merger, share exchange, or other transaction in which the shareholders
of the Company receive securities of the acquirer, at the election of the Board
of Directors, the Company may (but is not obligated to) elect to continue this
Plan and each Stock Option granted under the Plan will be converted into an
option to purchase securities of the acquirer being issued in the transaction.
In such case, the exercise price and number of Shares subject to the Stock
Option will be adjusted based on the exchange or conversion ratio (the "Ratio")
used to convert Shares into securities of the acquirer. The adjusted exercise
price will be the exercise price per Share, divided by the Ratio. The adjusted
number of Shares subject to the Stock Option will be the product of the Ratio
multiplied by the number of Shares subject to the Stock Option before the
transaction.
(c) Special Rules in Case of Cash Acquisition. In the case of a
Change in Control transaction in which the Shareholders will receive
consideration for their Shares (such as cash or debt) other than common stock of
the acquirer and the Company has elected pursuant to (a) above to terminate the
Plan and pay the spread of the Market Value on the Effective Date over the
Market Value on the Date of Grant, each holder of a stock option may elect to
defer the payment and settlement following termination of the Plan by up to six
months and one day after the Effective Date. The Company's Board of Directors
may offer the Participant an option to defer his receipt of consideration for
any longer time period.
-14-
<PAGE> 33
5.3 AMENDMENT AND TERMINATION. The Board of Directors may alter, amend,
suspend, or terminate this Plan at any time without approval of the Company's
shareholders, unless the approval of the Company's shareholders is required to
comply with applicable law or any rule or regulation of a stock market or
exchange on which the Shares are traded or quoted. An amendment or termination
of this Plan, whether with or without the approval of the Company's
shareholders, that would adversely affect any right or obligation of a
Participant under an outstanding Stock Option will not be valid or effective as
to that Stock Option without that Participant's written consent.
5.4 EXPENSES AND PROCEEDS. The Company shall pay all expenses of the
Plan. The Company may use the cash proceeds received from Participants upon the
exercise of Stock Options for general corporate purposes.
5.5 MARKET VALUE DETERMINATIONS. If trading in the Shares, or a price
quotation for the Shares, does not occur on a date when the Market Value is
required to be determined under either this Plan or an Option Agreement, the
next preceding date when Shares were traded or a price was quoted will control
the determination of the Market Value.
5.6 SECTION 16(B) EXEMPTIONS. With respect to Participants subject to
section 16 of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of SEC Rules 16b-3 and 16b-6 and any rule
promulgated by the Securities and Exchange Commission under the Exchange Act in
substitution for either of those rules. To the extent any provision of this Plan
or action by the Administrative Committee fails to so comply, it shall be null
and void to the extent permitted by law and determined by the Administrative
Committee. In furtherance of the foregoing objective, the Administrative
Committee may include in an Option Agreement with a Participant who is subject
to section 16 of the Exchange Act any additional conditions or restrictions that
are required to qualify the grant and exercise of the Stock Option for exemption
under Rules 16b-3 and 16b-6 or any future rule providing an exemption for the
award, grant, and exercise of stock options.
5.7 DURATION AND EFFECTIVE DATE. This Plan will become effective as of
February ____, 1998, subject to approval by the Company's shareholders within 12
months after that date, and will terminate on the tenth anniversary of its
effective date. The Company is not authorized to award any Stock Options after
the termination date of this Plan.
EFFECTIVE DATE: FEBRUARY ___, 1998
ADOPTED BY BOARD OF DIRECTORS ADOPTED BY SHAREHOLDERS ON
ON FEBRUARY ____, 1998 MAY ___, 1998
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<PAGE> 34
STERILE RECOVERIES, INC.
By: /s/ Bertram T. Martin, Jr.
-------------------------------------
Bertram T. Martin, Jr.
President
ATTEST: [CORPORATE SEAL]
/s/ James T. Boosales
- -----------------------------
James T. Boosales, Secretary
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<PAGE> 35
APPENDIX
1998 ANNUAL MEETING OF SHAREHOLDERS OF
STERILE RECOVERIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Bertram T. Martin, Jr. and James T.
Boosales, and each of them, as proxies, each with full power of substitution, to
represent and to vote all shares of voting common stock of STERILE RECOVERIES,
INC., a Florida corporation (the "Company"), at the Annual Meeting of
Shareholders of the Company to be held on Tuesday, May 19, 1998, at 10:00 a.m.,
EST, and at any adjournment thereof:
1. Election of directors for terms expiring in 2001:
<TABLE>
<S> <C> <C> <C>
[ ] FOR THE ELECTION OF BERTRAM T. MARTIN, JR. AND WAYNE [ ] WITHHOLD AUTHORITY TO VOTE FOR THE NOMINEES
R. PETERSON
(the "Nominees") for terms expiring in 2001
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
2. Approval of the Company's 1998 Stock Option Plan (page 5).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Appointment of Grant Thornton LLP as the Company's auditors (page 8).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on reverse side)
(Continued from other side)
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR the Nominees, FOR the approval of the Company's 1998 Stock Option
Plan, and FOR the appointment of Grant Thornton LLP as the Company's auditors.
DATED: , 1998
----------------
------------------------------
Signature of Shareholder
------------------------------
Signature of Shareholder if
held jointly
Please sign exactly as name
appears on this proxy. If
shares are owned by more than
one person, all owners should
sign. Persons signing as
executors, administrators,
trustees or in similar
capacities should so indicate.
If a corporation, please sign
full corporate name by the
president or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
Do you plan to attend the Annual Meeting? [ ] YES [ ] NO
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED POSTAGE PAID ENVELOPE.
