<PAGE>
================================================================================
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:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
RENTAL SERVICE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which 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:
-------------------------------------------------------------------------
Notes:
<PAGE>
RENTAL SERVICE CORPORATION
14505 N. HAYDEN ROAD, SUITE 322
SCOTTSDALE, ARIZONA 85260
NOTICE AND PROXY STATEMENT
FOR ACTION TO BE TAKEN BY WRITTEN CONSENT
IN LIEU OF A MEETING OF STOCKHOLDERS
To Our Stockholders:
Attached hereto is a Proxy Statement (the "Proxy Statement") which solicits
the written consent of the stockholders of Rental Service Corporation, a
Delaware corporation (the "Company"), for the following action (the
"Proposal"):
To authorize and approve the Company's adoption of the 1996 Equity
Participation Plan of Rental Service Corporation (the "1996 Plan"). The terms
and conditions of the 1996 Plan are described in the Proxy Statement under the
heading "Description of the 1996 Plan."
On December 5, 1996, the Company's Board of Directors approved and adopted
the 1996 Plan. The Company's Board of Directors deems the 1996 Plan to be
advisable, and recommends that the stockholders approve it by voting for the
Proposal described in the Proxy Statement.
The principal purposes of the 1996 Plan are to provide incentives for
officers, directors, key employees and consultants of the Company and its
subsidiaries through granting options, restricted stock and other awards,
thereby stimulating their personal and active interest in the Company's
development and financial success, and inducing them to remain in the
Company's service. In addition to awards made to officers, key employees or
consultants, the 1996 Plan provides for the granting of options to the
Company's independent non-employee directors pursuant to a formula, as
described in the Proxy Statement under "Description of the 1996 Plan." The
Board of Directors believes that the 1996 Plan will help attract, retain and
motivate officers, key employees, consultants and directors who are important
to the Company's success and growth and will help create a mutuality of
interest between such individuals and the Company's stockholders. While the
Company currently maintains its 1995 Stock Option Plan For Key Employees (the
"1995 Plan") for similar purposes, as of December 5, 1996, the date on which
the Board adopted the 1996 Plan, only 1,860 of the 324,000 shares of Common
Stock, par value $.01 per share ("Common Stock"), issuable under the 1995 Plan
were available for future stock option grants. The Company's Board of
Directors believes that the 1996 Plan will provide the Company with increased
flexibility in its attempts to achieve the goals described above and that it
is desirable to obtain such increased flexibility as soon as possible.
Accordingly, rather than incurring the expense of a special meeting of the
stockholders or delaying the adoption of the 1996 Plan, the Company's Board of
Directors is hereby soliciting approval of the Proposal by written consent, in
lieu of a meeting of the stockholders.
Under the 1996 Plan, not more than 1,000,000 shares of Common Stock (or the
equivalent thereof in other equity securities) are authorized for issuance
upon exercise of options, stock appreciation rights, and other awards, or upon
vesting of restricted or deferred stock awards.
By Order of the Board of Directors
/s/ Douglas A. Waugaman
Douglas A. Waugaman
Secretary
Scottsdale, Arizona
January 10, 1997
IN ORDER TO ENSURE YOUR REPRESENTATION IN THE ACTION TO BE TAKEN BY WRITTEN
CONSENT, YOU ARE REQUESTED TO SIGN AND DATE THE ENCLOSED CONSENT CARD AS
PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE (TO WHICH NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES).
<PAGE>
RENTAL SERVICE CORPORATION
14505 N. HAYDEN ROAD, SUITE 322
SCOTTSDALE, ARIZONA 85260
PROXY STATEMENT
FOR STOCKHOLDER ACTION BY WRITTEN CONSENT
This proxy statement ("Proxy Statement") is furnished to the stockholders by
the Board of Directors (the "Board") of Rental Service Corporation, a Delaware
corporation (the "Company" or "RSC"), for solicitation of the written consent
of stockholders of a single proposal (the "Proposal") to approve the adoption
of the 1996 Equity Participation Plan of Rental Service Corporation (the "1996
Plan").
It is anticipated that the mailing to stockholders of this Proxy Statement
and the enclosed Consent Card will commence on or about January 10, 1997. The
procedure for indicating approval of the Proposal is described in detail in
this Proxy Statement.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS CONSENT TO THE
PROPOSAL.
GENERAL INFORMATION
BACKGROUND
The Board adopted the 1996 Plan on December 5, 1996. The principal purposes
of the 1996 Plan are to provide incentives for officers, directors, key
employees and consultants of the Company and its subsidiaries through granting
options, restricted stock and other awards, thereby stimulating their personal
and active interest in the Company's development and financial success, and
inducing them to remain in the Company's service. In addition to awards made
to officers, key employees or consultants, the 1996 Plan provides for the
granting of options to the Company's independent non-employee directors
pursuant to a formula, as described in further detail below under "Description
of the 1996 Plan." The Board believes that the 1996 Plan will help attract,
retain and motivate officers, key employees, consultants and directors who are
important to the Company's success and growth and will help create a mutuality
of interest between such individuals and the Company's stockholders. While the
Company currently maintains its 1995 Stock Option Plan For Key Employees (the
"1995 Plan") for similar purposes, as of December 5, 1996, the date on which
the Company adopted the 1996 Plan, only 1,860 of the 324,000 shares of Common
Stock, par value $.01 per share ("Common Stock"), issuable under the 1995 Plan
were available for future stock option grants. The Board believes that the
1996 Plan will provide the Company with increased flexibility in its attempts
to achieve the goals described above and that it is desirable to obtain such
increased flexibility as soon as possible. Accordingly, rather than incurring
the expense of a special meeting of the stockholders or delaying the adoption
of the 1996 Plan, the Board is hereby soliciting approval of the Proposal by
written consent, in lieu of a meeting of the stockholders.
Under the 1996 Plan, not more than 1,000,000 shares of Common Stock (or the
equivalent thereof in other equity securities) are authorized for issuance
upon exercise of options, stock appreciation rights, and other awards, or upon
vesting of restricted or deferred stock awards.
<PAGE>
VOTING SHARES AND VOTING RIGHTS
Stockholders of record at the close of business on January 6, 1997 (the
"Record Date") are entitled to approve the Proposal. On the Record Date, there
were 11,376,378 shares of Common Stock of the Company issued and outstanding.
Each share of Common Stock is entitled to one vote. The Proposal must be
approved by the holders of a majority of the outstanding shares of Common
Stock of the Company as of the Record Date.
The beneficial ownership of the Company's Common Stock by certain beneficial
owners and by each of the Company's directors, certain of its most highly-
compensated executive officers and all executive officers and directors as a
group is set forth below under "Security Ownership of Certain Beneficial
Owners and Management."
Under the Company's Certificate of Incorporation and Bylaws and pursuant to
Delaware law, any action which may be taken at any annual or special meeting
of the stockholders of the Company may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. The matter being considered by the stockholders is being
submitted for action by written consent, rather than by votes cast at a
meeting. The Proposal will be deemed to have been approved at the earliest
time after January 18, 1997 at which the Company has received consents that
have not previously been revoked representing the approval of a majority of
the shares of Common Stock issued and outstanding on the Record Date, provided
that such approval is received on or prior to February 14, 1997 (the
"Termination Date"). If, however, sufficient written consents have not been
received by the Termination Date, the Company reserves the right to extend the
solicitation of written consents made hereby except that, under Delaware law,
such solicitation may not be extended beyond the date 60 days after the
earliest dated consent received by the Company. Any election to extend this
consent solicitation will be made by the Company by news release or other
similar public announcement. The date on which the Proposal is deemed approved
hereunder is referred to as the "Effective Date."
Stockholders are being requested to indicate approval of the Proposal by
checking the appropriate box on the enclosed Consent Card and executing the
Consent Card. FAILURE TO CHECK ANY OF THE BOXES WILL, IF THE CONSENT CARD HAS
BEEN SIGNED, CONSTITUTE APPROVAL OF THE PROPOSAL. A complete description of
the 1996 Plan has not been set forth on the Consent Card itself due to space
limitations. Nevertheless, signing and indicating approval on the Consent Card
will be deemed to be written consent to the approval of the Proposal. Consent
Cards that reflect abstentions will be treated as voted for purposes of
determining the approval of the Proposal and will have the same effect as a
vote against the Proposal. Consent Cards that reflect "broker non-votes" will
be treated as unvoted for purposes of determining approval.
Execution of the Consent Card will constitute your approval, as a
stockholder of the Company, of the Proposal, and if sufficient written
consents are received, the Proposal will be deemed to have been approved by
the stockholders of the Company. No dissenters or similar rights apply to
stockholders who do not approve the Proposal.
The Company will pay the entire cost of the preparation and mailing of this
Proxy Statement and all other costs of this solicitation. Following the
initial mailing of this Proxy Statement, the Company and its agents may also
solicit proxies by mail, telephone, facsimile or in person; employees of the
Company who assist in such activities will not receive additional compensation
in connection therewith.
2
<PAGE>
DELIVERY OF WRITTEN CONSENTS
The Board of Directors requests that each stockholder execute, date and mail
or deliver the Consent Card to ChaseMellon Shareholder Services, L.L.C., the
Company's Registrar and Transfer Agent, at one of the following addresses, as
appropriate:
<TABLE>
<CAPTION>
By Mail: By Hand Delivery or Overnight Delivery:
<S> <C>
Church Street Station 600 Willowtree Rd.
P.O. Box 1540 Leonia, NJ 07605
New York, NY 10271-1540 Attention: David Rillera
</TABLE>
An addressed envelope is provided for your convenience in returning the
Consent Card. THE CONSENT CARD SHOULD BE RETURNED AS SOON AS POSSIBLE AND, IN
ANY EVENT, FOR RECEIPT PRIOR TO FEBRUARY 14, 1997. DO NOT SEND CONSENT CARDS
TO THE COMPANY.
REVOCATION OF WRITTEN CONSENTS
Any Consent Card executed and delivered by a stockholder may be revoked by
delivering written notice of such revocation prior to the Effective Date to
the Company at the address set forth below:
Rental Service Corporation
14505 N. Hayden Road, Suite 322
Scottsdale, Arizona, 85260
Attention: Chief Financial Officer
Consent Cards may not be revoked after the Effective Date.
NOTICE OF EFFECTIVENESS OF PROPOSAL
If the Proposal is approved by stockholders and the Effective Date occurs,
the Company will promptly give notice thereof to all stockholders who have not
consented in writing to the extent required by Section 228(d) of the Delaware
General Corporation Law.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 6, 1997 regarding
beneficial ownership of the Common Stock of the Company by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each director and named
executive officer of the Company and (iii) the Company's executive officers
and directors as a group. Except as otherwise indicated, each stockholder
listed below has informed the Company that such stockholder has (a) sole
voting and investment power with respect to such stockholder's shares of
stock, except to the extent that authority is shared by spouses under
applicable law, and (b) record and beneficial ownership with respect to such
stockholder's shares of stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
- --------------------------------------- ----------------------- ----------
<S> <C> <C>
Brentwood RSC Partners, L.P.(3)............. 3,731,715 32.8%
William M. Barnum, Jr.(3)................... 3,731,715 32.8
Frederick J. Warren(3)...................... 3,731,715 32.8
John G. Quigley(4).......................... 711,045 6.3
Nassau Capital Partners, L.P.(4)............ 707,220 6.2
Martin R. Reid(5)........................... 160,022 1.4
Douglas A. Waugaman(5)...................... 58,806 *
Ronald Halchishak(6)........................ 6,696 *
David G. Ledlow(6).......................... 6,696 *
James R. Buch(6)............................ 1,800 *
Christopher A. Laurence(3).................. -- --
Eric L. Mattson(7).......................... -- --
All directors and executive officers as a
group (10 persons)(3)(4)(6)................ 4,676,780 41.1
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated, the address for each named person is c/o
Rental Service Corporation, 14505 N. Hayden Road, Suite 322, Scottsdale,
Arizona 85260.
(2) A person is deemed as of any date to have "beneficial ownership" of any
security that such person has a right to acquire within 60 days after such
date. Shares which each identified stockholder has the right to acquire
within 60 days of the date of the table set forth above are deemed to be
outstanding in calculating the percentage ownership of such stockholder,
but are not deemed to be outstanding as to any other person.
(3) Messrs. Barnum and Warren, directors of the Company, are general partners
of Brentwood Buyout Partners, L.P., the general partner of Brentwood RSC
Partners, L.P.; accordingly Messrs. Barnum and Warren may be deemed to be
the beneficial owners of such shares and for purposes of this table they
are included. Messrs. Barnum and Warren disclaim beneficial ownership of
such shares. The address of Brentwood RSC Partners, L.P., Mr. Barnum, Mr.
Warren and Mr. Laurence is 11150 Santa Monica Boulevard, Suite 1200, Los
Angeles, California 90025.
(4) Mr. Quigley, a director of the Company, is a member of Nassau Capital,
L.L.C., the general partner of Nassau Capital Partners L.P.; accordingly
Mr. Quigley may be deemed to be the beneficial owner of such shares and
for purposes of this table they are included. Mr. Quigley is also a member
of NAS Partners I L.L.C. which owns 3,825 shares of Common Stock;
accordingly Mr. Quigley may be deemed to be the beneficial owner of such
shares and for purposes of this table they are included. Mr. Quigley
disclaims beneficial ownership of all such shares. The address of Nassau
Capital Partners L.P., NAS Partners I L.L.C. and Mr. Quigley is 22
Chambers Street, Princeton, New Jersey 08542.
(5) Includes shares subject to vesting which may be repurchased by the Company
if they fail to vest.
(6) Excludes shares issuable upon exercise of options which are not
exercisable within 60 days of the date of the table set forth above, as
follows: Mr. Buch--7,200 shares; Mr. Halchishak--81,294 shares; and
Mr. Ledlow--81,294 shares.
(7) The address of such person is c/o Baker Hughes Incorporated, 3900 Essex
Lane, Suite 1200, Houston, Texas 77027.
4
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to December 5, 1996, the Company had no compensation committee or
other committee of the Board performing similar functions. Accordingly,
decisions concerning compensation of executive officers in 1996 were made by
the entire Board. Other than Martin R. Reid, there were no officers or
employees of the Company who participated in deliberations concerning such
compensation matters.
On December 5, 1996, the Board established a compensation committee (the
"Compensation Committee") to establish remuneration levels for executive
officers of the Company and implementation of the Company's stock option plans
and any other incentive programs. On such date, James R. Buch and Eric L.
Mattson were appointed as the members of the Compensation Committee.
The 1996 Plan was adopted by the Board concurrently with the establishment
of the Compensation Committee. Accordingly, the Compensation Committee did not
act upon or approve the 1996 Plan. The Compensation Committee will administer
the 1996 Plan as described below under "Description of the 1996 Plan--
Administration."
COMPENSATION OF DIRECTORS
The Company did not pay any fees or remuneration to directors for their
service on the Board or any Board committee in 1996, however, the Company
reimbursed directors for their out-of-pocket expenses incurred in connection
with attending meetings of the Board. In addition, during 1996, James R. Buch
was granted stock options under the 1995 Plan in connection with his election
to the Board.
Effective January 1, 1997, in addition to reimbursement for out-of-pocket
expenses, all non-employee members of the Board will receive $10,000 per year
(payable $2,500 per quarter) as compensation for serving on the Board, plus
$1,500 for attendance at each Board meeting and $500 for attendance at each
committee meeting. In addition, each committee chairman will receive an
additional $1,500 per year. Assuming the Company's stockholders approve the
Proposal, all non-employee directors will also receive non-qualified stock
options under the 1996 Plan as described below under "Description of the 1996
Plan--Awards Under the 1996 Plan."
5
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the Company's other executive officers
other than the Chief Executive Officer (collectively, the "Named Executive
Officers") who earned more than $100,000 for all services rendered in all
capacities to the Company and its subsidiaries during the fiscal years ended
December 31, 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
NAME AND PRINCIPAL ALL OTHER
POSITION YEAR SALARY($) BONUS($)(3) OPTIONS(#) COMPENSATION($)
------------------ ---- --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief
Executive Officer(1).. 1996 294,231 84,375 -- 5,641(4)
1995 220,674 140,625 -- --
1994 59,976 -- -- --
Douglas A. Waugaman
Vice President, Chief
Financial Officer,
Secretary and
Treasurer(1).......... 1996 155,923 42,900 -- 7,149(2)
1995 139,550 48,050 -- 126,940(2)
1994 115,200 11,250 -- 4,074(2)
Ronald Halchishak
Senior Vice President-
Operations(1)......... 1996 150,000 100,000 71,250 920(4)
1995 147,115 26,520 16,740 --
1994 97,517 10,791 -- --
David G. Ledlow
Senior Vice President-
Operations(1)......... 1996 117,692 36,709 71,250 4,200(5)
1995 85,827 38,472 16,740 --
1994 72,918 14,145 -- --
</TABLE>
- --------
(1) Includes amounts paid by an entity acquired by the Company in September
1995.
(2) Consists of an automobile allowance ($2,175) and insurance premiums paid
by the Company ($4,974) for life insurance and disability policies
covering Mr. Waugaman for 1996. Consists of relocation expenses reimbursed
by the Company ($19,598), a relocation bonus ($100,000) and insurance
premiums paid by the Company ($7,342) for life insurance and disability
policies covering Mr. Waugaman for 1995. Consists of insurance premiums
paid by the Company for life insurance and disability policies covering
Mr. Waugaman for 1994.
(3) The amount of bonus earned in each fiscal year is paid, and accounted for
in this table, in the next succeeding fiscal year. Bonuses earned with
respect to fiscal 1996 are not yet calculable.
(4) Consists of an automobile allowance.
(5) Consists of relocation expenses reimbursed by the Company.
6
<PAGE>
Stock Options Granted in Fiscal 1996
The following table sets forth information concerning individual grants of
stock options made by the Company during the fiscal year ended December 31,
1996 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
---------------------------------------------------------- STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION ---------------------
NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------------ ---------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief
Executive Officer...... -- -- -- -- -- --
Douglas A. Waugaman Vice
President, Chief
Financial Officer,
Secretary and
Treasurer.............. -- -- -- -- -- --
Ronald Halchishak
Senior Vice President--
Operations............. 11,250(1) 5.4% $14.11 2006 $ 99,829 $ 252,987
60,000(2) 28.7% $21.00 2006 $ 792,407 $ 2,008,115
David G. Ledlow
Senior Vice President--
Operations............. 11,250(1) 5.4% $14.11 2006 $ 99,829 $ 252,987
60,000(2) 28.7% $21.00 2006 $ 792,407 $ 2,008,115
</TABLE>
- --------
(1) Such options vest equally over four years on April 1, 1997, 1998, 1999 and
2000.
(2) Such options vest equally over four years on October 22, 1997, 1998, 1999
and 2000.
7
<PAGE>
Aggregated Option Exercises and Fiscal Year-End Option Values
The following table sets forth information (on an aggregated basis)
concerning each exercise of stock options during the year ended December 31,
1996 by each of the Named Executive Officers and the year-end value of
unexercised options.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED "IN-THE-MONEY"
OPTIONS AT FISCAL OPTIONS/SARS AT FISCAL
YEAR-END(#) YEAR-END($)(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief
Executive Officer...... -- -- -- -- -- --
Douglas A. Waugaman
Vice President, Chief
Financial Officer,
Secretary and
Treasurer.............. -- -- -- -- -- --
Ronald Halchishak
Senior Vice President--
Operations............. 5,580 -- 1,116 81,294 $30,958 $837,070
David G. Ledlow
Senior Vice President--
Operations............. 4,725 -- 1,971 81,294 $54,676 $837,070
</TABLE>
- --------
(1) Options are "in-the-money" at the fiscal year-end if the fair market value
(based on the closing price of the Company's Common Stock on the Nasdaq
National Market System on January 6, 1997 of $25.75 per share, less the
exercise price) of the underlying securities on such date exceeds the
exercise or base price of the option.
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company and Mr. Waugaman are parties to a Separation and Stock Purchase
Agreement dated July 25, 1995 (the "Waugaman Purchase Agreement"). Pursuant to
the Waugaman Purchase Agreement, if Mr. Waugaman's employment is terminated
without cause or if he is not offered a substantially similar position as
Chief Financial Officer with a successor entity following a change of control,
he will be entitled to severance pay equal to nine months base salary. Mr.
Waugaman has agreed that in consideration of such severance benefits, he will
not compete with the Company for a period of nine months if his employment is
terminated other than for cause. In addition, pursuant to an oral arrangement
supplementing the Waugaman Purchase Agreement, RSC has purchased a $500,000
life insurance policy under which Mr. Waugaman's wife is the beneficiary and a
disability policy for Mr. Waugaman.
The Company has entered into a severance agreement with each of Messrs.
Halchishak and Ledlow providing for certain benefits upon termination of
employment either by the Company without cause or by such named executive
officer due to a reduction in base salary and benefits (other than across the
board salary cuts for employees at such named executive officer's level or
changes in benefits). These benefits include a lump sum severance payment
equal to 100% of such named executive officer's base salary, plus a pro rata
portion of the current-year bonus opportunity, plus life, disability, accident
and group health insurance benefits substantially similar to those received by
such named executive officer immediately prior to termination for a twelve
(12) month period. In addition, all stock options granted prior to 1996, all
stock options that are scheduled to vest in the year of termination and one-
third of all other stock options held by him, if any, shall become vested and
8
<PAGE>
exercisable effective as of the day immediately prior to the date of
termination of such named executive officer. As consideration for these
benefits, each of Messrs. Halchishak and Ledlow agreed that during the term of
the severance agreement and for twenty-four (24) months after termination of
employment for any reason they would not solicit any customers of the Company
or hire or offer employment to any employee of the Company. The severance
agreements with Messrs. Halchishak and Ledlow will continue in effect through
December 31, 2001.
1995 PLAN
The Company maintains the 1995 Plan for the benefit of certain employees of
the Company. The purpose of the 1995 Plan is to enable the Company to attract,
retain and motivate key employees who are important to the success and growth
of the Company and to create a mutuality of interest between the key employees
and the stockholders of the Company by granting the key employees options to
purchase Common Stock. Under the 1995 Plan, 324,000 shares of Common Stock may
be issued. The 1995 Plan provides that the Board or a committee appointed by
the Board (in either case, the "1995 Plan Committee") may grant non-
transferable incentive stock options ("ISOs") and non-qualified stock options
to key employees. The 1995 Plan Committee has the full authority and
discretion, subject to the terms of the 1995 Plan, to determine those
individuals who are eligible to be granted options and the amount and type of
options. Terms and conditions of options are set forth in written option
agreements. The 1995 Plan expires ten years from the date the 1995 Plan was
adopted by the Board, unless it is terminated earlier by the 1995 Plan
Committee, but options granted prior to such date may extend beyond that date.
The 1995 Plan provides that it may be amended by the 1995 Plan Committee,
except that no amendment may (with certain exceptions for stock splits and
other changes in the Company's Common Stock), without the approval of
stockholders of the Company, (i) increase the total number of shares of Common
Stock which may be acquired upon exercise of options granted under the 1995
Plan, (ii) change the types of employees eligible to participate in the 1995
Plan, (iii) effect any change that would require stockholder approval under
Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (iv) extend the period of time during which an option may be granted,
or (v) reduce the exercise price of an outstanding option. The Board or the
stockholders may, however, make or authorize any appropriate adjustments to
the number of shares of Common Stock available, and the terms of outstanding
options, under the 1995 Plan to reflect a recapitalization, reorganization,
stock split, stock dividend or other change in the Company's capital
structure.
The 1995 Plan Committee generally determines the number of shares underlying
an option as well as the exercise date, the exercise price and the exercise
period of an option, subject, however, to the following restrictions: (i)
options will not be exercisable for more than 10 years from the date of grant
(five years if the optionee is a holder of at least 10% of the combined voting
power of the Company and any parent or subsidiary (a "10% shareholder") and
the option is an incentive stock option); and (ii) the exercise price of an
ISO may not be less than the fair market value of the underlying shares on the
date of grant (110% if the optionee is a 10% shareholder). ISOs are subject to
additional requirements under the 1995 Plan and the Internal Revenue Code of
1986, as amended (the "Code").
A participant may elect to exercise one or more of his options by giving
written notice to the Secretary of the Company of such election at any time
during which the option is exercisable under the 1995 Plan or the applicable
stock option agreement. The participant shall specify the number of options to
be exercised and provide payment in full of the aggregate purchase price for
the shares of Common Stock for which options are being exercised. Payment may
be made (i) in cash or by check, (ii) if so permitted by the Committee,
through delivery of unencumbered shares of Common Stock, a promissory note or,
in the case of non-qualifying stock options, unencumbered shares of Common
Stock issuable to the participant upon exercise of the option, or (iii) with
the consent of the 1995 Plan Committee, any combination of the consideration
provided for in (i) and (ii).
In its absolute discretion, the 1995 Plan Committee may provide that in the
event of a merger or consolidation of the Company with or into another
corporation, the acquisition by another corporation or person
9
<PAGE>
of all or substantially all of the Company's assets or 80% or more of the
Company's then outstanding voting stock, or the liquidation or dissolution of
the Company, all outstanding options shall be exercisable immediately prior to
such event, and immediately after such event, the options shall terminate.
EXECUTIVE INCENTIVE BONUS PLAN
The Company maintains a Corporate Management Bonus Plan (the "Management
Bonus Plan") for key corporate employees. The purpose of the Management Bonus
Plan is to offer incentives to key management of the Company so as to (i)
reward them for achieving financial goals and (ii) further the alignment of
interests of key management with the Company's stockholders. Bonuses under the
Management Bonus Plan are based on achieving certain EBITDA objectives. Each
participant's bonus award is calculated as a percentage of base salary, and
generally ranges from 20% to 75% of base salary.
In addition, the Company maintains Region Manager and General Manager Bonus
Plans (the "Operations Bonus Plan"). The Operations Bonus Plan is designed to
provide incentives to operations management to maintain a high level of
profitability and asset utilization and to achieve the Company's financial
goals in their individual market. Bonuses under the Operations Bonus Plan are
based on the degree to which region or individual location operating profit
objectives are met and range from 10% to 75% of the participant's base salary
if financial targets are achieved. If financial targets are exceeded,
participants may receive an additional bonus based on incremental regional or
store profit.
Bonuses under the Management Bonus Plan and the Operations Bonus Plan are
paid semi-annually. The first payment is made after finalization of the first
six months results, and the amount of the first payment is 50% of the bonus
earned for that six months, with the remainder of the bonus to be paid at year
end. The second payment is calculated after year end audited financial
statements are finalized, and the amount of the second payment is the total
bonus paid less the amount paid for the first six-month period.
DESCRIPTION OF THE 1996 PLAN
GENERAL
On December 5, 1996, the Board adopted the 1996 Plan. The principal purposes
of the 1996 Plan are to provide incentives for officers, key employees and
consultants of the Company and its subsidiaries through granting of options,
restricted stock and other awards ("Awards"), thereby stimulating their
personal and active interest in the Company's development and financial
success, and inducing them to remain in the Company's employ. In addition to
Awards made to officers, key employees or consultants, the 1996 Plan provides
for the granting of options ("Director Options") to the Company's independent
non-employee directors pursuant to a formula, as described in further detail
below and for the discretionary grant of additional options to such non-
employee directors by action of the Board.
Under the 1996 Plan, not more than 1,000,000 shares of Common Stock (or the
equivalent in other equity securities) are authorized for issuance upon
exercise of options, stock appreciation rights ("SARs"), and other Awards, or
upon vesting of restricted or deferred stock Awards. Furthermore, the maximum
number of shares which may be subject to options or SARs granted under the
1996 Plan to any individual in any calendar year cannot exceed 200,000. As of
January 6, 1997, a total of 322,140 shares were subject to outstanding stock
options held by approximately 36 officers, directors and key employees under
the 1995 Plan, and only 1,860 shares remained available for the grant of new
stock options under the 1995 Plan. On January 6, 1997, the closing price of
the Company's Common Stock on the Nasdaq National Market System was $25.75 per
share.
The shares available under the 1996 Plan upon exercise of options, SARs and
other Awards, and for issuance as restricted or deferred stock Awards, may
either be previously authorized but unissued shares or treasury shares, and
may be equity securities of the Company issued or authorized to be issued in
the future, but excluding any preferred stock and any warrants, options or
other rights to purchase Common Stock. The
10
<PAGE>
Committee (or the Board with respect to Director Options) has the discretion
to make appropriate adjustments in the number and kind of securities subject
to the 1996 Plan and to outstanding Awards thereunder to reflect dividends or
other distributions; a recapitalization, reclassification, stock split,
reverse stock split, or reorganization or consolidation of the Company; the
split-up, spin-off, combination, repurchase, liquidation or dissolution of the
Company; the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company; or any other similar corporate
transaction or event (an "extraordinary corporate event").
If any portion of an option, SAR or other Award terminates or lapses
unexercised, or is canceled upon grant of a new option, SAR or other Award
(which may be at a higher or lower exercise price than the option, SAR or
other Award so canceled), the shares which were subject to the unexercised
portion of such option, SAR or other Award, will continue to be available for
issuance under the 1996 Plan.
The principal features of the 1996 Plan are summarized below, but the
summary is qualified in its entirety by reference to the 1996 Plan itself, a
copy of which is attached hereto as Annex A. Copies of the 1996 Plan can also
be obtained by making written request of the Company's Secretary.
ADMINISTRATION
The Compensation Committee of the Board or a subcommittee thereof (the
"Committee") will administer the 1996 Plan with respect to grants to employees
or consultants of the Company and the full Board will administer the 1996 Plan
with respect to Director Options. The Committee will consist solely of at
least two members of the Board, each of whom is a "non-employee director" for
purposes of Rule 16b-3 under the Exchange Act ("Rule 16b-3") and, with respect
to options and SARs which are intended to constitute performance-based
compensation under Section 162(m) of the Code, an "outside director" for
purposes of Section 162(m) of the Code. Subject to the terms and conditions of
the 1996 Plan, the Committee has the authority to select the persons to whom
Awards are to be made, to determine the number of shares to be subject thereto
and the terms and conditions thereof, and to make all other determinations and
to take all other actions necessary or advisable for the administration of the
1996 Plan. Similarly, the Board has discretion to determine the terms and
conditions of Director Options and to interpret and administer the 1996 Plan
with respect to Director Options, consistent with the specific formula terms
described in more detail below. The Committee (and the Board) are also
authorized to adopt, amend and rescind rules relating to the administration of
the 1996 Plan.
PAYMENT FOR SHARES
The exercise or purchase price for all options, SARs, restricted stock and
other Awards that provide a right to acquire Common Stock, together with any
applicable tax required to be withheld, must be paid in full in cash at the
time of exercise or purchase or may, with the approval of the Committee (or
the Board with respect to Director Options), be paid in whole or in part in
Common Stock owned by the recipient (or issuable upon exercise of the option)
valued at its fair market value on the date of exercise or through delivery of
other property which constitutes good and valuable consideration, through
delivery of a recourse promissory note bearing interest payable to the
Company, or through delivery of a notice that the optionee has placed a market
sell order with a broker with respect to shares of Common Stock then issuable
upon exercise of the option, and that the broker has been directed to pay the
net proceeds of the sale to the Company in satisfaction of the exercise price,
or by a combination of the foregoing. In addition, the Committee (or the Board
with respect to Director Options) may in its discretion allow a delay in
payment up to thirty (30) days from the date the option, or portion thereof,
is exercised.
AMENDMENT AND TERMINATION
Amendments of the 1996 Plan to increase the number of shares as to which
Awards may be made (except for adjustments resulting from stock splits and the
like, and mergers, consolidations and other corporate transactions), or to
modify the maximum number of shares which may be subject to options or SARs
granted under the 1996 Plan to any individual in any calendar year, require
the approval of the Company's stockholders.
11
<PAGE>
In all other respects, the 1996 Plan can be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time
by the Board or the Committee, unless such action would otherwise require
stockholder approval as a matter of applicable law, regulation or rule.
Amendments of the 1996 Plan will not, without the consent of the participant,
alter or impair any rights or obligations under any Award previously awarded,
unless the Award agreement governing such Award itself otherwise expressly so
provides. No termination date is specified for the 1996 Plan.
ELIGIBILITY
Options, SARs, restricted stock and other Awards under the 1996 Plan may be
granted to individuals who are then officers or other employees of the Company
or any of its present or future subsidiaries and who are determined by the
Committee to be key employees. Such Awards also may be granted to consultants
of the Company selected by the Committee for participation in the 1996 Plan.
Approximately 37 officers and other employees are eligible to participate in
the 1996 Plan. More than one option, SAR, restricted stock Award or other
Award may be granted to an employee or consultant, but the aggregate fair
market value (determined at the time of grant) of shares with respect to which
an ISO is first exercisable by an optionee (i.e. "vests") during any calendar
year cannot exceed $100,000. In addition, non-employee directors of the
Company will be granted NQSOs (as defined herein) by the Board under the 1996
Plan. Six directors are eligible to participate in the 1996 Plan.
AWARDS UNDER THE 1996 PLAN
The 1996 Plan provides that the Committee may grant or issue stock options,
SARs, restricted stock, deferred stock, dividend equivalents, performance
awards, stock payments and other stock related benefits, or any combination
thereof. Each Award will be set forth in a separate agreement with the person
receiving the Award and will indicate the type, terms and conditions of the
Award.
Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Common Stock at a specified price which, except with respect to NQSOs intended
to qualify as performance-based compensation under Section 162(m) of the Code,
may be less than fair market value on the date of grant (but not less than par
value), and usually will become exercisable (in the discretion of the
Committee) in one or more installments after the grant date, subject to the
participant's continued employment with the Company and/or subject to the
satisfaction of individual or Company performance targets established by the
Committee. NQSOs may be granted for any term specified by the Committee.
Director Options are NQSOs granted to non-employee directors of the Company
pursuant to a formula. Under the formula in the 1996 Plan, all persons who, as
of the effective date of the 1996 Plan, are non-employee directors, and any
person who, during the term of the 1996 Plan, is initially elected to the
Board and who is a non-employee director at the time of such initial election,
automatically shall be granted an option to purchase ten thousand (10,000)
shares of Common Stock (subject to adjustment as provided in the 1996 Plan) on
the effective date of the 1996 Plan or the date of such initial election, as
applicable. In the case of James R. Buch, the Company previously granted him
an option to purchase nine thousand (9,000) shares of Common Stock under the
1995 Plan. Accordingly, on the effective date of the 1996 Plan, Mr. Buch will
be granted an option to purchase one thousand (1,000) shares of Common Stock.
During the term of the 1996 Plan, each then current non-employee director
shall automatically be granted a NQSO to purchase two thousand five hundred
(2,500) shares of Common Stock at each subsequent annual meeting at which he
is reelected to the Board. Further stockholder action is not required with
respect to such option grants. In addition, during the term of the 1996 Plan,
the Board may from time to time, in its absolute discretion, and subject to
applicable limitations of the 1996 Plan, grant additional Director Options to
the non- employee directors (or any of them). The exercise price of the
Director Options shall be 100% of the fair market value of a share of Common
Stock on the date of grant. The period during which the right to exercise a
Director Option in whole or in part vests in the optionee will be set by the
Board. No portion of a Director Option shall be exercisable after the tenth
anniversary of the date of grant.
12
<PAGE>
Incentive Stock Options ("ISOs") will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained
in the Code. Among such restrictions, ISOs must have an exercise price not
less than the fair market value of a share of Common Stock on the date of
grant, may only be granted to employees, must expire within a specified period
of time following the optionee's termination of employment, and must be
exercised within the ten years after the date of grant; but may be
subsequently modified to disqualify them from treatment as ISOs. In the case
of an ISO granted to an individual who owns (or is deemed to own) at least 10%
of the total combined voting power of all classes of stock of the Company, the
1996 Plan provides that the exercise price must be at least 110% of the fair
market value of a share of Common Stock on the date of grant and the ISO must
expire no later than the fifth anniversary of the date of its grant.
Restricted Stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Committee. Restricted stock, typically, may be repurchased by the Company
at the original purchase price if the conditions or restrictions are not met.
In general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and
will receive dividends prior to the time when the restrictions lapse.
Deferred Stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Committee. Like restricted
stock, deferred stock may not be sold, or otherwise transferred or
hypothecated, until vesting conditions are removed or expire. Unlike
restricted stock, deferred stock will not be issued until the deferred stock
Award has vested, and recipients of deferred stock generally will have no
voting or dividend rights prior to the time when vesting conditions are
satisfied.
Stock Appreciation Rights may be granted in connection with stock options or
other Awards, or separately. SARs granted by the Committee in connection with
stock options or other awards typically will provide for payments to the
holder based upon increases in the price of the Company's Common Stock over
the exercise price of the related option or other Awards, but alternatively
may be based upon criteria such as book value. Except as required by Section
162(m) of the Code with respect to a SAR intended to qualify as performance-
based compensation as described in Section 162(m) of the Code, there are no
restrictions specified in the 1996 Plan on the exercise of SARs or the amount
of gain realizable therefrom, although restrictions may be imposed by the
Committee in the SAR agreements. The Committee may elect to pay SARs in cash
or in Common Stock or in a combination of both.
Dividend Equivalents represent the value of the dividends per share paid by
the Company, calculated with reference to the number of shares covered by the
stock options, SARs or other Awards held by the participant.
Performance Awards may be granted by the Committee on an individual or group
basis. Generally, these Awards will be based upon specific performance targets
and may be paid in cash or in Common Stock or in a combination of both.
Performance Awards may include "phantom" stock Awards that provide for
payments based upon increases in the price of the Company's Common Stock over
a predetermined period. Performance Awards may also include bonuses which may
be granted by the Committee on an individual or group basis and which may be
payable in cash or in Common Stock or in a combination of both.
Stock Payments may be authorized by the Committee in the form of shares of
Common Stock or an option or other right to purchase Common Stock as part of a
deferred compensation arrangement in lieu of all or any part of compensation,
including bonuses, that would otherwise be payable in cash to the key employee
or consultant.
13
<PAGE>
1996 PLAN BENEFITS
The benefits, amounts and values to be received by the named executive
officers, individually and as a group, and by other employees of the Company
under the 1996 Plan are not determinable. Options for 51,000 shares in the
aggregate of Common Stock will automatically be granted to the Company's non-
employee directors on the effective date of the 1996 Plan.
MISCELLANEOUS PROVISIONS
The Committee (or Board with respect to Director Options) has discretion
under the 1996 Plan to provide that options and other rights to acquire Common
Stock will expire at specified times following, or become exercisable in full
upon, the occurrence of certain specified extraordinary corporate events; but
in such event the Committee may also give optionees and other grantees the
right to exercise their outstanding options or rights in full during some
period prior to such events, even though the options or other Awards have not
yet become fully exercisable, and the Committee may also provide that all
restrictions imposed on some or all shares of restricted stock and/or deferred
stock shall lapse, and some or all shares of restricted stock may cease to be
subject to the Company's right to repurchase after such event.
The 1996 Plan specifies that the Company may make loans to key employees to
enable them to exercise options, purchase shares or realize the benefits of
other Awards granted under the 1996 Plan. The terms and conditions of any such
loan are to be set by the Committee.
In consideration of the granting of an option, SAR or other Award, the
participant must agree, in the written agreement embodying such Award, to
remain in the employ of (or to consult for or to serve as a non-employee
director of, as applicable) the Company or any subsidiary of the Company for a
period of at least one year (or such shorter period as may be fixed in the
agreement embodying such Award or by action of the Committee (or the Board
with respect to Director Options) following grant of the option, SAR or other
Award) after the option, SAR or other Award is granted (or, in the case of
Director Options, until the next annual meeting of stockholders of the
Company).
The dates on which options or other Awards under the 1996 Plan first become
exercisable and on which they expire will be set forth in individual Award
agreements setting forth the terms of the Awards. Such agreements generally
will provide that options and other Awards expire upon termination of the
participant's status as an employee, consultant or director, although the
Committee (or the Board with respect to Director Options) may provide that
such options or other Awards continue to be exercisable following a
termination without cause, or following a Change in Control of the Company (as
defined in the 1996 Plan), or because of the grantee's retirement, death,
disability or otherwise. Similarly, restricted stock granted under the 1996
Plan which has not vested generally will be subject to repurchase by the
Company in the event of the grantee's termination of employment or
consultancy, although the Committee may make exceptions, based on the reason
for termination or on other factors.
No option, SAR or other Award granted under the 1996 Plan may be sold,
pledged, assigned or transferred in any manner other than by will or the laws
of descent and distribution, unless and until such rights or awards have been
exercised, or the shares underlying such rights or awards have been issued,
and all restrictions applicable to such shares have lapsed. During the
lifetime of the holder of any option or right, the option or right may be
exercised only by the holder.
As a condition to the issuance or delivery of stock or payment of other
compensation pursuant to the exercise or lapse of restrictions of any option
or other Award granted under the 1996 Plan, the Company requires participants
to discharge applicable withholding tax obligations. Shares held by or to be
issued to a participant may also be used to discharge tax withholding
obligations related to exercise of options or receipt of other Awards, subject
to the discretion of the Committee to disapprove such use. In addition, the
Committee may grant to employees a cash bonus in the amount of any tax related
to Awards.
14
<PAGE>
The 1996 Plan requires that it be submitted for stockholder approval within
twelve months of the date of its adoption. Options, SARs and other Awards
under the 1996 Plan may be granted prior to such approval, provided that such
options, SARs or other Awards may not vest or become exercisable prior to the
stockholders's approval of the 1996 Plan and that if such approval is not
received within the twelve month period, all such options, SARs and other
Awards shall become null and void.
SECURITIES LAWS
The 1996 Plan is intended to conform to the extent necessary with all
provisions of the Securities Act of 1933, as amended, and the Exchange Act,
and any and all regulations and rules promulgated by the Securities and
Exchange Commission thereunder, including without limitation Rule 16b-3. The
1996 Plan will be administered, and options will be granted and may be
exercised, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the 1996 Plan and
options granted thereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The tax consequences of the 1996 Plan under current federal law are
summarized in the following discussion which deals with the general tax
principles applicable to the 1996 Plan, and is intended for general
information only. In addition, the tax consequences described below are
subject to the limitation of Section 162(m) of the Code ("Section 162(m)"), as
discussed in further detail below. Alternative minimum tax and state and local
income taxes are not discussed. Tax laws are complex and subject to change and
may vary depending on individual circumstances and from locality to locality.
The tax information summarized is not tax advice.
Nonqualified Stock Options. For federal income tax purposes, an optionee
generally will not recognize taxable income on the grant of an NQSO under the
1996 Plan, but will recognize ordinary income, and the Company generally will
be entitled to a deduction, upon the exercise of an NQSO. The amount of income
recognized (and the amount generally deductible by the Company) generally will
be equal to the excess, if any, of the fair market value of the shares at the
time of exercise over the aggregate exercise price paid for the shares,
regardless of whether the exercise price is paid in cash or in shares or other
property. An optionee's basis for the stock for purposes of determining his or
her gain or loss upon a subsequent disposition of the shares generally will be
the fair market value of the stock on the date of exercise of the NQSO, and
any subsequent gain or loss will generally be taxable as capital gain or loss.
Incentive Stock Options. An optionee generally will not recognize taxable
income upon either the grant or exercise of an ISO; however, the amount by
which the fair market value of the shares at the time of exercise exceeds the
exercise price will be an "item of tax preference" for the optionee.
Generally, upon the sale or other taxable disposition of the shares of Common
Stock acquired upon exercise of an ISO, the optionee will recognize income
taxable as capital gains in an amount equal to the excess, if any, of the
amount realized in such disposition over the option exercise price, provided
that no disposition of the shares has taken place within either (a) two years
from the date of grant of the ISO or (b) one year from the date of exercise.
If the shares of Common Stock are sold or otherwise disposed of before the end
of the one-year and two-year periods specified above, the difference between
the ISO exercise price and the fair market value of the shares on the date of
exercise generally will be taxable as ordinary income; the balance of the
amount realized from such disposition, if any, generally will be taxed as
capital gain. If the shares of Common Stock are disposed of before the
expiration of the one-year and two-year periods and the amount realized is
less than the fair market value of the shares at the date of exercise, the
optionee's ordinary income generally is limited to excess, if any, of the
amount realized in such disposition over the option exercise price paid. The
Company (or other employer corporation) generally will be entitled to a tax
deduction with respect to an ISO only to the extent the optionee has ordinary
income upon sale or other disposition of the shares of Common Stock.
Stock Appreciation Rights. No taxable income is generally recognized upon
the receipt of an SAR, but upon exercise of the SAR the fair market value of
the shares (or cash in lieu of shares) received generally will be taxable as
ordinary income to the recipient in the year of such exercise. The Company
generally will be entitled to a compensation deduction for the same amount
which the recipient recognizes as ordinary income.
15
<PAGE>
Restricted Stock and Deferred Stock. An employee to whom restricted or
deferred stock is issued generally will not recognize taxable income upon such
issuance and the Company generally will not then be entitled to a deduction,
unless, in the case of restricted stock, an election is made under Section
83(b) of the Code. However, when restrictions on shares of restricted stock
lapse, such that the shares are no longer subject to a substantial risk of
forfeiture, the employee generally will recognize ordinary income and the
Company generally will be entitled to a deduction for an amount equal to the
excess of the fair market value of the shares at the date such restrictions
lapse over the purchase price therefor. Similarly, when deferred stock vests
and is issued to the employee, the employee generally will recognize ordinary
income and the Company generally will be entitled to a deduction for the
amount equal to the fair market value of the shares at the date of issuance.
If an election is made under Section 83(b) of the Code with respect to
qualifying restricted stock, the employee generally will recognize ordinary
income at the date of issuance equal to the excess, if any, of the fair market
value of the shares at that date over the purchase price therefor and the
Company will be entitled to a deduction for the same amount. The Code does not
permit a Section 83(b) election to be made with respect to deferred stock.
Dividend Equivalents. A recipient of a dividend equivalent award generally
will not recognize taxable income at the time of grant, and the Company will
not be entitled to a deduction at that time. When a dividend equivalent is
paid, the participant generally will recognize ordinary income, and the
Company will be entitled to a corresponding deduction.
Performance Awards. A participant who has been granted a performance award
generally will not recognize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time. When an award is
paid, whether in cash or Common Stock, the participant generally will
recognize ordinary income, and the Company will be entitled to a corresponding
deduction.
Stock Payments. A participant who receives a stock payment in lieu of a cash
payment that would otherwise have been made will generally be taxed as if the
cash payment has been received, and the Company generally will be entitled to
a deduction for the same amount.
Deferred Compensation. Participants who defer compensation generally will
recognize no income, gain or loss for federal income tax purposes when NQSOs
are granted in lieu of amounts otherwise payable, and the Company will not be
entitled to a deduction at that time. When and to the extent such NQSOs are
exercised, the rules regarding NQSOs outlined above will generally apply.
Section 162(m) Limitation. In general, under Section 162(m), income tax
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1 million
(less the amount of any "excess parachute payments" as defined in Section 280G
of the Code) in any one year. However, under Section 162(m), the deduction
limit does not apply to certain "performance-based compensation" established
by an independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options and SARs will satisfy
the "performance-based compensation" exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a specified period and the
compensation is based solely on an increase in the stock price after the grant
date (i.e. the option exercise price is equal to or greater than the fair
market value of the stock subject to the award on the grant date). Rights or
awards granted under the 1996 Plan, other than options and SARs, will not
qualify as "qualified performance-based compensation" for purposes of Section
162(m) unless such rights or awards are granted or vest upon preestablished
objective performance goals, the material terms of which are disclosed to and
approved by the stockholders of the Company. Thus, the Company expects that
such other rights or awards under the 1996 Plan will not constitute "qualified
performance-based compensation" for purposes of Section 162(m).
The Company has attempted to structure the 1996 Plan in such a manner that
the remuneration attributable to stock options and SARs granted thereunder
will not be subject to the $1,000,000 limitation. The Company has not,
however, requested a ruling from the IRS or an opinion of counsel regarding
this issue. This discussion will neither bind the IRS nor preclude the IRS
from adopting a contrary position.
16
<PAGE>
REASONS FOR ADOPTION OF THE 1996 PLAN
The 1995 Plan currently provides that 324,000 shares of Common Stock are
authorized for issuance. As of January 6, 1997, approximately 1,860 shares
remained available for future awards under the 1995 Plan. Also on that date,
options held by approximately 36 officers, directors and key employees and
covering approximately 287,850 shares were outstanding under the 1995 Plan, of
which 16,047 were exercisable. The Board has determined that it is advisable
to continue to provide stock-based incentive compensation to the Company's key
employees and consultants, thereby continuing to align the interests of such
employees and consultants with those of the stockholders, and that awards
under the 1996 Plan are an effective means of providing such compensation. In
addition, the Board has determined that it is advisable to provide non-
employee directors of the Company with the additional incentive to further the
growth, development and financial success of the Company by personally
benefiting through the ownership of Company stock and/or rights which
recognize such growth, development and financial success. The Board recommends
that the 1996 Plan be adopted.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding as of the Record Date of the Company is required to approve
the Proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that the stockholders vote
"FOR" the Proposal. The Board of Directors believes that the terms of the 1996
Plan are fair and that approval of the Proposal is in the best interests of
the Company and its stockholders.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR 1997 ANNUAL MEETING
Any stockholder intending to submit to the Company a proposal for inclusion
in the Company's proxy materials relating to the annual meeting to be held in
1997 must submit such proposal so that it is received by the Company no later
than March 10, 1997.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING CONSENT CARDS IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE AND,
IN ANY EVENT, PRIOR TO FEBRUARY 14, 1997.
By Order of the Board of Directors
/s/ Douglas A. Waugaman
Douglas A. Waugaman
Secretary
Scottsdale, Arizona
January 10, 1997
17
<PAGE>
ANNEX A
THE 1996 EQUITY PARTICIPATION PLAN
OF
RENTAL SERVICE CORPORATION
Rental Service Corporation, a Delaware corporation, has adopted The 1996
Equity Participation Plan of Rental Service Corporation (the "Plan"),
effective December 5, 1996, for the benefit of its eligible employees,
consultants and directors. The Plan consists of two plans, one for the benefit
of key Employees (as such term is defined below) and consultants and one for
the benefit of Independent Directors (as such term is defined below).
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock and/or
rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of directors,
key Employees and consultants considered essential to the long range success
of the Company by offering them an opportunity to own stock in the Company
and/or rights which will reflect the growth, development and financial success
of the Company.
ARTICLE I
DEFINITIONS
1.1 General. Wherever the following terms are used in this Plan they shall
have the meanings specified below, unless the context clearly indicates
otherwise.
1.2 Award Limit. "Award Limit" shall mean 200,000 shares of Common Stock.
1.3 Board. "Board" shall mean the Board of Directors of the Company.
1.4 Change in Control. "Change in Control" shall mean a change in ownership
or control of the Company effected through either of the following
transactions:
(a) any person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders which the Board
does not recommend such stockholders to accept; or
(b) there is a change in the composition of the Board over a period of
thirty-six (36) consecutive months (or less) such that a majority of the Board
members (rounded up to the nearest whole number) ceases, by reason of one or
more proxy contests for the election of Board members, to be comprised of
individuals who either (i) have been Board members continuously since the
beginning of such period or (ii) have been elected or nominated for election
as Board members during such period by at least a majority of the Board
members described in clause (i) who were still in office at the time such
election or nomination was approved by the Board.
1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6 Committee. "Committee" shall mean the Compensation Committee of the
Board, or another committee of the Board, appointed as provided in Section
9.1.
A-1
<PAGE>
1.7 Common Stock. "Common Stock" shall mean the common stock of the Company,
par value $.01 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any preferred stock and
any warrants, options or other rights to purchase Common Stock. Debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.
1.8 Company. "Company" shall mean Rental Service Corporation, a Delaware
corporation.
1.9 Corporate Transaction. "Corporate Transaction" shall mean any of the
following stockholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change
the State in which the Company is incorporated, form a holding company or
effect a similar reorganization as to form whereupon this Plan and all Options
are assumed by the successor entity;
(b) the issuance of shares of capital stock of the Company or any capital
stock, partnership units or any other securities evidencing ownership
interests in any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for, or in substitution of any Common Stock by reason of any
recapitalization or other transaction which results in the holder of such
shares of capital stock, partnership units or other securities controlling the
Company or any successor or assign of the Company;
(c) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions to
clause (a), above; or
(d) any reverse merger in which the Company is the surviving entity but in
which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are transferred
or issued to a person or persons different from those who held such securities
immediately prior to such merger.
1.10 Deferred Stock. "Deferred Stock" shall mean Common Stock awarded under
Article VII of this Plan.
1.11 Director. "Director" shall mean a member of the Board.
1.12 Dividend Equivalent. "Dividend Equivalent" shall mean a right to
receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VII of this Plan.
1.13 Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.14 Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.15 Fair Market Value. "Fair Market Value" of a share of Common Stock as of
a given date shall be (i) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any
(or as reported on any composite index which includes such principal
exchange), on the trading day previous to such date, or if shares were not
traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (ii) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock
on the trading day previous to such date as reported by NASDAQ or such
successor quotation system; or (iii) if Common Stock is not publicly traded on
an exchange and not quoted on NASDAQ or a successor quotation system, the Fair
Market Value of a share of Common Stock as established by the Committee (or
the Board, in the case of Options granted to Independent Directors) acting in
good faith.
A-2
<PAGE>
1.16 Grantee. "Grantee" shall mean an Employee or consultant granted a
Performance Award, Dividend Equivalent, Stock Payment or Stock Appreciation
Right, or an award of Deferred Stock, under this Plan.
1.17 Incentive Stock Option. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and
which is designated as an Incentive Stock Option by the Committee.
1.18 Independent Director. "Independent Director" shall mean a member of the
Board who is not an Employee of the Company.
1.19 Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean an
Option which is not designated as an Incentive Stock Option by the Committee
(or the Board, in the case of Options granted to Independent Directors).
1.20 Option. "Option" shall mean a stock option granted under Article III of
this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to Independent Directors and
consultants shall be Non-Qualified Stock Options.
1.21 Optionee. "Optionee" shall mean an Employee, consultant or Independent
Director granted an Option under this Plan.
1.22 Performance Award. "Performance Award" shall mean a cash bonus, stock
bonus or other performance or incentive award that is paid in cash, Common
Stock or a combination of both, awarded under Article VII of this Plan.
1.23 Plan. "Plan" shall mean The 1996 Equity Participation Plan of Rental
Service Corporation.
1.24 QDRO. "QDRO" shall mean a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder.
1.25 Restricted Stock. "Restricted Stock" shall mean Common Stock awarded
under Article VI of this Plan.
1.26 Restricted Stockholder. "Restricted Stockholder" shall mean an Employee
or consultant granted an award of Restricted Stock under Article VI of this
Plan.
1.27 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.28 Stock Appreciation Right. "Stock Appreciation Right" shall mean a stock
appreciation right granted under Article VIII of this Plan.
1.29 Stock Payment. "Stock Payment" shall mean (i) a payment in the form of
shares of Common Stock, or (ii) an option or other right to purchase shares of
Common Stock, as part of a deferred compensation arrangement, made in lieu of
all or any portion of the compensation, including without limitation, salary,
bonuses and commissions, that would otherwise become payable to a key Employee
or consultant in cash, awarded under Article VII of this Plan.
1.30 Subsidiary. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock
possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
A-3
<PAGE>
1.31 Termination of Consultancy. "Termination of Consultancy" shall mean the
time when the engagement of an Optionee, Grantee or Restricted Stockholder as
a consultant to the Company or a Subsidiary is terminated for any reason, with
or without cause, including, but not by way of limitation, by resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary.
The Committee, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Consultancy, including, but
not by way of limitation, the question of whether a Termination of Consultancy
resulted from a discharge for good cause, and all questions of whether
particular leaves of absence constitute Terminations of Consultancy.
Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate a consultant's
service at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.
1.32 Termination of Directorship. "Termination of Directorship" shall mean
the time when an Optionee who is an Independent Director ceases to be a
Director for any reason, including, but not by way of limitation, a
termination by resignation, failure to be elected, death or retirement. The
Board, in its sole and absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Directorship with respect to
Independent Directors.
1.33 Termination of Employment. "Termination of Employment" shall mean the
time when the employee-employer relationship between an Optionee, Grantee or
Restricted Stockholder and the Company or any Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment or
continuing employment of an Optionee, Grantee or Restricted Stockholder by the
Company or any Subsidiary, (ii) at the discretion of the Committee,
terminations which result in a temporary severance of the employee- employer
relationship, and (iii) at the discretion of the Committee, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Committee, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment resulted from
a discharge for good cause, and all questions of whether particular leaves of
absence constitute Terminations of Employment; provided, however, that, unless
otherwise determined by the Committee in its discretion, a leave of absence,
change in status from an employee to an independent contractor or other change
in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section. Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause,
except to the extent expressly provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan
(a) The shares of stock subject to Options, awards of Restricted Stock,
Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock
Payments or Stock Appreciation Rights shall be Common Stock, initially shares
of the Company's Common Stock, par value $.01 per share. The aggregate number
of such shares which may be issued upon exercise of such options or rights or
upon any such awards under the Plan shall not exceed one million (1,000,000).
The shares of Common Stock issuable upon exercise of such options or rights or
upon any such awards may be either previously authorized but unissued shares
or treasury shares.
(b) The maximum number of shares which may be subject to Options or Stock
Appreciation Rights granted under the Plan to any individual in any calendar
year shall not exceed the Award Limit. To the extent required
A-4
<PAGE>
by Section 162(m) of the Code, shares subject to Options which are canceled
continue to be counted against the Award Limit and if, after grant of an
Option, the price of shares subject to such Option is reduced, the transaction
is treated as a cancellation of the Option and a grant of a new Option and
both the Option deemed to be canceled and the Option deemed to be granted are
counted against the Award Limit. Furthermore, to the extent required by
Section 162(m) of the Code, if, after grant of a Stock Appreciation Right, the
base amount on which stock appreciation is calculated is reduced to reflect a
reduction in the Fair Market Value of the Company's Common Stock, the
transaction is treated as a cancellation of the Stock Appreciation Right and a
grant of a new Stock Appreciation Right and both the Stock Appreciation Right
deemed to be canceled and the Stock Appreciation Right deemed to be granted
are counted against the Award Limit.
2.2 Add-back of Options and Other Rights. If any Option, or other right to
acquire shares of Common Stock under any other award under this Plan, expires
or is canceled without having been fully exercised, or is exercised in whole
or in part for cash as permitted by this Plan, the number of shares subject to
such Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Options or other awards which are
adjusted pursuant to Section 10.3 and become exercisable with respect to
shares of stock of another corporation shall be considered cancelled and may
again be optioned, granted or awarded hereunder, subject to the limitations of
Section 2.1. Shares of Common Stock which are delivered by the Optionee or
Grantee or withheld by the Company upon the exercise of any Option or other
award under this Plan, in payment of the exercise price thereof, may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. If any share of Restricted Stock is forfeited by the Grantee or
repurchased by the Company pursuant to Section 6.6 hereof, such share may
again be optioned, granted or awarded hereunder, subject to the limitations of
Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares of
Common Stock may again be optioned, granted or awarded if such action would
cause an Incentive Stock Option to fail to qualify as an incentive stock
option under Section 422 of the Code.
ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Any Employee or consultant selected by the Committee
pursuant to Section 3.4(a)(i) shall be eligible to be granted an Option. Each
Independent Director of the Company shall be eligible to be granted Options at
the times and in the manner set forth in Section 3.4(d).
3.2 Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any then existing Subsidiary or parent corporation (within the
meaning of Section 422 of the Code) unless such Incentive Stock Option
conforms to the applicable provisions of Section 422 of the Code.
3.3 Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Employee.
3.4 Granting of Options
(a) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and select from among the
key Employees or consultants (including Employees or consultants who have
previously received Options or other awards under this Plan) such of them
as in its opinion should be granted Options;
A-5
<PAGE>
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected key Employees or
consultants;
(iii) Subject to Section 3.3, determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such
Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent with
this Plan; provided, however, that the terms and conditions of Options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code.
(b) Upon the selection of a key Employee or consultant to be granted an
Option, the Committee shall instruct the Secretary of the Company to issue the
Option and may impose such conditions on the grant of the Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Employee or consultant
that the Employee or consultant surrender for cancellation some or all of the
unexercised Options, awards of Restricted Stock or Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments or
other rights which have been previously granted to him under this Plan or
otherwise. An Option, the grant of which is conditioned upon such surrender,
may have an option price lower (or higher) than the exercise price of such
surrendered Option or other award, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
(c) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code.
(d) All persons who, as of the effective date of the Plan, are Independent
Directors, and any person who, during the term of the Plan, is initially
elected to the Board and who is an Independent Director at the time of such
initial election, automatically shall be granted an Option to purchase ten
thousand (10,000) shares of Common Stock (subject to adjustment as provided in
Section 10.3) on the effective date of the Plan or the date of such initial
election, as applicable. During the term of the Plan, each then current
Independent Director shall automatically be granted an Option to purchase two
thousand five hundred (2,500) shares of Common Stock at each subsequent annual
meeting at which he is reelected to the Board. In addition, during the term of
the Plan, the Board may from time to time, in its absolute discretion, and
subject to applicable limitations of this Plan, grant additional Options to
the Independent Directors (or any of them). The Board shall, in its absolute
discretion, and subject to applicable limitations of this Plan, determine the
terms and conditions of all such Options granted pursuant to this Section
3.4(d), consistent with this Plan. The foregoing Option grants authorized by
this Section 3.4(d) are subject to stockholder approval of the Plan.
ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as
the Committee (or the Board, in the case of Options granted to Independent
Directors) shall determine, consistent with this Plan. Stock Option Agreements
evidencing Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code. Stock Option
A-6
<PAGE>
Agreements evidencing Incentive Stock Options shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
422 of the Code.
4.2 Option Price. The price per share of the shares subject to each Option
shall be set by the Committee (or the Board, in the case of Options granted to
Independent Directors); provided, however, that such price shall be no less
than the par value of a share of Common Stock, unless otherwise permitted by
applicable state law, and (i) in the case of Incentive Stock Options and
Options intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, such price shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date the Option is
granted; (ii) in the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10%
of the total combined voting power of all classes of stock of the Company or
any Subsidiary or parent corporation thereof (within the meaning of Section
422 of the Code) such price shall not be less than 110% of the Fair Market
Value of a share of Common Stock on the date the Option is granted; and (iii)
in the case of Options granted to Independent Directors, such price shall
equal 100% of the Fair Market Value of a share of Common Stock on the date the
Option is granted.
4.3 Option Term. The term of an Option shall be set by the Committee (or the
Board, in the case of Options granted to Independent Directors) in its
discretion; provided, however, that, (i) in the case of Options granted to
Independent Directors, the term shall be ten (10) years from the date the
Option is granted and (ii) in the case of Incentive Stock Options, the term
shall not be more than ten (10) years from the date the Incentive Stock Option
is granted, or five (5) years from such date if the Incentive Stock Option is
granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation thereof (within
the meaning of Section 422 of the Code). Except as limited by requirements of
Section 422 of the Code and regulations and rulings thereunder applicable to
Incentive Stock Options, the Committee may extend the term of any outstanding
Option in connection with any Termination of Employment or Termination of
Consultancy of the Optionee, or amend any other term or condition of such
Option relating to such a termination.
4.4 Option Vesting
(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee (or the Board, in the
case of Options granted to Independent Directors) and the Committee (or the
Board, in the case of Options granted to Independent Directors) may determine
that an Option may not be exercised in whole or in part for a specified period
after it is granted. At any time after grant of an Option, the Committee (or
the Board, in the case of Options granted to Independent Directors) may, in
its sole and absolute discretion and subject to whatever terms and conditions
it selects, accelerate the period during which an Option vests.
(b) No portion of an Option which is unexercisable at Termination of
Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee (or the Board, in the case of Options granted to
Independent Directors) in the case of Options granted to Employees or
consultants either in the Stock Option Agreement or by action of the Committee
(or the Board, in the case of Options granted to Independent Directors)
following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with respect
to which "incentive stock options" (within the meaning of Section 422 of the
Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any Subsidiary) exceeds
$100,000, such Options shall be treated as Non-Qualified Options to the extent
required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(c), the Fair Market Value
of stock shall be determined as of the time the Option with respect to such
stock is granted.
A-7
<PAGE>
4.5 Consideration. In consideration of the granting of an Option, the
Optionee shall agree, in the written Stock Option Agreement, to remain in the
employ of (or to consult for or to serve as an Independent Director of, as
applicable) the Company or any Subsidiary for a period of at least one year
(or such shorter period as may be fixed in the Stock Option Agreement or by
action of the Committee (or the Board, in the case of Options granted to
Independent Directors) following grant of the Option) after the Option is
granted (or, in the case of an Independent Director, until the next annual
meeting of stockholders of the Company). Nothing in this Plan or in any Stock
Option Agreement hereunder shall confer upon any Optionee any right to
continue in the employ of, or as a consultant for, the Company or any
Subsidiary, or as a director of the Company, or shall interfere with or
restrict in any way the rights of the Company and any Subsidiary, which are
hereby expressly reserved, to discharge any Optionee at any time for any
reason whatsoever, with or without good cause.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in whole or in
part. However, an Option shall not be exercisable with respect to fractional
shares and the Committee (or the Board, in the case of Options granted to
Independent Directors) may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his office:
(a) A written notice complying with the applicable rules established by the
Committee (or the Board, in the case of Options granted to Independent
Directors) stating that the Option, or a portion thereof, is exercised. The
notice shall be signed by the Optionee or other person then entitled to
exercise the Option or such portion;
(b) Such representations and documents as the Committee (or the Board, in
the case of Options granted to Independent Directors), in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may,
in its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;
(c) In the event that the Option shall be exercised pursuant to Section 10.1
by any person or persons other than the Optionee, appropriate proof of the
right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, the
Committee (or the Board, in the case of Options granted to Independent
Directors), may in its discretion (i) allow a delay in payment up to thirty
(30) days from the date the Option, or portion thereof, is exercised; (ii)
allow payment, in whole or in part, through the delivery of shares of Common
Stock owned by the Optionee, duly endorsed for transfer to the Company with a
Fair Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof; (iii) allow payment, in
whole or in part, through the surrender of shares of Common Stock then
issuable upon exercise of the Option having a Fair Market Value on the date of
Option exercise equal to the aggregate exercise price of the Option or
exercised portion thereof; (iv) allow payment, in whole or in part, through
the delivery of property of any kind which constitutes good and valuable
consideration; (v) allow payment, in whole or in part, through the delivery of
a full recourse promissory note bearing interest (at no less than such rate as
shall then preclude the imputation of interest under the Code) and payable
upon such terms as may be prescribed by the Committee or the Board; (vi) allow
payment, in whole or in part, through the delivery of a notice that the
Optionee has placed a market sell order with a broker with respect to shares
of Common Stock then issuable upon exercise of the Option, and that the broker
has been directed to pay a sufficient portion of the net proceeds of the sale
to the Company in satisfaction of the Option exercise price; or (vii) allow
payment through any combination of the
A-8
<PAGE>
consideration provided in the foregoing subparagraphs (ii), (iii), (iv), (v)
and (vi). In the case of a promissory note, the Committee (or the Board, in
the case of Options granted to Independent Directors) may also prescribe the
form of such note and the security to be given for such note. The Option may
not be exercised, however, by delivery of a promissory note or by a loan from
the Company when or where such loan or other extension of credit is prohibited
by law.
5.3 Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of
stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;
(b) The completion of any registration or other qualification of such shares
under any state or federal law, or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee (or Board, in the case of
Options granted to Independent Directors) shall, in its absolute discretion,
determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Committee (or Board, in the case of Options granted to
Independent Directors) may establish from time to time for reasons of
administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall not be, nor have
any of the rights or privileges of, stockholders of the Company in respect of
any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
5.5 Ownership and Transfer Restrictions. The Committee (or Board, in the
case of Options granted to Independent Directors), in its absolute discretion,
may impose such restrictions on the ownership and transferability of the
shares purchasable upon the exercise of an Option as it deems appropriate. Any
such restriction shall be set forth in the respective Stock Option Agreement
and may be referred to on the certificates evidencing such shares. The
Committee may require the Employee to give the Company prompt notice of any
disposition of shares of Common Stock acquired by exercise of an Incentive
Stock Option within (i) two years from the date of granting such Option to
such Employee or (ii) one year after the transfer of such shares to such
Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement to give prompt
notice of disposition.
ARTICLE VI
AWARD OF RESTRICTED STOCK
6.1 Award of Restricted Stock
(a) The Committee may from time to time, in its absolute discretion:
(i) Select from among the key Employees or consultants (including
Employees or consultants who have previously received other awards under
this Plan) such of them as in its opinion should be awarded Restricted
Stock; and
A-9
<PAGE>
(ii) Determine the purchase price, if any, and other terms and conditions
applicable to such Restricted Stock, consistent with this Plan.
(b) The Committee shall establish the purchase price, if any, and form of
payment for Restricted Stock; provided, however, that such purchase price
shall be no less than the par value of the Common Stock to be purchased,
unless otherwise permitted by applicable state law. In all cases, legal
consideration shall be required for each issuance of Restricted Stock.
(c) Upon the selection of a key Employee or consultant to be awarded
Restricted Stock, the Committee shall instruct the Secretary of the Company to
issue such Restricted Stock and may impose such conditions on the issuance of
such Restricted Stock as it deems appropriate.
6.2 Restricted Stock Agreement. Restricted Stock shall be issued only
pursuant to a written Restricted Stock Agreement, which shall be executed by
the selected key Employee or consultant and an authorized officer of the
Company and which shall contain such terms and conditions as the Committee
shall determine, consistent with this Plan.
6.3 Consideration. As consideration for the issuance of Restricted Stock, in
addition to payment of any purchase price, the Restricted Stockholder shall
agree, in the written Restricted Stock Agreement, to remain in the employ of,
or to consult for, the Company or any Subsidiary for a period of at least one
year after the Restricted Stock is issued (or such shorter period as may be
fixed in the Restricted Stock Agreement or by action of the Committee
following grant of the Restricted Stock). Nothing in this Plan or in any
Restricted Stock Agreement hereunder shall confer on any Restricted
Stockholder any right to continue in the employ of, or as a consultant for,
the Company or any Subsidiary or shall interfere with or restrict in any way
the rights of the Company and any Subsidiary, which are hereby expressly
reserved, to discharge any Restricted Stockholder at any time for any reason
whatsoever, with or without good cause.
6.4 Rights as Stockholders. Upon delivery of the shares of Restricted Stock
to the escrow holder pursuant to Section 6.7, the Restricted Stockholder shall
have, unless otherwise provided by the Committee, all the rights of a
stockholder with respect to said shares, subject to the restrictions in his
Restricted Stock Agreement, including the right to receive all dividends and
other distributions paid or made with respect to the shares; provided,
however, that in the discretion of the Committee, any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 6.5.
6.5 Restriction. All shares of Restricted Stock issued under this Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other
form of recapitalization) shall, in the terms of each individual Restricted
Stock Agreement, be subject to such restrictions as the Committee shall
provide, which restrictions may include, without limitation, restrictions
concerning voting rights and transferability and restrictions based on
duration of employment with the Company, Company performance and individual
performance; provided, however, that by action taken after the Restricted
Stock is issued, the Committee may, on such terms and conditions as it may
determine to be appropriate, remove any or all of the restrictions imposed by
the terms of the Restricted Stock Agreement. Restricted Stock may not be sold
or encumbered until all restrictions are terminated or expire. Unless provided
otherwise by the Committee, if no consideration was paid by the Restricted
Stockholder upon issuance, a Restricted Stockholder's rights in unvested
Restricted Stock shall lapse upon Termination of Employment or, if applicable,
upon Termination of Consultancy with the Company.
6.6 Repurchase of Restricted Stock. The Committee shall provide in the terms
of each individual Restricted Stock Agreement that the Company shall have the
right to repurchase from the Restricted Stockholder the Restricted Stock then
subject to restrictions under the Restricted Stock Agreement immediately upon
a Termination of Employment or, if applicable, upon a Termination of
Consultancy between the Restricted Stockholder and the Company, at a cash
price per share equal to the price paid by the Restricted Stockholder for
A-10
<PAGE>
such Restricted Stock; provided, however, that provision may be made that no
such right of repurchase shall exist in the event of a Termination of
Employment or Termination of Consultancy without cause, or following a change
in control of the Company or because of the Restricted Stockholder's
retirement, death or disability, or otherwise.
6.7 Escrow. The Secretary of the Company or such other escrow holder as the
Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Restricted Stock Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
6.8 Legend. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Restricted Stock Agreements, which legend
or legends shall make appropriate reference to the conditions imposed thereby.
ARTICLE VII
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1 Performance Awards. Any key Employee or consultant selected by the
Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to the market value, book value, net profits
or other measure of the value of Common Stock or other specific performance
criteria determined appropriate by the Committee, in each case on a specified
date or dates or over any period or periods determined by the Committee, or
may be based upon the appreciation in the market value, book value, net
profits or other measure of the value of a specified number of shares of
Common Stock over a fixed period or periods determined by the Committee. In
making such determinations, the Committee shall consider (among such other
factors as it deems relevant in light of the specific type of award) the
contributions, responsibilities and other compensation of the particular key
Employee or consultant.
7.2 Dividend Equivalents. Any key Employee or consultant selected by the
Committee may be granted Dividend Equivalents based on the dividends declared
on Common Stock, to be credited as of dividend payment dates, during the
period between the date an Option, Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Option, Stock Appreciation
Right, Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee. Such Dividend Equivalents shall be converted to
cash or additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee. With
respect to Dividend Equivalents granted with respect to Options intended to be
qualified performance-based compensation for purposes of Section 162(m) of the
Code, such Dividend Equivalents shall be payable regardless of whether such
Option is exercised.
7.3 Stock Payments. Any key Employee or consultant selected by the Committee
may receive Stock Payments in the manner determined from time to time by the
Committee. The number of shares shall be determined by the Committee and may
be based upon the Fair Market Value, book value, net profits or other measure
of the value of Common Stock or other specific performance criteria determined
appropriate by the Committee, determined on the date such Stock Payment is
made or on any date thereafter.
7.4 Deferred Stock. Any key Employee or consultant selected by the Committee
may be granted an award of Deferred Stock in the manner determined from time
to time by the Committee. The number of shares of Deferred Stock shall be
determined by the Committee and may be linked to the market value, book value,
net profits or other measure of the value of Common Stock or other specific
performance criteria determined to be appropriate by the Committee, in each
case on a specified date or dates or over any period or periods determined by
the Committee. Common Stock underlying a Deferred Stock award will not be
issued until the Deferred Stock award has vested, pursuant to a vesting
schedule or performance criteria set by the Committee. Unless otherwise
A-11
<PAGE>
provided by the Committee, a Grantee of Deferred Stock shall have no rights as
a Company stockholder with respect to such Deferred Stock until such time as
the award has vested and the Common Stock underlying the award has been
issued.
7.5 Performance Award Agreement, Dividend Equivalent Agreement, Deferred
Stock Agreement, Stock Payment Agreement. Each Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment shall be evidenced by
a written agreement, which shall be executed by the Grantee and an authorized
Officer of the Company and which shall contain such terms and conditions as
the Committee shall determine, consistent with this Plan.
7.6 Term. The term of a Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment shall be set by the Committee in its
discretion.
7.7 Exercise Upon Termination of Employment. A Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or
payable only while the Grantee is an Employee or consultant; provided that the
Committee may determine that the Performance Award, Dividend Equivalent, award
of Deferred Stock and/or Stock Payment may be exercised or paid subsequent to
Termination of Employment or Termination of Consultancy without cause, or
following a change in control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
7.8 Payment on Exercise. Payment of the amount determined under Section 7.1
or 7.2 above shall be in cash, in Common Stock or a combination of both, as
determined by the Committee. To the extent any payment under this Article VII
is effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 5.3.
7.9 Consideration. In consideration of the granting of a Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment, the Grantee
shall agree, in a written agreement, to remain in the employ of, or to consult
for, the Company or any Subsidiary for a period of at least one year after
such Performance Award, Dividend Equivalent, award of Deferred Stock and/or
Stock Payment is granted (or such shorter period as may be fixed in such
agreement or by action of the Committee following such grant). Nothing in this
Plan or in any agreement hereunder shall confer on any Grantee any right to
continue in the employ of, or as a consultant for, the Company or any
Subsidiary or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Grantee at any time for any reason whatsoever, with or without good cause.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be
granted to any key Employee or consultant selected by the Committee. A Stock
Appreciation Right may be granted (i) in connection and simultaneously with
the grant of an Option, (ii) with respect to a previously granted Option, or
(iii) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions not inconsistent with this Plan as the Committee
shall impose and shall be evidenced by a written Stock Appreciation Right
Agreement, which shall be executed by the Grantee and an authorized officer of
the Company. The Committee, in its discretion, may determine whether a Stock
Appreciation Right is to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code and Stock Appreciation Right
Agreements evidencing Stock Appreciation Rights intended to so qualify shall
contain such terms and conditions as may be necessary to meet the applicable
provisions of Section 162(m) of the Code. Without limiting the generality of
the foregoing, the Committee may, in its discretion and on such terms as it
deems appropriate, require as a condition of the grant of a Stock Appreciation
Right to an Employee or consultant that the Employee or consultant surrender
for cancellation some or all of the unexercised Options, awards of Restricted
Stock or Deferred Stock, Performance
A-12
<PAGE>
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments, or
other rights which have been previously granted to him under this Plan or
otherwise. A Stock Appreciation Right, the grant of which is conditioned upon
such surrender, may have an exercise price lower (or higher) than the exercise
price of the surrendered Option or other award, may cover the same (or a
lesser or greater) number of shares as such surrendered Option or other award,
may contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, exercise period or any other term or condition of such
surrendered Option or other award.
8.2 Coupled Stock Appreciation Rights
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the number of
shares subject to the simultaneously or previously granted Option to which it
is coupled.
(c) A CSAR shall entitle the Grantee (or other person entitled to exercise
the Option pursuant to this Plan) to surrender to the Company unexercised a
portion of the Option to which the CSAR relates (to the extent then
exercisable pursuant to its terms) and to receive from the Company in exchange
therefor an amount determined by multiplying the difference obtained by
subtracting the Option exercise price from the Fair Market Value of a share of
Common Stock on the date of exercise of the CSAR by the number of shares of
Common Stock with respect to which the CSAR shall have been exercised, subject
to any limitations the Committee may impose.
8.3 Independent Stock Appreciation Rights
(a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated to
any Option and shall have a term set by the Committee. An ISAR shall be
exercisable in such installments as the Committee may determine. An ISAR shall
cover such number of shares of Common Stock as the Committee may determine.
The exercise price per share of Common Stock subject to each ISAR shall be set
by the Committee. An ISAR is exercisable only while the Grantee is an Employee
or consultant; provided that the Committee may determine that the ISAR may be
exercised subsequent to Termination of Employment or Termination of
Consultancy without cause, or following a change in control of the Company, or
because of the Grantee's retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person entitled to exercise
the ISAR pursuant to this Plan) to exercise all or a specified portion of the
ISAR (to the extent then exercisable pursuant to its terms) and to receive
from the Company an amount determined by multiplying the difference obtained
by subtracting the exercise price per share of the ISAR from the Fair Market
Value of a share of Common Stock on the date of exercise of the ISAR by the
number of shares of Common Stock with respect to which the ISAR shall have
been exercised, subject to any limitations the Committee may impose.
8.4 Payment and Limitations on Exercise
(a) Payment of the amount determined under Section 8.2(c) and 8.3(b) above
shall be in cash, in Common Stock (based on its Fair Market Value as of the
date the Stock Appreciation Right is exercised) or a combination of both, as
determined by the Committee. To the extent such payment is effected in Common
Stock it shall be made subject to satisfaction of all provisions of Section
5.3 above pertaining to Options.
(b) Grantees of Stock Appreciation Rights may be required to comply with any
timing or other restrictions with respect to the settlement or exercise of a
Stock Appreciation Right, including a window-period limitation, as may be
imposed in the discretion of the Board or Committee.
8.5 Consideration. In consideration of the granting of a Stock Appreciation
Right, the Grantee shall agree, in the written Stock Appreciation Right
Agreement, to remain in the employ of, or to consult for, the Company or any
Subsidiary for a period of at least one year after the Stock Appreciation
Right is granted (or such shorter
A-13
<PAGE>
period as may be fixed in the Stock Appreciation Right Agreement or by action
of the Committee following grant of the Restricted Stock). Nothing in this
Plan or in any Stock Appreciation Right Agreement hereunder shall confer on
any Grantee any right to continue in the employ of, or as a consultant for,
the Company or any Subsidiary or shall interfere with or restrict in any way
the rights of the Company and any Subsidiary, which are hereby expressly
reserved, to discharge any Grantee at any time for any reason whatsoever, with
or without good cause.
ARTICLE IX
ADMINISTRATION
9.1 Compensation Committee. The Compensation Committee (or another committee
of the Board assuming the functions of the Committee under this Plan) shall
consist solely of two or more Independent Directors appointed by and holding
office at the pleasure of the Board, each of whom is both a "non-employee
director" as defined by Rule 16b-3 and, with respect to the grant of Options
or SARs which are intended to qualify as "performance-based compensation"
under Section 162(m) of the Code, an "outside director" for purposes of
Section 162(m) of the Code. Appointment of Committee members shall be
effective upon acceptance of appointment. Committee members may resign at any
time by delivering written notice to the Board. Vacancies in the Committee may
be filled by the Board.
9.3 Duties and Powers of Committee. It shall be the duty of the Committee to
conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to interpret this Plan and the
agreements pursuant to which Options, awards of Restricted Stock or Deferred
Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments are granted or awarded, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Notwithstanding
the foregoing, the full Board, acting by a majority of its members in office,
shall conduct the general administration of the Plan with respect to Options
granted to Independent Directors. Any such grant or award under this Plan need
not be the same with respect to each Optionee, Grantee or Restricted
Stockholder. Any such interpretations and rules with respect to Incentive
Stock Options shall be consistent with the provisions of Section 422 of the
Code. In its absolute discretion, the Board may at any time and from time to
time exercise any and all rights and duties of the Committee under this Plan
except with respect to matters which under Rule 16b-3 or Section 162(m) of the
Code, or any regulations or rules issued thereunder, are required to be
determined in the sole discretion of the Committee.
9.3 Majority Rule; Unanimous Written Consent. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members
of the Committee.
9.4 Compensation; Professional Assistance; Good Faith Actions. Members of
the Committee shall receive such compensation for their services as members as
may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of this Plan shall
be borne by the Company. The Committee may, with the approval of the Board,
employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, Grantees, Restricted Stockholders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan, Options, awards of Restricted Stock or Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
A-14
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Not Transferable. Options, Restricted Stock awards, Deferred Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments under this Plan may not be sold, pledged, assigned, or
transferred in any manner other than by will or the laws of descent and
distribution or pursuant to a QDRO, unless and until such rights or awards
have been exercised, or the shares underlying such rights or awards have been
issued, and all restrictions applicable to such shares have lapsed. No Option,
Restricted Stock award, Deferred Stock award, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment or interest or right
therein shall be liable for the debts, contracts or engagements of the
Optionee, Grantee or Restricted Stockholder or his successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including
bankruptcy), and any attempted disposition thereof shall be null and void and
of no effect, except to the extent that such disposition is permitted by the
preceding sentence.
During the lifetime of the Optionee or Grantee, only he may exercise an
Option or other right or award (or any portion thereof) granted to him under
the Plan, unless it has been disposed of pursuant to a QDRO. After the death
of the Optionee or Grantee, any exercisable portion of an Option or other
right or award may, prior to the time when such portion becomes unexercisable
under the Plan or the applicable Stock Option Agreement or other agreement, be
exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's or Grantee's will or under the then applicable
laws of descent and distribution.
10.2 Amendment, Suspension or Termination of this Plan. Except as otherwise
provided in this Section 10.2, this Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time
by the Board or the Committee. However, without approval of the Company's
stockholders given within twelve months before or after the action by the
Board or the Committee, no action of the Board or the Committee may, except as
provided in Section 10.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or modify the
Award Limit, and no action of the Board or the Committee may be taken that
would otherwise require stockholder approval as a matter of applicable law,
regulation or rule. No amendment, suspension or termination of this Plan
shall, without the consent of the holder of Options, Restricted Stock awards,
Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments, alter or impair any rights or obligations under
any Options, Restricted Stock awards, Deferred Stock awards, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments
theretofore granted or awarded, unless the award itself otherwise expressly so
provides. No Options, Restricted Stock, Deferred Stock, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be
granted or awarded during any period of suspension or after termination of
this Plan, and in no event may any Incentive Stock Option be granted under
this Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is approved by the
Company's stockholders under Section 10.4.
10.3 Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events
(a) Subject to Section 10.3(d), in the event that the Committee (or the
Board, in the case of Options granted to Independent Directors) determines
that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split- up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company (including,
A-15
<PAGE>
but not limited to, a Corporate Transaction), or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Committee's sole discretion (or in the
case of Options granted to Independent Directors, the Board's sole
discretion), affects the Common Stock such that an adjustment is determined by
the Committee (or the Board, in the case of Options granted to Independent
Directors) to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Plan or with respect to an Option, Restricted Stock award, Performance Award,
Stock Appreciation Right, Dividend Equivalent, Deferred Stock award or Stock
Payment, then the Committee (or the Board, in the case of Options granted to
Independent Directors) shall, in such manner as it may deem equitable, adjust
any or all of
(i) the number and kind of shares of Common Stock (or other securities or
property) with respect to which Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted
under the Plan, or which may be granted as Restricted Stock or Deferred
Stock (including, but not limited to, adjustments of the limitations in
Section 2.1 on the maximum number and kind of shares which may be issued
and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other securities
or property) subject to outstanding Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the
number and kind of shares of outstanding Restricted Stock or Deferred
Stock, and
(iii) the grant or exercise price with respect to any Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment.
(b) Subject to Sections 10.3(b)(vii) and 10.3(d), in the event of any
Corporate Transaction or other transaction or event described in Section
10.3(a) or any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of the
Company or any affiliate, or of changes in applicable laws, regulations, or
accounting principles, the Committee (or the Board, in the case of Options
granted to Independent Directors) in its discretion is hereby authorized to
take any one or more of the following actions whenever the Committee (or the
Board, in the case of Options granted to Independent Directors) determines
that such action is appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Plan or with respect to any option, right or other award under this Plan, to
facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms and conditions
as it deems appropriate, the Committee (or the Board, in the case of
Options granted to Independent Directors) may provide, either by the terms
of the agreement or by action taken prior to the occurrence of such
transaction or event and either automatically or upon the optionee's
request, for either the purchase of any such Option, Performance Award,
Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or any
Restricted Stock or Deferred Stock for an amount of cash equal to the
amount that could have been attained upon the exercise of such option,
right or award or realization of the optionee's rights had such option,
right or award been currently exercisable or payable or fully vested or the
replacement of such option, right or award with other rights or property
selected by the Committee (or the Board, in the case of Options granted to
Independent Directors) in its sole discretion;
(ii) In its sole and absolute discretion, the Committee (or the Board, in
the case of Options granted to Independent Directors) may provide, either
by the terms of such Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred
Stock or by action taken prior to the occurrence of such transaction or
event that it cannot be exercised after such event;
(iii) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the
case of Options granted to Independent Directors) may provide, either by
A-16
<PAGE>
the terms of such Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred
Stock or by action taken prior to the occurrence of such transaction or
event, that for a specified period of time prior to such transaction or
event, such option, right or award shall be exercisable as to all shares
covered thereby, notwithstanding anything to the contrary in (i) Section
4.4 or (ii) the provisions of such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock;
(iv) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the
case of Options granted to Independent Directors) may provide, either by
the terms of such Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred
Stock or by action taken prior to the occurrence of such transaction or
event, that upon such event, such option, right or award be assumed by the
successor or survivor corporation, or a parent or subsidiary thereof, or
shall be substituted for by similar options, rights or awards covering the
stock of the successor or survivor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares
and prices; and
(v) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the
case of Options granted to Independent Directors) may make adjustments in
the number and type of shares of Common Stock (or other securities or
property) subject to outstanding Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the
number and kind of outstanding Restricted Stock or Deferred Stock and/or in
the terms and conditions of (including the grant or exercise price), and
the criteria included in, outstanding options, rights and awards and
options, rights and awards which may be granted in the future.
(vi) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee may provide either by the
terms of a Restricted Stock award or Deferred Stock award or by action
taken prior to the occurrence of such event that, for a specified period of
time prior to such event, the restrictions imposed under a Restricted Stock
Agreement or a Deferred Stock Agreement upon some or all shares of
Restricted Stock or Deferred Stock may be terminated, and, in the case of
Restricted Stock, some or all shares of such Restricted Stock may cease to
be subject to repurchase under Section 6.6 or forfeiture under Section 6.5
after such event.
(vii) In the event of any Corporate Transaction, each outstanding Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent, Stock
Payment, Restricted Stock, or Deferred Stock award shall, immediately prior
to the effective date of the Corporate Transaction, automatically become
fully exercisable for all of the shares of Common Stock at the time subject
to such rights or fully vested, as applicable, and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. However, an
outstanding right shall not so accelerate if and to the extent: (i) such
right is, in connection with the Corporate Transaction, either to be
assumed by the successor or survivor corporation (or parent thereof) or to
be replaced with a comparable right with respect to shares of the capital
stock of the successor or survivor corporation (or parent thereof) or (ii)
the acceleration of exercisability of such right is subject to other
limitations imposed by the Plan Administrator at the time of grant. The
determination of comparability of rights under clause (i) above shall be
made by the Plan Administrator, and its determination shall be final,
binding and conclusive.
(c) Subject to Section 10.3(d) and 10.8, the Committee (or the Board, in the
case of Options granted to Independent Directors) may, in its discretion,
include such further provisions and limitations in any Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or
Restricted Stock or Deferred Stock agreement or certificate, as it may deem
equitable and in the best interests of the Company.
(d) With respect to Incentive Stock Options and Options and Stock
Appreciation Rights intended to qualify as performance-based compensation
under Section 162(m) of the Code, no adjustment or action described in this
Section 10.3 or in any other provision of the Plan shall be authorized to the
extent that such adjustment or action would cause the Plan to violate Section
422(b)(1) of the Code or would cause such option or stock appreciation
A-17
<PAGE>
right to fail to so qualify under Section 162(m) of the Code, as the case may
be, or any successor provisions thereto. Furthermore, no such adjustment or
action shall be authorized to the extent such adjustment or action would
result in short-swing profits liability under Section 16 or violate the
exemptive conditions of Rule 16b-3 unless the Committee (or the Board, in the
case of Options granted to Independent Directors) determines that the option
or other award is not to comply with such exemptive conditions. The number of
shares of Common Stock subject to any option, right or award shall always be
rounded to the next whole number.
10.4 Approval of Plan by Stockholders. This Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of this Plan. Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted and
Restricted Stock or Deferred Stock may be awarded prior to such stockholder
approval, provided that such Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments shall not be exercisable and
such Restricted Stock or Deferred Stock shall not vest prior to the time when
this Plan is approved by the stockholders, and provided further that if such
approval has not been obtained at the end of said twelve-month period, all
Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents
or Stock Payments previously granted and all Restricted Stock or Deferred
Stock previously awarded under this Plan shall thereupon be canceled and
become null and void.
10.5 Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Optionee, Grantee or
Restricted Stockholder of any sums required by federal, state or local tax law
to be withheld with respect to the issuance, vesting or exercise of any
Option, Restricted Stock, Deferred Stock, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment. The Committee (or
the Board, in the case of Options granted to Independent Directors) may in its
discretion and in satisfaction of the foregoing requirement allow such
Optionee, Grantee or Restricted Stockholder to elect to have the Company
withhold shares of Common Stock otherwise issuable under such Option or other
award (or allow the return of shares of Common Stock) having a Fair Market
Value equal to the sums required to be withheld.
10.5 Loans. The Committee may, in its discretion, extend one or more loans
to key Employees in connection with the exercise or receipt of an Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment granted under this Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under this Plan. The terms and conditions of any such
loan shall be set by the Committee.
10.7 Forfeiture Provisions. Pursuant to its general authority to determine
the terms and conditions applicable to awards under the Plan, the Committee
(or the Board, in the case of Options granted to Independent Directors) shall
have the right (to the extent consistent with the applicable exemptive
conditions of Rule 16b-3) to provide, in the terms of Options or other awards
made under the Plan, or to require the recipient to agree by separate written
instrument, that (i) any proceeds, gains or other economic benefit actually or
constructively received by the recipient upon any receipt or exercise of the
award, or upon the receipt or resale of any Common Stock underlying such
award, must be paid to the Company, and (ii) the award shall terminate and any
unexercised portion of such award (whether or not vested) shall be forfeited,
if (a) a Termination of Employment, Termination of Consultancy or Termination
of Directorship occurs prior to a specified date, or within a specified time
period following receipt or exercise of the award, or (b) the recipient at any
time, or during a specified time period, engages in any activity in
competition with the Company, or which is inimical, contrary or harmful to the
interests of the Company, as further defined by the Committee (or the Board,
as applicable).
10.8 Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, this Plan, and
any Option, Performance Award, Stock Appreciation Right, Dividend Equivalent
or Stock Payment granted, or Restricted Stock or Deferred Stock awarded, to
any individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive
rule under Section 16 of the Exchange Act (including any amendment to Rule
16b-3 of the Exchange Act) that are requirements for the application of such
exemptive rule. To the extent permitted by applicable law, the Plan, Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents, Stock
Payments, Restricted Stock and Deferred Stock granted or awarded
A-18
<PAGE>
hereunder shall be deemed amended to the extent necessary to conform to such
applicable exemptive rule. Furthermore, notwithstanding any other provision of
this Plan, any Option or Stock Appreciation Right intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code shall be subject to any additional limitations set forth in Section
162(m) of the Code (including any amendment to Section 162(m) of the Code) or
any regulations or rulings issued thereunder that are requirements for
qualification as performance-based compensation as described in Section
162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the extent
necessary to conform to such requirements.
10.9 Effect of Plan Upon Options and Compensation Plans. The adoption of
this Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives
or compensation for Employees, Directors or Consultants of the Company or any
Subsidiary or (ii) to grant or assume options or other rights otherwise than
under this Plan in connection with any proper corporate purpose including but
not by way of limitation, the grant or assumption of options in connection
with the acquisition by purchase, lease, merger, consolidation or otherwise,
of the business, stock or assets of any corporation, partnership, limited
liability company, firm or association.
10.10 Compliance with Laws. This Plan, the granting and vesting of Options,
Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments under this Plan
and the issuance and delivery of shares of Common Stock and the payment of
money under this Plan or under Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments granted or Restricted Stock or
Deferred Stock awarded hereunder are subject to compliance with all applicable
federal and state laws, rules and regulations (including but not limited to
state and federal securities law and federal margin requirements) and to such
approvals by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if requested by
the Company, provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with all
applicable legal requirements. To the extent permitted by applicable law, the
Plan, Options, Restricted Stock awards, Deferred Stock awards, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments
granted or awarded hereunder shall be deemed amended to the extent necessary
to conform to such laws, rules and regulations.
10.11 Titles. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Plan.
10.12 Governing Law. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Rental Service Corporation on December 5, 1996.
Executed on this 5th day of December, 1996.
/s/ Douglas A. Waugaman
--------------------------------------
Douglas A. Waugaman
Secretary
A-19
<PAGE>
PROXY
THIS WRITTEN CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
RENTAL SERVICE CORPORATION
CONSENT CARD FOR ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
TO BE EFFECTIVE AS SET FORTH IN THE PROXY STATEMENT
ACCOMPANYING THIS CONSENT CARD.
Proposed consent resolution to approve and authorize a single proposal to
approve the Company's adoption of the 1996 Equity Participation Plan of Rental
Service Corporation as described in the accompanying Proxy Statement.
[_] FOR [_] AGAINST [_] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ABOVE PROPOSAL.
FAILURE TO CHECK ANY OF THE BOXES WITH RESPECT TO THE PROPOSAL WILL, IF THIS
CONSENT CARD HAS BEEN SIGNED AND DATED, CONSTITUTE APPROVAL OF AND CONSENT TO
THE ADOPTION OF THE PROPOSAL.
Dated: ________________, 1997
----------------------------------
----------------------------------
(Signature(s) of Stockholder(s))
(NOTE--Please sign exactly as
your name or names appear on the
label. If more than one name
appears, all persons so
designated should sign. When
signing in a representative
capacity, please give your full
title.)
PLEASE RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE
U.S.A. DO NOT FOLD, STAPLE OR
MUTILATE
