<PAGE>
As filed with the Securities and Exchange Commission on July 18, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
RDO EQUIPMENT CO.
(Exact name of registrant as specified in its charter)
DELAWARE 45-0306084
(State of Incorporation) (I.R.S. Employer Identification No.)
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58109
(Address of Principal Executive Office)(Zip Code)
------------------------------
RDO EQUIPMENT CO.
1996 STOCK INCENTIVE PLAN
(Full title of the plan)
------------------------------
RONALD D. OFFUTT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RDO EQUIPMENT CO.
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58109
(Name and address of agent for service)
(701) 237-7363
(Telephone number, including area code, of agent for service)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
IMMEDIATELY UPON THE FILING OF THIS REGISTRATION STATEMENT
-------------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED (1) SHARE (2) PRICE (2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
Class A Common Stock, par value
$.01 per share 1,250,000 shares $19.70 $24,630,200 $7,470.00
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In addition, pursuant to Rule 416 under the Securities Act of 1933, as
amended, this Registration Statement includes an indeterminate number of
additional shares as may be issuable as a result of anti-dilution
provisions described herein.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee and calculated as follows: (i) with respect to options to
purchase shares previously granted under the plans, on the basis of the
weighted average exercise price of such option grants and (ii) with respect
to options and incentive awards to be granted under the plans, on the basis
of the average between the bid and asked prices of the Registrant's Class
Common Stock on July 14, 1997 on the New York Stock Exchange.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION REQUIRED
IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed by RDO Equipment Co. (the "Company") with
the Securities and Exchange Commission (the "Commission") are incorporated by
reference in this Registration Statement: (1) all reports filed by the Company
pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since January 31, 1997; and (2) the description of
the Company's Class A Common Stock contained in its Registration Statement on
Form 8-A, dated January 10, 1997, including any amendments or reports filed for
the purpose of updating such description (File No. 1-12641).
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all shares of Common Stock offered pursuant to this
Registration Statement have been sold or that deregisters all shares of Common
Stock then remaining unsold, shall be deemed to be incorporated by reference in
this Registration Statement and to be a part hereof from the date of filing of
such documents.
The financial statements of the Company incorporated by reference in
this Registration Statement to the extent and for the periods indicated in
each firm's report have been audited by Eide Helmeke PLLP and Arthur Andersen
LLP, independent public accountants and have been incorporated herein by
reference in reliance upon the authority of said firms as experts in
accounting and auditing in giving such reports and consents to the use of
such firm's reports thereon. Future financial statements of the Company and
reports thereon of Arthur Andersen LLP will also be incorporated by
reference in the Registration Statement in reliance upon the authority of
said firm as experts in giving those reports to the extent said firm has
audited those financial statements and consented to the use of their reports
thereon.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable. The Company's Class A Common Stock to be offered
pursuant to this Registration Statement has been registered under Section 12 of
the Exchange Act as described in Item 3 of this Part II.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation contains provisions (i)
eliminating the personal liability of its directors, officers, employees, and
other agents for monetary damages resulting from breaches of their fiduciary
duty to the fullest extent permitted by the law, and (ii) indemnifying its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law (the "DGCL"). These provisions in the Certificate of
Incorporation do not eliminate the duty of care and, in appropriate
circumstances, equitable remedies such as an injunction or other forms of
non-monetary
II-1
<PAGE>
relief would remain available under Delaware law. Each director continues to be
subject to liability for breach of a director's duty of loyalty to the Company
or its stockholders, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit, and for improper
distributions to stockholders. These provisions also do not affect a director's
responsibilities under any other laws, such as the federal securities laws or
federal environmental laws. The DGCL and the Company's Certificate of
Incorporation also provide that the Company shall, under certain circumstances
and subject to certain limitations, indemnify any person made or threatened to
be made a party to a proceeding by reason of that person's former or present
official capacity with the Company against judgments, penalties, fines,
settlements, and reasonable expenses. Any such person is also entitled, subject
to certain limitations, to payment or reimbursement of reasonable expenses in
advance of the final disposition of the proceeding. The Company has entered
into indemnification agreements with its directors and executive officers which
indemnify such persons to the fullest extent permitted by its Certificate of
Incorporation, its Bylaws, and the DGCL, and has obtained directors' and
officers' liability insurance.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
No securities are to be reoffered or resold pursuant to this
Registration Statement.
ITEM 8. EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1 Specimen Form of the Company's Class A Common Stock Certificate
4.2 Certificate of Incorporation of the Company
4.3 Bylaws of the Company
5.1 Opinion of Oppenheimer Wolff & Donnelly
23.1 Consent of Oppenheimer Wolff & Donnelly
23.2 Consent of Eide Helmeke PLLP
23.3 Consent of Arthur Andersen LLP
24.1 Power of Attorney
99.1 RDO Equipment Co. 1996 Stock Incentive Plan
ITEM 9. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii)
do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission
by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, except as to certain
insurance policies, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fargo, State of North Dakota, on July 17, 1997.
RDO EQUIPMENT CO.
By: /s/ Ronald D. Offutt
------------------------------
Ronald D. Offutt,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Ronald D. Offutt, Paul T. Horn and Allan F. Knoll, and
each of them, as such person's true and lawful attorney-in-fact and agent, each
with full powers of substitution and re-substitution, for such person and in
such person's name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on July 17, 1997 by the following persons
in the capacities indicated.
SIGNATURE TITLE
- --------- -----
/s/ Ronald D. Offutt Chairman, Chief Executive Officer and a Director
- ------------------------- (principal executive officer)
Ronald D. Offutt
/s/ Paul T. Horn President, Chief Operating Officer and a Director
- -------------------------
Paul T. Horn
/s/ Allan F. Knoll Chief Financial Officer, Secretary and a Director
- ------------------------- (principal financial officer)
Allan F. Knoll
/s/ Mark A. Doda Controller
- ------------------------- (principal accounting officer)
Mark A. Doda
/s/ Bradford M. Freeman Director
- -------------------------
Bradford M. Freeman
/s/ Ray A. Goldberg Director
- -------------------------
Ray A. Goldberg
/s/ Norman M. Jones Director
- -------------------------
Norman M. Jones
/s/ James D. Watkins Director
- -------------------------
James D. Watkins
II-4
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<S> <C> <C>
NO. ITEM METHOD OF FILING
- --- ---- ----------------
4.1 Specimen Form of the Company's
Class A Common Stock
Certificate.............................................. Incorporated by reference to Exhibit 4.2 to
Amendment No. 2 to the Company's Registration
Statement on Form S-1 (File No. 333-12367).
4.2 Certificate of Incorporation of the
Company.................................................. Incorporated by reference to Exhibit 3.1
to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (File No. 333-12367).
4.3 Bylaws of the Company.................................... Incorporated by reference to Exhibit 3.2 to
Amendment No. 1 to the Company's Registration
Statement on Form S-1 (File No. 333-12367).
5.1 Opinion of Oppenheimer Wolff &
Donnelly................................................. Filed herewith electronically.
23.1 Consent of Oppenheimer Wolff &
Donnelly................................................. Included in Exhibit 5.1.
23.2 Consent of Eide Helmeke PLLP............................. Filed herewith electronically.
23.3 Consent of Arthur Andersen LLP........................... Filed herewith electronically.
24.1 Power of Attorney........................................ Included on page II-4 of this Registration
Statement.
99.1 RDO Equipment Co. 1996 Stock
Incentive Plan........................................... Incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the
year ended January 31, 1997.
</TABLE>
<PAGE>
EXHIBIT 5.1
July 18, 1997
Board of Directors
RDO Equipment Co.
2829 South University Drive
Fargo, North Dakota 58109
RE: REGISTRATION STATEMENT ON FORM S-8
Ladies and Gentlemen:
We have acted as counsel to RDO Equipment Co., a Delaware corporation (the
"Company"), in connection with the registration by the Company of 1,250,000
shares of the Company's Class A Common Stock, $.01 par value (the "Shares"),
issuable under the Company's 1996 Stock Incentive Plan (the "Plan"), pursuant to
the Company's Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on July 18, 1997 (the "Registration Statement").
In acting as counsel for the Company and arriving at the opinions expressed
below, we have examined and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company,
agreements and other instruments, certificates of officers and representatives
of the Company, certificates of public officials and other documents as we have
deemed necessary or appropriate as a basis for the opinions expressed herein.
In connection with our examination, we have assumed the genuiness of all
signatures, the authenticity of all documents tendered to us as originals, the
legal capacity of all natural persons and the conformity to original documents
of all documents submitted to us as certified or photostatic copies.
Based on the foregoing, and subject to the qualifications and limitations stated
herein, it is our opinion that:
1. The Company has the corporate authority to issue the Shares in the manner
and under the terms set forth in the Registration Statement.
2. The Shares have been duly authorized and, when issued, delivered and paid
for in accordance with the Plan as set forth in the Registration Statement,
will be validly issued, fully paid and nonassessable.
<PAGE>
Board of Directors
RDO Equipment Co.
July 18, 1997
Page 2
We express no opinion with respect to laws other than those of the General
Corporate Laws of the State of Delaware and the federal laws of the United
States of America, and we assume no responsibility as to the applicability
thereto, or the effect thereon, of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, to its use as part of the Registration Statement, and to
the use of our name under the caption "Item 5. Interests of Named Experts and
Counsel" in the Registration Statement.
We are furnishing this opinion to the Company solely for its benefit in
connection with the Registration Statement as described above. It is not to be
used, circulated, quoted or otherwise referred to for any other purpose. Other
than the Company, no one is entitled to rely on this opinion.
Very truly yours,
OPPENHEIMER WOLFF & DONNELLY
Plaza VII, Suite 3400
45 South Seventh Street
Minneapolis, MN 55402
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated December 15,
1995, which is included in RDO Equipment Co.'s Form 10-K for the year ended
January 31, 1997, and to all references to our firm included in this
registration statement.
EIDE HELMEKE PLLP
/s/ Eide Helmeke PLLP
Fargo, North Dakota
July 16, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 18, 1997
incorporated by reference in RDO Equipment Co.'s Form 10-K for the year
ended January 31, 1997 and to all references to our firm included in this
registration statement.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Minneapolis, Minnesota
July 16, 1997
<PAGE>
PROSPECTUS
1,250,000 SHARES
RDO EQUIPMENT CO.
CLASS A COMMON STOCK
----------------
OFFERED PURSUANT TO THE
RDO EQUIPMENT CO.
1996 STOCK INCENTIVE PLAN
----------------
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933.
----------------
This Prospectus covers offers and sales, from time to time, by RDO
Equipment Co., a Delaware corporation (the "Company"), of shares of its Class A
Common Stock, par value $.01 per share ("Class A Common Stock"), pursuant to
options, stock appreciation rights, restricted stock awards, performance units
and stock bonuses granted or to be granted under the Company's 1996 Stock
Incentive Plan (the "Plan").
The Class A Common Stock is traded on the New York Stock Exchange (the
"NYSE"). The principal office of the Company is located at 2829 South
University Drive, Fargo, North Dakota 58109 and its telephone number is (701)
237-7363. Additional information about the Plan may be obtained from Richard J.
Moen, the Company's Chief Administrative Officer.
This Prospectus may not be used for reoffers or resales of Class A Common
Stock acquired under the Plan by "affiliates" (directors, officers and other
controlling persons) of the Company. Such affiliates may resell such shares
without registration under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Rule 144 under the Securities Act. See
"Restrictions on Resale." Directors and officers of the Company should also
give careful consideration to the short-swing profit provisions of Section 16 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See
"Impact of Short-Swing Profit Provisions." All persons, including directors and
officers, who acquire shares under the Plan should only sell such shares after
consideration of the laws prohibiting trading on the basis of inside information
and their personal tax situation.
---------------
THE DATE OF THIS PROSPECTUS IS JULY 18, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION..........................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................3
SUMMARY OF THE PLAN............................................................4
Introduction.................................................................4
Purpose of the Plan..........................................................4
Administration...............................................................4
Stock Subject to the Plan...................................................5
Eligible Participants........................................................6
Grant of Options.............................................................6
Exercisability and Duration of Options.......................................7
Option Exercise Price........................................................7
Exercise of Options..........................................................7
Stock Appreciation Rights....................................................8
Restricted Stock Awards......................................................8
Performance Units............................................................8
Stock Bonuses................................................................9
Non-Transferability of Incentive Awards......................................9
Effect of Termination of Service.............................................9
Withholding Taxes...........................................................10
Effect of Change of Control.................................................11
RESTRICTIONS ON RESALE........................................................12
IMPACT OF SHORT-SWING PROFIT PROVISIONS.......................................12
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................13
Incentive Options...........................................................13
Non-Statutory Options.......................................................14
Restricted Stock Awards.....................................................15
Stock Bonuses...............................................................15
Performance Units...........................................................15
Stock Appreciation Rights...................................................15
Special Rules Applicable to Insiders........................................15
Excise Tax on Parachute Payments............................................16
-------------------------------------
No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus
and, if given or made, such information and representations must not be relied
upon as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale made under this Prospectus will under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof or since the date of any documents incorporated
herein by reference. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities to
which it relates, or an offer of solicitation in any state to any person to whom
it is unlawful to make such offer in such state.
2
<PAGE>
AVAILABLE INFORMATION
A copy of the Company's 1997 Annual Report to Stockholders (unless a copy
has been otherwise provided) and a copy of this Prospectus will be delivered to
each participant. In addition, each participant will be sent copies of all
future reports, proxy statements and other communications distributed to the
Company's stockholders generally.
Additional updating information with respect to the Plan and any other
information covered by this Prospectus may be provided to participants. The
Company will provide participants who have already received copies of the
Prospectus with a copy of any updating information, and supply new participants
with both the Prospectus and any updating information.
The Company will provide, without charge, to each participant to whom this
Prospectus is delivered, on written or oral request, a copy of any or all of the
foregoing documents or the documents incorporated by reference as described
below (other than exhibits to the documents incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests should be directed to the
attention of Richard J. Moen, the Company's Chief Administrative Officer, at the
address and telephone number set forth on the cover page of this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (File No. 1-12641) with the
Securities and Exchange Commission (the "Commission") are incorporated by
reference into this Prospectus: (1) Annual Report on Form 10-K for the
fiscal year ended January 31, 1997; (2) Proxy Statement dated April 29, 1997
for the Company's Annual Meeting of Stockholders held on May 29, 1997; (3)
Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1997;
(4) all other reports filed by the Company pursuant to Sections 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
since January 31, 1997; and (5) the description of the Company's Class A
Common Stock contained in its Registration Statement on Form 8-A, dated
January 10, 1997, and any amendments or reports for the purpose of updating
such description.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the filing of a post-effective amendment which indicates
that all shares of Class A Common Stock offered pursuant to this Prospectus have
been sold or that deregisters all shares of Class A Common Stock then remaining
unsold, shall be deemed to be incorporated by reference in this Prospectus and
to be a part of this Prospectus from the date of filing of such documents.
3
<PAGE>
SUMMARY OF THE PLAN
INTRODUCTION
On October 1, 1996, the Board of Directors of the Company (the "Board")
approved the Plan, which was subsequently approved by the stockholders of the
Company on January 21, 1997.
The Plan provides for the grant to participating eligible recipients of the
Company and its subsidiaries of (i) options to purchase shares of Class A Common
Stock that qualify as "incentive stock options" ("Incentive Options"), within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"); (ii) options to purchase shares of Class A Common Stock that do not
qualify as Incentive Options ("Non-Statutory Options"); (iii) awards of shares
of Class A Common Stock that are subject to certain forfeiture and
transferability restrictions that lapse after specified periods of time or upon
certain events ("Restricted Stock Awards"); (iv) rights entitling the recipient
to receive a payment from the Company, in the form of shares of Class A Common
Stock, cash, or a combination of both, upon the achievement of established
employment, service, performance or other goals ("Performance Units"); (v)
awards of shares of Class A Common Stock ("Stock Bonuses"); and (vi) rights
entitling the recipient to receive a payment from the Company, in the form of
shares of Class A Common Stock, cash, or a combination of both, equal to the
difference between the fair market value of one or more shares of Class A Common
Stock and the exercise price of such shares under the terms of such right
("Stock Appreciation Rights"). Incentive Options and Non-Statutory Options are
collectively referred to herein as "Options," and Options, Restricted Stock
Awards, Performance Units, Stock Bonuses and Stock Appreciation Rights are
collectively referred to herein as "Incentive Awards."
The Board of Directors may suspend or terminate the Plan or any portion
thereof at any time, and may amend the Plan from time to time in any respect the
Board deems advisable to conform to changes in applicable laws or regulations or
in any other respect the Board deems in the best interest of the Company,
without stockholder approval, unless stockholder approval is then required by
federal securities or tax laws or the rules of NYSE. Unless terminated earlier,
the Plan will terminate at midnight on September 30, 2006. No Incentive Awards
will be granted after termination of the Plan. Incentive Awards outstanding at
the time Plan is terminated will continue to be exercisable, or become free of
restrictions, in accordance with their terms.
The Plan is not an employee benefit plan subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"), is not qualified
under Section 401(a) of the Code and does not qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
PURPOSE OF THE PLAN
The purpose of the Plan is to advance the interests of the Company and its
subsidiaries and stockholders by enabling the Company and its subsidiaries to
attract and retain persons of ability to perform services for the Company and
its subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute to
the achievement by the Company of its economic objectives.
ADMINISTRATION
The Plan is administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee"). The Committee consists of two or
more members of the Board, all of
4
<PAGE>
whom must be "non-employee directors" within the meaning of Rule 16b-3 under the
Exchange Act and, if the Board so determines in its sole discretion, who must be
"outside directors" within the meaning of Section 162(m) of the Code. In
accordance with and subject to the provisions of the Plan, the Committee has the
authority to determine all provisions of Incentive Awards as the Committee may
deem necessary or desirable and as consistent with the terms of the Plan,
including without limitation, (i) the recipients to be granted Incentive Awards
under the Plan ("Participants"); (ii) the nature and extent of the Incentive
Awards to be made to each Participant; (iii) the time or times when Incentive
Awards will be granted; (iv) the duration of each Incentive Award; and (v) the
restrictions and other conditions to which the payment or vesting of Incentive
Awards may be subject. In addition, the Committee has the authority in its sole
discretion to pay the economic value of any Incentive Award in the form of cash,
Class A Common Stock or any combination of both. Each determination,
interpretation or other action made or taken by the Committee pursuant to the
provisions of the Plan will be conclusive and binding for all purposes and on
all persons. The Committee also has the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award in any manner, including,
without limitation, the authority to modify the number of shares or other terms
and conditions of an Incentive Award, extend the term of an Incentive Award, and
accelerate the exercisablity or vesting or otherwise terminate any restrictions
relating to an Incentive Award; provided, however, that the amended or modified
terms are permitted by the Plan as then in effect and that any Participant
adversely affected by any such amended or modified terms consents to such
amendment or modification.
STOCK SUBJECT TO THE PLAN
The maximum number of shares initially reserved for issuance under the Plan
is 1,250,000 shares of Class A Common Stock. Notwithstanding any other
provision of the Plan to the contrary, no Participant in the Plan may be granted
any Options or Stock Appreciation Rights, or any other Incentive Awards with a
value based solely on an increase in the value of the Class A Common Stock after
the date of grant, relating to more than 125,000 shares of Class A Common Stock
in the aggregate in any fiscal year of the Company (subject to adjustment as
provided below); provided, however, that a Participant who is first appointed or
elected as an officer, hired as an employee or retained as a consultant by the
Company or who receives a promotion that results in an increase in
responsibilities or duties may be granted, during the fiscal year of such
appointment, election, hiring, retention or promotion, Options, Stock
Appreciation Rights or such other Incentive Awards relating to up to 250,000
shares of Class A Common Stock (subject to adjustment as provided below).
Shares of Class A Common Stock that are issued under the Plan or that are
subject to outstanding Incentive Awards will be applied to reduce the maximum
number of shares of Class A Common Stock remaining available for issuance under
the Plan. Any shares of Class A Common Stock under the Plan that are subject to
an Incentive Award that lapses, expires, is forfeited or for any reason is
terminated unexercised or unvested and any shares of Class A Common Stock that
are subject to an Incentive Award that is settled or paid in cash or any form
other than shares of Class A Common Stock will automatically again become
available for issuance under the Plan. Any shares of Class A Common Stock that
constitute the forfeited portion of a Restricted Stock Award, however, will not
become available for further issuance under the Plan.
In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary dividend
(including a spin-off) or any other change in the corporate structure or shares
of the Company, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation) will make appropriate adjustments to the
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number and kind of securities or other property (including cash) available for
issuance or payment under the Plan and, in order to prevent dilution or
enlargement of the rights of Participants, (i) the number and kind of securities
or other property (including cash) subject to outstanding Options and (ii) the
exercise price of outstanding Options.
Initially, 1,250,000 shares of Class A Common Stock are available for
issuance under the Incentive Plan. In addition, as of February 1 of each year
the Incentive Plan is in effect, if the total number of shares of Common Stock
issued and outstanding, not including any shares of Class A Common Stock issued
under the Incentive Plan, exceeds the total number of shares of Common Stock
issued and outstanding as of February 1 of the preceding year (or, for fiscal
1997, as of the commencement of the Incentive Plan), the number of shares
available will be increased by an amount such that the total number of shares
available for issuance under the Incentive Plan equals 10% of the total number
of shares of Common Stock outstanding, not including any shares issued under the
Incentive Plan. Lapsed, forfeited, or cancelled awards will not count against
these limits. Cash exercises of SARs and cash settlements of other awards will
also not be counted against these limits but the total number of SARs and other
awards settled in cash shall not exceed the total number of shares authorized
for issuance under the Incentive Plan (without reduction for issuances).
ELIGIBLE PARTICIPANTS
All employees (including, without limitation, officers and directors who
are also employees), non-employee directors, consultants and independent
contractors of the Company or any subsidiary of the Company, who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
subsidiaries are eligible to receive Incentive Awards under the Plan; provided,
however, that under Section 422 of the Code only employees of the Company and
its subsidiaries are eligible to receive Incentive Options. Participants may be
granted from time to time one or more Incentive Awards under the Plan, singly or
in combination or in tandem with other Incentive Awards, as may be determined by
the Committee in its sole discretion.
Each Participant in the Plan is required to enter an agreement with the
Company, in such form as the Committee determines, consistent with the
provisions of the Plan, which specifies the terms, conditions, rights and duties
relating to the Incentive Award (the "Award Agreement"). Incentive Awards are
deemed to be granted as of the date specified in the grant resolution of the
Committee, which date is also the date of the related Award Agreement.
The Plan expressly provides that nothing in the Plan or in any Award
Agreement will interfere with or limit in any way the right of the Company or
any subsidiary to terminate the employment or service of any Participant at any
time, nor confer upon any Participant any right to continue in the employ or
service of the Company or any subsidiary.
GRANT OF OPTIONS
An Option provides a Participant with the right to purchase shares of Class
A Common Stock in the amount and at the predetermined price specified in the
Participant's Award Agreement. A Participant does not have any rights of a
stockholder with respect to any shares subject to an Option until the
Participant has exercised the Option, paid the exercise price and become the
holder of record of such shares.
In addition to the limits on Incentive Awards under the Plan set forth
above, the aggregate fair market value of shares of Class A Common Stock with
respect to which "incentive stock options"
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(within the meaning of Section 422 of the Code) become exercisable for the first
time during any calendar year by any Participant under the Plan (and under all
"incentive stock option" plans of the Company or subsidiary corporation of the
Company) may not exceed $100,000. Any Incentive Options in excess of these
amounts are treated as Non-Statutory Options.
EXERCISABILITY AND DURATION OF OPTIONS
The term of an Option and the installments in which an Option may become
exercisable is determined by the Committee in its sole discretion at the time
such Option is granted. In no case, however, may the term of any Option exceed
10 years from the date of grant (or 5 years from its date of grant in the case
of a Participant who directly or indirectly owns more than 10% of the combined
voting power of all classes of Company's Class A Common Stock). An Option
terminates if a Participant's employment or service to the Company is
terminated, except as described below under the heading "Effect of Termination
of Service." Options not exercised prior to the end of the exercise period
expire and are no longer exercisable with respect to the unexercised portion.
OPTION EXERCISE PRICE
The exercise price to be paid by a Participant at the time an Option is
exercised is determined by the Committee, in its discretion, at the time the
Option is granted, except that (i) for Incentive Options, the exercise price per
share may not be less than the fair market value of one share of Class A Common
Stock on the date the Incentive Option is granted (110% of the fair market value
for persons owning, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
of the Company at the time the Incentive Option is granted) and (ii) for
Non-Statutory Options, the exercise price per share may not be less than 85% of
the fair market value of one share of Class A Common Stock on the date the Non-
Statutory Option is granted.
EXERCISE OF OPTIONS
An Option may be exercised by a Participant in whole or in part from time
to time, subject to the conditions contained in the Plan and in the
Participant's Award Agreement. An Option may be exercised by delivery to the
Company's principal executive office in Fargo, North Dakota (Attention: Chief
Financial Officer), in person, by facsimile or electronic transmission, through
the mail, of a written notice of exercise along with the total exercise price
for the shares being purchased.
The purchase price of each share of Class A Common Stock purchased upon the
exercise of an Option must be paid entirely in cash (including check, bank draft
or money order payable to the order of the Company), provided, however, that the
Committee, in its sole discretion and upon terms and conditions established by
the Committee, may allow such payments to be made, in whole or in part, (i) by
transfer of shares of Class A Common Stock that are already owned by the
Participant or are to be acquired upon exercise of an Option ("Previously
Acquired Shares"), (ii) by delivery of a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell enough shares or loan the Participant enough money to pay all or
a portion of the exercise price and/or any related withholding tax obligations
and to remit such sums to the Company and directs the Company to deliver stock
certificates to be issued upon such exercise directly to such broker or dealer
("Broker Exercise Notice"), (iii) by tender of a promissory note (on terms
acceptable to the Committee in its sole discretion) or (iv) by any combination
of such methods.
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STOCK APPRECIATION RIGHTS
A Stock Appreciation Right is a right granted to a Participant to receive a
payment from the Company in the form of Class A Common Stock, cash or a
combination of both, equal to the difference between the fair market value of
one or more shares of Class A Common Stock and the exercise price of such shares
under the terms of such Stock Appreciation Right. The terms of a Stock
Appreciation Right award are determined by the Committee, subject to certain
requirements contained in the Plan. The exercise price per share of a Stock
Appreciation Right is determined by the Committee in its discretion at the date
of grant, but may not be less than the fair market value of one share of the
underlying Class A Common Stock on the date the Stock Appreciation Right is
granted. A Stock Appreciation Right becomes exercisable at such times and in
such installments as may be determined by the Committee in its sole discretion
at the time of grant. A Stock Appreciation Right expires at the time fixed in
the applicable Award Agreement, which may not be more than 10 years after the
date of grant. Stock Appreciation Rights must be exercised by giving notice in
the same manner as for Options. See "Summary of Plan -- Exercise of Options."
RESTRICTED STOCK AWARDS
A Restricted Stock Award is an award of shares of Class A Common Stock that
vests at such times and in such installments as may be determined by the
Committee and, until it vests, is subject to restrictions on transferability and
the possibility of forfeiture of all or a portion of the shares granted. The
Committee may impose such restrictions or conditions to the vesting of
Restricted Stock Awards as it deems appropriate, including that the Participant
remain in the continuous employ or service of the Company or any subsidiary for
a certain period of time or that the Participant or the Company (or any
subsidiary or division of the Company) satisfy certain performance goals or
criteria. Unless the Committee determines otherwise in its sole discretion, any
dividends or distributions paid with respect to shares of Class A Common Stock
subject to the unvested portion of a Restricted Stock Award are subject to the
same restrictions as the shares to which such dividends or distributions relate.
In the event the Committee determines not to pay dividends or distributions
currently, the Committee must determine in its sole discretion whether any
interest will be paid to the Participant on such dividends or distributions. In
addition, the Committee may require such dividends or distributions to be
reinvested in shares of Class A Common Stock subject to the same restrictions as
the shares to which such dividends or distributions relate.
Other than the forfeiture, transferability and lien restrictions, a
Participant will, upon the grant of the Restricted Stock Award, has all voting,
dividend, liquidation and other rights with respect to the shares of Class A
Common Stock issued to the Participant as a Restricted Stock Award, as if such
Participant were a holder of record of unrestricted shares of Class A Common
Stock. The Committee may, in its sole discretion, require one or more of the
following methods of enforcing the forfeiture and transferability restrictions
on a Restricted Stock Award: (i) placing a legend on the stock certificates
referring to the restrictions; (ii) requiring the Participant to keep the stock
certificates, duly endorsed, in the custody of the Company or its transfer agent
while the restrictions remain in effect; or (iii) requiring that the stock
certificates, duly endorsed, be held in the custody of a third party while the
restrictions remain in effect.
PERFORMANCE UNITS
A Performance Unit is a right granted to a Participant to receive a payment
from the Company, in the form of stock, cash or a combination of both, upon the
achievement of established employment,
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service, performance or other goals. A Participant may be granted one or more
Performance Units under the Plan. Such Performance Units are subject to the
terms and conditions to the vesting of such Performance Units not inconsistent
with the Plan as may be imposed by the Committee in its sole discretion,
including without limitation, that the Participant remain in the continuous
employ or service of the Company or any subsidiary for a certain period of time
or that the Participant or the Company (or any subsidiary or division thereof)
satisfy certain performance goals or criteria. The Committee has the sole
discretion to determine the form in which payment of the economic value of
vested Performance Units are made to a Participant (i.e., cash, Class A Common
Stock or any combination thereof) or to consent to or disapprove an election by
a Participant as to the form of such payment.
STOCK BONUSES
A Stock Bonus is an outright award of shares of Class A Common Stock, which
are subject to the terms and conditions consistent with the provisions of the
Plan determined by the Committee. A Participant may be granted one or more
Stock Bonuses under the Plan. Other than any transfer restrictions imposed by
the Committee, the Participant has all voting, dividend, liquidation and other
rights with respect to the shares of Class A Common Stock issued to a
Participant as a Stock Bonus upon the Participant becoming the holder of record
of such shares.
NON-TRANSFERABILITY OF INCENTIVE AWARDS
Except pursuant to testamentary will or the laws of descent and
distribution or as otherwise expressly permitted by the Plan, unless approved by
the Committee in its sole discretion, no right or interest of a Participant in
an Incentive Award prior to the exercise or vesting of such Incentive Award is
assignable or transferable or may be subjected to any lien, during the lifetime
of the Participant, either voluntarily or involuntarily, directly or indirectly,
by operation of law or otherwise. A Participant is, however, entitled to
designate a beneficiary to receive an Incentive Award upon such Participant's
death, and in the event of a Participant's death, payment of any amounts due
under the Plan will be made to, and exercise of any Options (to the extent
permitted pursuant to the Plan) may be made by, a Participant's legal
representatives, heirs and legatees.
EFFECT OF TERMINATION OF SERVICE
If a Participant ceases to be employed by or render services to the Company
and its subsidiaries ("Termination of Service"), all Incentive Awards held by
the Participant will terminate as set forth below.
Upon Termination of Service due to death, Disability (as defined below) or
Retirement (as defined below): (i) all outstanding Options and Stock
Appreciation Rights then held by the Participant become immediately exercisable
in full and remain exercisable for a period of one year after such termination
(but in no event after the expiration date of any such Option or Stock
Appreciation Right); (ii) all Restricted Stock Awards then held by the
Participant will become fully vested and the shares related thereto will become
nonforfeitable; and (iii) all Performance Units and Stock Bonuses then held by
the Participant will vest and/or continue to vest in the manner determined by
the Committee and set forth in the Award Agreement evidencing such Performance
Units or Stock Bonuses. For purposes of the Plan, "Disability" means the
disability of the Participant such as would entitle the Participant to receive
disability income benefits pursuant to the long-term disability plan of the
Company or any subsidiary then covering the Participant or, if no such plan
exists or is applicable to Participant, the permanent and total disability of
the Participant within the meaning of Section 22(e)(3) of the Code.
"Retirement" means the termination of employment or service pursuant to and in
accordance with the
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regular (or, if approved by the Board for the purposes of the Plan, early)
retirement/pension plan or practice of the Company or any subsidiary then
covering the Participant; provided, that if the Participant is not covered by
any such plan or practice, the Participant will be deemed to be covered by the
Company's plan or practice for purposes of this determination.
Upon Termination of Service for any other reason or if a Participant is in
the employ of a subsidiary and such subsidiary ceases to be a subsidiary of the
Company, all rights of the Participant under the Plan and any Award Agreements
immediately terminate without notice of any kind and no Options and Stock
Appreciation Rights are thereafter exercisable, all Restricted Stock Awards that
have not vested are terminated and forfeited; provided, however, (i) all
outstanding Performance Units and Stock Bonuses will vest and/or continue to
vest in the manner determined by the Committee and set forth in the Award
Agreement evidencing such Performance Units and Stock Bonuses and (ii) if
termination is due to any reason other than "cause" (as defined below) all
outstanding Options and Stock Appreciation Rights then held by the Participant
will remain exercisable to the extent exercisable as of such termination for a
period of three months after such termination (but in no event after the
expiration date of such Option or Stock Appreciation Right). Under the Plan,
"cause" (as determined by the Committee) is as defined in any employment or
other agreement or policy applicable to the Participant or, if no such agreement
or policy exists, means: (i) dishonesty, fraud, misrepresentation, embezzlement
or deliberate injury or attempted injury, in each case related to the Company or
any subsidiary; (ii) any unlawful or criminal activity of a serious nature;
(iii) any intentional and deliberate breach of a duty or duties that,
individually or in the aggregate, are material in relation to the Participant's
overall duties; or (iv) any material breach of any employment, service,
confidentiality or noncompete agreement entered into with the Company or any
subsidiary.
The Committee may in its discretion modify these post-termination
provisions, provided that no Option or Stock Appreciation Right may remain
exercisable after its original expiration date. In the event that a Participant
materially breaches the terms of any confidentiality or noncompete agreement
entered into with the Company or any subsidiary, whether such breach occurs
before or after termination of such Participant's employment or service with the
Company or any subsidiary, the Committee, in its sole discretion, may
immediately terminate all rights of such Participant under the Plan and any
Award Agreements then held by the Participant without notice of any kind.
WITHHOLDING TAXES
Under the Plan, the Company is entitled to (i) withhold and deduct from
future wages of a Participant (or from other amounts that may be due and owing
to a Participant from the Company or any subsidiary), or make other arrangements
for the collection of, all legally required amounts necessary to satisfy any and
all federal, state and local withholding and employment-related tax requirements
(a) attributable to an Incentive Award, including, without limitation, the
grant, exercise or vesting of, or payment of dividends with respect to, an
Incentive Award or a disqualifying disposition of shares received upon exercise
of an Incentive Option, or (b) otherwise incurred with respect to an Incentive
Award; or (ii) require the Participant promptly to remit the amount of such
withholding to the Company before taking any action, including issuing any
shares of Class A Common Stock, with respect to an Incentive Award. In
addition, the Committee may, in its sole discretion and upon the terms and
conditions it establishes, permit or require a Participant to satisfy, in whole
or in part, any such withholding or employment-related tax obligations by
tendering Previously Acquired Shares, a Broker Exercise Notice, a promissory
note (on terms acceptable to the Committee in its sole discretion), or by any
combination of such methods.
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EFFECT OF CHANGE OF CONTROL
If a "Change in Control" (as defined below) of the Company occurs, then,
unless otherwise provided by the Committee in its sole discretion either in the
Award Agreement or at any time after the grant of an Incentive Award, (i) all
outstanding Options and Stock Appreciation Rights that have been held at least
six months will become immediately exercisable in full and will remain
exercisable for the remainder of their terms, regardless of whether the
Participant to whom such Options or Stock Appreciation Rights have been granted
remains in the employ or service of the Company or any of its subsidiaries,
(ii) all outstanding Restricted Stock Awards will become immediately fully
vested and non-forfeitable, and (iii) all outstanding Performance Units and
Stock Bonuses then held by the Participant will vest and/or continue to vest in
the manner determined by the Committee and set forth in the Award Agreement for
such Performance Units or Stock Bonuses. In addition, the Committee, either in
the Award Agreement or at any time after the grant of an Incentive Award and
without the consent of any affected Participant, may determine that some or all
Participants holding outstanding Options will receive, with respect to some or
all of the shares of Class A Common Stock subject to such Options, as of the
effective date of any such Change in Control, cash in an amount equal to the
excess of the fair market value of such shares immediately prior to the
effective date of such Change in Control over the exercise price of such
Options.
To the extent that such acceleration of the vesting of Incentive Awards or
the payment of cash in exchange for all or part of an Incentive Award could be
deemed a "payment" (as defined in the Code), together with any other "payments"
which such Participant has the right to receive from the Company or any
corporation that is a member of an "affiliated group" (as defined in Section
1504(a) of the Code) of which the Company is a member, would constitute a
"parachute payment" (as defined in the Code), then the "payments" to such
Participant pursuant to the Change in Control provisions in the Plan will be
reduced to the largest amount as will result in no portion of such "payments"
being subject to the excise tax imposed by Section 4999 of the Code. To the
extent, however, that a Participant has a separate agreement that expressly
addresses the potential applications of Sections 280G or 4999 of the Code
(including, without limitation, a provision that such "payments" will not be
reduced), then the foregoing limitations will not be applied and such "payments"
will be treated as "payments" under such separate agreement.
Under the Plan, a "Change in Control" of the Company means (i) the sale,
lease, exchange or other transfer, directly or indirectly, of substantially
all of the assets of the Company (in one transaction or in a series of
related transactions) to a person or entity that is not controlled by the
Company; (ii) the approval by the Company's stockholders of any plan or
proposal for the liquidation or dissolution of the Company; (iii) a merger or
consolidation to which the Company is a party if the Company's stockholders
immediately prior to the effective date of such merger or consolidation
beneficially own, immediately following the effective date of such merger or
consolidation, securities of the surviving corporation representing (A) more
than 50% but less than 80% of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having the right to vote
at elections of directors, unless such merger or consolidation was approved
in advance by the Continuity Directors (as defined below), or (B) 50% or less
of the combined voting power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of directors,
(regardless of any approval by the Continuity Directors); (iv) any person
becomes after the effective date of the Plan the beneficial owner, directly
or indirectly, of (A) 20% or more, but less than 50%, of the combined voting
power of the Company's outstanding securities ordinarily having the right to
vote at elections of directors, unless the transaction resulting in such
ownership has been approved in advance by the Continuity Directors, or (B)
50% or more of the combined voting power of the Company's outstanding
securities ordinarily having
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the right to vote at elections of directors (regardless of any approval by
the Continuity Directors); or (v) the Continuity Directors cease for any
reason to constitute at least a majority of the Board. The term "Continuity
Directors" means any individuals who are members of the Board on the
effective date of the Plan and any individual who subsequently becomes a
member of the Board whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
existing Continuity Directors (either by specific vote or by approval of the
Company's proxy statement in which such individual is named as a nominee for
director without objection to such nomination).
RESTRICTIONS ON RESALE
This Prospectus may not be used for reoffers or resales of Class A Common
Stock acquired under the Plan by "affiliates" (directors, officers and other
controlling persons) of the Company. Such affiliates may, however, resell such
shares without registration under the Securities Act pursuant to an exemption
from registration under the Securities Act. An exemption from registration is
available by following the terms and conditions of Rule 144 under the Securities
Act (other than the holding period requirements).
IMPACT OF SHORT-SWING PROFIT PROVISIONS
Under Section 16(b) of the Exchange Act, any profit by an "insider" (an
officer, director or greater-than-10% stockholder) on a purchase and sale and
purchase of Class A Common Stock within any six-month period belongs to and is
recoverable by the Company.
Rule 16b-3 under the Exchange Act exempts certain employee benefit plan
transactions under the Plan from the operation of Section 16(b). Currently
under Rule 16b-3, the grant of an Option, Restricted Stock Award or Stock Bonus
will not be deemed to be a purchase for purposes of Section 16(b) (although such
grant must be reported by the insider on a Form 4 or a Form 5) as long as the
shares acquired upon exercise of such Option, or upon the grant of such
Restricted Stock Award or Stock Bonus, as the case may be, are held for at least
six months from the date of grant. The sale of shares acquired under the Plan
will, however, be deemed to be a sale for purposes of Section 16(b), regardless
of Rule 16b-3.
Effective August 15, 1996, certain amendments to the rules promulgated
under Section 16 became effective. Pursuant to these new rules, acquisitions of
an Option, Restricted Stock Award or Stock Bonus generally will be exempt from
treatment as a purchase regardless of whether the shares acquired are held for
six months from the date of grant. Exercises of Options will also generally
continue to be exempt. Such acquisitions, however, will still need to be
reported on a Form 5 (in the case of the grant of an Option, Restricted Stock
Award or Stock Bonus) or a Form 4 (in the case of the exercise of an Option).
THIS DISCUSSION OF THE IMPACT OF SECTION 16 IS ONLY A BRIEF SUMMARY OF
CERTAIN RULES AND IS NOT INTENDED TO PROVIDE COMPREHENSIVE GUIDANCE TO
PARTICIPANTS. THE RULES AND REGULATIONS RELATING TO SECTION 16 ARE EXTREMELY
COMPLEX, AND TRANSACTIONS UNDER THE PLAN MAY OR MAY NOT BE DEEMED PURCHASES OR
SALES UNDER SECTION 16 DEPENDING ON THE FACTS AND CIRCUMSTANCES OF SUCH
TRANSACTIONS. AS A RESULT, THE COMPANY STRONGLY RECOMMENDS THAT PARTICIPANTS
WHO ARE INSIDERS CONSULT WITH THE COMPANY OR THEIR OWN COUNSEL REGARDING THE
APPLICABILITY OF SECTION 16 TO THEIR TRANSACTIONS UNDER THE PLAN.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The discussion below is a summary of the federal income tax consequences
that may result in connection with participation under the Plan. This
discussion does not address foreign, state or local income tax consequences.
BECAUSE FEDERAL INCOME TAX CONSEQUENCES DEPEND UPON REGULATIONS UNDER THE CODE,
AN INDIVIDUAL'S TAX STATUS AND AN INDIVIDUAL'S STATUS AS AN "INSIDER" (FOR
PURPOSES OF SECTION 16 OF THE EXCHANGE ACT), INDIVIDUAL PARTICIPANTS SHOULD
CONSULT THEIR PERSONAL TAX ADVISORS.
INCENTIVE OPTIONS
As a general rule, there will be no federal income tax consequences to
either the Participant or the Company as a result of the grant or exercise of an
Incentive Option. For certain exceptions to the general rule, see the
discussions below of the alternative minimum tax and "Excise Tax on Parachute
Payments."
When a Participant disposes of the stock acquired upon exercise of an
Incentive Option, the federal income tax consequences will depend on how long
the Participant has held the shares. If the Participant does not dispose of the
shares within two years after the Incentive Option was granted, nor within one
year after exercise of the Incentive Option, the Participant will only recognize
a long-term capital gain (or loss). The amount of the long-term capital gain
(or loss) will be equal to the difference between (i) the amount realized on
disposition of the shares and (ii) the exercise price at which the optionee
acquired the shares. The Company is not entitled to any compensation expense
deduction under these circumstances.
If the Participant does not satisfy both of the above special Incentive
Option holding period requirements, the Participant will generally be required
to report as ordinary income, in the year in which the Participant disposes of
the shares (a "disqualifying disposition"), the amount by which the lesser of
(i) the fair market value of the acquired shares at the time of exercise of the
Incentive Option or (ii) the amount realized on the disposition of the shares
(if the disposition is the result of a sale or exchange to one other than a
related taxpayer) exceeds the exercise price for the shares. The Company will be
entitled to a compensation expense deduction in an amount equal to the ordinary
income recognized by the Participant, provided that the Company complies with
the applicable income tax withholding provisions. The remainder of the gain, if
any, recognized on the disposition, or any loss recognized on the disposition,
will be treated as capital gain or loss to the Participant and will be eligible
for long-term capital gain or loss treatment if the disposition occurs more than
one year after the Participant acquired the shares and short-term capital gain
or loss treatment if the disposition occurs one year or less after the
Participant acquired the shares.
If the Participant elects (and is permitted) to use Previously Acquired
Shares to exercise an Incentive Option, no gain or loss attributable to the
shares exchanged by the Participant will be recognized for tax purposes.
However, if the Participant pays the option exercise price with shares that were
originally acquired pursuant to the exercise of an Incentive Option before the
expiration of the special Incentive Option holding periods discussed above, the
use of those shares to exercise an Option will be treated as a modified form of
disqualifying disposition of the shares, subject to the ordinary income (but not
capital gain) tax consequences discussed above for disqualifying dispositions.
The basis of the shares tendered to the Company upon exercise of the Option,
plus any disqualifying disposition income recognized on the exercise, will be
attributed to and become the basis of an equal number of shares received in the
exchange. The basis of any additional shares received will be zero. The
additional Incentive Option shares received in the exchange will have new
capital gain and special Incentive Option
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holding periods. The capital gain holding period of the shares received in
exchange for the tendered shares will carry over.
As mentioned above, the exercise of an Incentive Option is generally not a
taxable event for the Participant. The exercise of an Incentive Option may,
however, affect a Participant's liability under the federal alternative minimum
tax. The alternative minimum tax is computed by adding specific preference
items and making special modifications to a Participant's adjusted gross income.
One such modification is to treat Incentive Options effectively as though they
were Non-Statutory Options (i.e., include in the Participant's alternative
minimum taxable income on the date of exercise the difference between the then
fair market value of the shares and the amount paid for the shares). The
alternative minimum tax is payable to the extent that it exceeds the
Participant's regular tax for the year. The amount of the Participant's
alternative minimum tax liability attributable to the Incentive Option
modification may, however, be available as a credit against a portion of the
Participant's regular tax liability in future years. The Company recommends
that Participants holding Incentive Options (especially persons subject to the
short-swing profit provisions) consult their personal tax advisors to determine
the applicability and effect of the alternative minimum tax.
NON-STATUTORY OPTIONS
There will generally be no federal income tax consequences to either the
Company or the Participant as a result of the grant of a Non-Statutory Option.
Upon exercise of a Non-Statutory Option, the Participant will generally
recognize ordinary income in an amount equal to the difference between (i) the
fair market value of the shares purchased, determined on the date of exercise,
and (ii) the amount paid for the shares. Amounts taxable to the Participant as
ordinary income are deductible in the same year by the Company, provided that
the Company complies with the applicable income tax withholding provisions.
When a Participant disposes of shares acquired by the exercise of a
Non-Statutory Option, the difference between the amount received and the fair
market value of the shares on the date of exercise will be treated as long-term
or short-term capital gain or loss depending on the length of time the shares
were held. Gains and losses from the sale or exchange of shares will be
long-term capital gain or loss if the shares were held more than one year and
short-term capital gain or loss if the shares were held one year or less. For
purposes of determining the holding period for the shares, the shares are
treated as acquired on the date of exercise. For exceptions to these general
rules, see the discussion below under "Excise Tax on Parachute Payments."
A Participant may, at the discretion of the Committee, be permitted to pay
the Non-Statutory Option price or a portion thereof by transferring to the
Company shares of Class A Common Stock previously acquired by the Participant.
The exchange of Previously Acquired Shares by the Participant for shares
received as a result of the exercise of a Non-Statutory Option will not result
in the recognition of any gain or loss with respect to the Previously Acquired
Shares transferred to the Company in exercising the Option. The transfer of
Previously Acquired Shares will not reduce the amount of ordinary income
otherwise required to be reported upon such exercise as described above. The
basis of the shares tendered to the Company upon exercise of the Non-Statutory
Option will be attributed to and become the basis of an equal number of shares
received in the exchange. The basis of any additional shares received by the
Participant in the exchange will be equal to the amount recognized as
compensation income plus the amount of any cash paid on the exchange. The
capital gain holding period of the tendered shares will carry over and the
additional shares received in the exchange will have a new capital gain holding
period.
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RESTRICTED STOCK AWARDS
With respect to shares issued pursuant to a Restricted Award that is not
subject to a risk of forfeiture, a Participant will include as ordinary income
in the year of receipt an amount equal to the fair market value of the shares
received on the date of receipt. With respect to shares that are subject to a
risk of forfeiture, a Participant may file an election under Section 83(b) of
the Code within thirty (30) days after the transfer to include as ordinary
income in the year of the transfer an amount equal to the fair market value of
the shares received on the date of the transfer (determined as if the shares
were not subject to any risk of forfeiture). If a Section 83(b) election is
made, the Participant will not recognize any additional income when the
restrictions on the shares issued in connection with the Restricted Stock Award
lapse. The Company will receive a corresponding tax deduction for any amounts
includable in the taxable income of the Participant as ordinary income.
A Participant who does not make a Section 83(b) election within thirty (30)
days of the transfer of a Restricted Stock Award that is subject to a risk of
forfeiture will recognize ordinary income at the time of the lapse of the
restrictions in an amount equal to the then fair market value of the shares free
of restrictions. The Company will receive a corresponding tax deduction for any
amounts includable in the taxable income of a Participant as ordinary income.
STOCK BONUSES
With respect to shares issued pursuant to a Stock Bonus, a Participant will
include as ordinary income in the year of receipt an amount equal to the fair
market value of the shares received as of the date of receipt. The Company will
receive a corresponding tax deduction, provided that proper withholding is made.
At the time of a subsequent sale or disposition of any shares of Class A Common
Stock issued in connection with a Stock Bonus, any gain or loss will be treated
as long-term or short-term capital gain or loss, depending on the holding period
from the date the shares were received.
PERFORMANCE UNITS
A Participant who receives a Performance Unit will not recognize any
taxable income at the time of the grant. Upon settlement of the Performance
Unit, the Participant will realize ordinary income in an amount equal to the
cash and fair market value of any shares of Class A Common Stock received by the
Participant. Provided that proper withholding is made, the Company would be
entitled to a compensation expense deduction for any amounts includable by the
Participant as ordinary income.
STOCK APPRECIATION RIGHTS
A Participant who receives a Stock Appreciation Right will not recognize
any taxable income at the time of grant. Upon the exercise of a Stock
Appreciation Right, the Participant will realize ordinary income in an amount
equal to the cash in the fair market value of any shares of Class A Common Stock
received by the Participant. Provided that proper withholding is made, the
Company will be entitled to a compensation expense deduction for any amounts
includable by the Participant as ordinary income.
SPECIAL RULES APPLICABLE TO INSIDERS
Participants who are insiders for purposes of Section 16 of the Exchange
Act may, under certain circumstances, be treated differently for federal income
tax purposes than Participants who are not insiders. As a result, the Company
strongly recommends that Participants who are insiders consult
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their personal tax advisors to determine the applicability of Section 16 to the
grant, exercise and vesting of Incentive Awards and the disposition of shares of
Class A Common Stock acquired pursuant to Incentive Awards.
EXCISE TAX ON PARACHUTE PAYMENTS
Section 4999 of the Code imposes an excise tax on "excess parachute
payments," as defined in Section 280G of the Code. Generally, parachute
payments are payments in the nature of compensation to certain employees or
independent contractors who are also officers, stockholders or
highly-compensated individuals, where such payments are contingent on a change
in ownership or control of the stock or assets of the paying corporation. In
addition, the payments must be substantially greater in amount than the
recipient's regular compensation. Under Proposed Treasury Regulations issued by
the Internal Revenue Service, in certain circumstances the grant, vesting,
acceleration or exercise of Options pursuant to the Plan could be treated as
contingent on a change in ownership or control for purposes of determining the
amount of a Participant's parachute payments.
In general, the amount of a parachute payment (some portion of which may be
deemed to be an "excess parachute payment") would be the cash or the fair market
value of the property received (or to be received) less the amount paid for such
property. If a Participant were found to have received an excess parachute
payment, he or she would be subject to a special nondeductible twenty percent
(20%) excise tax on the amount of the excess parachute payments, and the Company
would not be allowed to claim any deduction with respect to such payments.
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