<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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 Section240.14a-12
HORIZON PHARMACIES, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
HORIZON PHARMACIES, INC.
531 W. MAIN STREET
DENISON, TEXAS 75020
May 15, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
HORIZON Pharmacies, Inc. to be held on June 26, 2000, at 9:00 a.m., Central
Daylight Time, at the Tanglewood Resort located on Lake Texoma, Pottsboro,
Texas. Please find enclosed a notice to stockholders, a Proxy Statement
describing the business to be transacted at the meeting, a Form of Proxy for use
in voting at the meeting and an Annual Report for HORIZON Pharmacies, Inc.
At the Annual Meeting, you will be asked (i) to elect two directors of the
Company; (ii) to approve and ratify the HORIZON Pharmacies, Inc. 2000 Stock
Option Plan; (iii) to approve and ratify the HORIZON Pharmacies, Inc. Employee
Stock Purchase Plan; (iv) to ratify the selection of Ernst & Young LLP as the
independent auditors for the Company for the fiscal year ending December 31,
2000; and (v) to act upon such other business as may properly come before the
Annual Meeting or any adjournment thereof.
We hope that you will be able to attend the Annual Meeting, and we urge you
to read the enclosed Proxy Statement before you decide to vote. Even if you do
not plan to attend, please complete, sign, date and return the enclosed Proxy as
promptly as possible. It is important that your shares be represented at the
meeting.
Very truly yours,
Ricky D. McCord
PRESIDENT AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT
All stockholders are cordially invited to attend the Annual Meeting in person.
However, to ensure your representation at the meeting, you are urged to
complete, sign, date and return, in the enclosed postage paid envelope, the
enclosed Proxy as promptly as possible. Returning your Proxy will help the
Company assure that a quorum will be present at the meeting and avoid the
additional expense of duplicate proxy solicitations. Any stockholder attending
the meeting may vote in person even if he or she has returned the Proxy.
<PAGE>
HORIZON PHARMACIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 26, 2000
PLEASE TAKE NOTICE THAT the 2000 Annual Meeting of Stockholders (the "Annual
Meeting") of HORIZON Pharmacies, Inc., a Delaware corporation (the "Company"),
will take place at the Tanglewood Resort located on Lake Texoma, Pottsboro,
Texas on June 26, 2000, at 9:00 a.m., Central Daylight Time, for considering and
acting upon the following matters:
(1) The election of two (2) persons to serve as Class III directors;
(2) The approval and ratification of the HORIZON Pharmacies, Inc. 2000 Stock
Option Plan;
(3) The approval and ratification of the HORIZON Pharmacies, Inc. Employee
Stock Purchase Plan; and
(4) The ratification of the selection of Ernst & Young LLP as independent
auditors.
The Board of Directors (the "Board") has fixed the close of business on May
9, 2000 as the record date for determining the holders of the voting common
stock entitled to receive notice of and to vote at the Annual Meeting or any
adjournment or postponement thereof. A list of stockholders entitled to vote at
the Annual Meeting will be available for inspection at the Company's offices in
Denison, Texas by any stockholder for any purpose germane to the Annual Meeting
during ordinary business hours for the ten days preceding the Annual Meeting.
To ensure the presence of a quorum at the meeting, please sign and promptly
return the enclosed Proxy in the accompanying self-addressed envelope, which
requires no postage if mailed in the United States. You may revoke your Proxy at
any time before the shares to which it relates are voted at the Annual Meeting.
By Order of the Board of Directors,
Charlie K. Herr
SECRETARY
Denison, Texas
May 15, 2000
<PAGE>
HORIZON PHARMACIES, INC.
531 W. MAIN STREET
DENISON, TEXAS 75020
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 26, 2000
SOLICITATION OF PROXIES
SOLICITATION
Horizon Pharmacies, Inc. is furnishing this Proxy Statement to solicit the
proxies of our stockholders for use at the Annual Meeting of Stockholders to
take place at the Tanglewood Resort located on Lake Texoma, Pottsboro, Texas on
Monday, June 26, 2000, at 9:00 a.m., Central Daylight Time, or at any
adjournment or postponement thereof. We may also use the services of the
Company's directors, officers and employees to solicit proxies personally or by
telephone.
MAILING OF PROXY STATEMENT AND PROXY CARD
We will mail this Proxy Statement and the accompanying Proxy to stockholders
on or about May 15, 2000.
REVOCATION OF PROXY
Any stockholder who gives his or her Proxy may revoke it any time before it
is exercised by (a) notifying the Company's Secretary, Charlie K. Herr, by fax
or in writing; (b) signing and submitting a later-dated Proxy; or (c) voting in
person at the Annual Meeting. The persons named on the Proxy will vote the
proxies at the Annual Meeting if the Proxy is received in time and is not
revoked prior to the Annual Meeting.
STOCKHOLDER PROPOSALS
In order for a stockholder proposal to be included in the proxy materials
for the next Annual Meeting of Stockholders, such proposal must be delivered to
the Company's Secretary no later than January 17, 2001. Pursuant to Rule
14a-4(c)(1) promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), the Company's Board of Directors will have discretionary authority to
vote on any matter of which the Company does not receive notice by April 1,
2001, with respect to proxies submitted to the 2001 Annual Meeting of
Stockholders. If the Company first receives notice of such matter after
April 1, 2001, the Board of Directors may exercise discretionary voting
authority with respect to any such matter, without including any discussion of
the matter in the proxy statement for the 2001 annual meeting.
EXPENSES OF SOLICITATION AND REIMBURSEMENT OF NOMINEES
The Company will bear all costs of preparing, printing, assembling and
mailing this Proxy Statement and the Proxy, and all of the costs of the
solicitation of proxies. The Company will reimburse any bank, broker-dealer or
other custodian, nominee or fiduciary for its reasonable expenses incurred in
completing the mailing of proxy materials to the beneficial owners of the
Company's common stock, par value $0.01 per share ("Common Stock").
VOTING RIGHTS AND PROCEDURE
Only the record holders of shares of the Common Stock as of the close of
business on May 9, 2000, the Record Date for the Annual Meeting, will have the
right to vote at the Annual Meeting. As of the close of business on the Record
Date, 5,936,363 shares of Common Stock were issued and
<PAGE>
outstanding (excluding 6,081 shares of Common Stock held as treasury stock). All
shares of Common Stock are entitled to one vote and may vote on all matters
coming before the Annual Meeting. Stockholders have no cumulative voting rights.
A majority of all of the outstanding shares of Common Stock entitled to vote at
the meeting, represented in person or by proxy, will constitute a quorum for the
meeting.
The chairman of the meeting or the holders of a majority of the Common Stock
entitled to vote who are present or represented by proxy at the Annual Meeting
have the power to adjourn the Annual Meeting from time to time without notice,
other than an announcement at the Annual Meeting of the time and place of the
holding of the adjourned meeting, until a quorum is present. At any such
adjourned meeting at which a quorum is present, any business may be transacted
that may have been transacted at the Annual Meeting had a quorum originally been
present; provided, that if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting. Proxies solicited by this Proxy Statement may
be used to vote in favor of any motion to adjourn the Annual Meeting. The
persons named on the Proxy intend to vote in favor of any motion to adjourn the
Annual Meeting to a subsequent day if, prior to the Annual Meeting, such persons
have not received sufficient proxies to approve the proposals described in this
Proxy Statement. If such a motion is approved but sufficient proxies are not
received by the time set for the resumption of the Annual Meeting, this process
will be repeated until sufficient proxies to vote in favor of the proposals to
be presented to the stockholders at the Annual Meeting have been received or it
appears that sufficient proxies will not be received.
Abstentions and broker non-votes will count in determining if a quorum is
present at the Annual Meeting. A broker non-vote occurs if a broker or other
nominee attending the Annual Meeting in person or submitting a Proxy does not
have discretionary authority and has not received voting instructions with
respect to a particular item.
2
<PAGE>
PROPOSAL ONE
ELECTION OF CLASS III DIRECTORS
GENERAL
The Board of Directors proposes the election of two Class III directors.
Each of the Class III nominees, if elected, will hold office for a term of three
years ending at the Company's annual meeting of stockholders in 2003 and until
the stockholders elect their qualified successors. Messrs. McCord and Herr, the
Nominees, each currently serve as directors. If any of the Nominees become
unable or unwilling to accept the election or to serve as a director (which the
Board of Directors does not anticipate), the persons named in the Proxy will
vote for the election of the person(s) recommended by the Board of Directors.
The Company's Certificate of Incorporation and Bylaws provide that the Board
of Directors will be divided into three classes, with each class consisting (as
nearly as possible) of one-third of the whole. The term of office of one class
of directors expires each year, with each class of directors being elected for a
term of three years and until the Company's stockholders elect their qualified
successors. The Bylaws further provide that the Board of Directors may fix the
number of directors that shall constitute the whole Board. Currently, the number
of directors is set at seven.
REQUIRED VOTE AND RECOMMENDATION
The election of directors requires the affirmative vote of a plurality of
the shares of Common Stock present or represented by proxy and entitled to vote
at the Annual Meeting. Accordingly, under Delaware law and the Company's
Certificate of Incorporation and Bylaws, abstentions and broker non-votes will
not have any effect on the election of a particular director. Unless otherwise
instructed or unless authority to vote is withheld, the enclosed Proxy will be
voted for the election of each of the Nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
TWO NOMINEES FOR ELECTION AS A CLASS III DIRECTOR.
DIRECTORS
The following table sets forth certain information regarding each Nominee
for election as a director at the Annual Meeting and the other directors of the
Company.
<TABLE>
<CAPTION>
DIRECTOR'S
NAME OF NOMINEE AGE TITLE TERM ENDING
- --------------- -------- --------------------------------- -----------
<S> <C> <C> <C>
Ricky D. McCord.......................... 45 President, Chief Executive 2000
Officer and Director
Charlie K. Herr.......................... 60 Secretary, Senior Vice President 2000
and Director
</TABLE>
RICKY D. MCCORD has served as HORIZON's President and Chief Executive
Officer and a director since the Company's inception. Mr. McCord, who has been a
licensed pharmacist in the State of Texas since 1977, was employed by True
Quality Pharmacies, Inc., from 1977 through 1993. During such time, Mr. McCord
served as pharmacist and store manager from 1977 to 1981, as district manager
from 1982 to 1992, and as a director from 1980 through 1990.
CHARLIE K. HERR has served as HORIZON's Southern Regional Manager and a
director since the Company's inception and as the Company's Secretary since
June, 1999. Mr. Herr has been a practicing pharmacist since 1963, serving as
Pharmacist in Charge for True Quality Pharmacies, Inc. from
3
<PAGE>
July 1969 to February 1994. Mr. Herr is licensed to practice in Colorado,
Kansas, Missouri, New Mexico, Oklahoma, Texas, Virginia and Montana.
<TABLE>
<CAPTION>
DIRECTOR'S
NAME OF DIRECTOR AGE TITLE TERM ENDING
- ---------------- -------- -------- -----------
<S> <C> <C> <C>
Michael F. Loy.................................... 49 Director June 2002
Robert D. Mueller................................. 42 Director June 2002
John N. Stogner................................... 56 Director June 2001
Philip H. Yeilding................................ 39 Director June 2001
Herbert J. Fleming................................ 54 Director June 2001
</TABLE>
MICHAEL F. LOY has served as a director of the Company since June 1998. He
has also served as managing partner of Mike Loy & Company, a firm of certified
public accountants located in Pittsburg, Kansas, since 1973. Since 1994, Mr. Loy
has also served as president of Ag Service Centers, L.L.C. Mr. Loy has also been
a director and shareholder of Southeast Kansas Bankshares since 1989.
ROBERT D. MUELLER has served as HORIZON's Western Regional Manager since
inception, as Chief Operating Officer from March 1999 until April 2000, as
President of HorizonScripts.com, Inc., a wholly-owned subsidiary of the Company,
since April 2000 and as a director since 1997. Mr. Mueller has been a practicing
pharmacist since 1980, and is licensed in New Mexico, Oklahoma and Texas. Mr.
Mueller served as Pharmacy Manager of True Quality Pharmacies, Inc. from August
1983 through August 1996, and as Staff Pharmacist for Eastland Memorial Hospital
from September 1994 to August 1996.
JOHN N. STOGNER has served as the Company's Chief Financial Officer since
March 1998 and a director since March 1999. From February 1997 to February 1998
he was a consultant to Nations Personnel, Inc. From March 1995 to February 1997
he was a consultant to Crest Outsourcing, Inc.
PHILIP H. YEILDING has served as a director since 1997. He is a board
certified physician's assistant. He has served as a physician's assistant and a
director of the Wilson and Jones Health Center since January 1995. From August
1991 through December 1994, Mr. Yeilding was employed by the Farmersville
Medical Center; from October 1989 to August 1991 he was employed by the Mitchell
Family Care Center; and from October 1989 to August 1998 he was employed by the
McKellar Clinic, servicing as a physician's assistant for each center and as a
director of the Farmersville Medical Center.
HERBERT J. FLEMING was appointed to the Board of Directors in September
1999. Mr. Fleming served as President of Oneita Industries, Inc. from December
1984 until April 1996. He has also served as President of Northfield Trading Co.
Inc. from September 1997 until present.
COMPENSATION OF DIRECTORS
During the last fiscal year, the Company paid non-employee directors $1,000
for every meeting of the Board of Directors attended, plus reimbursement of all
ordinary and necessary expenses incurred in attending any such meeting. The
Company does not pay directors who are also officers or employees of the Company
for their services as director. The HORIZON Pharmacies, Inc. 1997 Stock Option
Plan, 1998 Stock Option Plan and 1999 Stock Option Plan provide for the grant of
10-year, non-qualified or incentive stock options to employees,
employee-directors and non-employee directors.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company's Board of Directors has an Audit Committee, a Compensation
Committee and an Executive Committee.
AUDIT COMMITTEE. The Audit Committee recommends annually to the Board of
Directors an accounting firm to serve as the Company's independent public
auditors, consults with the Company's
4
<PAGE>
independent auditors and with personnel from the financial staff with respect to
corporate accounting, reporting and internal control practices, and reviews and
approves transactions with parties affiliated with the Company. The current
members of the Audit Committee are Messrs. Loy, Fleming and Yeilding. Mr. Loy is
the Chairman of the committee. The Audit Committee met one time during 1999.
COMPENSATION COMMITTEE. The Compensation Committee approves annual salary,
bonus and stock option levels for executive officers, oversees administration of
the Company's employment agreements and administers the Company's 401(k) Plan
and its stock option plans. The current members of the Compensation Committee
are Messrs. Loy, Fleming, and Yeilding. Mr. Loy is the Chairman of the
committee. The Compensation Committee met two times during 1999.
EXECUTIVE COMMITTEE. The Executive Committee approves acquisitions,
strategic planning and funding. The current members of the Executive Committee
are Messrs. Herr, McCord, Mueller and Stogner. The Executive Committee met
twelve times during 1999.
MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors held seven
meetings during 1999. Each director attended at least 75% of the meetings held
by the Board of Directors and by committees of the Board on which he served.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Executive
Officers of the Company.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- -------- -----------------------
<S> <C> <C>
Philip D. Stone, R.Ph.......................... 59 Chief Operating Officer
</TABLE>
PHILIP D. STONE was elected as Chief Operating Officer of the Company in
April 2000. Mr. Stone has been a licensed pharmacist since 1967 and is licensed
in Arkansas, Florida, Georgia, Kansas, Maryland, Missouri, New Hampshire, North
Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Vermont, Virginia, and West Virginia. Mr. Stone served as Director of Pharmacy
Development for Harp's Food Stores from 1999 to April 2000. He also served as
Director of Pharmacy for Valu Merchandisers from 1995 to 1999. From 1973 to
1995, Mr. Stone was employed by Rite Aid Corporation and served on the executive
management team as Director of Pharmacy Personnel from 1984 to 1995.
The Executive Officers were elected by the Board of Directors of the Company
to serve in the capacity set forth in this Proxy Statement until the next annual
meeting of the Board of Directors, or until their respective successors have
been duly elected and have been qualified, or until their earlier death,
resignation or removal from office. Biographical information on Messrs. McCord,
Herr, Mueller and Stogner is set forth previously in this Proxy Statement.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth certain information for the fiscal years
ended December 31, 1997, 1998 and 1999, concerning the cash and non-cash
compensation earned by, or awarded to, the President and Chief Executive Officer
of the Company and each of the other three most highly compensated Executive
Officers of the Company whose aggregate remuneration for services rendered to
the Company during the year ended December 31, 1999 exceeded $100,000 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL ---------------------
COMPENSATION OTHER ANNUAL SECURITIES UNDERLYING
------------------- COMPENSATION OPTIONS GRANTED IN
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS($) ($)(1) FISCAL YEAR
- --------------------------- -------- -------- -------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Ricky D. McCord........................... 1999 164,103 116,000 0 91,925
Chairman and President 1998 133,333 30,000 0 67,500
And Chief Executive Officer 1997 94,362 21,000 0 86,742
John N. Stogner........................... 1999 140,000 40,000 0 86,925
Chief Financial Officer and Treasurer 1998 87,995 10,000 0 65,000
Charlie K. Herr........................... 1999 127,575 109,255 0 81,925
Senior Vice President and 1998 108,353 24,380 0 57,500
Secretary 1997 75,187 17,252 0 71,508
Robert D. Mueller......................... 1999 134,498 139,255 0 86,925
Chief Operating Officer 1998 108,353 24,380 0 57,500
1997 75,399 17,252 0 68,187
</TABLE>
- ------------------------
(1) None of the Named Executive Officers received any prequisites or other
personal benefits in 1997, 1998 or 1999 that in the aggregate exceeded the
lesser of $50,000 or 10% of such Named Executive Officer's salary and bonus
of such year.
6
<PAGE>
The following table provides information concerning options to purchase
Common Stock granted to the Named Executive Officers in the fiscal year ended
December 31, 1999. No stock appreciation rights were granted in the fiscal year
ended December 31, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL GRANT
SHARES OPTIONS DATE
UNDERLYING GRANTED TO EXERCISE OR PRESENT
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME GRANTED (#) FISCAL YEAR (%) ($/SHARE)(1) DATE ($)(2)
- ---- ----------- --------------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Charlie K. Herr........................ 81,925(3) 15.0 5.63 06/28/09 9.55
Ricky D. McCord........................ 91,925(3) 16.9 5.63 06/28/09 9.55
Robert D. Mueller...................... 86,925(3) 16.0 5.63 06/28/09 9.55
John N. Stogner........................ 86,925(3) 16.0 5.63 06/28/09 9.55
</TABLE>
- ------------------------
(1) The exercise price is the market price on the date of grant.
(2) The grant date present value was determined by using the Black-Scholes
option pricing model, as adapted for use in valuing stock options. The
estimated values under the Black-Scholes model are based on assumptions as
to certain variables. Expected stock price volatility is assumed to be 83.3%
and the risk-free rate of return is assumed to be 5.78% for the options
shown in the table. The exercise date for the options is assumed to be the
fifth anniversary of the date of grant, and dividend yield is assumed to be
zero. The actual value, if any, a Named Executive Officer may realize will
depend on the excess of the stock price over the exercise price on the date
the option is exercised, so there is no assurance that the value realized by
a Named Executive Officer will be at or near the value estimated by the
Black-Scholes model reflected in the table.
(3) Options were granted June 28, 1999 pursuant to the HORIZON Pharmacies, Inc.
1999 Stock Option Plan (the "1999 Plan") and each option becomes exercisable
with respect to one-third of the shares of Common Stock underlying the
option on each of the first three anniversary dates of the grant of the
options. The 1999 Plan allows for the payment of the exercise price of an
option with shares of Common Stock, upon the approval of the Compensation
Committee. In addition, the 1999 Plan permits an optionee under certain
circumstances to cause the Company to withhold shares issued upon the
exercise of an option granted under that plan in payment of the taxes due
upon the exercise of such option.
7
<PAGE>
The following table shows information regarding stock options exercised
during the last fiscal year by the Named Executive Officers, and the estimated
value of unexercised options held by such persons at December 31, 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND 1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN THE MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999 ($)(1)
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charlie K. Herr.......... 0 N/A 75,674 120,258 N/A N/A
Ricky D. McCord.......... 0 N/A 94,242 136,925 N/A N/A
Robert D. Mueller........ 0 N/A 72,354 125,258 N/A N/A
John N. Stogner.......... 0 N/A 41,667 110,258 N/A N/A
</TABLE>
- ------------------------
(1) Based on the difference between $2.63, the closing price of the Common Stock
on the American Stock Exchange on December 31, 1999, and the exercise price
per share.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENTS
The Company is a party to employment agreements with each of Messrs. Herr,
McCord, Mueller and Stogner. The agreements of Messrs. Herr, McCord, Mueller and
Stogner each extend through July 1, 2002. The Company may terminate each of the
agreements without cause by giving the employee 90 days' written notice. Under
the respective agreements Mr. McCord receives an annual salary of $200,000 and
an annual bonus of $80,000; Messrs. Mueller and Stogner each receive an annual
salary of $165,000 and an annual bonus of $66,000 and Mr. Herr receives an
annual salary of $150,000 and an annual bonus of $60,000. For a period of two
years following the termination of an employee, the employee is prohibited from
engaging in or assisting in any business which is identical, competitive with or
comparable to, the Company's business within any area in which the employee
rendered services to the Company. Each agreement also includes a confidentiality
clause which prohibits the employee, subsequent to termination of employment,
from disclosing to third parties proprietary information relating to the
Company. A state court charged with enforcing any of the referenced employment
agreements may determine that such non-competition provisions are not
enforceable in whole or in part.
CHANGE-IN-CONTROL ARRANGEMENTS
The Company knows of no arrangements (including the pledge by any person of
securities of the Company), the operation of which may result at a subsequent
date in a change in control of the Company.
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee describes the Committee's
compensation policies with regard to the Company's executive officers, including
the Chief Executive Officer, for 1999, including the specific relationship of
corporate performance to executive compensation. As described above under
"Committees and Meetings of the Board of Directors," the Compensation
Committee's functions include reviewing and making recommendations to the Board
of Directors concerning the base salary, annual incentive bonus awards and other
compensation awards to the Company's Chief Executive Officer and other executive
officers. The Compensation Committee is composed of three non-employee
directors.
In 1999, the Company's executive compensation program consisted of base
salary, cash bonuses and incentive compensation in the form of stock options.
The Compensation Committee anticipates that stock options will continue to form
a part of the Company's overall executive compensation program and that
incentive cash compensation will be used to reward exceptional performance.
The Compensation Committee reviews all aspects of the Company's compensation
program annually and consults with management with regard to executive
compensation plans and practices. The specific objectives of the Compensation
Committee are to:
- provide compensation that will attract and retain superior talent;
- align each executive officer's financial interests with the success of the
Company;
- facilitate the achievement of the Company's strategic operating
objectives; and
- reward executive officers for successful Company and individual
performance.
The factors considered by the Compensation Committee in establishing
executive officer cash compensation and stock option grants in 1999 included:
- an assessment of the level of compensation required to attract and/or
retain the executive officer:
- the responsibilities of the executive officer;
- the individual's performance;
- the financial results of the Company for the preceding year; and
- the compensation practices of other corporations that are similarly
situated with the Company.
The Compensation Committee did not apply any formula based upon specific
performance measures in 1999. In determining annual compensation, the same
standards are applied to the Chief Executive Officer as to the other executive
officers.
The Compensation Committee of the Board of Directors is:
Michael F. Loy (Chairman),
Philip H. Yeilding, and
Herbert J. Fleming.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Loy, Yeilding and Fleming served on the Compensation Committee
during 1999 and during such time none had any relationship with the Company
requiring disclosure under this heading.
9
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing total stockholder return on the
Company's Common Stock, the Russell 2000 Index and a Custom Composite Index that
includes a group of four stocks of the Company's peers, including Drug
Emporium Inc., Duane Reade Inc. (since the second quarter of 1998), Pharmhouse
Corp. (through the fourth quarter of 1998) and Phar-Mor Inc. The graph
illustrates total stockholder return on $100 invested on July 9, 1997 (the first
trading day following the initial public offering of the Company's Common
Stock), through December 31, 1999.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUSTOM COMPOSITE INDEX
HORIZON PHARMACIES, INC. RUSSELL 2000 (4 STOCKS)
<S> <C> <C> <C>
9-Jul-97 100 100 100
31-Dec-97 319 111 111
30-Jun-98 435 117 141
31-Dec-98 326 108 164
30-Jun-99 176 118 134
31-Dec-99 79 131 113
</TABLE>
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership as of the Record Date, of the Company's Common Stock by (i)
each person known to the Company to be the beneficial owner of 5% or more of the
shares of Common Stock outstanding; (ii) each director; (iii) each Named
Executive Officer; and (iv) directors and executive officers of the Company as a
group. Unless otherwise indicated, to the Company's knowledge, each person has
sole voting and dispositive power over the shares indicated as owned by such
person. Unless otherwise indicated, all stockholders set forth below have the
same principal business address as the Company.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
NAME SHARES OWNED BENEFICIALLY OWNED(1)
- ---- ------------ ---------------------
<S> <C> <C>
Gintel Asset Management, Inc................................ 910,000(2) 15.3%
6 Greenwich Office Park
Greenwich, CT 06831
Ricky D. McCord, R.Ph....................................... 495,072(3) 8.1%
Charlie K. Herr, R.Ph....................................... 454,168(4) 7.5%
Robert D. Mueller, R.Ph..................................... 164,636(5) 2.7%
John N. Stogner............................................. 77,165(6) 1.3%
Michael F. Loy.............................................. 13,533(7) *
Philip H. Yeilding.......................................... 10,099(8) *
Herbert J. Fleming.......................................... 4,333(7) *
Directors and executive officers as a group (seven
persons).................................................. 1,219,006(9) 20.1%
</TABLE>
- ------------------------
* Less than one percent.
(1) Based on 5,936,363 shares of Common Stock outstanding on the Record Date.
(2) Based on information set forth in the Amendment to Schedule 13G, dated
February 10, 2000, filed with the SEC on February 14, 2000 by Gintel Asset
Management, Inc.
(3) Includes 147,384 shares of Common Stock that may be acquired upon the
exercise of options within the next 60 days and 1,359 shares of Common Stock
held indirectly through the Company's 401(k) Plan.
(4) Includes 122,149 shares of Common Stock that may be acquired upon the
exercise of options within the next 60 days and 1,161 shares of Common Stock
held indirectly through the Company's 401(k) Plan.
(5) Includes 107,162 shares of Common Stock that may be acquired upon the
exercise of options within the next 60 days and 1,348 shares of Common Stock
held indirectly through the Company's 401(k) Plan.
(6) Includes 70,642 shares of Common Stock that may be acquired upon the
exercise of options within the next 60 days and 1,423 shares of Common Stock
held indirectly through the Company's 401(k) Plan.
(7) Includes 3,333 shares of Common Stock that may be acquired upon the
exercises of options within the next 60 days.
(8) Includes 4,833 shares of Common Stock that may be acquired upon the exercise
of options within the next 60 days.
(9) Includes 458,836 shares that may be acquired upon the exercise of options
within the next 60 days.
11
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has adopted a policy that all transactions between it and
related parties are subject to approval by a majority of all disinterested
directors and must be on terms no less favorable than those that could be
obtained from unrelated third parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of the original and amended Forms 3 and 4 furnished to
the Company during 1999, the Company knows of the following failures to file
reports required by Section 16(a) of the Exchange Act on a timely basis: Mr.
McCord failed to timely file a Form 5 for 1999; Mr. Mueller failed to timely
file a Form 5 for 1999; Mr. Stogner failed to timely file a Form 4 in 1998 for
the months of April, August and November and failed to timely file a Form 5 for
both 1998 and 1999; Mr. Loy failed to timely file a Form 4 in 1998 for the
months of August and September; Mr. Herr failed to timely file a Form 5 for
1999; Mr. Fleming failed to timely file a Form 3 within 10 days of becoming a
director in September 1999 and failed to timely file a Form 5 for 1999; and Mr.
Yeilding failed to timely file a Form 5 for 1999.
PROPOSAL TWO
RATIFICATION OF THE HORIZON PHARMACIES, INC.
2000 STOCK OPTION PLAN
GENERAL
The Board of Directors of Horizon Pharmacies, Inc. approved the Horizon
Pharmacies, Inc. 2000 Stock Option Plan (the "2000 Plan") effective July 1,
2000, subject to approval of the stockholders of Horizon Pharmacies, Inc. The
2000 Plan is an unfunded plan which provides for the granting of stock options
("Options") to directors and employees of the Company and its subsidiaries and
other individuals that perform services for the Company and its subsidiaries.
The Board believes that the 2000 Plan strengthens the Company's ability to
attract, retain, and reward high-quality executives, employees, and other
persons who provide services to the Company and/or its subsidiaries, enabling
such persons to acquire or increase a proprietary interest in the Company and
strengthen the mutuality of interests between such persons and the Company's
stockholders, and providing such persons with performance incentives to expend
their maximum efforts in the creation of shareholder value.
The following is a summary of the principal features of the proposed 2000
Plan, together with the applicable tax implications. This summary, however, does
not purport to be a complete description of all provisions of the 2000 Plan. The
description is qualified in its entirety by reference to the 2000 Plan, a copy
of which is attached as APPENDIX A to this Proxy.
DESCRIPTION OF THE 2000 PLAN
ADMINISTRATION OF THE 2000 PLAN
If approved, the 2000 Plan will be administered, except to the extent the
Board elects otherwise, by the Compensation Committee. Each member of the
Compensation Committee will be a "non-employee director" within the meaning of
Rule 16b-3 under the Exchange Act and an "outside director," as defined under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
unless administration of the 2000 Plan by such is not then required in order to
qualify for tax deductibility under Section 162(m) of the Code or exemptions
under Rule 16b-3 of the Exchange Act respectively.
If approved, the Compensation Committee will have full and final authority
to administer the 2000 Plan in the manner that it determines, from time to time,
is in the best interests of the Company. This includes the authority to select
persons to participate in the 2000 Plan, grant Options under the 2000
12
<PAGE>
Plan, construe and interpret the 2000 Plan and determine the type, number and
other terms and conditions of, and all other matters relating to, Options.
Nevertheless, in each fiscal year or 12 month period, as applicable, no Covered
Employee (as defined below) may be granted an Option relating to more than
100,000 shares of the Company's Common Stock. No person may be granted an Option
relative to more than the number of shares of Common Stock determined by
applying the limitations set forth in SEC Regulation Section 230.701, if
applicable.
SECURITIES TO BE OFFERED
If approved, the total number of shares of Common Stock reserved and
available for delivery in connection with Options under the 2000 Plan will be
250,000. Shares of Common Stock subject to an Option under the Plan that expires
or is canceled, forfeited, settled in cash or otherwise terminated without a
delivery of shares to a Participant (as defined below) will again be available
for Options under the 2000 Plan, to the extent allowed by applicable law.
The number and kind of shares of Common Stock to be delivered under the 2000
Plan may be subject to adjustment for stock splits, stock dividends,
recapitalizations, mergers, and other changes affecting the capital stock of the
Company.
PERSONS WHO MAY PARTICIPATE IN THE 2000 PLAN
If approved, all employees and officers of the Company or any of its
subsidiaries as well as other persons who provide services to the Company or any
of its subsidiaries including directors of the Company will be eligible, if
chosen, to participate in the 2000 Plan ("Eligible Persons"). As of March 31,
2000 the Company and its Subsidiaries had approximately 1,067 employees and
three non-employee directors and approximately ten other service providers who
would be Eligible Persons if the 2000 Plan was approved as of such date. The
Compensation Committee will have full and final authority to select Eligible
Persons to receive Options under the 2000 Plan. Only Eligible Persons may be
granted Options under the 2000 Plan, however, any person granted an Option under
the 2000 Plan which remains outstanding, including a person who is no longer an
Eligible Person, will be considered a participant under the 2000 Plan (a
"Participant").
DESCRIPTION OF OPTIONS
TYPES OF OPTIONS. The types of Options that may be granted under the 2000
Plan include: (i) incentive stock options ("Incentive Stock Options"), as
defined in Section 422 of the Code and (ii) stock options other than Incentive
Stock Options ("Non-Qualified Stock Options").
TERMS AND CONDITIONS OF OPTIONS. If the 2000 Plan is approved, Options may
be granted on the terms and conditions set forth below. In addition, the
Compensation Committee may impose on any Option or the exercise thereof, at the
date of grant or thereafter such additional terms and conditions as the
Compensation Committee will determine, including certain performance conditions
described below, terms requiring forfeiture of Options in the event of
termination of employment of a Participant and terms permitting a Participant to
make elections relating to his or her Option. The Compensation Committee will
retain full power and discretion to accelerate, waive or modify, at any time,
any term or condition of an Option that is not mandatory under the 2000 Plan;
provided, however, that the Compensation Committee will not have any discretion
to accelerate, waive or modify any term or condition of an Option that is
intended to qualify as "performance-based compensation" for purposes of Section
162(m) of the Code if such discretion would cause the Option not to so qualify.
Except in cases in which the Compensation Committee is authorized to require
other forms of consideration under the 2000 Plan, no consideration other than
services may be required for the grant (but not the exercise) of any Option.
13
<PAGE>
If the 2000 Plan is approved, the Compensation Committee will be authorized
to grant Options. The exercise price per share of Stock purchasable under an
Option will be determined by the Compensation Committee, provided that such
exercise price will not be less than the fair market value of the Common Stock,
as determined by the Compensation Committee ("Fair Market Value"), on the date
of the Option's grant in the case of Incentive Stock Options. The Compensation
Committee will determine the time or times at which or the circumstances under
which an Option may be exercised. The Compensation Committee will also determine
the methods by which the exercise price may be paid, the form of payment and the
methods by or forms in which Common Stock will be delivered to Participant.
The term of each Option will be for such period as may be determined by the
Compensation Committee; provided that in no event will the term of any Option
exceed a period of ten years (or such shorter term as may be required in respect
of an Incentive Stock Option under Section 422 of the Code).
Options granted under the 2000 Plan may, in the discretion of the
Compensation Committee, be granted either alone, or in addition to, or in
exchange for, other Options or other rights to receive payment from the Company
or certain affiliated entities. Such exchange Options may be granted at any
time.
PERFORMANCE CONDITIONS
PERFORMANCE CONDITIONS IN GENERAL. Under the 2000 Plan, the right of a
Participant to exercise or receive a grant of any Option, and the timing
thereof, may be subject to performance conditions specified by the Compensation
Committee (a "Performance Award"). The Compensation Committee may use any
measures of performance it deems appropriate in establishing performance
conditions, and may exercise its discretion, to the extent such discretion does
not violate applicable law, to reduce or increase the amounts payable under any
Performance Award based on such conditions. Further, if the Compensation
Committee determines that a Participant is a "covered employee" under Section
162(m) of the Code or the regulations thereunder (a "Covered Employee") and the
contemplated Performance Award should qualify as "performance-based
compensation" under such section, then the grant, exercise and/or settlement of
such Performance Award may be contingent upon achievement of one or more
preestablished performance goals. For purposes of Section 162(m) of the Code,
Covered Employees are the chief executive officer of a given corporation and the
four highest compensated officers other than the chief executive officer.
Performance goals will consist of one or more of the business criteria
described below and targeted levels of performance with respect to each of such
criteria, specified by the Compensation Committee. Performance goals will be
objective, "substantially uncertain" and will otherwise meet the requirements of
Section 162(m) of the Code and regulations thereunder. Performance goals may
vary among Participants or among Performance Awards to the same Participant.
BUSINESS CRITERIA. One or more of the following business criteria for the
Company, on a consolidated basis, and/or for specified subsidiaries or business
or geographical units of the Company (except with respect to the total
shareholder return and earnings per share criteria), will be used by the
Compensation Committee in establishing performance goals: (1) earnings per
share; (2) increase in revenues or margin; (3) increase in cash flow; (4)
revenue; (5) return on net assets; return on assets; return on investment;
return on capital; return on equity; (6) operating profits in excess of cost of
capital employed; (7) direct contribution; (8) net income; pretax earnings;
pretax earnings before interest, depreciation and amortization (EBITDA); pretax
earnings after interest expense and before incentives, service fees, and
extraordinary or special items, operating income; income before interest income
or expense, unusual items and income taxes (local, state or federal) and
excluding budgeted and actual bonuses which might be paid under any ongoing
bonus plans of the Company; (9) working
14
<PAGE>
capital; (10) management of fixed costs or variable costs; (11) identification
and/or consummation of investment opportunities or completion of specified
projects in accordance with corporate business plans, including strategic
mergers, acquisitions, or divestitures; (12) total shareholder return; (13) debt
reduction; and (14) any of the above goals determined on an absolute or relative
basis or as compared to the performance of a published or special index deemed
applicable by the Compensation Committee including, but not limited to, the
Standard & Poor's 500 Stock Index or a group of comparable companies ("Business
Criteria").
ESTABLISHMENT, AMOUNT AND ACHIEVEMENT OF PERFORMANCE GOALS;
POOLS. Achievement of performance goals will be measured over a performance
period of up to ten years, as specified by the Compensation Committee.
Performance goals will be established not later than 90 days after the beginning
of any performance period applicable to such Options, or at such other date as
may be required or permitted for "performance-based compensation" under Section
162(m) of the Code.
After each performance period, the Compensation Committee will determine the
amount of any Performance Awards payable to each Participant. These amounts will
be settled, in the Compensation Committee's discretion, by allowing a Covered
Employee to exercise Options, or through the grant of additional Options. The
Compensation Committee may, at its discretion, decrease the amount of
Performance Awards but may not increase the amount of a Performance Award
payable to a Covered Employee.
All determinations by the Compensation Committee as to the establishment,
amount and achievement of performance goals by Covered Employees will be made in
writing and the Compensation Committee may not delegate any responsibility
relating to such Performance Awards. The Compensation Committee will specify the
circumstances under which Performance Awards will be paid or forfeited if a
Participant is terminated before settlement.
OTHER PROVISIONS OF THE 2000 PLAN
CHANGE IN CONTROL. In the event of a Change in Control (defined below),
unless otherwise provided in the Option agreement: (i) any Option that was not
previously exercisable will become fully exercisable at the time of the Change
in Control and remain so for the balance of the stated term of such award except
to the extent required by an applicable law, regulation or rule; and (ii) all
performance conditions will be deemed met if and to the extent so provided in
the Option agreement relating to such Option.
A Change of Control will be deemed to have occurred if: (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act, hereinafter
an "Acquiring Person") becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 promulgated under the Exchange Act, hereinafter a "Beneficial
Owner"), directly or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then outstanding
securities; (ii) an Acquiring Person becomes the Beneficial Owner, directly or
indirectly of securities of the Company representing 10% or more of the combined
voting power of the Company's then outstanding securities and, during the
two-year period commencing at the time such Acquiring Person becomes the
Beneficial Owner of such securities, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute at least a
majority thereof; (iii) the Company's stockholders approve an agreement to merge
or consolidate the Company with another corporation (other than a corporation
50% or more of which is controlled by, or is under common control with, the
Company) and, during the period commencing six months before such approval and
ending two years after such approval, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute at least a
majority thereof, and (iv) during any two year period, individuals who at the
date on which the period commences constitute a majority of the Board cease to
constitute a majority thereof as a result of one or more contested elections for
positions on such Board.
15
<PAGE>
TRANSFERABILITY. Unless permitted by the Compensation Committee pursuant to
the express terms of an Option agreement, Options will generally not be
transferable other than by will or the laws of descent and distribution or to a
named beneficiary.
AMENDMENT AND TERMINATION. The Board may amend or terminate the 2000 Plan
without the consent of stockholders or Participants, except that any amendment
to the 2000 Plan will be subject to the approval of the Company's stockholders
no later than the annual meeting next following such Board action if such
stockholder approval is required by any federal or state law or regulation or
the rules of any stock exchange or automated quotation system on which the
Common Stock may then be listed or quoted. The Board may, in its discretion,
submit other changes to the 2000 Plan to stockholders for approval. However,
without the consent of an affected Participant, no Board or stockholder action
may materially and adversely affect the rights of such Participant under any
previously granted and outstanding Option. The Compensation Committee may amend
or terminate any Option provided that, and notwithstanding any other provisions
described herein, without the consent of an affected Participant, no such
Compensation Committee action may materially and adversely affect the rights of
such Participant under such Option.
SECTION 16(B) LIABILITY. It is the intent of the Company that the grant of
any Options to or other transaction by a Participant who is subject to Section
16 of the Exchange Act will be exempt from such pursuant to an applicable
exemption (except for transactions acknowledged in writing to be non-exempt by
such Participant). Accordingly, if a provision of the 2000 Plan or any Option
agreement does not comply with the requirements of Rule 16b-3 of the Exchange
Act, such provision will deemed amended to the extent necessary to conform to
such so that the Participant avoids liability under Section 16(b) of the
Exchange Act.
NON-COMPETITION AGREEMENT. If the 2000 Plan is approved, the Compensation
Committee may require, as a condition to the grant of any Option, that an
Eligible Person agree in writing not to engage in conduct in direct competition
with the Company and/or any of its subsidiaries for one year after the
termination of such Eligible Person's employment with the Company and/or its
subsidiaries.
FEDERAL TAX CONSEQUENCES
Set forth below is a summary of the federal income tax consequences to
Participants in the 2000 Plan and to the Company as a result of the grant and
exercise of Options under the 2000 Plan. This summary is based on statutory
provisions, Treasury regulations thereunder, judicial decisions, and Internal
Revenue Service rulings in effect on the date hereof.
NON-QUALIFIED STOCK OPTIONS; INCENTIVE STOCK OPTIONS. Participants will not
realize taxable income upon the grant of a Non-Qualified Stock Option. Upon the
exercise of a Non-Qualified Stock Option, a Participant will recognize ordinary
compensation income (subject to withholding by the Company) in an amount equal
to the excess of (i) the amount of cash and the fair market value of the Stock
received, over (ii) the exercise price (if any) paid therefor. A Participant
will generally have a tax basis in any shares of Stock received pursuant to the
exercise of a Non-Qualified Stock Option that equals the fair market value of
such shares on the date of exercise. Subject to the discussion under "TAX CODE
LIMITATIONS ON DEDUCTIBILITY," the Company (or a subsidiary) will be entitled to
a deduction for federal income tax purposes that corresponds as to timing and
amount with the compensation income recognized by a Participant under the
foregoing rules.
Participants eligible to receive an Incentive Stock Option will not have
taxable income upon the grant or exercise of such an Option.
16
<PAGE>
Upon exercise of an Incentive Stock Option the excess of the fair market
value of the shares of Common Stock received ("ISO Stock") over the exercise
price will increase the alternative minimum taxable income of the Participant,
which may cause such Participant to incur alternative minimum tax. The payment
of any alternative minimum tax attributable to the exercise of an Incentive
Stock Option would be allowed as a credit against the Participant's regular tax
liability in a later year to the extent the Participant's regular tax liability
is in excess of the alternative minimum tax for that year.
Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the Incentive Stock Option), a Participant
will generally recognize capital gain (or loss) equal to the excess (or
shortfall) of the amount received in the disposition over the exercise price
paid by the Participant for the ISO Stock. However, if a Participant disposes of
ISO Stock that has not been held for the requisite holding period (a
"disqualifying disposition"), the Participant will recognize ordinary
compensation income in the year of the disqualifying disposition in an amount
equal to the amount by which the fair market value of the ISO Stock at the time
of exercise of the Incentive Stock Option (or, if less, the amount realized in
the case of an arm's length disqualifying disposition to an unrelated party)
exceeds the exercise price paid by the Participant for such ISO Stock. A
Participant would also recognize capital gain to the extent the amount realized
in the disqualifying disposition exceeds the fair market value of the ISO stock
on the exercise date.
The Company and its subsidiaries will generally not be entitled to any
federal income tax deduction upon the grant or exercise of an Incentive Stock
Option, unless a Participant makes a disqualifying disposition of the ISO Stock.
If a Participant makes a disqualifying disposition, the Company (or a
subsidiary) will then, subject to the discussion below under "TAX CODE
LIMITATIONS ON DEDUCTIBILITY," be entitled to a tax deduction that corresponds
as to timing and amount with the compensation income recognized by a Participant
under the rules described in the preceding paragraph.
Under current rulings, if a Participant transfers previously held shares of
Stock (other than ISO Stock that has not been held for the requisite holding
period) in satisfaction of part or all of the exercise price of a Non-Qualified
Stock Option or Incentive Stock Option, no additional gain will be recognized on
the transfer of such previously held shares in satisfaction of the Non-Qualified
Stock Option or Incentive Stock Option exercise price (although a Participant
would still recognize ordinary compensation income upon exercise of an
Non-Qualified Stock Option in the manner described above). Moreover, that number
of shares of Stock received upon exercise which equals the number of shares of
previously held Stock surrendered therefor in satisfaction of the Non-Qualified
Stock Option or Incentive Stock Option exercise price will have a tax basis that
equals, and a holding period that includes, the tax basis and holding period of
the previously held shares of Stock surrendered in satisfaction of the
Non-Qualified Stock Option or Incentive Stock Option exercise price. Any
additional shares of Common Stock received upon exercise will have a tax basis
that equals the amount of cash (if any) paid by the Participant, plus the amount
of compensation income recognized by the Participant under the rules described
above.
TAX CODE LIMITATIONS ON DEDUCTIBILITY. In order for the amounts described
above to be deductible by the Company (or a subsidiary), such amounts must
constitute reasonable compensation for services rendered or to be rendered and
must be ordinary and necessary business expenses. The ability of the Company (or
a subsidiary) to obtain a deduction for future payments under the 2000 Plan
could also be limited by the golden parachute payment rules of Section 280G of
the Code, which prevent the deductibility of certain excess parachute payments
made in connection with a change in control of a corporation. Finally, the
ability of the Company (or a subsidiary) to obtain a deduction for amounts paid
under the 2000 Plan could be limited by Section 162(m) of the Code, which limits
the deductibility, for federal income tax purposes, of compensation paid to
certain executive officers of the Company to $1 million with respect to any such
officer during any taxable year of the Company. However, an exception applies to
this limitation in the case of certain performance-based
17
<PAGE>
compensation. The 2000 Plan is intended to satisfy the requirements for the
performance-based exception.
NEW 2000 PLAN BENEFITS
As of the Record Date, no Options have been granted under the 2000 Plan. The
Options, if any, that will be made to eligible participants under the 2000 Plan
are subject to the discretion of the Compensation Committee and, therefore, are
not determinable at this time.
The closing price of the Common Stock as of the Record Date was $3.13 per
share.
VOTE REQUIRED AND RECOMMENDATION FOR APPROVAL OF THE PROPOSED 2000 PLAN
To be approved by the stockholders, the 2000 Plan must receive the approval
of stockholders holding at least a majority of the outstanding shares of Common
Stock present at the Annual Meeting and entitled to vote on the 2000 Plan. The
enclosed form of Proxy provides a means for stockholders to vote for the
approval of the 2000 Plan. Each properly executed Proxy received in time for the
Annual Meeting will be voted as specified therein. Abstentions and broker
non-votes are tabulated separately, with abstentions being counted in
tabulations of the votes cast on a proposal for purposes of determining whether
a proposal has been approved and broker non-votes will not be counted as a vote
cast with respect to that proposal. Because abstentions are counted as present
and entitled to vote on the 2000 Plan, they will have the effect of votes
AGAINST this Proposal. If a stockholder executes and returns a Proxy but does
not specify otherwise, the shares represented by such stockholder's Proxy will
be voted FOR the 2000 Plan.
If the 2000 Plan is not approved by stockholders at the Annual Meeting, no
Options will be granted under the 2000 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL AND RATIFICATION
OF THE ADOPTION OF THE 2000 STOCK OPTION PLAN, AND THE PROXY, UNLESS OTHERWISE
INDICATED THEREON, WILL BE VOTED "FOR" THE PROPOSAL. BECAUSE THE 2000 PLAN WILL
INCREASE THE NUMBER OF OPTIONS THAT MAY BE GRANTED TO ALL EXECUTIVE OFFICERS AND
DIRECTORS OF HORIZON PHARMACIES, INC., EACH OF THE EXECUTIVE OFFICERS AND
DIRECTORS OF HORIZON PHARMACIES, INC. HAS AN INTEREST IN, AND MAY BENEFIT FROM,
THE ADOPTION OF THE 2000 PLAN.
PROPOSAL THREE
APPROVAL AND RATIFICATION OF THE HORIZON PHARMACIES INC.
EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Board approved the Horizon Pharmacies, Inc. Employee Stock Purchase Plan
(the "ESPP") effective July 1, 2000, subject to approval of the stockholders of
Horizon Pharmacies, Inc. The ESPP provides eligible employees of the Company
with an opportunity to purchase stock of the Company through payroll deductions.
The following is a summary of the principle features of the proposed ESPP
together with its applicable tax implications. This summary, however, does not
purport to be a complete description of all provisions of the ESPP. The
description is qualified in its entirety by reference to the ESPP, a copy of
which is attached as APPENDIX B to this Proxy.
18
<PAGE>
DESCRIPTION OF THE ESPP
ADMINISTRATION OF THE ESPP
If approved, the ESPP will be administered by a committee of the Company's
officers (the "ESPP Committee") appointed by the Board of Directors to serve for
such terms as are specified by the Board of Directors. All questions of
interpretation of the ESPP will be determined by the ESPP Committee, whose
decisions will be final and binding upon all participants.
SECURITIES TO BE OFFERED
If approved, the total number of shares of the Company's Common Stock which
may be sold pursuant to options granted under the ESPP may not exceed 500,000
shares. The Common Stock sold pursuant to the ESPP may be shares originally
issued by the Company, shares held by the Company in treasury, shares which have
been reacquired by the Company or shares which have been bought on the market
for the purposes of the ESPP. There will be no fees, commissions or other
charges applicable to a purchase of Common Stock under the ESPP.
The maximum number of shares placed under option to a participant under the
ESPP in any Option Period (as defined below) will be the lesser of (i) 25,000
shares or (ii) or that number determined by dividing the amount of the
participant's total payroll deductions during the Option Period (and any
carryover amounts from the preceding Option Period and any cash payments made
during a leave of absence) by the purchase price per share under the ESPP.
Unless a participant withdraws from the ESPP, the participant's option for the
purchase of shares will be exercised automatically at the end of each Option
Period for the maximum number of whole shares at the applicable price. As soon
as practicable following the end of each Option Period, the Company will cause
to be delivered one or more certificates representing the aggregate number of
whole shares of Common Stock issued upon exercise of options by all Eligible
Employees (as defined below) under the ESPP during the Option Period. Any
balance remaining in a participant's account following the exercise of the
participant's option in an offering period will not be carried over to the next
offering period except in the case where such balance is insufficient to
purchase one share of Common Stock at the end of the Option Period.
Notwithstanding the foregoing, no employee, otherwise eligible to
participate in the ESPP, will be permitted to subscribe for shares of Common
Stock under the ESPP if, immediately after the grant of the option, the employee
would own five percent or more of the voting power or value of all classes of
stock of the Company or its parent or subsidiaries (including stock which may be
purchased under the ESPP or pursuant to any other options). Nor will any
employee be granted an option which would permit the employee to buy pursuant to
the ESPP and under all other employee stock purchase plans of the Company or its
parent or subsidiary organizations more than $25,000 worth of stock (determined
at the fair market value of the shares at the time the option is granted) in any
calendar year.
EMPLOYEES WHO MAY PARTICIPATE IN THE ESPP
If approved, any persons who have been continually employed by the Company
(or any of its parent or subsidiary corporations within the meaning of Sections
424(e) and (f) of the Code, and including any predecessor entity ("Participating
Company")) for at least six months (including any authorized leave of absence
meeting the requirements of Treasury Regulation Section 1.421-7(h)(2)) as of the
applicable date of grant and who customarily are employed for at least 20 hours
per week and at least five months per calendar year will be eligible to
participate in the ESPP, subject to certain limitations imposed by
Section 423(b) of the Code ("Eligible Employees"). Eligible Employees may become
participants in the ESPP by delivering to the Company an agreement authorizing
payroll deductions before the first day of the Option Period. The ESPP Committee
may approve the use of a
19
<PAGE>
voice response system through which eligible employees and the ESPP Committee
may act under the ESPP, as an alternative to written forms, notices and
elections.
A participant may withdraw from the ESPP in whole, but not in part, by
signing and delivering to the Company a notice of withdrawal from the ESPP. A
participant may elect to withdraw from the ESPP at any time prior to 30 days
before the date of exercise relating to a particular Option Period. A
participant who withdraws from the ESPP will not be eligible to participate in
the ESPP during the then current Option Period, but shall be eligible to
participate again in the ESPP in a subsequent Option Period (provided that the
participant is otherwise eligible to participate in the ESPP at the time and
complies with the enrollment procedures).
PURCHASE OF SECURITIES
If approved, the purchase price per share at which shares of Common Stock
will be sold under the ESPP will be the lower of 85% of the fair market value of
the Common Stock on the first day of each Option Period (the "Date of Grant")
and 85% of the fair market value of the Common Stock on the last day of each
Option Period (the "Date of Exercise"). The fair market value of the Common
Stock on a given date will be the closing price of the Common Stock on that date
or if there is no trading on such date, the last reported sales price on the
last business day before the date in question.
The purchase price of the shares of Common Stock to be purchased under the
ESPP will be accumulated by payroll deductions during each Option Period.
Payroll deductions will commence as soon as administratively feasible following
the first day of the Option Period and continue until terminated as provided in
the ESPP. The deductions may not exceed 15% of a participant's eligible
compensation, which is defined in the ESPP to generally include all wages,
salaries, commissions, overtime and bonuses received during the Option Period
(including employee contributions to a flexible benefits plan and a 401(k)
plan). An employee may discontinue participation in the ESPP, but may not
otherwise increase or decrease the rate of payroll deductions at any time during
the Option Period. Upon a withdrawal, the Company will refund to the participant
the accumulated payroll deductions credited to the participant's account, and
the participant's payroll deductions and interest in unexercised options under
the ESPP will terminate.
OFFERING DATES
Except as otherwise determined by the ESPP Committee, the ESPP will be
implemented by two Option Periods each calendar year commencing on the first day
of January and July of each year. The term of each Option Period will consist of
six months, ending on June 30 or December 31, as the case may be. Each such six
month period is referred to herein as an "Option Period."
OTHER PROVISIONS OF THE ESPP
CHANGE IN CONTROL. In the event that (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act, hereinafter an "Acquiring
Person") becomes the "beneficial owner" (as such term is defined in Rule 13d-3
promulgated under the Exchange Act, hereinafter a "Beneficial Owner"), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities, (ii) an
Acquiring Person becomes the Beneficial Owner, directly or indirectly of
securities of the Company representing 10% or more of the combined voting power
of the Company's then outstanding securities and, during the two-year period
commencing at the time such Acquiring Person becomes the Beneficial Owner of
such securities, individuals who at the beginning of such period constitute the
Board cease for any reason to constitute at least a majority thereof, (iii) the
Company's stockholders approve an agreement to merge or consolidate the Company
with another corporation (other than a corporation 50% or more of which is
controlled by, or is under common control with, the Company) and, during the
period commencing six
20
<PAGE>
months before such approval and ending two years after such approval,
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof, or (iv) during any two
year period, individuals who at the date on which the period commences
constitute a majority of the Board cease to constitute a majority thereof as a
result of one or more contested elections for positions on such Board, then the
Committee will, at its option, either (x) substitute for the shares subject to
the unexercised portions of such outstanding options an appropriate number of
shares of each class of stock or other securities of the reorganized or merged
or consolidated corporation which were distributed to the stockholders of the
Company (or, as appropriate, in the case of an acquisition of the Company by
another corporation, substitute the shares of the acquiring corporation for the
shares of the Company), or (y) cancel all such options as of the effective date
of any such transaction by giving notice to each option holder thereof or his
personal representative of its intention to do so and by permitting the exercise
of all such outstanding options, without regard to any other provisions of the
ESPP, during the 30-day period immediately preceding such effective date, or (z)
allow the options granted under the ESPP to remain outstanding without any
modifications or amendments.
TRANSFERABILITY. An option granted to a participant under the ESPP is not
transferable other than by will or the laws of descent and distribution, and any
participant's attempt to transfer or hypothecate such option may be treated by
the Company as an election to withdraw from the ESPP. Each option shall be
exercisable only by the participant to whom it is granted during such
participant's lifetime.
TERMINATION OF EMPLOYEE. If the employment of a participant terminates for
any reason whatsoever such participant's participation in the ESPP automatically
and without any act on such participant's part will terminate as of the date of
termination of such employment. The Company will refund to such participant the
amount of the cash balance in such participant's account under the ESPP, and
thereupon such participant's interest in unexercised options under the ESPP will
terminate.
AMENDMENT OR TERMINATION OF THE ESPP. The Board may alter or amend the ESPP
or any part thereof from time to time without the approval of the stockholders
of the Company; provided that no change in any option theretofore granted may be
made which would impair the rights of any participant without the written
consent of such participant. In addition, no amendment may be made to the ESPP
without prior approval of the stockholders of the Company if such amendment
would materially increase the benefits accruing to participants under the ESPP,
increase the number of shares of Common Stock that may be issued under the ESPP
(other than as a result of certain anti-dilution provisions), change the class
of individuals eligible to receive options under the ESPP, extend the term of
the ESPP, cause options issued under the ESPP to fail to meet the requirements
for employee stock purchase plans as defined in Section 423 of the Code or
otherwise modify the requirements as to eligibility for participation in the
ESPP. The Board of Directors may terminate the ESPP at any time with respect to
any shares for which options have not theretofore been granted.
DURATION. If not sooner terminated by the Board, the ESPP will terminate on
and no further options will be granted after July 1, 2005.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is for general information only and is intended to
summarize briefly the federal income tax consequences arising from participation
in the ESPP. This description is based on current law, which is subject to
change (possibly retroactively). The tax treatment of a participant in the ESPP
may vary depending on his particular situation and may, therefore, be subject to
special rules not discussed below. No attempt has been made to discuss any
potential foreign, state or local tax consequences or the effect, if any, of
gift, estate or inheritance taxes.
21
<PAGE>
The ESPP, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Section 423 of the Code. Under this
provision, no income will be taxed to a participant at the time of grant of the
option or purchase of the shares. The disposition of the shares, however, will
result in some amount of ordinary income and capital gain to a participant. The
amount of ordinary income versus capital gain a participant will recognize
depends upon the satisfaction of a holding period.
To satisfy the holding period, a participant must hold the shares purchased
for a period of two years after the Date of Grant. If the holding period is met,
a participant will generally recognize gain in an amount equal to the difference
between the fair market value of the stock on the date of such disposition and
the exercise price paid for the stock. Of this gain, generally, an amount equal
to 15% of the fair market value of the stock on the Date of Grant will be
treated as ordinary income, and the rest of the gain will be treated as
long-term capital gain. If the holding period is not satisfied, a participant
will recognize ordinary income in an amount equal to the difference between fair
market value of the stock on the Date of Exercise and the exercise price and the
rest of the gain will be treated as either long-term or short-term capital gain
depending upon the length of time the shares are held.
The Company is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant except to the extent of ordinary income
reported by participants upon a disposition of shares that do not satisfy the
holding period.
VOTE REQUIRED AND RECOMMENDATION FOR APPROVAL OF THE PROPOSED ESPP
To be approved by the stockholders, the ESPP must receive the approval of
stockholders holding at least a majority of the outstanding shares of Common
Stock present at the Annual Meeting and entitled to vote on the ESPP. The
enclosed form of Proxy provides a means for stockholders to vote for the
approval of the ESPP. Each properly executed Proxy received in time for the
meeting will be voted as specified therein. Abstentions and broker non-votes are
tabulated separately, with abstentions being counted in tabulations of the votes
cast on a proposal for purposes of determining whether a proposal has been
approved and broker non-votes will not be counted as a vote cast with respect to
that proposal. Because abstentions are counted as present and entitled to vote
on the ESPP, they will have the effect of votes AGAINST this Proposal. If a
stockholder executes and returns a Proxy but does not specify otherwise, the
shares represented by such stockholder's Proxy will be voted FOR the ESPP Plan.
If the ESPP is not approved by stockholders at the Annual Meeting, no
securities will be purchased under the ESPP.
THE BOARD OF DIRECTORS OF HORIZON PHARMACIES, INC. RECOMMENDS THAT YOU VOTE
"FOR" THE APPROVAL AND RATIFICATION OF THE ESPP, AND THE PROXY, UNLESS OTHERWISE
INDICATED THEREON, WILL BE VOTED "FOR" THE PROPOSAL. BECAUSE THE ESPP MAY
INCREASE THE NUMBER OF SECURITIES THAT MAY BE PURCHASED BY CERTAIN EXECUTIVE
OFFICERS AND DIRECTORS THAT ARE EMPLOYEES OF HORIZON PHARMACIES, INC., SUCH
EXECUTIVE OFFICERS AND DIRECTORS OF HORIZON PHARMACIES, INC. HAVE AN INTEREST
IN, AND MAY BENEFIT FROM, THE ADOPTION OF THE ESPP.
22
<PAGE>
PROPOSAL FOUR
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has re-appointed Ernst & Young LLP, independent
auditors, to audit the Company's consolidated financial statements for the
fiscal year ending December 31, 2000. Ernst & Young LLP has served as the
Company's independent auditors since 1997. Representatives of Ernst & Young LLP
are expected to attend the Annual Meeting and to respond to appropriate
questions from stockholders.
If the appointment of Ernst & Young LLP as the Company's independent
auditors is not ratified at the Annual Meeting, the Board of Directors will
consider the appointment of other independent auditors. The Board of Directors
may terminate the appointment of Ernst & Young LLP as independent auditors
without the approval of the Company's stockholders whenever the Board of
Directors deems termination necessary or appropriate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL AND RATIFICATION
OF THE RE-APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000, AND THE PROXY, UNLESS OTHERWISE
INDICATED THEREON, WILL BE VOTED FOR THE PROPOSAL.
ANNUAL REPORT ON FORM 10-K
WE WILL PROVIDE, WITHOUT CHARGE, TO EACH STOCKHOLDER SOLICITED TO VOTE AT
THE ANNUAL MEETING, ON THE WRITTEN REQUEST OF SUCH STOCKHOLDER, A COPY OF
HORIZON'S ANNUAL REPORT ON FORM 10-K, AS AMENDED FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999 (INCLUDING THE EXHIBITS, FINANCIAL STATEMENTS, AND THE
SCHEDULES THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. EACH
WRITTEN REQUEST MUST SET FORTH A GOOD FAITH REPRESENTATION THAT AS OF THE RECORD
DATE, THE PERSON MAKING THE REQUEST WAS A BENEFICIAL OWNER OF THE COMPANY'S
COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING. STOCKHOLDERS SHOULD DIRECT
THE WRITTEN REQUEST TO THE COMPANY'S SECRETARY, CHARLIE K. HERR, 531 W. MAIN
ST., DENISON, TX 75020.
OTHER MATTERS
As of the date of this Proxy Statement, management was not aware that any
matters not referred to in this Proxy Statement would be presented for action at
the Annual Meeting. If any other matters should come before the Annual Meeting,
the persons named in the accompanying Proxy will have discretionary authority to
vote all proxies in accordance with their best judgment, unless otherwise
restricted by law.
By Order of the Board of Directors,
Charlie K. Herr
SECRETARY
Dated: May 15, 2000
23
<PAGE>
APPENDIX A
HORIZON PHARMACIES, INC. 2000 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Purpose..................................................... 3
2. Definitions................................................. 3
3. Administration.............................................. 4
(a) Authority of the Committee.............................. 4
(b) Manner of Exercise of Committee Authority............... 5
(c) Limitation of Liability................................. 5
4. Stock Subject to Plan....................................... 5
(a) Overall Number of Shares Available for Delivery......... 5
(b) Application of Limitation to Grants of Options.......... 6
(c) Availability of Shares Not Delivered under Options...... 6
(d) Stock Offered........................................... 6
5. Eligibility; Per Person Option Limitations.................. 6
6. Specific Terms of Options................................... 6
(a) General................................................. 6
(b) Options................................................. 7
7. Certain Provisions Applicable to Options.................... 7
(a) Stand-Alone, Additional and Substitute Options.......... 7
(b) Term of Options......................................... 7
(c) Form and Timing of Payment under Options; Deferrals..... 7
(d) Exemptions from Section 16(b) Liability................. 8
(e) Non-Competition Agreement............................... 8
8. Performance Awards.......................................... 8
(a) Performance Conditions.................................. 8
(b) Performance Awards Granted to Designated Covered
Employees................................................... 8
(c) Written Determinations.................................. 9
(d) Status of Section 8(b) Performance Awards under Code
Section 162(m).............................................. 9
9. Recapitalization or Reorganization.......................... 9
(a) Existence of Plans and Options.......................... 9
(b) Subdivision of Consolidation of Shares.................. 9
(c) Corporate Restructuring................................. 9
(d) Additional Issuances.................................... 11
10. General Provisions.......................................... 11
(a) Restricted Securities................................... 11
(b) Limits on Transferability; Beneficiaries................ 11
(c) Taxes................................................... 12
(d) Changes to the Plan and Options......................... 12
(e) Limitation on Rights Conferred under Plan............... 12
(f) Unfunded Status of Options.............................. 12
(g) Nonexclusivity of the Plan.............................. 12
(h) Fractional Shares....................................... 12
(i) Governing Law........................................... 13
(j) Other Laws.............................................. 13
(k) Plan Effective Date and Shareholder Approval............ 13
</TABLE>
A-2
<PAGE>
HORIZON PHARMACIES, INC.
2000 STOCK OPTION PLAN
EFFECTIVE JULY 1, 2000
1. PURPOSE. The purpose of the HORIZON Pharmacies, Inc. 2000 Stock Option
Plan (the "Plan") is to provide a means through which HORIZON Pharmacies, Inc.
(the "Company"), and its subsidiaries may attract and retain able persons as the
employees of the Company and to provide a means whereby those employees upon
whom the responsibilities of the successful administration and management of the
Company rest, and whose present and potential contributions to the welfare of
the Company are of importance, can acquire and maintain stock ownership, thereby
strengthening their concern for the welfare of the Company and their desire to
remain in its employ. A further purpose of the Plan is to provide such employees
with additional incentive and reward opportunities designed to enhance the
profitable growth of the Company. Accordingly, the Plan provides for granting
Incentive Stock Options and options which do not constitute Incentive Stock
Options, as is best suited to the circumstances of the particular employee as
provided herein.
2. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Acquiring Person" means Acquiring Person as defined in Section 9 of
the Plan.
(b) "Beneficiary" means one or more persons, trusts or other entities
which have been designated by a Participant in his or her most recent
written beneficiary designation filed with the Committee to receive the
benefits specified under the Plan upon such Participant's death or to which
Options or other rights are transferred if and to the extent permitted under
Section 10(b) hereof. If, upon a Participant's death, there is no designated
Beneficiary or surviving designated Beneficiary, then the term Beneficiary
means the persons, trusts or entities entitled by will or the laws of
descent and distribution to receive such benefits.
(c) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act and any successor to such Rule.
(d) "Board" means the Company's Board of Directors.
(e) "Change in Control" means Change in Control as defined in Section 9
of the Plan.
(f) "Change in Control Price" means the amount calculated in accordance
with Section 9 of the Plan.
(g) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, including regulations thereunder and successor provisions and
regulations thereto.
(h) "Committee" means a committee of two or more directors designated by
the Board to administer the Plan; provided, however, that, unless otherwise
determined by the Board, the Committee shall consist solely of two or more
directors, each of whom shall be (i) a "nonemployee director" within the
meaning of Rule 16b-3 under the Exchange Act, unless administration of the
Plan by "non-employee directors" is not then required in order for
exemptions under Rule 16b-3 to apply to transactions under the Plan, and
(ii) an "outside director" as defined under Code Section 162(m), unless
administration of the Plan by "outside directors" is not then required in
order to qualify for tax deductibility under Code Section 162(m).
(i) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 8(d) of the Plan.
(j) "Effective Date" means July 1, 2000.
A-3
<PAGE>
(k) "Eligible Person" means each Executive Officer and other officers
and employees of the Company or of any subsidiary, and other persons who
provide services to the Company or any of its subsidiaries including
directors of the Company. An employee on leave of absence may be considered
as still in the employ of the Company or a subsidiary for purposes of
eligibility for participation in the Plan.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, including rules thereunder and successor provisions and
rules thereto.
(m) "Executive Officer" means an executive officer of the Company as
defined under the Exchange Act.
(n) "Fair Market Value" of a share of Stock on a given day means, if the
Stock is listed on an established exchange or exchanges, the closing sales
price of a share of Stock as reported on such stock exchange or exchanges if
such date is a business day and if such date is not a business day the
preceding business day; or if not so reported, the average of the bid and
asked prices, as reported on the National Association of Securities Dealers
Automated Quotation System if such date is a business day and if such date
is not a business day the preceding business day. If the price of a share of
Stock is not so quoted, the Fair Market Value shall be determined by the
Committee taking into account all relevant facts and circumstances.
(o) "Incentive Stock Option" or "ISO" means any Option intended to be
and designated as an incentive stock option within the meaning of Code
Section 422 or any successor provision thereto.
(p) "Option" means a right, granted to a Participant under Section 6(b)
hereof, to purchase Stock at a specified price during specified time
periods.
(q) "Participant" means a person who has been granted an Option under
the Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(r) "Performance Award" means a right, granted to a Participant under
Section 8 hereof, to receive Options based upon performance criteria
specified by the Committee.
(s) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a "group" as defined in Section 13(d) thereof.
(t) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an
"outside director" within the meaning of Regulation 1.162-27 under Code
Section 162(m).
(u) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(v) "Stock" means the Company's Common Stock, par value $.01 per share,
and such other securities as may be substituted (or resubstituted) for Stock
pursuant to Section 9.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee except to the extent the Board elects to administer the Plan, in
which case references herein to the "Committee" shall be deemed to include
references to the "Board." The Committee shall have full and final
authority, in each case subject to and consistent with the provisions of the
Plan, to select Eligible Persons to become Participants, grant Options,
determine the type, number and other terms and conditions of, and all other
matters relating to, Options, prescribe Option agreements
A-4
<PAGE>
(which need not be identical for each Participant) and rules and regulations
for the administration of the Plan, construe and interpret the Plan and
Option agreements and correct defects, supply omissions or reconcile
inconsistencies therein, and to make all other decisions and determinations
as the Committee may deem necessary or advisable for the administration of
the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. At any time that a
member of the Committee is not a Qualified Member, any action of the
Committee relating to an Option granted or to be granted to a Participant
who is then subject to Section 16 of the Exchange Act in respect of the
Company, or relating to an Option intended by the Committee to qualify as
"performance-based compensation" within the meaning of Code Section 162(m)
and regulations thereunder, may be taken either (i) by a subcommittee,
designated by the Committee, composed solely of two or more Qualified
Members, or (ii) by the Committee but with each such member who is not a
Qualified Member abstaining or recusing himself or herself from such action;
provided, however, that, upon such abstention or recusal, the Committee
remains composed solely of two or more Qualified Members. Such action,
authorized by such a subcommittee or by the Committee upon the abstention or
recusal of such non-Qualified Member(s), shall be the action of the
Committee for purposes of the Plan. Any action of the Committee shall be
final, conclusive and binding on all persons, including the Company, its
subsidiaries, Participants, Beneficiaries, transferees under Section 10(b)
hereof or other persons claiming rights from or through a Participant and
shareholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as
limiting any power or authority of the Committee. The Committee may delegate
to officers or managers of the Company or any subsidiary, or committees
thereof, the authority, subject to such terms as the Committee shall
determine, to perform such functions, including administrative functions, as
the Committee may determine, to the extent that such delegation will not
result in the loss of an exemption under Rule 16b-3(d)(1) for Options
granted to Participants subject to Section 16 of the Exchange Act in respect
of the Company and will not cause Options intended to qualify as
"performance-based compensation" under Code Section 162(m) to fail to so
qualify. The Committee may appoint agents to assist it in administering the
Plan.
(c) LIMITATION OF LIABILITY. The Committee and each member thereof
shall be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any executive officer, other officer
or employee of the Company or a subsidiary, the Company's independent
auditors, consultants or any other agents assisting in the administration of
the Plan. Members of the Committee and any officer or employee of the
Company or a subsidiary acting at the direction or on behalf of the
Committee shall not be personally liable for any action or determination
taken or made in good faith with respect to the Plan, and shall, to the
fullest extent permitted by law, be indemnified and held harmless by the
Company with respect to any such action or determination.
4. STOCK SUBJECT TO PLAN.
(a) OVERALL NUMBER OF SHARES AVAILABLE FOR DELIVERY. Subject to
adjustment in a manner consistent with any adjustment made pursuant to
Section 9, the total number of shares of Stock reserved and available for
delivery in connection with Options under the Plan shall not exceed 250,000
shares. Notwithstanding the foregoing, the total number of shares available
for delivery in connection with Options under the Plan in any given 12-month
period shall not exceed the limitations set forth in SEC Reg. "230.701 if
applicable.
(b) APPLICATION OF LIMITATION TO GRANTS OF OPTIONS. No Option may be
granted if the number of shares of Stock to be delivered in connection with
such Option exceeds the number of shares of Stock remaining available under
the Plan minus the number of shares of Stock issuable in settlement of
then-outstanding Options. The Committee may adopt reasonable counting
A-5
<PAGE>
procedures to ensure appropriate counting, avoid double counting and make
adjustments if the number of shares of Stock actually delivered differs from
the number of shares previously counted in connection with an Option.
(c) AVAILABILITY OF SHARES NOT DELIVERED UNDER OPTIONS. Shares of
Stock subject to an Option under the Plan that expires or is canceled,
forfeited, settled in cash or otherwise terminated without a delivery of
shares to the Participant, including (i) the number of shares withheld in
payment of any exercise or purchase price of an Option or taxes relating to
Options and (ii) the number of shares surrendered in payment of any exercise
or purchase price of an Option or taxes relating to any Option will again be
available for Options under the Plan, except that if any such shares could
not again be available for Options to a particular Participant under any
applicable law or regulation, such shares shall be available exclusively for
Options to Participants who are not subject to such limitation.
(d) STOCK OFFERED. The Stock to be offered pursuant to the grant of an
Option may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company. The Stock to be offered and sold
pursuant to the grant of an Option may, if determined by the Committee to be
required pursuant to applicable securities laws, bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM AND DELIVERY TO THE CORPORATION OF AN OPINION OF
COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT
VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS."
5. ELIGIBILITY; PER PERSON OPTION LIMITATIONS. Options may be granted
under the Plan only to Eligible Persons. In each fiscal year or 12 month period,
as applicable during any part of which the Plan is in effect, an Eligible Person
who is also a Covered Employee may not be granted Options relating to more than
the lesser of (a) 100,000 shares of Stock or (b) the number of shares of Stock
determined applying the limitations set forth in SEC Reg. "230.701, as
applicable, subject to adjustment in a manner consistent with any adjustment
made pursuant to Section 9, under each of Sections 6(b) and 8(b).
6. SPECIFIC TERMS OF OPTIONS.
(a) GENERAL. Options may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Option
or the exercise thereof, at the date of grant or thereafter (subject to
Section 10(d)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including
terms requiring forfeiture of Options in the event of termination of
employment by the Participant and terms permitting a Participant to make
elections relating to his or her Option. The Committee shall retain full
power and discretion to accelerate, waive or modify, at any time, any term
or condition of an Option that is not mandatory under the Plan; provided,
however, that the Committee shall not have any discretion to accelerate,
waive or modify any term or condition of an Option that is intended to
qualify as "performance-based compensation" for purposes of Code
Section 162(m) if such discretion would cause the Option not to so qualify.
Except in cases in which the Committee is authorized to require other forms
of consideration under the Plan, or to the extent other forms of
consideration must be paid to satisfy the requirements of the Delaware
General Corporation Law, no consideration other than services may be
required for the grant (but not the exercise) of any Option.
A-6
<PAGE>
(b) OPTIONS. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which or the circumstances under which an Option may be
exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the methods by
which such exercise price may be paid or deemed to be paid, the form of
such payment, including, without limitation, cash, Stock, other Options
or awards granted under other plans of the Company or any subsidiary, or
other property (including notes or other contractual obligations of
Participants to make payment on a deferred basis), and the methods by or
forms in which Stock will be delivered or deemed to be delivered to
Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Code Section 422. Anything
in the Plan to the contrary notwithstanding, no term of the Plan relating
to ISOs shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as to
disqualify either the Plan or any ISO under Code Section 422, unless the
Participant has first requested the change that will result in such
disqualification. ISOs shall not be granted more than ten years after the
earlier of the adoption of the Plan or the approval of the Plan by the
Company's shareholders. Notwithstanding the foregoing, the Fair Market
Value of shares of Stock subject to an ISO and the aggregate Fair Market
Value of shares of stock of any parent or subsidiary corporation within
the meaning of Code Section 424(e) and (f) subject to any other incentive
stock option (within the meaning of Code Section 422) of the Company or a
parent or subsidiary corporation within the meaning of Code
Section 424(e) and (f) that first becomes purchasable by a Participant in
any calendar year may not (with respect to that Participant) exceed
$100,000, or such other amount as may be prescribed under Code
Section 422 or applicable regulations or rulings from time to time. As
used in the previous sentence, Fair Market Value shall be determined as
of the date the incentive stock option is granted. Failure to comply with
this provision shall not impair the enforceability or exercisability of
any Option, but shall cause the excess amount of shares to be
reclassified in accordance with the Code.
7. CERTAIN PROVISIONS APPLICABLE TO OPTIONS.
(a) STAND-ALONE, ADDITIONAL AND SUBSTITUTE OPTIONS. Options granted
under the Plan may, in the discretion of the Committee, be granted either
alone or in addition to, or in substitution or exchange for, any other
Option or any award granted under another plan of the Company, any
subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Such additional and substitute or exchange
Options may be granted at any time. If an Option is granted in substitution
or exchange for another Option or award, the Committee shall require the
surrender of such other award in consideration for the grant of the new
Option.
(b) TERM OF OPTIONS. The term of each Option shall be for such period
as may be determined by the Committee; provided that in no event shall the
term of any Option exceed a period of ten years (or such shorter term as may
be required in respect of an ISO under Code Section 422).
(c) FORM AND TIMING OF PAYMENT UNDER OPTIONS; DEFERRALS. Subject to
the terms of the Plan and any applicable Option agreement, payments to be
made by the Company or a subsidiary upon the exercise of an Option may be
made in such forms as the Committee shall determine, including,
A-7
<PAGE>
without limitation, cash, Stock, other Options or other property, and may be
made in a single payment or transfer, in installments, or on a deferred
basis. The settlement of any Option may be accelerated, and cash paid in
lieu of Stock in connection with such settlement, in the discretion of the
Committee or upon occurrence of one or more specified events (in addition to
a Change in Control). Installment or deferred payments may be required by
the Committee (subject to Section 10(d) of the Plan, including the consent
provisions thereof in the case of any deferral of an outstanding Option not
provided for in the original Option agreement) or permitted at the election
of the Participant on terms and conditions established by the Committee.
Payments may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments. Any
deferral shall only be allowed as is provided in a separate deferred
compensation plan adopted by the Company. The Plan shall not constitute an
"employee benefit plan" for purposes of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(d) EXEMPTIONS FROM SECTION 16(B) LIABILITY. It is the intent of the
Company that the grant of any Options to or other transaction by a
Participant who is subject to Section 16 of the Exchange Act shall be exempt
from Section 16 pursuant to an applicable exemption (except for transactions
acknowledged in writing to be non-exempt by such Participant). Accordingly,
if any provision of this Plan or any Option agreement does not comply with
the requirements of Rule 16b-3 as then applicable to any such transaction,
such provision shall be construed or deemed amended to the extent necessary
to conform to the applicable requirements of Rule 16b-3 so that such
Participant shall avoid liability under Section 16(b).
(e) NON-COMPETITION AGREEMENT. Each Participant to whom an Option is
granted under the Plan, who has not already done so at the time of such
grant, may be required to agree in writing as a condition to the granting of
such Option not to engage in conduct in direct competition with the Company
or any of its subsidiaries for a period after the termination of such
Participant's employment with the Company and its subsidiaries.
8. PERFORMANCE AWARDS.
(a) PERFORMANCE CONDITIONS. The right of a Participant to exercise or
receive a grant of any Option, and the timing thereof, may be subject to
such performance conditions as may be specified by the Committee. The
Committee may use such business criteria and other measures of performance
as it may deem appropriate in establishing any performance conditions, and
may exercise its discretion to reduce or increase the amounts payable under
any Option subject to performance conditions, except as limited under
Section 8(b) hereof in the case of a Performance Award intended to qualify
under Code Section 162(m).
(b) PERFORMANCE AWARDS GRANTED TO DESIGNATED COVERED EMPLOYEES. If the
Committee determines that a Performance Award to be granted to an Eligible
Person who is designated by the Committee as likely to be a Covered Employee
should qualify as "performance-based compensation" for purposes of Code
Section 162(m), the grant, exercise and/or settlement of such Performance
Award may be contingent upon achievement of preestablished performance goals
and other terms set forth in this Section 8(b).
(i) PERFORMANCE GOALS GENERALLY. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this
Section 8(b). Performance goals shall be objective and shall otherwise
meet the requirements of Code Section 162(m) and regulations thereunder
(including Regulation 1.162-27 and successor regulations thereto),
including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance goals
being "substantially uncertain." The Committee may determine that such
Performance Awards shall
A-8
<PAGE>
be granted, exercised, and/or settled upon achievement of any one
performance goal or that two or more of the performance goals must be
achieved as a condition to grant or exercise of such Performance Awards.
Performance goals may differ for Performance Awards granted to any one
Participant or to different Participants.
(ii) BUSINESS CRITERIA. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or business or geographical units of the Company (except
with respect to the total shareholder return and earnings per share
criteria), shall be used by the Committee in establishing performance
goals for such Performance Options: (A) earnings per share; (B) increase
in revenues or margin; (C) increase in cash flow; (D) increase in cash
flow return; (E) revenue; (F) return on net assets; return on assets;
return on investment; return on capital; or return on equity;
(G) operating profits in excess of cost of capital employed; (H) direct
contribution; (I) net income; pretax earnings; pretax earnings before
interest, depreciation and amortization (EBITDA); pretax earnings after
interest expense and before incentives, service fees, and extraordinary
or special items; operating income; or income before interest income or
expense, unusual items and income taxes (local, state or federal) and
excluding budgeted and actual bonuses which might be paid under any
ongoing bonus plans of the Company; (J) working capital; (K) management
of fixed costs or variable costs; (L) identification and/or consummation
of investment opportunities or completion of specified projects in
accordance with corporate business plans, including strategic mergers,
acquisitions or divestures; (M) total shareholder return; (N) debt
reduction; and (O) any of the above goals determined on an absolute or
relative basis or as compared to the performance of a published or
special index deemed applicable by the Committee including, but not
limited to, the Standard & Poor's 500 Stock Index or a group of
comparable companies.
(iii) PERFORMANCE PERIOD; TIMING FOR ESTABLISHING PERFORMANCE
GOALS. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of up to ten years, as
specified by the Committee. Performance goals shall be established not
later than 90 days after the beginning of any performance period
applicable to such Performance Awards, or at such other date as may be
required or permitted for "performance-based compensation" under Code
Section 162(m).
(iv) PERFORMANCE AWARD POOL. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes of
measuring performance of the Company in connection with Performance
Awards. The amount of such Performance Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof during the given
performance period, as specified by the Committee in accordance with
Section 8(b)(iii) hereof. The Committee may specify the amount of the
Performance Award pool as a percentage of any of such business criteria,
a percentage thereof in excess of a threshold amount, or as another
amount which need not bear a strictly mathematical relationship to such
business criteria.
(v) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS. After the end of
each performance period, the Committee shall determine the amount, if
any, of (A) the Performance Award pool, and the maximum amount of
potential Performance Award payable to each Participant in the
Performance Award pool, or (B) the amount of potential Performance Award
otherwise payable to each Participant. Settlement of such Performance
Awards shall be in cash, Stock, other Options or other property, in the
discretion of the Committee. The Committee may, in its discretion, reduce
the amount of a settlement otherwise to be made in connection with such
Performance Awards, but may not exercise discretion to increase any such
amount payable to a Covered Employee in respect of a Performance Award
subject to this Section 8(b). The Committee shall specify the
circumstances in which such Performance
A-9
<PAGE>
Awards shall be paid or forfeited in the event of termination of
employment by the Participant prior to the end of a performance period or
settlement of Performance Awards.
(c) WRITTEN DETERMINATIONS. All determinations by the Committee as to
the establishment of performance goals, the amount of any Performance Award
pool or potential individual Performance Awards and as to the achievement of
performance goals relating to Performance Awards under Section 8(b) shall be
made in writing in the case of any Option intended to qualify under Code
Section 162(m). The Committee may not delegate any responsibility relating
to such Performance Awards.
(d) STATUS OF SECTION 8(B) PERFORMANCE AWARDS UNDER CODE
SECTION 162(M). It is the intent of the Company that Performance Awards
under Section 8(b) hereof granted to persons who are designated by the
Committee as likely to be Covered Employees within the meaning of Code
Section 162(m) and regulations thereunder (including Regulation 1.162-27 and
successor regulations thereto) shall, if so designated by the Committee,
constitute "performance-based compensation" within the meaning of Code
Section 162(m) and regulations thereunder. Accordingly, the terms of
Sections 8(a), (b) and (c), including the definitions of Covered Employee
and other terms used therein, shall be interpreted in a manner consistent
with Code Section 162(m) and regulations thereunder. The foregoing
notwithstanding, because the Committee cannot determine with certainty
whether a given Participant will be a Covered Employee with respect to a
fiscal year that has not yet been completed, the term Covered Employee as
used herein shall mean only a person designated by the Committee, at the
time of grant of Performance Awards, who is likely to be a Covered Employee
with respect to that fiscal year. If any provision of the Plan as in effect
on the date of adoption or of any agreements relating to Performance Awards
that are designated as intended to comply with Code Section 162(m) does not
comply or is inconsistent with the requirements of Code Section 162(m) or
regulations thereunder, such provision shall be construed or deemed amended
to the extent necessary to conform to such requirements.
9. RECAPITALIZATION OR REORGANIZATION.
(a) EXISTENCE OF PLANS AND OPTIONS. The existence of the Plan and the
Options granted hereunder shall not affect in any way the right or power of
the Board or the shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or consolidation of
the Company, any issue of debt or equity securities ahead of or affecting
Stock or the rights thereof, the dissolution or liquidation of the Company
or any sale, lease, exchange or other disposition of all or any part of its
assets or business or any other corporate act or proceeding.
(b) SUBDIVISION OF CONSOLIDATION OF SHARES. The shares with respect to
which Options may be granted are shares of Stock as presently constituted,
but if, and whenever, prior to the expiration of an Option theretofore
granted, the Company shall effect a subdivision or consolidation of shares
of Stock or the payment of a stock dividend on Stock without receipt of
consideration by the Company, the number of shares of Stock with respect to
which such Option may thereafter be exercised (i) in the event of an
increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately
reduced, and (ii) in the event of a reduction in the number of outstanding
shares shall be proportionately reduced, and the purchase price per share
shall be proportionately increased.
(c) CORPORATE RESTRUCTURING. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure
(a "recapitalization"), the number and class of shares of Stock covered by
an Option theretofore granted shall be adjusted so that such Option shall
thereafter cover the number and class of shares of stock and securities to
which the holder would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the
A-10
<PAGE>
recapitalization, the holder had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act, hereinafter an
"Acquiring Person") becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities; (ii) an Acquiring Person
becomes the Beneficial Owner, directly or indirectly, of securities of the
Company representing 10% or more of the combined voting power of the
Company's then outstanding securities and, during the two-year period
commencing at the time such Acquiring Person becomes the Beneficial Owner of
such securities, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof;
(iii) the Company's stockholders approve an agreement to merge or
consolidate the Company with another corporation (other than a corporation
50% or more of which is controlled by, or is under common control with, the
Company) and, during the period commencing six months before such approval
and ending two years after such approval, individuals who at the beginning
of such period constitute the Board cease for any reason to constitute at
least a majority thereof; or (iv) during any two year period, individuals
who at the date on which the period commences constitute a majority of the
Board cease to constitute a majority thereof as a result of one or more
contested elections for positions on such Board (each such event is referred
to herein as a "Change in Control"), then, unless otherwise provided in the
Option agreement, (x) any Option granted under the Plan and outstanding at
such time will become fully and immediately exercisable and will remain
exercisable until its expiration or termination as provided in the Plan, and
(y) all performance conditions will be deemed met if and to the extent so
provided in the Option agreement relating to such Option.
(d) ADDITIONAL ISSUANCES. Except as hereinbefore expressly provided,
the issuance by the Company of shares of stock of any class or securities
convertible into shares of stock of any class, for cash, property, labor or
services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Stock subject
to Options theretofore granted or the purchase price per share, if
applicable.
10. GENERAL PROVISIONS.
(a) RESTRICTED SECURITIES. The Stock to be issued under the Plan,
which is issued in reliance on the exemption from registration set forth in
SEC Reg. "230.701, shall be deemed to be "restricted securities" as defined
in SEC Reg. "230.144 and shall bear the legend identified in Section 4.
Resales of such Stock by the holder thereof shall be in compliance with the
Securities Act of 1933 or an exemption therefrom.
(b) LIMITS ON TRANSFERABILITY; BENEFICIARIES. No Option or other right
or interest of a Participant under the Plan shall be pledged, hypothecated
or otherwise encumbered or subject to any lien, obligation or liability of
such Participant to any party (other than the Company or a subsidiary), or
assigned or transferred by such Participant otherwise than by will or the
laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Options or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative, except that Options and other
rights (other than ISOs) may be transferred to one or more Beneficiaries or
other transferees during the lifetime of the Participant, and may be
exercised by such transferees in accordance with the terms of such Option,
but only if and to the extent such transfers are permitted by the Committee
pursuant to the express terms of an Option agreement (subject to any terms
and conditions which the Committee may impose thereon). A Beneficiary,
transferee, or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the
Plan and any Option agreement applicable to such Participant, except as
otherwise determined by
A-11
<PAGE>
the Committee, and to any additional terms and conditions deemed necessary
or appropriate by the Committee.
(c) TAXES. The Company and any subsidiary is authorized to withhold
from any Option granted, any payment relating to an Option under the Plan,
including from a distribution of Stock, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Option and to take
such other action as the Committee may deem advisable to enable the Company
and Participants to satisfy obligations for the payment of withholding taxes
and other tax obligations relating to any Option. This authority shall
include authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Participant's tax
obligations, either on a mandatory or elective basis in the discretion of
the Committee.
(d) CHANGES TO THE PLAN AND OPTIONS. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Committee's authority to
grant Options under the Plan without the consent of shareholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of the Company's shareholders not later than the
annual meeting next following such Board action if such shareholder approval
is required by any federal or state law or regulation or the rules of any
stock exchange or automated quotation system on which the Stock may then be
listed or quoted, and the Board may otherwise, in its discretion, determine
to submit other such changes to the Plan to shareholders for approval;
provided that, without the consent of an affected Participant, no such Board
action may materially and adversely affect the rights of such Participant
under any previously granted and outstanding Option. The Committee may waive
any conditions or rights under, or amend, alter, suspend, discontinue or
terminate any Option theretofore granted and any Option agreement relating
thereto, except as otherwise provided in the Plan; provided that, without
the consent of an affected Participant, no such Committee action may
materially and adversely affect the rights of such Participant under such
Option.
(e) LIMITATION ON RIGHTS CONFERRED UNDER PLAN. Neither the Plan nor
any action taken hereunder shall be construed as (i) giving any Eligible
Person or Participant the right to continue as an Eligible Person or
Participant or in the employ or service of the Company or a subsidiary,
(ii) interfering in any way with the right of the Company or a subsidiary to
terminate any Eligible Person's or Participant's employment or service at
any time, (iii) giving an Eligible Person or Participant any claim to be
granted any Option under the Plan or to be treated uniformly with other
Participants and employees, or (iv) conferring on a Participant any of the
rights of a shareholder of the Company unless and until the Participant is
duly issued or transferred shares of Stock in accordance with the terms of
an Option.
(f) UNFUNDED STATUS OF OPTIONS. The Plan is intended to constitute an
"unfunded" plan.
(g) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board nor its submission to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the Board or
a committee thereof to adopt such other incentive arrangements as it may
deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m). Nothing contained in the Plan shall be
construed to prevent the Company or any subsidiary from taking any corporate
action which is deemed by the Company or such subsidiary to be appropriate
or in its best interest, whether or not such action would have an adverse
effect on the Plan or any Option made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
(h) FRACTIONAL SHARES. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Option. The Committee shall
determine whether cash, other Options or other
A-12
<PAGE>
property shall be issued or paid in lieu of such fractional shares or
whether such fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.
(i) GOVERNING LAW. The validity, construction and effect of the Plan,
any rules and regulations under the Plan, and any Option agreement shall be
determined in accordance with the laws of the State of Delaware.
(j) OTHER LAWS. The Company shall not be obligated to issue any Stock
pursuant to any Option granted under the Plan at any time when the shares
covered by such Option have not been registered under the Securities Act of
1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal
counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance
and sale of such shares. In this connection, until such time as the Company
is subject to the reporting requirements of Section 13 and 15(d) of Exchange
Act, the Company is and intends to rely on the exemption from registration
provided in SEC Reg. "230.701.
(k) PLAN EFFECTIVE DATE AND SHAREHOLDER APPROVAL. The Plan has been
adopted by the Board effective July 1, 2000, subject to approval by the
shareholders of the Company.
A-13
<PAGE>
APPENDIX B
HORIZON PHARMACIES, INC. EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
HORIZON PHARMACIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the HORIZON Pharmacies, Inc. Employee Stock
Purchase Plan (the "Plan") is to provide eligible employees with an incentive to
advance the interests of HORIZON Pharmacies, Inc. (the "Company") by affording
an opportunity to purchase stock of the Company at a favorable price.
2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee (the "Committee") as appointed by the Board of Directors of the
Company (the "Board"). Subject to the provisions of the Plan, the Committee
shall interpret and construe the Plan and all options granted under the Plan,
shall make such rules as it deems necessary for the proper administration of the
Plan, shall make all other determinations necessary or advisable for the
administration of the Plan, including the determination of eligibility to
participate in the Plan and limitations on the number of shares subject to a
participant's option under the Plan, and shall correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option granted
under the Plan in the manner and to the extent that the Committee deems
desirable to carry the Plan or any option into effect. The Committee shall, in
its sole discretion exercised in good faith, make such decisions or
determinations and take such actions as it deems appropriate, and all such
decisions, determinations and actions taken or made by the Committee pursuant to
this and the other paragraphs of the Plan shall be conclusive on all parties.
The Committee shall not be liable for any decision, determination or action
taken in good faith in connection with the administration of the Plan. The
Committee may approve the use of a voice response system through which Eligible
Employees and the Committee may act under the Plan, as an alternative to written
forms, notices and elections.
3. PARTICIPATING COMPANIES. Each present and future parent or subsidiary
corporation of the Company (within the meaning of Sections 424(e) and (f) of the
Internal Revenue Code of 1986, as amended (the "Code")) that is eligible by law
to participate in the Plan shall be a "Participating Company" during the period
that such corporation is such a parent or subsidiary corporation; provided,
however, that the Committee may at any time and from time to time, in its sole
discretion, prevent or terminate a Participating Company's Plan participation.
Any Participating Company may, by appropriate action of its Board of Directors,
prevent or terminate its participation in the Plan. Transfer of employment among
the Company and Participating Companies (and among any other parent or
subsidiary corporation of the Company) shall not be considered a termination of
employment hereunder.
4. ELIGIBILITY. All employees of the Company and the Participating
Companies who have been continually employed by the Company or any Participating
Company (including any predecessor entity) for at least 6 months (including any
authorized leave of absence meeting the requirements of Treasury Regulation
Section 1.421-7(h)(2)) as of the applicable Date of Grant (as defined in
subparagraph 6(a)) and who are customarily employed at least 20 hours per week
and at least 5 months per year shall be eligible to participate in the Plan;
provided, however, that no option shall be granted to an employee if such
employee, immediately after the option is granted, owns stock possessing five
percent or more of the total combined voting power or value of all classes of
stock of the Company or of its parent or subsidiary corporation (within the
meaning of Sections 423(b)(3) and 424(d) of the Code) ("Eligible Employee").
5. STOCK SUBJECT TO THE PLAN. Subject to the provisions of paragraph 12
(relating to adjustment upon changes in stock), the aggregate number of shares
which may be sold pursuant to options granted under the Plan shall not exceed
500,000 shares of the authorized $.01 par value common stock of the Company
("Stock"), which shares may be unissued shares or reacquired shares or shares
bought on the market for purposes of the Plan. Should any option granted under
the Plan expire or terminate prior to its exercise in full, the shares
theretofore subject to such option may again be subject to an option
B-2
<PAGE>
granted under the Plan. Any shares which are not subject to outstanding options
upon the termination of the Plan shall cease to be subject to the Plan.
6. GRANT OF OPTIONS. (a) GENERAL STATEMENT; "DATE OF GRANT;" "OPTION
PERIOD;" "DATE OF EXERCISE." Upon the effective date of the Plan, as provided in
paragraph 14, and continuing while the Plan remains in force, the Company shall
offer options under the Plan to all Eligible Employees to purchase shares of
Stock. Except as otherwise determined by the Committee and except as provided
below, these options shall be granted on the first day of January and July of
each year (each of which dates is herein referred to as a "Date of Grant"). The
term of each option, except as provided below, shall be for a period of 6
months, ending on June 30 or December 31, as the case may be (each such 6-month
period is herein referred to as an "Option Period"), which shall begin on a Date
of Grant. The last day of each Option Period is herein referred to as a "Date of
Exercise." The term of the first Option Period shall begin on the effective date
of the Plan, as provided in paragraph 14, and shall end on the earlier of the
following June 30 or December 31. The first day of the first Option Period shall
be a Date of Grant and the last day of such Option Period shall be a Date of
Exercise. The number of shares subject to each option shall be the quotient of
the sum of the payroll deductions withheld on behalf of each participant in
accordance with subparagraph 6(b) and the payments made by such participant
pursuant to subparagraph 6(f) during the Option Period and any amount carried
forward from the preceding Option Period pursuant to subparagraph 7(a), divided
by the "Option Price" (as defined in subparagraph 7(b)) of the Stock, excluding
all fractions; provided, however, that the maximum number of shares that may be
subject to any option may not exceed 25,000 shares (subject to adjustment as
provided in paragraph 12).
(b) ELECTION TO PARTICIPATE; DEDUCTION AUTHORIZATION. Except as provided
in subparagraph 6(f), an Eligible Employee may participate in the Plan only by
means of payroll deduction. Except as provided in subparagraph 6(g), each
Eligible Employee who elects to participate in the Plan shall deliver to the
Company, within the time period prescribed by the Committee, a written payroll
deduction authorization on a form prepared by the Committee whereby he gives
notice of his election to participate in the Plan as of the next following Date
of Grant, and whereby he designates an integral percentage or specific amount
(as determined by the Committee) of his "Eligible Compensation" (as defined in
subparagraph 6(d)) to be deducted from his compensation for each pay period and
credited to a book entry account established in his name. The designated
percentage or specific amount may not result in a deduction during any payroll
period of an amount less than $20.00. The designated percentage or specific
amount may not exceed either of the following: (i) 15% of the amount of Eligible
Compensation from which the deduction is made; or (ii) an amount which will
result in noncompliance with the limitations stated in subparagraphs 6(a) or
6(e).
(c) CHANGES IN PAYROLL AUTHORIZATION. Except as provided in subparagraph
8(a), the payroll deduction authorization referred to in subparagraph 6(b) may
not be changed during the Option Period.
(d) "ELIGIBLE COMPENSATION" DEFINED. The term "Eligible Compensation"
means the gross (before taxes are withheld) total of all wages, salaries,
commissions, overtime and bonuses received during the Option Period, except that
such term shall include elective contributions made on an employee's behalf by
the Company or a Participating Company that are not includable in income under
Section 125 or Section 402(e)(3) of the Code. Notwithstanding the foregoing,
"Eligible Compensation" shall not include (i) employer contributions to or
payments from any deferred compensation program, whether such program is
qualified under Section 401(a) of the Code (other than amounts considered as
employer contributions under Section 402(e)(3) of the Code) or nonqualified,
(ii) amounts realized from the receipt or exercise of a stock option that is not
an incentive stock option within the meaning of Section 422 of the Code, (iii)
amounts realized at the time property described in Section 83 of the Code is
freely transferable or no longer subject to a substantial risk of forfeiture,
(iv) amounts realized
B-3
<PAGE>
as a result of an election described in Section 83(b) of the Code, and (v) any
amount realized as a result of a disqualifying disposition within the meaning of
Section 421(b) of the Code.
(e) $25,000 LIMITATION. No Eligible Employee shall be granted an option
under the Plan to the extent such grant would permit his rights to purchase
Stock under the Plan and under all other employee stock purchase plans of the
Company and its parent and subsidiary corporations (as such terms are defined in
Section 424(e) and (f) of the Code) to accrue at a rate which exceeds $25,000 of
Fair Market Value of Stock (as defined in subparagraph 7(b)), determined at the
time the option is granted, for each calendar year in which any such option
granted to such employee is outstanding at any time (within the meaning of
Section 423(b)(8) of the Code).
(f) LEAVES OF ABSENCE. During a paid leave of absence approved by the
Company and meeting the requirements of Treasury Regulation Section
1.421-7(h)(2), a participant's elected payroll deductions shall continue. If a
participant takes an unpaid leave of absence, then such participant may not make
additional contributions under the Plan while on unpaid leave of absence, and
the participant's payroll deductions for the applicable Option Period shall
remain subject to the Plan and used to exercise options on the next following
Date of Exercise.
(g) CONTINUING ELECTION. A participant (i) who has elected to participate
in the Plan pursuant to subparagraph 6(b) as of a Date of Grant and (ii) who
takes no action to change or revoke such election as of the next following Date
of Grant, shall be deemed to have made the same election, including the same
attendant payroll deduction authorization, for such next following and/or
subsequent Date(s) of Grant as was in effect for the Date of Grant for which he
made such election to participate. A participant who wants to discontinue
participation in the Plan for a subsequent Option Period shall deliver to the
Company a notice of withdrawal, on a form prepared by the Committee, at least 30
days prior to the beginning of the Option Period.
7. EXERCISE OF OPTIONS. (a) GENERAL STATEMENT. Each Eligible Employee who
is a participant in the Plan, automatically and without any act on his part,
shall be deemed to have exercised his option on each Date of Exercise to the
extent that the cash balance then in his account under the Plan is sufficient to
purchase at the "Option Price" (as defined in subparagraph 7(b)) whole shares of
Stock. Any balance remaining in his account after payment of the purchase price
of those whole shares, to the extent the balance is insufficient to purchase a
whole share, shall be carried forward and used towards the purchase of whole
shares in the next following Option Period. To the extent the balance remaining
in his account after the payment of the purchase price exceeds the value of a
share at such time the entire remaining balance shall be returned to the
participant.
(b) "OPTION PRICE" DEFINED. The Option Price per share of Stock to be
paid by each optionee on each exercise of his option shall be an amount equal to
the lesser of 85% of the Fair Market Value of the Stock on the Date of Exercise
or on the Date of Grant. For all purposes under the Plan, the "Fair Market
Value" of a share of Stock on a given day means, if the Stock is listed on an
established exchange or exchanges, the closing sales price of a share of Stock
as reported on such exchange or exchanges on the day in question or the last
such business day if the day in question is not a business day; or if not so
reported, the average of the bid and asked prices, as reported on the National
Association of Securities Dealers Automated Quotation System on the day in
question or the last such business day if the day in question is not a business
day. If the price of a share of Stock is not so quoted, the Fair Market Value
shall be determined by the Committee taking into account all relevant facts and
circumstances.
(c) DELIVERY OF SHARE CERTIFICATES. As soon as practicable after each
Date of Exercise, the Company shall issue one or more certificates representing
the total number of whole shares of Stock respecting exercised options in the
aggregate of all of the Eligible Employees hereunder. Any such certificate shall
be held by the Company (or its agent) and may be held in street name. If the
Company issues a certificate representing the shares of more than one Eligible
Employee, the Company shall
B-4
<PAGE>
keep accurate records of the beneficial interests of each Eligible Employee in
each such certificate by means of a Company stock account. Each Eligible
Employee shall be provided with such periodic statements as may be directed by
the Committee reflecting all activity in any such Company stock account. In the
event the Company is required to obtain from any commission or agency authority
to issue any such certificate, the Company shall seek to obtain such authority.
Inability of the Company to obtain from any such commission or agency authority
which counsel for the Company deems necessary for the lawful issuance of any
such certificate shall relieve the Company from liability to any participant in
the Plan except to return to him the amount of the balance in his account. A
participant may, on the form prescribed by the Committee, request the Company to
deliver to such participant a certificate issued in his name representing all or
a part of the aggregate whole number of shares of Stock then held by the Company
on his behalf under the Plan. Further, upon the termination of an participant's
employment with the Company and its parent or subsidiary corporations for any
reason whatsoever, the Company shall deliver to such employee a certificate
issued in his name representing the aggregate whole number of shares of Stock
then held by the Company on his behalf under the Plan. While shares of Stock are
held by the Company (or its agent), such shares may not be sold, assigned,
pledged, exchanged, hypothecated or otherwise transferred, encumbered or
disposed of by the employee who has purchased such shares; provided, however,
that such restriction shall not apply to the transfer of such shares of Stock
pursuant to (i) a plan of reorganization of the Company, but the stock,
securities or other property received in exchange therefor shall be held by the
Company pursuant to the provisions hereof or (ii) a divorce. The Committee may
cause the Stock certificates issued in connection with the exercise of options
under the Plan to bear such legend or legends, and the Committee may take such
other actions, as it deems appropriate in order to reflect the provisions of
this subparagraph 7(c) and to assure compliance with applicable securities laws.
Neither the Company nor the Committee shall have any liability with respect to a
delay in the delivery of a Stock certificate pursuant to this subparagraph 7(c).
8. WITHDRAWAL FROM THE PLAN. (a) GENERAL STATEMENT. Any participant may
withdraw in whole from the Plan at any time prior to 30 days before the Date of
Exercise relating to a particular Option Period. Partial withdrawals shall not
be permitted. A participant who wishes to withdraw from the Plan must timely
deliver to the Company a notice of withdrawal on a form prepared by the
Committee. The Company, promptly following the time when the notice of
withdrawal is delivered, shall refund to the participant the amount of the cash
balance in his account under the Plan; and thereupon, automatically and without
any further act on his part, his payroll deduction authorization and his
interest in unexercised options under the Plan shall terminate.
(b) ELIGIBILITY FOLLOWING WITHDRAWAL. A participant who withdraws from
the Plan shall not be eligible to participate in the Plan during the then
current Option Period, but shall be eligible to participate again in the Plan in
a subsequent Option Period (provided that he is otherwise eligible to
participate in the Plan at such time and complies with the enrollment
procedures).
9. TERMINATION OF EMPLOYMENT. If the employment of a participant
terminates for any reason whatsoever (including death), his participation in the
Plan automatically and without any act on his part shall terminate as of the
date of the termination of his employment. The Company shall refund to him the
amount of the cash balance in his account under the Plan, and thereupon his
interest in unexercised options under the Plan shall terminate.
10. RESTRICTION UPON ASSIGNMENT OF OPTION. An option granted under the
Plan shall not be transferable otherwise than by will or the laws of descent and
distribution. Each option shall be exercisable, during his lifetime, only by the
employee to whom granted. The Company shall not recognize and shall be under no
duty to recognize any assignment or purported assignment by an employee of his
option or of any rights under his option, and any such attempt may be treated by
the Company as an election to withdraw from the Plan.
B-5
<PAGE>
11. NO RIGHTS OF STOCKHOLDER UNTIL CERTIFICATE ISSUES. With respect to
shares of Stock subject to an option, a participant shall not be deemed to be a
stockholder, and he shall not have any of the rights or privileges of a
stockholder. A participant shall have the rights and privileges of a stockholder
upon, but not until, a certificate for shares has been issued following exercise
of his option. With respect to a participant's Stock held by the Company (or its
agent) pursuant to subparagraph 7(c), the Company shall, as soon as practicable,
pay the participant any cash dividends attributable thereto and facilitate the
participant's voting rights attributable thereto.
12. CHANGES IN STOCK; ADJUSTMENTS. Whenever any change is made in the
Stock, by reason of a stock dividend or by reason of subdivision, stock split,
reverse stock split, recapitalization, reorganization, combinations,
reclassification of shares, or other similar change, appropriate action will be
taken by the Committee to adjust accordingly the number of shares subject to the
Plan, the maximum number of shares that may be subject to any option, and the
number and Option Price of shares subject to options outstanding under the Plan.
Upon the occurrence of a Change in Control, the Committee may, at its option
and in its sole discretion, either (a) substitute for the shares subject to the
unexercised portions of such outstanding options an appropriate number of shares
of each class of stock or other securities of the reorganized or merged or
consolidated corporation which were distributed to the stockholders of the
Company (or, as appropriate, in the case of an acquisition of the Company by
another corporation, substitute the shares of the acquiring corporation for the
shares of the Company), (b) cancel all such options as of the effective date of
any such transaction by giving notice to each option holder thereof or his
personal representative of its intention to do so and by permitting the exercise
of all such outstanding options, without regard to any other provision of the
Plan, during the 30-day period immediately preceding such effective date, or (c)
allow the options granted under the Plan to remain outstanding without any
modifications or amendments.
"Change in Control" means the occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), hereinafter an "Acquiring
Person") becomes the "beneficial owner" (as such term is defined in Rule 13d-3
promulgated under the Exchange Act, hereinafter a "Beneficial Owner"), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
(ii) an Acquiring Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding securities and, during
the two-year period commencing at the time such Acquiring Person becomes the
Beneficial Owner of such securities, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute at least a
majority thereof;
(iii) the Company's stockholders approve an agreement to merge or
consolidate the Company with another corporation (other than a corporation 50%
or more of which is controlled by, or is under common control with, the Company)
and, during the period commencing six months before such approval and ending two
years after such approval, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a majority
thereof; or
(iv) during any two year period, individuals who at the date on which the
period commences constitute a majority of the Board cease to constitute a
majority thereof as a result of one or more contested elections for positions on
such Board.
13. USE OF FUNDS; NO INTEREST PAID. All funds received or held by the
Company under the Plan shall be included in the general funds of the Company
free of any trust or other restriction, and may be used for any corporate
purpose. No interest shall be paid to any participant or credited to his account
under the Plan.
B-6
<PAGE>
14. TERM OF THE PLAN. The Plan shall be effective as of July 1, 2000;
provided that the Plan is approved by the stockholders of the Company within 12
months of the date of adoption by the Board. Notwithstanding any provision in
the Plan, no option granted under the Plan shall be exercisable prior to such
stockholder approval, and, if the stockholders of the Company do not approve the
Plan within 12 months after its adoption by the Board, then the Plan shall
automatically terminate. If not sooner terminated by the Board, as provided in
paragraph 15, the Plan will terminate and no further options will be granted
after July 1, 2005.
15. AMENDMENT OR TERMINATION THE PLAN. The Board in its discretion may
terminate the Plan at any time with respect to any shares for which options have
not theretofore been granted. The Board and Committee shall have the right to
alter or amend the Plan or any part thereof from time to time without the
approval of the stockholders of the Company; provided, that no change in any
option theretofore granted may be made which would impair the rights of the
participant without the consent of such participant; and provided, further, that
the Board and Committee may not make any alteration or amendment which would
increase the aggregate number of shares which may be issued pursuant to the
provisions of the Plan (other than as a result of the anti-dilution provisions
of the Plan), change the class of individuals eligible to receive options under
the Plan, or cause options issued under the Plan to fail to meet the
requirements for employee stock purchase plans as defined in Section 423 of the
Code without the approval of the stockholders of the Company.
16. SECURITIES LAWS. The Company shall not be obligated to issue any
Stock pursuant to any option granted under the Plan at any time when the shares
covered by such option have not been registered under the Securities Act of
1933, as amended, and such other state and federal laws, rules or regulations as
the Company or the Committee deems applicable and, in the opinion of legal
counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. Further, all Stock acquired pursuant to the Plan shall be
subject to the Company's policy or policies, if any, concerning compliance with
securities laws and regulations, as the same may be amended from time to time.
17. NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
B-7
