<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ____)
Filed by the Registrant [X]
Filed by 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 ss. 240.14a-11(c) or ss. 240.14a-12
-----------------------
TROY GROUP, INC.
(Name of Registrant as Specified In Its Charter)
-------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[Letterhead]
2331 SOUTH PULLMAN STREET
SANTA ANA, CALIFORNIA 92705
----------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 6, 2000
----------------------------
TO THE STOCKHOLDERS OF TROY GROUP, INC.:
The Annual Meeting of Stockholders of Troy Group, Inc., a Delaware
corporation, will be held on Thursday, April 6, 2000, at 2:00 p.m., local time,
at the Westin South Coast Plaza Hotel, 686 Anton Boulevard, Costa Mesa,
California 92626, for the following purposes:
1. To elect eight persons to serve as directors until our next
annual meeting of stockholders or until their respective
successors are elected and qualified.
2. To consider and act upon a proposal to amend our 1998 Stock
Incentive Plan to increase the number of shares of our common
stock specifically reserved for issuance under that plan by
1,500,000 shares, from 1,200,000 shares to 2,700,000 shares.
3. To consider and act upon a proposal to ratify the appointment
of McGladrey & Pullen, LLP, certified public accountants, as
our independent auditors for our fiscal year ending November
30, 2000.
4. To transact any other business that properly comes before the
meeting or any adjournment of the meeting.
Only stockholders of record at the close of business on February 18,
2000 will be entitled to notice of, and to vote at, the meeting and any
adjournments of the meeting. It is important that your shares be represented at
the meeting. Please mark, sign, date and mail the enclosed proxy card in the
postage-paid envelope provided, regardless of whether you plan to attend in
person.
By Order of the Board of Directors,
/s/ Del L. Conrad
Del L. Conrad
SECRETARY
March 8, 2000
Santa Ana, California
<PAGE>
[Letterhead]
2331 SOUTH PULLMAN STREET
SANTA ANA, CALIFORNIA 92705
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 6, 2000
-------------------------
INTRODUCTION
The Annual Meeting of Stockholders of Troy Group, Inc., a Delaware
corporation, will be held on Thursday, April 6, 2000, at 2:00 p.m., local time,
at the Westin South Coast Plaza Hotel, 686 Anton Boulevard, Costa Mesa,
California 92626, for the purposes set forth in the accompanying Notice of
Meeting.
A proxy card is enclosed for your use. You are solicited on behalf of
the Board of Directors to MARK AND SIGN THE PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. No postage is required if your returned proxy card is
mailed within the United States. We will bear the cost of soliciting proxies,
including the preparation, assembly and mailing of the proxies and soliciting
material, as well as the cost of forwarding the materials to the beneficial
owners of our common stock. Our directors, officers and regular employees may,
without compensation other than their regular compensation, solicit proxies by
telephone, telegraph or personal conversation. We may reimburse brokerage firms
and others for expenses in forwarding proxy material to the beneficial owners of
our common stock.
Any proxy given to this solicitation and received in time for the
Annual Meeting will be voted according to the instructions given in the proxy.
Any stockholder giving a proxy may revoke it any time prior to its use at the
Annual Meeting by giving a written revocation notice to our Secretary, by filing
a revoking instrument or a duly executed proxy bearing a later date with our
Secretary or by attending the Annual Meeting and voting in person. Proxies that
are signed by stockholders but that lack any specific voting instructions will
be voted in favor of the proposals set forth in the Notice of Meeting and in
favor of the election as directors of each of the nominees listed in this Proxy
Statement.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE PROPOSALS
SET FORTH IN THE NOTICE OF MEETING AND FOR EACH OF THE NOMINEES NAMED IN THIS
PROXY STATEMENT.
We expect that this Proxy Statement, the Proxy and Notice of Meeting
will first be mailed to our stockholders on or about March 8, 2000.
<PAGE>
VOTING OF SHARES
Our Board of Directors has fixed the close of business on February 18,
2000 as the record date for determining the stockholders entitled to notice of,
and to vote at, the Annual Meeting. On February 18, 2000, 10,740,249 shares of
our common stock, $.01 par value, were outstanding. Each outstanding share on
that date entitles its holder to one vote in person or by proxy on each matter
to be voted on at the Annual Meeting, voting together as a single class.
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of common stock entitled to vote
at the meeting is required for a quorum for the transaction of business. In
general, shares of common stock represented by a properly signed and returned
proxy card will be counted as shares present and entitled to vote at the meeting
for purposes of determining a quorum, without regard to whether the card
reflects votes withheld from the director nominee or an abstention (or is left
blank) or reflects a "broker non-vote" on a matter (i.e., a card returned by a
broker on behalf of its beneficial owner customer that is not voted on a
particular matter because voting instructions have not been received and the
broker has no discretionary authority to vote).
Because the eight director nominees who receive the greatest number of
votes cast for the election of directors at the Annual Meeting will be elected
as directors, votes that are withheld from the election of director nominees
will be excluded entirely from the vote and will have no effect. Each of the
other proposals described in this Proxy Statement requires the approval of a
majority of the shares present and entitled to vote in person or by proxy on
that proposal. Shares voted as abstaining on any of these proposals will be
treated as voting shares that were not cast in favor of the proposal, and thus
will be counted as votes against the particular proposal. Shares represented by
a proxy card including any broker non-vote on a matter will be treated as shares
not voting on that matter, and thus will not be counted in determining whether
that matter has been approved.
Shares of common stock represented by properly executed proxy cards
will be voted according to the choices specified. Proxies that are signed by
stockholders but that lack any voting instructions will be voted in favor of the
election as directors of the nominees for director listed in this Proxy
Statement, in favor of the other proposals described in this Proxy Statement
and, with respect to any other business that may properly come before the Annual
Meeting, according to the best judgment of the proxies named on the proxy card.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 18, 2000, information
regarding the beneficial ownership of our common stock by (a) each stockholder
who is known by us to own beneficially more than 5% of the outstanding common
stock, (b) by each director and each nominee, (c) by each executive officer
named in the Summary Compensation Table below, and (d) by all our executive
officers and directors as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)(2)
-------------------------
PERCENT
NAME OF BENEFICIAL OWNER AMOUNT OF CLASS
<S> <C> <C>
Patrick J. Dirk (3)............... 5,684,857 52.9%
Mary J. Dirk (3).................. 5,684,857 52.9%
Brian P. Dirk (4)................. 478,752 4.5%
Robert S. Messina................. 244,990 2.3%
Del L. Conrad (5)................. 10,000 *
Norman B. Keider (5).............. 10,000 *
John B. Zaepfel (5)............... 10,000 *
William P. O'Reilly (5)........... 10,000 *
Gene A. Bier (5).................. 10,000 *
Dr. Harold L. Clark (5)........... 10,000 *
All directors and executive
officers as a group (9 persons)
(3)(4)(6)........................ 6,468,599 60.2%
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares.
(1) Unless otherwise noted, each of the stockholders listed in the table
possesses sole voting and investment power with respect to the shares
indicated.
(2) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days
are treated as outstanding only when determining the amount and percent
owned by such person or group. As of February 18, 2000, there were
10,740,249 shares of common stock outstanding.
(3) Consists of 5,670,000 shares that Patrick J. and Mary J. Dirk hold as
trustees under The Dirk Family Trust UTD March 6, 1990 and 14,857
shares held by the Dirk Foundation. The address of Patrick J. and Mary
J. Dirk is 2331 South Pullman Street, Santa Ana, California 92705.
(4) Includes 46,785 shares that Mr. Brian Dirk holds as a trustee under the
Dirk 1998 Alaska Trust.
3
<PAGE>
(5) Consists entirely of 10,000 shares that the named individual has the
right to acquire within 60 days upon the exercise of options.
(6) Includes 60,000 shares that directors and executive officers have the
right to acquire within 60 days upon the exercise of options.
ELECTION OF DIRECTORS
NOMINATION
Our bylaws provide that the Board shall consist of between one and
fifteen members, with the number of directors determined from time to time by
the Board. The number of directors is currently set at eight.
The Board has nominated the eight individuals identified below to serve
as directors until the next annual meeting of our stockholders or until their
respective successors are elected and qualified. All of the nominees are current
members of the Board.
The Board recommends a vote FOR the election of each of the nominees
listed below. The eight nominees at the Annual Meeting who receive the greatest
number of votes cast for the election of directors at the meeting will be
elected as directors. In the absence of other instructions, the proxies will be
voted FOR each of the individuals named below. If prior to the Annual Meeting
the Board should learn that any nominee will be unable to serve by reason of
death, incapacity or other unexpected occurrence, the proxies that would have
otherwise been voted for such nominee will be voted for a substitute nominee as
selected by the Board. Alternatively, the proxies may, at the Board's
discretion, be voted for only the remaining nominees. The Board has no reason to
believe that any of the nominees will be unable to serve.
INFORMATION ABOUT NOMINEES
The following information has been furnished to us as of February 18,
2000 by the respective nominees for director.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
<S> <C> <C> <C>
Patrick J. Dirk 60 Chairman of the Board, Director and Chief 1982
Executive Officer of Troy, Chairman of the
Board and Chief Executive Officer of Troy
Systems International and Chairman of the
Board, Chief Executive Officer, sole
Director of Troy XCD and Director of Troy
Telgate Systems, Inc.
Robert S. Messina 50 President, Chief Operating Officer and Director of Troy 1999
Brian P. Dirk 35 Vice President and Director of Troy 1999
4
<PAGE>
Norman B. Keider 68 Self-Employed Management Consultant 1999
John B. Zaepfel 63 Managing Partner of Zaepfel Group 1999
William P. O'Reilly 53 Chief Executive Officer of Eltrax Systems, Inc. 1999
Gene A. Bier 61 President and Chief Executive Officer of XCORP 1999
Business Development, Inc.
Dr. Harold L. Clark 64 Chief Executive Officer and Chairman of Micro-Mart.com 1999
</TABLE>
OTHER INFORMATION ABOUT NOMINEES
PATRICK J. DIRK has been Chairman of the Board, Chief Executive
Officer, and a Director since he co-founded Troy with his wife in May 1982. From
May 1982 until August 1999, Mr. Dirk served as President of Troy. Mr. Dirk is
also the founder, Chairman of the Board and Chief Executive Officer of Troy
Systems International, the Chairman of the Board, Chief Executive Officer and
sole Director of Troy XCD and a Director of Troy Telgate Systems, Inc. Since
March 1984, Mr. Dirk has served as a Director of Eltrax Systems, Inc. a managed
network services company that provides communication products and services for
enterprise wide networks. Mr. Dirk co-founded Eltrax in March 1984 and served as
its Chairman of the Board from February 1995 until August 1995. From 1973 until
1982, Mr. Dirk was employed in various capacities by Kroy Inc., a manufacturer
of automated lettering machines and related products, serving as President and a
Director from 1980 to 1982. Mr. Dirk also serves as a member of the Boards of
Directors and advisory Boards of several private companies, none of which
compete with Troy. Mr. Dirk devotes substantially all of his efforts to Troy and
its subsidiaries. Mr. Dirk is the father of Brian P. Dirk.
ROBERT S. MESSINA has been President, Chief Operating Officer and a
Director of Troy since August 1999. Mr. Messina previously served as Executive
Vice President of Troy from April 1998 to August 1999 and the President and
Chief Operating Officer of Troy Systems International from December 1996 to
August 1999. From December 1995 through December 1996, Mr. Messina served as the
Executive Vice President and General Manager of Troy Systems International and
from July 1994 through December 1995 he served as its Vice President Sales and
Marketing. From January 1992 through March 1994, he was the General Manager of
Omninote, a division of Telautograph Corp., a network communications company.
BRIAN P. DIRK has been a Vice President of Troy since May 1996. He was
a member of our Board of Directors from that date until October 30, 1998. He
again became a Director in July 1999. Mr. Dirk's primary responsibility is Vice
President of Business Development. His duties include managing our acquisition
strategies and staff. Prior to this, he served as Vice President of
International and Federal Government Sales. Since joining us in 1989, Mr. Dirk
has held various training and management positions, including Director of
Business Development, International Sales Manager, Special Projects Manager,
Telesales Representative and Purchasing Agent. Mr. Dirk is the son of Patrick J.
Dirk.
5
<PAGE>
NORMAN B. KEIDER has been a Director since July 1999. Since August
1993, Mr. Keider has been a self employed management consultant. Mr. Keider
served as a Managing Director of A.T. Kearney, an executive search consulting
firm from January 1989 to August 1993. From April 1986 to January 1989, he was a
partner with Keider-Zupsic Associates, an executive search consulting company.
Mr. Keider also served as a partner for Arthur Young & Company, an accounting
and consulting company from December 1979 to April 1986. From January 1978 to
December 1979, he was a self employed consultant for acquisition searches. From
December 1972 to January 1978, Mr. Keider was the President and Chief Executive
Officer of Atlas Powder Company, a manufacturer of commercial explosives.
JOHN B. ZAEPFEL has been a Director since July 1999. Since June 1991,
Mr. Zaepfel has been a Managing Partner of the Zaepfel Group, a middle market
consulting firm specializing in strategic facilitation and planning. Mr. Zaepfel
has served as Chief Executive Officer of several companies. He currently serves
as a Director for ten companies including two publicly traded companies,
RemedyTemp, Inc. and Pro-Dex, Inc. From January 1985 to May 1989, Mr. Zaepfel
was the founder and Chief Executive Officer of CPG International, Inc., a
manufacturer and marketer of fine art, graphic art, engineering, drafting and
media supplies. From 1974 to 1984, Mr. Zaepfel was President and Chief Executive
Officer of Chartpak and Pickett Industries, wholly-owned subsidiaries of Times
Mirror. Mr. Zaepfel was General Manager of Chartpak, a division of Avery
International from 1990 to 1993.
WILLIAM P. O'REILLY has been a Director since July 1999. Mr. O'Reilly
has been the Chief Executive Officer of Eltrax Systems, Inc. since January 1997.
Mr. O'Reilly has also been the Chairman of the Board of Directors of Eltrax
since August 1995 and a Director of Eltrax since July 1995. For the past 15
years, Mr. O'Reilly has been a private investor and entrepreneur who has managed
several business ventures. In 1989, Mr. O'Reilly formed a group of investors to
acquire Military Communications Center, Inc., where he served as Chairman of the
Board and Chief Executive Officer from 1989 to 1994. In 1986, Mr. O'Reilly
founded Digital Signal, Inc., a provider of fiber optic capacity to long
distance carriers in the telecommunications industry. Mr. O'Reilly served as
Digital Signal's Chief Executive Officer from 1986 to 1989. In 1980, Mr.
O'Reilly founded Lexitel Corporation, a long distance carrier that was
subsequently acquired by ALC Communications, Inc., and served as its Chairman of
the Board and Chief Executive Officer from 1980 to 1984. Mr. O'Reilly is also a
Director of PointeCom, Inc., a builder and operator of international
communication networks which provides voice, video and data services.
GENE A. BIER has been a Director since July 1999. Since 1987, Mr. Bier
has been the President and Chief Executive Officer of XCORP Business
Development, Inc., a consulting and investment company. From July 1986 to
February 1996, Mr. Bier was a Director of Eltrax Systems, Inc. and served as its
Chairman from September 1989 to March 1990. From June 1983 to January 1987, Mr.
Bier was Chief Executive Officer of U.S. West Communications, formerly Minnesota
Northwestern Bell. From September 1978 to June 1983, he was Vice President and
from August 1963 to September 1978, he held various positions in the Bell
System. Mr. Bier has served on the Boards of many local organizations, including
the Minnesota Business Partnership, Inc., the Greater Minneapolis Metropolitan
Housing Corporation, the United Way of Minneapolis and the Metropolitan Medical
Center. Mr. Bier was Chairman of the Greater Minneapolis Chamber of Commerce,
the Governor's Jobs Training Counsel, the Minnesota State Lottery Board and the
Urban Coalition.
6
<PAGE>
DR. HAROLD L. CLARK has been a Director since July 1999. Since October
1998, Dr. Clark has been the Chief Executive Officer and Chairman of
Micro-Mart.com, an Internet-based computer products reseller. Prior to this
position, Dr. Clark served as XCD's Chairman from July 1995 until it became Troy
XCD in October 1998. From April 1993 to August 1995, Dr. Clark was the Chief
Executive Officer and Co-Chairman of AmeriQuest Technologies, Inc., a
distributor of computer technology solutions to value-added resellers, systems
integrators, distributors and computer dealers. Dr. Clark also acted as a
consultant to AmeriQuest from August 1995 to December 1995. From April 1993 to
December 1993, Dr. Clark was the President and Chief Executive Officer of an
AmeriQuest subsidiary, CDS Distribution, Inc. Dr. Clark was the President of
Everex Systems, Inc., a supplier of server, workstation, notebook and desktop
solutions from February 1991 to December 1992. From October 1984 to April 1990,
Dr. Clark was President and Vice Chairman of Ingram MicroD Inc., a wholesale
distributor of technology products and services, and a provider of assembly and
integration services. Dr. Clark currently serves as a Director of Max Internet
Communications, a video communications equipment Intranet and Internet provider.
ADDITIONAL INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee, each of which became active upon our initial public
offering in July 1999.
The Audit Committee provides assistance to the Board in satisfying its
fiduciary responsibilities relating to accounting, auditing, operating and
reporting practices and reviews the annual financial statements, the selection
and work of our independent auditors and the adequacy of internal controls for
compliance with corporate policies and directives. The Audit Committee consists
of Messrs. Zaepfel and Clark. The Audit Committee did not meet during fiscal
1999, but did begin meeting subsequent to the end of fiscal 1999 to consider the
audit for that year.
The Compensation Committee reviews general programs of compensation and
benefits for all employees and makes recommendations to the Board concerning
executive officer and director compensation. The Compensation Committee consists
of Messrs. Keider and O'Reilly. The Compensation Committee met three times
during fiscal 1999 following our initial public offering.
Following our initial public offering, the Board met once during fiscal
1999. During the term of their service on the Board following the date of our
initial public offering, each of the directors attended, either in person or by
telephonic conference, 75% or more of the meetings of the Board and all such
committees on which such director served during fiscal 1999.
DIRECTOR COMPENSATION
Directors who are employees receive no separate compensation for their
service as directors. Our non-employee directors receive $1,500 for each regular
meeting of the Board of Directors, $750 for each special meeting of the Board of
Directors and $750 for each meeting of the committees on which they serve.
Non-employee directors are also reimbursed for travel expenses for attending
Board and committee meetings.
7
<PAGE>
Our 1998 Stock Incentive Plan provides for the grant of stock based
awards to eligible key employees, officers and directors. Effective upon
completion of our initial public offering in July 1999, we granted each
non-employee director a ten-year option to purchase 30,000 shares of common
stock at our initial public offering price of $7.00 per share. These options
vested as to 10,000 shares on October 18, 1999 (90 days after our initial public
offering date) and will vest as to an additional 8,000 shares on July 21, 2002
and 6,000 shares on each of July 21, 2003 and July 21, 2004. Pursuant to the
Plan, an option will, to the extent exercisable on termination of a director's
service, remain exercisable for a period of three months after such termination
of service of a director, except that, if termination of service is due to
death, disability or retirement, an option will remain exercisable for a period
of one year, but never beyond the option's original term. In the event of a
change in control of Troy (as discussed more fully below under the heading
"Management Agreements"), these options will become immediately and fully
exercisable for the remainder of their respective terms.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid
or earned during fiscal 1998 and 1999 by our Chief Executive Officer and our
three other executive officers, all of whom received or earned cash and non-cash
salary and bonus of more than $100,000 for fiscal 1999.
8
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- -------------
OTHER ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) OPTIONS(#) COMPENSATION ($)(3)
------------------ ---- --------- ----------- ------ ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Patrick J. Dirk
CHAIRMAN OF THE
BOARD, AND CHIEF 1999 $225,000 $110,000 $7,320 __ 4,800
EXECUTIVE OFFICER 1998 225,000 68,730 9,855 __ 5,000
Robert S. Messina
PRESIDENT, CHIEF
OPERATING OFFICER 1999 160,000 174,372 11,040 200,000 4,183
AND DIRECTOR 1998 160,000 90,768 5,400 __ 4,041
Brian P. Dirk
VICE PRESIDENT 1999 150,000 46,000 3,525 30,000 3,409
AND DIRECTOR 1998 115,000 114,106 3,825 __ 3,058
Del L. Conrad
CHIEF FINANCIAL
OFFICER, TREASURER 1999 140,000 40,000 5,400 35,000 4,057
AND SECRETARY 1998 130,000 16,250 4,050 __ 3,812
</TABLE>
(1) Figures for fiscal year 1999 represent performance bonuses of $110,000,
$100,000, $46,000 and $40,000 for Messrs. Patrick Dirk, Messina, Brian
Dirk and Conrad, respectively. Also includes commissions of $74,372 for
Mr. Messina. Figures for fiscal year 1998 represent performance bonuses
of $68,730, $45,500, $50,000 and $16,250 for Messrs. Patrick Dirk,
Messina, Brian Dirk and Conrad, respectively. Also includes commissions
of $45,268 and $64,106 for Messrs. Messina and Brian Dirk.
(2) Figures for fiscal year 1999 represent $4,725, $6,300, $3,525 and
$5,400 for automobile usage for Messrs. Patrick Dirk, Messina, Brian
Dirk and Conrad and $2,595 and $4,740 for reimbursement of social club
membership fees for Mr. Patrick Dirk and Mr. Messina respectively.
Figures for fiscal year 1998 represent $5,250, $5,400, $3,825 and
$4,050 for automobile usage for Messrs. Patrick Dirk, Messina, Brian
Dirk and Conrad and $4,605 for reimbursement of social club membership
fees for Mr. Patrick Dirk.
(3) Figures for fiscal year 1999 include $4,800, $4,183 and $3,409 and
$4,057 for Messrs. Patrick Dirk, Messina, Brian Dirk and Conrad,
respectively, for matching contributions under Troy's 401(k) Plan.
Figures for fiscal year 1998 include $5,000, $4,041, $3,058 and $3,812
for Messrs. Patrick Dirk, Messina, Brian Dirk and Conrad, respectively,
for matching contributions under Troy's 401(k) Plan.
9
<PAGE>
OPTION GRANTS AND EXERCISES
The following tables summarize option grants and exercises during the
fiscal year ended November 30, 1999 to or by each of the executive officers
named in the Summary Compensation Table above, and the potential realizable
value of the options held by such persons at November 30, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
--------------------
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED GRANT DATE
UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION PRESENT
NAME GRANTED (#)(1) FISCAL YEAR PRICE ($/SH) DATE VALUE ($)(2)
- ---- -------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Patrick J. Dirk -- -- -- --
Robert S. Messina 200,000 16.6% 6.75 8/25/09 $892,000
Brian P. Dirk 30,000 2.5% 8.0094 9/22/04 $189,300
Del L. Conrad 35,000 2.9% 7.00 7/20/09 $161,350
</TABLE>
- -------------------------
(1) All options granted to the executives indicated were granted under our
1998 Stock Incentive Plan at exercise prices equal to the fair market
value of our common stock on the date of grant as reported on the
Nasdaq National Market. The stock options granted to Messrs. Messina
and Brian Dirk will become exercisable at the rate of twenty percent of
the number of shares underlying the options on each of the first five
anniversaries of the date of grant. The stock options granted to Mr.
Conrad vested as to 10,000 shares on October 18, 1999 and will vest as
to an additional 11,000 shares on July 21, 2002, and 7,000 shares on
each of July 21, 2003 and July 21, 2004. In the event of a "change in
control," as defined in the 1998 Plan, all of such options that have
been outstanding at least three months will become immediately
exercisable in full and will remain so for the remainder of their term
regardless of whether the holder remains in the employ or service of
Troy.
(2) Represents the present value of the options granted on the date of
grant using the Black-Scholes option pricing model, which requires the
assumption of certain values. In calculating the values shown, we
assumed annualized volatility of the price of common stock of 45.44% to
66.76%, time of exercise or option life of 10 years, and risk-free
interest rates ranging from 5.81% to 5.92%, determined from market
information as of the respective dates of grant. No adjustments were
made for the non-transferability or risk of forfeiture of the options,
and, because we have historically not paid dividends on common stock,
no yield on common stock was assumed. There can be no assurance that
these assumptions will prove true in the future. The actual value, if
any, that an executive may realize will depend on the excess of the
market price of common stock over the exercise price on the date the
option is exercised, which may vary from the theoretical value
indicated in the table.
10
<PAGE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END ($) AT FISCAL YEAR END ($)(2)
ACQUIRED ON VALUE ------------------------------ ------------------------------
NAME EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Patrick J. Dirk -- -- -- -- -- --
Robert S. Messina 244,990 $1,630,457 -- 200,000 $1,237,600
Brian P. Dirk 81,967 $542,163 -- 30,000 $147,858
Del L. Conrad -- -- 10,000 25,000 $59,380 $148,450
</TABLE>
(1) The values indicated are based on the difference between the fair
market value of one share of common stock on the date of exercise and
the exercise prices of the respective options.
(2) The values indicated are based on the difference between the fair
market value of one share of common stock on November 30, 1999
($12.938) and the exercise prices of the respective options, ranging
from $6.75 to $8.01 per share. Options are in-the-money if the market
price of the shares exceeds the option exercise price.
MANAGEMENT AGREEMENTS
MESSINA NON-COMPETITION AGREEMENT. On November 27, 1996, we entered
into a non-competition agreement with Robert Messina regarding his services as
President and Chief Operating Officer of Troy Systems International. Under the
terms of this agreement, we granted Mr. Messina an option to purchase 244,990
shares of common stock at an exercise price of $0.41 per share expiring on
November 25, 2006. This option, which became fully vested upon completion of our
initial public offering in July 1999, was exercised by Mr. Messina during fiscal
1999. Our agreement with Mr. Messina requires him to maintain the
confidentiality of our proprietary information and prohibits him from engaging
in competitive activity for a three-year period after his termination. If Mr.
Messina's service with us is terminated during fiscal 1999 or 2000 without
cause, whether actual or constructive, we must pay Mr. Messina $300,000. Such
payment is payable in 36 equal monthly installments.
CHANGE IN CONTROL ARRANGEMENTS. Under our 1998 Stock Incentive Plan, if
a "change in control" of Troy occurs, then, unless the Compensation Committee
decides otherwise either at the time of grant of an incentive award or at any
time thereafter, all options that have been outstanding at least three months
will become immediately exercisable for the remainder of their terms, regardless
of whether the participants to whom such options have been granted remain the
employ or service of Troy or any subsidiary. Under the terms of their respective
option agreements, all of the options granted to our executive officers will be
subject to such accelerated vesting upon a change in control.
In addition, upon a change in control, the Compensation Committee may
pay cash for all or a portion of the outstanding options. The amount of cash the
participants would receive will
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equal the excess of the fair market value immediately prior to the effective
date of such change in control over the exercise price per share of the options.
The acceleration of the exercisability of options under the Plan may be limited,
however, if the acceleration would be subject to an excise tax imposed upon
"excess parachute payments."
The Plan also provides that if a "change in control" of Troy occurs,
then, unless the Compensation Committee decides otherwise either at the time of
grant of an incentive award or at any time thereafter:
- all stock appreciation rights that have been outstanding at
least three months will become immediately exercisable in full
and will remain exercisable for the remainder of their terms,
regardless of whether the participant remains in the employ or
service of Troy or any subsidiary;
- all outstanding restricted stock awards will become
immediately fully vested and non-forfeitable; and
- all outstanding performance units and stock bonuses will vest
and/or continue to vest in the manner determined by the
Compensation Committee and reflected in the award agreement.
Under the Plan, a "change in control" will include any of the
following:
- the sale or other disposition of substantially all of our
assets;
- the approval by our stockholders of a Plan or proposal for the
liquidation or dissolution of Troy;
- a merger or consolidation to which we are a party if our
stockholders immediately prior to the merger or consolidation
beneficially own, immediately after the merger or
consolidation, securities of the surviving corporation
representing (A) more than 50%, but not more than 80%, of the
combined voting power of the surviving corporation's then
outstanding securities unless such transaction was approved in
advance by the "continuity directors," which are the directors
as of the effective date of the Plan or any persons who
subsequently become directors and whose election or nomination
was approved by a majority vote of the continuity directors,
or (B) 50% or less of the combined voting power of the
surviving corporation's then outstanding securities,
regardless of any approval by the continuity directors;
- any person becoming, after the effective date of the Plan, the
beneficial owner of (A) 20% or more, but less than 50%, of the
combined voting power of our outstanding securities, unless
the transaction was approved in advance by the continuity
directors, or (B) 50% or more of the combined voting power of
our outstanding securities, regardless of any approval by the
continuity directors; or
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- the continuity directors cease for any reason to constitute
at least a majority of the Board.
Notwithstanding anything in the foregoing to the contrary, no change in
control will be deemed to have occurred for purposes of the Plan by virtue of
certain transfers among the members of Patrick J. Dirk's family or family
trusts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to our initial public offering in July 1999, we had no
Compensation Committee but the Board of Directors performed equivalent
functions. Mr. Patrick Dirk served as our Chairman and Chief Executive Officer
and set the compensation of the executive officers. Upon completion of the
offering, Messrs. Keider and O'Reilly became members of the Compensation
Committee. Messrs. O'Reilly and Patrick Dirk, our Chairman of the Board,
Director and Chief Executive Officer, are both members of the Board of Directors
of Eltrax Systems, Inc. Mr. O'Reilly is the Chief Executive Officer of Eltrax.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee reviews general programs of compensation and
benefits for all employees and makes recommendations to the Board of Directors
concerning compensation paid to our executive officers, directors and certain
key employees. Compensation paid to these individuals is reviewed and set
annually by the Compensation Committee to coincide with our fiscal year.
The Compensation Committee also administers our stock-based
compensation plans, including our 1998 Stock Incentive Plan, which allows the
Compensation Committee to grant incentive stock options, non-statutory stock
options, restricted stock awards, stock appreciation rights, performance units
and stock bonuses to eligible key employees, officers, directors and
consultants.
COMPENSATION PHILOSOPHY AND OBJECTIVES. The overall philosophy
underlying the decisions and recommendations of the Compensation Committee is to
recognize and reward results and achievement at both the individual and company
level by linking compensation to such achievement. Consistent with this
philosophy, the Compensation Committee has set the following objectives for our
executive compensation program:
- Encourage the achievement of desired individual and company
performance goals by rewarding such achievements.
- Provide a program of compensation that is competitive with
comparable companies to enable us to attract and retain key
executive talent.
- Align the interests of our executives with the interests of
our stockholders by linking compensation to company
performance and ensuring that our executives have
opportunities for long-term stock ownership.
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In making its recommendations to the Board of Directors, the
Compensation Committee considers factors such as company performance, both in
isolation and in comparison to companies of comparable profitability, complexity
and size; the individual performance of each executive officer; our historical
compensation levels; the overall competitive environment for executives and the
level of compensation necessary to attract and retain the level of key executive
talent that we desire. In analyzing these factors, the Compensation Committee
may from time to time review competitive compensation data gathered in
comparative surveys or collected by independent consultants.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS. Prior to our July 1999
initial public offering, executive compensation was established by Patrick Dirk
with assistance and information provided by outside advisors. Accordingly, the
compensation reported as paid to our executive officers in fiscal 1999 and 1998
in this Proxy Statement was determined by Mr. Dirk and not by the Compensation
Committee.
Since the date of our initial public offering, our Compensation
Committee has established an executive compensation program consisting of base
salary, annual cash bonus compensation, long-term incentive opportunities under
the 1998 Plan and other benefits. Each element of this compensation program,
which was first implemented by the Compensation Committee for compensation
payable in fiscal 2000, is discussed in greater detail below.
BASE SALARY. Each executive officer's base salary is
determined annually by the Compensation Committee and ratified by the
Board of Directors after considering the compensation levels of
executives at comparable companies in our industry, the potential
impact of the individual on company performance, the level of skill,
responsibility and experience required by the individual's position and
the other factors described above. In evaluating comparable company
compensation, the Compensation Committee places particular emphasis on
data for companies with revenues similar to our forecasted revenues for
the relevant fiscal year. The Compensation Committee determined
executive officer salaries for fiscal 2000 in this manner.
ANNUAL CASH BONUSES. The Compensation Committee utilizes
annual cash bonuses to provide a direct financial incentive to the
Company's executive officers. Under the executive officer bonus program
administered by the Compensation Committee, each executive is eligible
to receive bonus, subject to achievement of specified company goals.
For fiscal 2000, bonuses payable to Messrs. Messina, Conrad and Patrick
Dirk are tied to achievement of budgeted earnings before interest and
taxes. Bonuses payable to Mr. Brian Dirk for fiscal 2000 are tied to
successful completion of acquisitions by the company. The actual amount
of bonus payable to Messrs. Messina, Patrick Dirk and Brian Dirk will
correlate with the degree to which we achieve or exceed the relevant
company goal.
LONG-TERM INCENTIVE COMPENSATION. The Compensation Committee
makes long-term incentive compensation available to our executive
officers through its administration of the 1998 Plan, as discussed
above. From time to time the Compensation Committee evaluates equity
ownership by our executive officers and may grant stock-based
compensation under the 1998 Plan in order to reward such executives for
their
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contributions to achievement of company objectives and to further
align their interests with those of our stockholders. During fiscal
1999, options were awarded to Messrs. Messina, Brian Dirk and Conrad.
Due to his significant stockholdings Mr. Dirk was not granted
additional stock-based compensation in fiscal 1999.
OTHER BENEFITS. In addition to the compensation described
above, our executive officers receive benefits under our insurance,
401(k) and employee stock purchase plans, each of which is generally
available to our other employees. We also compensate each of our
executive officers for automobile expense and Messrs. Patrick Dirk and
Messina for social club membership fees.
For fiscal 1998 and 1999, we paid sales commissions to certain of our
executive officers. In establishing the compensation program outlined above, the
Compensation Committee has determined to phase out all sales commissions at the
executive officer level.
SECTION 162(m). Section 162(m) of the Internal Revenue Code of 1986
limits our ability to deduct certain compensation in excess of $1 million paid
to our chief executive officer and each of our four other most highly
compensated executives. In 1999, we did not pay "compensation" within the
meaning of Section 162(m) in excess of $1 million to our executive officers, and
we do not believe that we will do so in the near future. As a result, we have
not established a policy for qualifying compensation paid to our executive
officers for deductibility under Section 162(m), but will formulate such a
policy if compensation levels ever approach $1 million.
COMPENSATION COMMITTEE
Norman B. Keider
William P. O'Reilly
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COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on our
common stock to the total cumulative return on the Nasdaq Market Index and an
industry index based on Standard Industrial Code 3570-3579 (Computer and Office
Equipment) during the period from our initial public offering on July 21, 1999
to November 30, 1999. The graph assumes a $100 investment in common stock, the
Nasdaq Market Index and the industry index on July 21, 1999 and the reinvestment
of all dividends.
<TABLE>
<CAPTION>
DATE COMPANY SIC INDEX NASDAQ MARKET INDEX
<S> <C> <C> <C>
July 21, 1999 100.00 100.00 100.00
November 30, 1999 184.80 138.00 118.40
</TABLE>
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CERTAIN TRANSACTIONS
Prior to April 1998, Troy and its subsidiary, Troy Systems
International, were 100% beneficially owned by Patrick J. and Mary J. Dirk as
trustees under The Dirk Family Trust UTD March 6, 1990, the trustee of The Dirk
1997 Education Trust, the trustees of the Dirk 1998 Alaska Trust, Brian P. Dirk
and Patrick J. Dirk's other three children. For convenience, we refer to each of
these individuals and trusts collectively as the Dirk stockholders.
We lease a total of 77,000 square feet at our West Virginia facility
from Dirk Investments, Inc. Dirk Investments is wholly-owned by the Dirk
stockholders. This lease expires on September 1, 2000 and provides for rent,
effective as of December 1998, of approximately $22,500 per month. Total rental
payments made by us for the fiscal year ended November 30, 1999 were
approximately $270,000.
We and the Dirk stockholders are also parties to a Tax Agreement
Relating to S Corporation Distributions. Under this agreement, we have agreed to
indemnify the Dirk stockholders for any adjustments causing an increase in their
federal and state income tax liability, including interest and penalties,
related to tax years prior to October 30, 1998. Subject to certain limitations,
this agreement also provides that the Dirk stockholders will reimburse us for
any amounts refunded to them as a result of the loss of the S corporation status
of Troy or Troy Systems. Any payment made by us to the Dirk stockholders
pursuant to this agreement may be considered by the Internal Revenue Service or
state taxing authorities to be nondeductible by Troy or Troy Systems for income
tax purposes.
All future transactions, including any loans from us to our officers,
directors, principal shareholders or affiliates, will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
PROPOSAL TO AMEND OUR 1998 STOCK INCENTIVE PLAN
INTRODUCTION
On April 21, 1998, our Board of Directors and sole stockholder at that
time adopted the Troy Group, Inc. 1998 Stock Incentive Plan. The Plan provides
for the grant of stock-based incentive awards to eligible key employees,
officers, directors and consultants. These incentive awards consist of stock
options, including "incentive options" under Section 422 of the Internal Revenue
Code of 1986, as amended, "non-statutory stock options" not qualifying for such
incentive treatment, stock appreciation rights, restricted stock awards,
performance units and stock bonuses.
On December 14, 1999, the Board recommended that an amendment to the
Plan, be submitted to our stockholders approval for purposes of increasing the
number of shares of common stock specifically reserved for issuance under the
Plan by 1,500,000 shares of common stock, from 1,200,000 shares to 2,700,000.
You are being asked to approve this amendment at the Annual Meeting.
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PURPOSE OF THE AMENDMENT
Providing stock option grants and other incentive awards under the Plan
is an important element in our overall success. In general, the Board believes
that equity-based incentives align the interests of our management and employees
with those of our stockholders. In addition, providing stock option grants and
other incentive awards under the Plan is an important strategy for attracting
and retaining the type of high-quality executives, employees and advisors the
Board believes is necessary for the achievement of our goals.
Given the intense competition for such personnel, the Board believes
that its ability to offer competitive compensation packages, including those
with equity-based incentive components, is particularly important in attracting
and retaining qualified candidates.
SUMMARY OF THE PLAN
A general description of the basic features of the Plan is set forth
below. This summary is qualified in its entirety by reference to the actual text
of the Plan. You may obtain a copy of the Plan from us, free of charge, by
sending a request to the address set forth at the beginning of this Proxy
Statement.
GENERAL. The Plan's purpose is to advance our interests and the
interests of our stockholders by enabling us to attract and retain talented
persons by providing an incentive to such individuals through equity
participation in Troy and also rewarding such individuals who contribute to the
achievement of our economic objectives.
ELIGIBLE PARTICIPANTS. All employees of Troy or any subsidiary and any
non-employee directors, consultants and independent contractors of Troy or any
subsidiary who, in the judgment of the Compensation Committee, have contributed,
are contributing or are expected to contribute to the achievement of our
economic objectives are eligible to participate in the Plan. On February 18,
2000, approximately 210 individuals were eligible to receive incentive awards
under the Plan.
Participants may be granted one or more incentive awards, alone or in
combination with other awards. The incentive awards will always be subject to
whatever terms and conditions the Compensation Committee determines, provided
such terms and conditions are consistent with the Plan. All incentive awards are
deemed granted as of the date specified in the Compensation Committee's
resolution, which will be the date of the participant's award agreement.
ADMINISTRATION. The Compensation Committee of the Board administers the
Plan. The Compensation Committee has the authority to determine all provisions
of incentive awards as long as they are consistent with the terms of the Plan.
The Compensation Committee also has the authority to amend or modify the terms
of any outstanding incentive award in any manner. Any such amendment or
modification, however, must be permitted by the Plan and may not adversely
affect any participant's rights without his or her consent. Each determination,
interpretation or other action of the Compensation Committee will be conclusive
and binding for all purposes on all persons.
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<PAGE>
STOCK SUBJECT TO THE PLAN. Prior to the proposed amendment of the Plan
described in this Proxy Statement, there were 1,200,000 shares of common stock
specifically reserved for issuance under the Plan plus the number of shares
remaining available under our 1996 Stock Option Plan or which later became
available under that plan as a result of forfeiture or cancellation. As of
February 18, 2000, a total of 37,341 shares remained available for issuance
under the 1996 Plan, bringing the number of shares authorized under the Plan to
1,237,341. The amendment to the Plan proposed hereby would increase the number
of shares specifically reserved for issuance under the Plan from 1,200,000 to
2,700,000 shares.
As of February 18, 2000, 11,000 shares of common stock had been issued
upon the exercise of options granted under the Plan, and options to purchase
1,189,000 shares of common stock were outstanding. Accordingly, 37,341 shares
remained available for future grant under the Plan as of that date. Assuming
approval of an increase of 1,500,000 shares to the Plan, 1,537,341 shares would
be available for future grant (not including any awards made under the Plan
after that date).
In determining the number of shares of common stock available for
issuance under the Plan at any point in time, shares of common stock that are
issued under the Plan or that are subject to outstanding incentive awards are
applied to reduce the maximum number of shares of common stock remaining
available for issuance under the Plan. In addition, any shares of common stock
that are subject to an incentive award that lapses, expires, is forfeited or for
any reason is terminated unexercised and any shares of common stock that are
subject to an incentive award that is settled or paid in cash are again made
available for issuance under the Plan. However, any shares of common stock that
constitute the forfeited portion of a restricted stock award are not made
available for further issuance under the Plan.
TYPES OF AWARDS
OPTIONS. An option provides the optionee with the opportunity to
purchase a specified number of shares of common stock at a predetermined price
for a specific period of time. Incentive options must be granted with an
exercise price equal to at least the fair market value of the common stock on
the date of grant. Non-qualified options must be granted with an exercise price
equal to at least 85% of the fair market value of the common stock on the date
of grant. For purposes of the plan, the fair market value of the common stock is
the average of the high and low prices of the common stock, as reported on the
Nasdaq National Market on the applicable date. On November 30, 1999, the closing
price of a share of our common stock on the Nasdaq National Market was $12.938.
Options will become exercisable at such times and in such installments
as may be determined by the Compensation Committee, provided that options may
not become exercisable prior to three months from their date of grant and may
not be exercisable after 10 years from their date of grant.
The exercise price of options must be paid in cash, except that the
Compensation Committee may allow payment to be made (in whole or in part) by
tender of a "broker exercise notice" (pursuant to which the broker or dealer is
instructed to sell enough shares or loan the optionee enough money to pay the
exercise price and to remit such sums to us), a promissory
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<PAGE>
note, a transfer of shares of common stock (either previously owned by the
participant or to be acquired upon option exercise), or by a combination of such
methods. The aggregate fair market value of shares of common stock with respect
to which incentive stock options may become exercisable for the first time by a
participant in any calendar year may not exceed $100,000. Any incentive options
in excess of this amount will be treated as non-statutory options.
STOCK APPRECIATION RIGHTS. A stock appreciation right is a right to
receive a payment from us in the form of stock, cash or a combination of both,
equal to the difference between the fair market value of one or more shares of
common stock and the exercise price of such shares. The exercise price of a
stock appreciation right will be determined by the Compensation Committee, but
may not be less than the fair market value of the common stock on the date of
grant. Stock appreciation rights become exercisable at such times and in such
installments as may be determined by the Compensation Committee, except that
stock appreciation rights may not become exercisable prior to three months from
their date of grant and may not be exercisable after 10 years from their date of
grant. A holder of a stock appreciation right has no rights as a stockholder
with respect to any shares subject to a stock appreciation right unless and
until he or she exercises the right and the Compensation Committee decides to
pay the holder in the form of common stock.
RESTRICTED STOCK AWARDS. A restricted stock award is an award of shares
of common stock that cannot be transferred to any person for some predetermined
period of time, and may have to be returned to us upon the occurrence of certain
conditions. The Compensation Committee may impose such restrictions or
conditions to the vesting of restricted stock awards as it deems appropriate,
including that the participant remain in the continuous employ or service of
Troy or a subsidiary for a certain period or that the participant, Troy or a
subsidiary satisfy certain performance goals. Unless the Compensation Committee
determines otherwise, any dividends or distributions paid with respect to shares
of common stock subject to the unvested portion of a restricted stock award will
be subject to the same restrictions as the shares to which such dividends or
distributions relate.
PERFORMANCE UNITS. A performance unit is a right to receive cash,
common stock, or a combination of both, upon the achievement of established
performance goals. A performance unit will vest at such times and in such
installments as may be determined by the Compensation Committee. The
Compensation Committee may impose such restrictions or conditions to the vesting
of performance units as it deems appropriate, including that the participant
remain in the continuous employ or service of Troy or a subsidiary for a certain
period or that the participant, Troy or a subsidiary satisfy certain performance
goals or criteria.
STOCK BONUSES. A stock bonus is an award of common stock upon the
achievement of established performance goals. A stock bonus will be subject to
such terms and conditions, consistent with the other provisions of the Plan, as
may be determined by the Compensation Committee.
EFFECT OF CHANGE IN CONTROL. See "Executive Compensation and Other
Benefits -- Change in Control Arrangements" for discussion regarding the effects
of a "change in control" on incentive awards granted under the Plan.
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EFFECT OF TERMINATION OF EMPLOYMENT ON SERVICE. In the event a
participant's employment or other service with Troy and all subsidiaries is
terminated by reason of death, disability or retirement,
- all outstanding option and stock appreciation rights will
remain exercisable to the extent then exercisable for a period
of one year after such termination, but in no event after
their original expiration date,
- all restricted stock awards then held by the participant that
have not vested will be terminated and forfeited, and
- all performance units and stock bonuses then held by the
participant will vest or continue to vest according to their
original terms.
In the event a participant's employment or other service with us is
terminated for any other reason, other than for cause, all outstanding option
and stock appreciation rights will remain exercisable to the extent then
exercisable for a period of three months after such termination.
In the event a participant's employment or other service with us is
terminated for cause,
- all outstanding option and stock appreciation rights will
immediately terminate without notice,
- all restricted stock awards that have not vested as of such
termination will be terminated and forfeited, and
- all performance units and stock bonuses then held by the
participant will vest and/or continue to vest according to
their original terms.
We may, in our discretion, modify these post-termination provisions,
provided that no option or stock appreciation right may remain exercisable
beyond its expiration date.
AMENDMENT OF PLAN. The Board may suspend or terminate the Plan or any
portion thereof at any time, and may amend the Plan from time to time to conform
the Plan to any change in applicable laws or regulations or in any other respect
the Board may deem to be in the best interests of the Company.
The Board may not, however, make an amendment to the Plan without
stockholder approval if stockholder approval is required under Rule 16(b)(3)
under the Securities Exchange Act of 1934, Section 422 of the Internal Revenue
Code or the rules of the Nasdaq Stock Market. Furthermore, the Board cannot make
any modification to the Plan that would adversely affect outstanding incentive
awards without the consent of the affected participants.
TERMINATION. The Plan will terminate at midnight on April 21, 2008,
unless terminated earlier by the Board. No incentive award may be granted after
such termination. Incentive awards outstanding upon termination of the Plan may
continue to be exercised according to their terms.
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FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based
on current statutes, regulations and interpretations. The description does not
include foreign, state or local income tax consequences. In addition, the
description is not intended to address specific tax consequences applicable to
directors, executive officers or greater than 10% stockholders of Troy or to any
individual participant who receives an incentive award under the Plan.
INCENTIVE STOCK OPTIONS. There will not be any federal income tax
consequences to either the participant or Troy as a result of the grant to an
employee of an incentive stock option under the Plan. The exercise by a
participant of an incentive stock option also will not result in any federal
income tax consequences to Troy or the participant, except that (i) an amount
equal to the excess of the fair market value of the shares acquired upon
exercise of the incentive stock option, determined at the time of exercise, over
the amount paid for the shares by the participant will be includable in the
participant's alternative minimum taxable income for purposes of the alternative
minimum tax, and (ii) the participant may be subject to an additional excise tax
if any amounts are treated as excess parachute payments, as discussed below.
Special rules will apply if previously acquired shares of common stock are
permitted to be tendered in payment of an option exercise price.
When a participant disposes of shares acquired upon exercise of an
incentive stock option, the federal income tax consequences will depend upon how
long the participant held those shares. If the participant does not dispose of
the shares within two years after the incentive stock option was granted, nor
within one year after the participant exercised the incentive stock option, then
the participant will recognize a long-term capital gain or loss. The amount of
the long-term capital gain or loss will be equal to the difference between (i)
the amount the participant realized on disposition of the shares, and (ii) the
option price at which the participant acquired the shares. We are not entitled
to any compensation expense deduction under these circumstances.
If the participant does not satisfy both of the above holding period
requirements, then the participant will be required to report as ordinary
income, in the year the participant disposes of the shares, the amount by which
the lesser of (i) the fair market value of the shares at the time of exercise of
the incentive stock option, or (ii) the amount realized on the disposition of
the shares, exceeds the option price for the shares. We will be entitled to a
compensation expense deduction in an amount equal to the ordinary income
includable in the taxable income of the participant. This compensation income
may be subject to withholding. The remainder of the gain recognized on the
disposition, if any, or any loss recognized on the disposition, will be treated
as long-term or short-term capital gain or loss, depending on the holding
period.
NON-STATUTORY STOCK OPTIONS. Neither the participant nor Troy incurs
any federal income tax consequences as a result of the grant of a non-statutory
stock option. Upon exercise of a non-statutory stock option, a participant will
recognize ordinary income, subject to withholding, on the date of exercise in an
amount equal to the difference between (i) the fair market value of the shares
purchased, determined on the date of exercise, and (ii) the consideration paid
for the shares. The participant may be subject to an additional excise tax if
any amounts are treated as excess parachute payments (see explanation below).
Special rules will apply if previously
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acquired shares of common stock are permitted to be tendered in payment of an
option exercise price.
At the time of a subsequent sale or disposition of any shares of common
stock obtained upon exercise of a non-statutory stock option, any gain or loss
will be treated as long-term or short-term capital gain or loss, depending on
the holding period from the date of exercise.
In general, we will be entitled to a compensation expense deduction in
connection with the exercise of a non-statutory stock option for any amounts
includable in the taxable income of the participant as ordinary income, provided
we comply with any applicable withholding requirements.
STOCK APPRECIATION RIGHTS. A participant who receives a stock
appreciation right will not recognize any taxable income at the time of the
grant. Upon the exercise of a stock appreciation right, the participant will
realize ordinary income in an amount equal to the cash and the fair market value
of any shares of common stock received by the participant. Provided that proper
withholding is made, we will be entitled to a compensation expense deduction for
any amounts includable by the participant as ordinary income.
RESTRICTED STOCK AWARDS. With respect to shares issued pursuant to a
restricted stock award that are not subject to a substantial risk of forfeiture,
a participant will include as ordinary income in the year of receipt an amount
equal to the fair market value of the shares received on the date of receipt. If
the shares are subject to a substantial risk of forfeiture, a participant may
file an election under Section 83(b) of the Internal Revenue Code within 30 days
after the shares are transferred to include as ordinary income in the year of
transfer an amount equal to the fair market value of the shares received on the
date of receipt (determined as if the shares were not subject to any risk of
forfeiture). We will receive a corresponding tax deduction, provided that proper
withholding is made. If a Section 83(b) election is made, the participant will
not recognize any additional income when the restrictions on the shares lapse.
At the time any such shares are sold or disposed of, any gain or loss will be
treated as long-term or short-term capital gain or loss, depending on the
holding period from the date of transfer of the restricted stock award.
A participant who does not make a Section 83(b) election within 30 days
of the transfer of a restricted stock award that is subject to a substantial
risk of forfeiture will recognize ordinary income at the time of the
restrictions lapse equal to the then fair market value of the shares. We will
receive a corresponding tax deduction, provided that proper withholding is made.
At the time of a subsequent sale or disposition of any shares of common stock
issued in connection with a restricted stock award as to which the restrictions
have lapsed, any gain or loss will be treated as long-term or short-term capital
gain or loss, depending on the holding period from the date the restrictions
lapse.
PERFORMANCE UNITS. A participant who receives a performance unit will
not recognize any taxable income at the time of the grant. Upon settlement of
the performance unit, the participant will realize ordinary income in an amount
equal to the cash and the fair market value of any shares of common stock
received by the participant. Provided that proper withholding is
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made, we would be entitled to a compensation expense deduction for any amounts
includable by the participant as ordinary income.
STOCK BONUSES. With respect to shares issued pursuant to a stock bonus,
a participant will include as ordinary income in the year of receipt an amount
equal to the fair market value of the shares received as of the date of receipt.
We will receive a corresponding tax deduction, provided that proper withholding
is made. At the time of a subsequent sale or disposition of any shares of common
stock issued in connection with a stock bonus, any gain or loss will be treated
as long-term or short-term capital gain or loss, depending on the holding period
from the date the shares were received.
EXCISE TAX ON PARACHUTE PAYMENTS. The Internal Revenue Code also
imposes a 20% excise tax on the recipient of "excess parachute payments," as
defined in the Internal Revenue Code and denies tax deductibility to us on
excess parachute payments. Generally, parachute payments are payments in the
nature of compensation to employees of a company who are officers, stockholders
or highly compensated individuals, which payments are contingent upon a change
in ownership or effective control of the company, or in the ownership of a
substantial portion of the assets of the company. For example, acceleration of
the exercisability of options or the vesting of restricted stock awards upon a
change in control of Troy may constitute parachute payments, and in certain
cases, "excess parachute payments."
SECTION 162(m). Under Section 162(m) of the Internal Revenue Code, the
deductibility of certain compensation paid to the chief executive officer and
each of the four other most highly compensated executives of a publicly held
corporation is limited to $1,000,000. Compensation for this purpose generally
includes any items of compensation expense described above in connection with
incentive awards under the Plan. However, certain types of compensation are
excepted from this limit, including compensation that qualifies as
"performance-based compensation." Under Section 162(m), any compensation expense
resulting from the exercise of options under the Plan with exercise prices equal
to (or greater than) the fair market value of the common stock on the date of
grant should qualify as "performance-based compensation" excepted from the limit
of Section 162(m). However, compensation expense in connection with any other
incentive awards under the Plan will be subject to this limit.
OPTION AWARDS UNDER THE PLAN
As of February 18, 2000, we have granted options to purchase shares of
common stock under the Plan as follows: Mr. Messina, 200,000 shares; Mr. Brian
Dirk, 30,000 shares; Mr. Conrad, 35,000 shares; all executive officers of the
Company as a group, 265,000 shares; all non-executive directors of the Company
as a group, 150,000 shares; Messrs. Keider, Zaepfel, O'Reilly, Bier and Clark,
30,000 shares each; and non-executive employees of Troy as a group, 815,000
shares.
No information can be provided with respect to options or awards that
may be granted in the future under the Plan. Such awards are within the
discretion of the Compensation Committee. The Compensation Committee has not
determined future awards or who might receive them.
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BOARD RECOMMENDATION
The Board of Directors recommends a vote FOR approval of the proposal
to increase the number of shares of common stock reserved for issuance under our
1998 Stock Incentive Plan. The affirmative vote of the holders of a majority of
the shares of common stock present and entitled to vote in person or by proxy on
this matter at the Annual Meeting is necessary for approval. Unless a contrary
choice is specified, proxies solicited by the Board will be voted FOR approval
of the amendment to the Plan.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
APPOINTMENT OF AUDITORS
The Board of Directors has appointed McGladrey & Pullen, LLP,
independent certified public accountants, as our auditors for the year ending
November 30, 2000 and wishes to submit the selection of McGladrey & Pullen, LLP
to the stockholders for ratification. If the stockholders ratify the appointment
of McGladrey & Pullen, LLP at the Annual Meeting, another firm of independent
auditors will be considered by the Board.
Representatives of McGladrey & Pullen, LLP will be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
BOARD RECOMMENDATION
The Board recommends a vote FOR ratification of the appointment of
McGladrey & Pullen, LLP as our auditors for the year ending November 30, 2000.
The affirmative vote of the holders of a majority of the shares of common stock
present and entitled to vote in person or by proxy on this matter at the Annual
Meeting is necessary for approval. Unless a contrary choice is specified,
proxies solicited by the Board will be voted FOR the ratification of McGladrey &
Pullen, LLP.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors, executive officers, and stockholders holding more than
10% of our outstanding common stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in beneficial
ownership of our common stock. Executive officers, directors and
greater-than-10% stockholders are required by SEC regulations to furnish us with
copies of all Section 16(a) reports they file. To our knowledge, based solely on
review of the copies of such reports furnished to us for the period ended
November 30, 1999, all Section 16(a) reports required to be filed by our
executive officers, directors and greater-than-10% stockholders were filed on a
timely basis.
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PROPOSALS FOR THE NEXT ANNUAL MEETING
Stockholder proposals intended to be presented in the proxy materials
relating to the next Annual Meeting of Stockholders must be received by us on or
before November 1, 2000 and must satisfy the requirements of the proxy rules
promulgated by the Securities and Exchange Commission.
A stockholder who wishes to make a proposal at the next Annual Meeting
without including the proposal in our Proxy Statement must notify us by January
15, 2001. If a stockholder fails to give notice by this date, then the persons
named as proxies in the proxies solicited by us for the next Annual Meeting will
have discretionary authority to vote on the proposal.
OTHER BUSINESS
We know of no business that will be presented for consideration at the
Annual Meeting other than that described in this Proxy Statement. As to other
business, if any, that may properly come before the Annual Meeting, it is
intended that proxies solicited by the Board will be voted according to the
judgment of the person or persons voting the proxies.
ANNUAL REPORT
UPON WRITTEN REQUEST, WE WILL FURNISH WITHOUT CHARGE A COPY OF OUR
ANNUAL REPORT ON FORM 10-K (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED
NOVEMBER 30, 1999 TO EACH PERSON WHO WAS A STOCKHOLDER OF TROY AS OF FEBRUARY
18, 2000. REQUESTS SHOULD BE SENT TO: TROY GROUP, INC., 2331 SOUTH PULLMAN
STREET, SANTA ANA, CALIFORNIA 92705 ATTN: STOCKHOLDER INFORMATION.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Patrick J. Dirk
Patrick J. Dirk
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
March 8, 2000
Santa Ana, California
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TROY GROUP, INC.
1998 STOCK INCENTIVE PLAN
1. PURPOSE OF PLAN.
The purpose of the Troy Group, Inc. 1998 Stock Incentive Plan (the
"Plan") is to advance the interests of Troy Group, Inc. (the "Company") and its
stockholders by enabling the Company and its Subsidiaries to attract and retain
persons of ability to perform services for the Company and its Subsidiaries by
providing an incentive to such individuals through equity participation in the
Company and by rewarding such individuals who contribute to the achievement by
the Company of its economic objectives.
2. DEFINITIONS.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "BROKER EXERCISE NOTICE" means a written notice pursuant to which
a Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.
2.3 "CHANGE IN CONTROL" means an event described in Section 9.1 of
the Plan.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMITTEE" means the group of individuals administering
the Plan, as provided in Section 3 of the Plan.
2.6 "COMMON STOCK" means the common stock of the Company, $.01 par
value, or the number and kind of shares of stock or other securities into which
such common stock may be changed in accordance with Section 4.3 of the Plan.
2.7 "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent and total disability of the Participant within the meaning of Section
22(e)(3) of the Code.
2.8 "ELIGIBLE RECIPIENTS" means all employees of the Company or any
Subsidiary and any non-employee directors, consultants and independent
contractors of the Company or any Subsidiary.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
2.10 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote) (a) the mean between
the reported high and low sale prices of the Common Stock if the Common Stock is
listed, admitted to unlisted trading privileges or reported on any foreign or
national securities exchange or on the Nasdaq National Market or an equivalent
foreign market on which sale prices are reported; (b) if the Common Stock is not
so listed, admitted to unlisted trading privileges or
<PAGE>
reported, the closing bid price as reported by the Nasdaq SmallCap Market, OTC
Bulletin Board or the National Quotation Bureau, Inc. or other comparable
service; or (c) if the Common Stock is not so listed or reported, such price as
the Committee determines in good faith in the exercise of its reasonable
discretion.
2.11 "INCENTIVE AWARD" means an Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit or Stock Bonus granted to an Eligible
Recipient pursuant to the Plan.
2.12 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.13 "NON-STATUTORY STOCK OPTION" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that
does not qualify as an Incentive Stock Option.
2.14 "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.15 "PARTICIPANT" means an Eligible Recipient who receives one or more
Options under the Plan.
2.16 "PERFORMANCE UNIT" means a right granted to an Eligible Recipient
pursuant to Section 9 of the Plan to receive a payment from the Company, in the
form of stock, cash or a combination of both, upon the achievement of
established employment, service, performance or other goals.
2.17 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant or, with respect to any Option, that are to be
issued upon the exercise of such Option.
2.18 "RESTRICTED STOCK AWARD" means an award of Common Stock granted to
an Eligible Recipient pursuant to Section 8 of the Plan that is subject to the
restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 8.
2.19 "RETIREMENT" means termination of employment or service pursuant
to and in accordance with the regular (or, if approved by the Board for purposes
of the Plan, early) retirement/pension plan or practice of the Company or
Subsidiary then covering the Participant, provided that if the Participant is
not covered by any such plan or practice, the Participant will be deemed to be
covered by the Company's plan or practice for purposes of this determination.
2.20 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.21 "STOCK APPRECIATION RIGHT" means a right granted to an Eligible
Recipient pursuant to Section 7 of the Plan to receive a payment from the
Company, in the form of stock, cash or a combination of both, equal to the
difference between the Fair Market Value of one or more shares of Common Stock
and the exercise price of such shares under the terms of such Stock Appreciation
Right.
2.22 "STOCK BONUS" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 10 of the Plan.
2.23 "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
2.24 "TAX DATE" means the date any withholding tax obligation arises
under the Code or other applicable tax statute for a Participant with respect to
an Incentive Award.
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3. PLAN ADMINISTRATION.
3.1 THE COMMITTEE. The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the Board
who are "non-employee directors" within the meaning of Rule 16b-3 under the
Exchange Act and, if the Board so determines in its sole discretion, who are
"outside directors" within the meaning of Section 162(m) of the Code. Such a
committee, if established, will act by majority approval of the members (but may
also take action with the written consent of all of the members of such
committee), and a majority of the members of such a committee will constitute a
quorum. As used in the Plan, "Committee" will refer to the Board or to such a
committee, if established. To the extent consistent with corporate law, the
Committee may delegate to any officers of the Company the duties, power and
authority of the Committee under the Plan pursuant to such conditions or
limitations as the Committee may establish; provided, however, that only the
Committee may exercise such duties, power and authority with respect to Eligible
Recipients who are subject to Section 16 of the Exchange Act. The Committee may
exercise its duties, power and authority under the Plan in its sole and absolute
discretion without the consent of any Participant or other party, unless the
Plan specifically provides otherwise. Each determination, interpretation or
other action made or taken by the Committee pursuant to the provisions of the
Plan will be final, conclusive and binding for all purposes and on all persons,
including, without limitation, the Company, the stockholders of the Company, the
participants and their respective successors-in-interest. No member of the
Committee will be liable for any action or determination made in good faith with
respect to the Plan or any Incentive Award granted under the Plan.
3.2 AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the
Plan, the Committee will have the authority to determine all provisions
of Incentive Awards as the Committee may deem necessary or desirable
and as consistent with the terms of the Plan, including, without
limitation, the following: (i) the Eligible Recipients to be selected
as Participants; (ii) the nature and extent of the Incentive Awards to
be made to each Participant (including the number of shares of Common
Stock to be subject to each Incentive Award, the exercise price and the
manner in which Incentive Awards will become exercisable) and the form
of written agreement, if any, evidencing such Incentive Award; (iii)
the time or times when Incentive Awards will be granted; (iv) the
duration of each Incentive Award; and (v) the restrictions and other
conditions to which the Incentive Awards may be subject. In addition,
the Committee will have the authority under the Plan in its sole
discretion to pay the economic value of any Incentive Award in the form
of cash, Common Stock or any combination of both.
(b) The Committee will have the authority under the Plan to
amend or modify the terms of any outstanding Incentive Award in any
manner, including, without limitation, the authority to modify the
number of shares or other terms and conditions of an Incentive Award,
extend the term of an Incentive Award, accelerate the exercisability or
otherwise terminate any restrictions relating to an Incentive Award,
accept the surrender of any outstanding Incentive Award or, to the
extent not previously exercised or vested, authorize the grant of new
Incentive Awards in substitution for surrendered Incentive Awards;
provided, however that the amended or modified terms are permitted by
the Plan as then in effect and that any Participant adversely affected
by such amended or modified terms has consented to such amendment or
modification. No amendment or modification to an Incentive Award,
however, whether pursuant to this Section 3.2 or any other provisions
of the Plan, will be deemed to be a re-grant of such Incentive Award
for purposes of this Plan.
(c) In the event of (i) any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock
dividend, stock split, combination of shares, rights offering,
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extraordinary dividend or divestiture (including a spin-off) or any
other change in corporate structure or shares, (ii) any purchase,
acquisition, sale or disposition of a significant amount of assets or a
significant business, (iii) any change in accounting principles or
practices, or (iv) any other similar change, in each case with respect
to the Company or any other entity whose performance is relevant to the
grant or vesting of an Incentive Award, the Committee (or, if the
Company is not the surviving corporation in any such transaction, the
board of directors of the surviving corporation) may, without the
consent of any affected Participant, amend or modify the conditions to
the exercisability of any outstanding Incentive Award that is based in
whole or in part on the financial performance of the Company (or any
Subsidiary or division thereof) or such other entity so as equitably to
reflect such event, with the desired result that the criteria for
evaluating such financial performance of the Company or such other
entity will be substantially the same (in the sole discretion of the
Committee or the board of directors of the surviving corporation)
following such event as prior to such event; provided, however, that
the amended or modified terms are permitted by the Plan as then in
effect.
4. SHARES AVAILABLE FOR ISSUANCE.
4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares of Common
Stock that will be available for issuance under the Plan will be 2,700,000
shares of Common Stock, plus any shares of Common Stock which, as of the date
the Plan is approved by the stockholders of the Company, are reserved for
issuance under the Company's 1996 Stock Option Plan and which are not thereafter
issued or which have been issued but are subsequently forfeited and which would
otherwise have been available for further issuance under such plan. Shares
available for issuance may either be authorized but unissued shares or shares
held by the Company in its treasury. Notwithstanding any other provisions of the
Plan to the contrary, no Participant in the Plan may be granted any Options or
Stock Appreciation Rights, or any other Incentive Awards with a value based
solely on an increase in the value of the Common Stock after the date of grant,
relating to more than 200,000 shares of Common Stock in the aggregate in any
fiscal year of the Company (subject to adjustment as provided in Section 4.3 of
the Plan); provided, however, that a Participant who is first appointed or
elected as an officer, hired as an employee or retained as a consultant by the
Company or who receives a promotion that results in an increase in
responsibilities or duties may be granted, during the fiscal year of such
appointment, election, hiring, retention or promotion, Options, Stock
Appreciation Rights or such other Incentive Awards relating to up to 300,000
shares of Common Stock (subject to adjustment as provided in Section 4.3 of the
Plan).
4.2 ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards will
be applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common Stock that are
subject to an Incentive Award that lapses, expires, is forfeited or for any
reason is terminated unexercised and any shares of Common Stock that are subject
to an Incentive Award that is settled or paid in cash or any form other than
shares of Common Stock will automatically again become available for issuance
under the Plan. Any shares of Common Stock that constitute the forfeited portion
of a Restricted Stock Award, however, will not become available for further
issuance under the Plan.
4.3 ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities or other property (including cash) available for issuance or payment
under the Plan and, in order to prevent dilution or enlargement of the rights of
Participants (a) the number and kind of securities or other
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property (including cash) subject to outstanding Incentive Awards, and (b) where
applicable, the exercise price of outstanding Incentive Awards.
5. PARTICIPATION.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Incentive Awards as may be determined by the Committee in its sole discretion.
Incentive Awards will be deemed to be granted as of the date specified in the
grant resolution of the Committee, which date will be the date of any related
agreement with the Participant.
6. OPTIONS.
6.1 GRANT. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option.
To the extent that any Incentive Stock Option granted under the Plan ceases for
any reason to qualify as an "incentive stock option" for purposes of Section 422
of the Code, such Incentive Stock Option will continue to be outstanding for
purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock
Option.
6.2 EXERCISE PRICE. The per share price to be paid by a Participant
upon exercise of an Option will be determined by the Committee in its discretion
at the time of the Option grant; provided, however, that (a) such price will not
be less than 100% of the Fair Market Value of one share of Common Stock on the
date of grant with respect to an Incentive Stock Option (110% of the Fair Market
Value if, at the time the Incentive Stock Option is granted, the Participant
owns, directly or indirectly, more than 10% of the total combined voting power
of all classes of stock of the Company or any parent or subsidiary corporation
of the Company), and (b) such price will not be less than 85% of the Fair Market
Value of one share of Common Stock on the date of grant with respect to a
Non-Statutory Stock Option.
6.3 EXERCISABILITY AND DURATION. An Option will become exercisable at
such times and in such installments as may be determined by the Committee in its
sole discretion at the time of grant; provided, however, that no Option may be
exercisable prior to three months from its date of grant (other than in
connection with a Participant's death or Disability) and no Incentive Stock
Option may be exercisable after 10 years from its date of grant (five years from
its date of grant if, at the time the Incentive Stock Option is granted, the
Participant owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company).
6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares
to be purchased upon exercise of an Option must be paid entirely in cash
(including check, bank draft or money order); provided, however, that the
Committee, in its sole discretion and upon terms and conditions established by
the Committee, may allow such payments to be made, in whole or in part, by
tender of a Broker Exercise Notice, Previously Acquired Shares, a promissory
note (on terms acceptable to the Committee in its sole discretion) or by a
combination of such methods.
6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in the
Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company (Attention: Chief Financial Officer) at its principal
executive office in Santa
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Ana, California and by paying in full the total exercise price for the shares of
Common Stock to be purchased in accordance with Section 6.4 of the Plan.
6.6 AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS.
To the extent that the aggregate Fair Market Value (determined as of the date an
Incentive Stock Option is granted) of the shares of Common Stock with respect to
which incentive stock options (within the meaning of Section 422 of the Code)
are exercisable for the first time by a Participant during any calendar year
(under the Plan and any other incentive stock option plans of the Company or any
subsidiary or parent corporation of the Company (within the meaning of the
Code)) exceeds $100,000 (or such other amount as may be prescribed by the Code
from time to time), such excess Options will be treated as Non-Statutory Stock
Options. The determination will be made by taking incentive stock options into
account in the order in which they were granted. If such excess only applies to
a portion of an Incentive Stock Option, the Committee, in its discretion, will
designate which shares will be treated as shares to be acquired upon exercise of
an Incentive Stock Option.
7. STOCK APPRECIATION RIGHTS
7.1 GRANT. An Eligible Recipient may be granted one or more Stock
Appreciation Rights under the Plan, and such Stock Appreciation Rights will be
subject to such terms and conditions, consistent with the other provisions of
the Plan, as may be determined by the Committee in its sole discretion.
7.2 EXERCISE PRICE. The exercise price of a Stock Appreciation Right
will be determined by the Committee, in its discretion, at the date of grant but
may not be less than 100% of the Fair Market Value of one share of Common Stock
on the date of grant.
7.3 EXERCISABILITY AND DURATION. A Stock Appreciation Right will become
exercisable at such time and in such installments as may be determined by the
Committee in its sole discretion at the time of grant; provided, however, that
no Stock Appreciation Right may be exercisable prior to three months from its
date of grant (other than in connection with a Participant's death or
disability) or after 10 years from its date of grant. A Stock Appreciation Right
will be exercised by giving notice in the same manner as for Options, as set
forth in Section 6.5 of the Plan.
8. RESTRICTED STOCK AWARDS.
8.1 GRANT. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be subject to
such terms and conditions, consistent with the other provisions of the Plan, as
may be determined by the Committee in its sole discretion. The Committee may
impose such restrictions or conditions, not inconsistent with the provisions of
the Plan, to the vesting of such Restricted Stock Awards as it deems
appropriate, including, without limitation, that the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a certain period
or that the Participant or the Company (or any Subsidiary or division thereof)
satisfy certain performance goals or criteria.
8.2 RIGHTS AS A STOCKHOLDER; TRANSFERABILITY. Except as provided in
Sections 8.1, 8.3 and 14.3 of the Plan, a Participant will have all voting,
dividend, liquidation and other rights with respect to shares of Common Stock
issued to the Participant as a Restricted Stock Award under this Section 8 upon
the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Common Stock.
8.3 DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant of
the Restricted Stock Award), any dividends or distributions (including regular
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quarterly cash dividends) paid with respect to shares of Common Stock subject to
the unvested portion of a Restricted Stock Award will be subject to the same
restrictions as the shares to which such dividends or distributions relate. In
the event the Committee determines not to pay such dividends or distributions
currently, the Committee will determine in its sole discretion whether any
interest will be paid on such dividends or distributions. In addition, the
Committee in its sole discretion may require such dividends and distributions to
be reinvested (and in such case the Participants consent to such reinvestment)
in shares of Common Stock that will be subject to the same restrictions as the
shares to which such dividends or distributions relate.
8.4 ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred
to in this Section 8, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the
restrictions have lapsed, to keep the stock certificates, together with duly
endorsed stock powers, in the custody of the Company or its transfer agent or to
maintain evidence of stock ownership, together with duly endorsed stock powers,
in a certificateless book-entry stock account with the Company's transfer agent.
9. PERFORMANCE UNITS.
An Eligible Recipient may be granted one or more Performance Units
under the Plan, and such Performance Units will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may impose
such restrictions or conditions not inconsistent with the provisions of the
Plan, to the vesting of such Performance Units as it deems appropriate,
including, without limitation, that the Participant remain in the continuous
employ or service of the Company or any Subsidiary for a certain period or that
the Participant or the Company (or any Subsidiary or division thereof) satisfy
certain performance goals or criteria. The Committee will have the sole
discretion to determine the form in which payment of the economic value of
vested Performance Units will be made to the Participant (i.e., cash, Common
Stock or any combination thereof) or to consent to or disapprove the election by
the Participant of the form of such payment.
10. STOCK BONUSES.
An Eligible Recipient may be granted one or more Stock Bonuses under
the Plan, and such Stock Bonuses will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee. The Participant will have all voting, dividend, liquidation and other
rights with respect to the shares of Common Stock issued to a Participant as a
Stock Bonus under this Section 10 upon the Participant becoming the holder of
record of such shares; provided, however, that the Committee may impose such
restrictions on the assignment or transfer of a Stock Bonus as it deems
appropriate.
11. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
11.1 TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event a
Participant's employment or other service with the Company and all Subsidiaries
is terminated by reason of death, Disability or Retirement:
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(a) All outstanding Options and Stock Appreciation Rights then
held by the Participant will remain exercisable, to the extent
exercisable as of the date of such termination, for a period of one
year after such termination (but in no event after the expiration date
of any such Option or Stock Appreciation Right);
(b) All Restricted Stock Awards then held by the Participant
that have not vested will be terminated and forfeited; and
(c) All Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined
by the Committee and set forth in the agreement evidencing such
Performance Units or Stock Bonuses.
11.2 Termination for Reasons Other than Death, Disability or
Retirement.
(a) Unless otherwise provided by the Committee in its sole
discretion in the agreement evidencing an Incentive Award, in the event
a Participant's employment or other service is terminated with the
Company and all Subsidiaries for any reason other than death,
Disability or Retirement, or a Participant is in the employ or service
of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the
Company (unless the Participant continues in the employ or service of
the Company or another Subsidiary), all rights of the Participant under
the Plan and any agreements evidencing an Incentive Award will
immediately terminate without notice of any kind, and no Options or
Stock Appreciation Rights then held by the Participant will thereafter
be exercisable, all Restricted Stock Awards then held by the
Participant that have not vested will be terminated and forfeited and
all Performance Units and Stock Bonuses then held by the Participant
will vest and/or continue to vest in the manner determined by the
Committee set forth in the agreement evidencing the Performance Units
or Stock Bonuses; provided, however, that if such termination is due to
any reason other than termination by the Company or any Subsidiary for
"cause," all outstanding Options or Stock Appreciation Rights then held
by such Participant will remain exercisable, to the extent exercisable
as of such termination, for a period of three months after such
termination (but in no event after the expiration date of any such
Option or Stock Appreciation Rights).
(b) For purposes of this Section 11.2, "cause" (as determined
by the Committee) will be as defined in any employment or other
agreement or policy applicable to the Participant or, if no such
agreement or policy exists, will mean (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted
injury, in each case related to the Company or any Subsidiary, (ii) any
unlawful or criminal activity of a serious nature, (iii) any
intentional and deliberate breach of a duty or duties that,
individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or non-compete agreement entered
into with the Company or any Subsidiary.
11.3 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other
provisions of this Section 11, upon a Participant's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in its
sole discretion (which may be exercised at any time on or after the date of
grant, including following such termination), cause Options and Stock
Appreciation Rights (or any part thereof) then held by such Participant to
become or continue to become exercisable and/or remain exercisable following
such termination of employment or service and Restricted Stock Awards,
Performance Units and Stock Bonuses then held by such Participant to vest and/or
continue to vest or become free of transfer restrictions, as the case may be,
following such termination of employment or service in each case in the manner
determined by the Committee; provided, however, that no Option may become
exercisable prior to three months from its date of grant (other than in
connection with a Participant's death or Disability) or remain exercisable
beyond its expiration date.
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11.4 EXERCISE OF INCENTIVE STOCK OPTIONS FOLLOWING TERMINATION. Any
Incentive Stock Option that remains unexercised more than one year following
termination of employment by reason of Disability or more than three months
following termination for any reason other than death or Disability will
thereafter be deemed to be a Non-Statutory Stock Option.
11.5 DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the Company
or the Subsidiary for which the Participant provides employment or other
service, as determined by the Committee in its sole discretion based upon such
records.
12. PAYMENT OF WITHHOLDING TAXES.
12.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may be due and
owing to the Participant from the Company or a Subsidiary), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all foreign, federal, state and local withholding and
employment-related tax requirements attributable to an Incentive Award,
including, without limitation, the grant or exercise of an Incentive Award or a
disqualifying disposition of stock received upon exercise of an Incentive Stock
Option, or (b) require the Participant promptly to remit the amount of such
withholding to the Company before taking any action, including issuing any
shares of Common Stock, with respect to an Incentive Award.
12.2 SPECIAL RULES. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 12.1 of the Plan by
electing to tender Previously Acquired Shares, a Broker Exercise Notice or a
promissory note (on terms acceptable to the Committee in its sole discretion),
or by a combination of such methods.
13. CHANGE IN CONTROL.
13.1 CHANGE IN CONTROL. For purposes of this Section 13, a "Change in
Control" of the Company will mean any of the following:
(a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a person or
entity that is not controlled by the Company;
(b) the approval by the stockholders of the Company of
any plan or proposal for the liquidation or dissolution of the
Company;
(c) any person becomes after the effective date of the Plan
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of (i) 20% or more, but less than 50%, of
the combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors, unless
the transaction resulting in such ownership has been approved in
advance by the Continuity Directors (as defined in Section 13.2 below),
or (ii) 50% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections
of directors (regardless of any approval by the Continuity Directors);
(d) a merger or consolidation to which the Company is a party
if the stockholders of the Company immediately prior to effective date
of such merger or consolidation have "beneficial ownership" (as defined
in Rule 13d-3 under the Exchange Act), immediately following the
effective date of such merger or consolidation, of securities of the
surviving corporation
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representing (i) less than 80%, but more than 50%, of the combined
voting power of the surviving corporation's then outstanding securities
ordinarily having the right to vote at elections of directors, unless
such merger or consolidation has been approved in advance by the
Continuity Directors, or (ii) 50% or less of the combined voting power
of the surviving corporation's then outstanding securities ordinarily
having the right to vote at elections of directors (regardless of any
approval by the Continuity Directors); or
(e) the Continuity Directors cease for any reason to
constitute at least a majority of the Board.
Notwithstanding anything in this Section 13.1 to the contrary, the
transfer by a Dirk Stockholder (as defined below) of shares of Common Stock or
rights to acquire shares of Common Stock to the following persons or entities,
without consideration in money or money's worth (such as by gift, bequest or
devise), and the exercise or conversion of any such transferred rights to
acquire shares, will not, in and of itself, be deemed to constitute a Change in
Control for purposes of this Section 13: (i) transfers to any spouse, child,
heir, legate or successor of such Dirk Stockholder; (ii) transfers to any trust
created for the benefit of such Dirk Stockholder or any such spouse, child,
heir, legate or successor, and amendments of or distributions from any such
trust; or (iii) transfers to any other Dirk Stockholder. A "Dirk Stockholder"
will mean Patrick J. Dirk, Mary J. Dirk, Brian P. Dirk, Suzanne M. Anderson,
Kristine L. Gigerich, Lorrie A. Brown, The Dirk 1997 Education Trust, The Dirk
Family Trust UTD March 6, 1990 or The Dirk 1998 Alaska Trust.
13.2 CONTINUITY DIRECTORS. For purposes of this Section 13, "Continuity
Directors" of the Company will mean any individuals who are members of the Board
on the effective date of the Plan and any individual who subsequently becomes a
member of the Board whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the Continuity
Directors (either by specific vote or by approval of the Company's proxy
statement in which such individual is named as a nominee for director without
objection to such nomination).
13.3 ACCELERATION OF EXERCISABILITY. Without limiting the authority of
the Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of
the Company occurs, then, unless otherwise provided by the Committee in its sole
discretion either in the agreement evidencing an Incentive Award at the time of
grant or at any time after the grant of an Incentive Award, (a) all Options and
Stock Appreciation Rights that have been outstanding for at least three months
will become immediately exercisable in full and will remain exercisable for the
remainder of their terms, regardless of whether the Participant to whom such
Options or Stock Appreciation Rights have been granted remains in the employ or
service of the Company or any Subsidiary; (b) all outstanding Restricted Stock
Awards will become immediately fully vested and non-forfeitable; and (c) all
outstanding Performance Units and Stock Bonuses then held by the Participant
will vest and/or continue to vest in the manner determined by the Committee and
set forth in the agreement evidencing such Performance Units or Stock Bonuses.
13.4 CASH PAYMENT. If a Change in Control of the Company occurs, then
the Committee, if approved by the Committee in its sole discretion either in an
agreement evidencing an Incentive Award at the time of grant or at any time
after the grant of an Incentive Award, and without the consent of any
Participant effected thereby, may determine that some or all Participants
holding outstanding Options will receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the effective date of
such Change in Control of the Company over the exercise price per share of such
Options.
13.5 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything
in Section 13.3 or 13.4 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the exercisability of an Incentive Award as
provided in Section 13.3 or the payment of cash in exchange for all or part of
an
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Incentive Award as provided in Section 13.4 (which acceleration or payment
could be deemed a "payment" within the meaning of Section 280G(b)(2) of the
Code), together with any other "payments" that such Participant has the right to
receive from the Company or any corporation that is a member of an "affiliated
group" (as defined in Section 1504(a) of the Code without regard to Section
1504(b) of the Code) of which the Company is a member, would constitute a
"parachute payment" (as defined in Section 280G(b)(2) of the Code), then the
"payments" to such Participant pursuant to Section 13.3 or 13.4 of the Plan will
be reduced to the largest amount as will result in no portion of such "payments"
being subject to the excise tax imposed by Section 4999 of the Code; provided,
however, that if a Participant is subject to a separate agreement with the
Company or a Subsidiary that expressly addresses the potential application of
Sections 280G or 4999 of the Code (including, without limitation, that
"payments" under such agreement or otherwise will be reduced, that the
Participant will have the discretion to determine which "payments" will be
reduced, that such "payments" will not be reduced or that such "payments" will
be "grossed up" for tax purposes), then this Section 13.5 will not apply, and
any "payments" to a Participant pursuant to Section 13.3 or 13.4 of the Plan
will be treated as "payments" arising under such separate agreement.
14. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
14.1 EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.
14.2 RIGHTS AS A STOCKHOLDER. As a holder of Incentive Awards (other
than Restricted Stock Awards and Stock Bonuses), a Participant will have no
rights as a stockholder unless and until such Incentive Awards are exercised
for, or paid in the form of, shares of Common Stock and the Participant becomes
the holder of record of such shares. Except as otherwise provided in the Plan,
no adjustment will be made for dividends or distributions with respect to such
Incentive Awards as to which there is a record date preceding the date the
Participant becomes the holder of record of such shares, except as the Committee
may determine in its discretion.
14.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or
the laws of descent and distribution or as otherwise expressly permitted by the
Plan, unless approved by the Committee in its sole discretion, no right or
interest of any Participant in an Incentive Award prior to the exercise of such
Incentive Award will be assignable or transferable, or subjected to any lien,
during the lifetime of the Participant, either voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise. A Participant will,
however, be entitled to designate a beneficiary to receive an Incentive Award
upon such Participant's death, and in the event of a Participant's death,
payment of any amounts due under the Plan will be made to, and exercise of
Options (to the extent permitted pursuant to Section 11 of the Plan) may be made
by, the Participant's legal representatives, heirs and legatees.
14.4 BREACH OF CONFIDENTIALITY OR NON-COMPETE AGREEMENTS.
Notwithstanding anything in the Plan to the contrary, in the event that a
Participant materially breaches the terms of any confidentiality or non-compete
agreement entered into with the Company or any Subsidiary, whether such breach
occurs before or after termination of such Participant's employment or other
service with the Company or any Subsidiary, the Committee in its sole discretion
may immediately terminate all rights of the Participant under the Plan and any
agreements evidencing an Incentive Award then held by the Participant without
notice of any kind. In such event, the Committee will also have the authority in
its sole discretion to rescind the exercise or vesting of any Incentive Awards
of the Participant that has occurred since a date commencing six months prior to
the date of such employment or service termination and require the Participant
to disgorge any profits (however defined by the Committee) made by the
Participant relating to such Incentive Awards or any shares issuable upon the
exercise or vesting of such Incentive Awards.
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14.5 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority of
the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
15. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue any
shares of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Incentive Awards granted under the Plan, unless (a) there is in effect with
respect to such shares a registration statement under the Securities Act and any
applicable state or foreign securities laws or an exemption from such
registration under the Securities Act and applicable state or foreign securities
laws, and (b) there has been obtained any other consent, approval or permit from
any other regulatory body which the Committee, in its sole discretion, deems
necessary or advisable. The Company may condition such issuance, sale or
transfer upon the receipt of any representations or agreements from the parties
involved, and the placement of any legends on certificates representing shares
of Common Stock, as may be deemed necessary or advisable by the Company in order
to comply with such securities law or other restrictions.
16. PLAN AMENDMENT, MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Incentive Awards under the Plan will conform to
any change in applicable laws or regulations or in any other respect the Board
may deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without approval of the stockholders of
the Company if stockholder approval of the amendment is then required pursuant
to Section 422 of the Code or the rules of any stock exchange or Nasdaq or
similar regulatory body. No termination, suspension or amendment of the Plan may
adversely affect any outstanding Incentive Award without the consent of the
affected Participant; provided, however, that this sentence will not impair the
right of the Committee to take whatever action it deems appropriate under
Sections 3.2, 4.3 and 13 of the Plan.
17. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan is effective as of April 21, 1998, the date it was adopted by
the Board. The Plan will terminate at midnight on April 21, 2008, and may be
terminated prior to such time to by Board action, and no Incentive Award will be
granted after such termination. Incentive Awards outstanding upon termination of
the Plan may continue to be exercised in accordance with their terms.
18. MISCELLANEOUS.
18.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Delaware, notwithstanding the conflicts of laws
principles of any jurisdictions.
18.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.
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[LOGO]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Patrick J. Dirk and Del L. Conrad, and each
of them, as Proxies, each with full power of substitution, and hereby authorizes
each of them to represent and to vote, as designated below, all the shares of
common stock of Troy Group, Inc. held of record by the undersigned on
February 18, 2000, at the Annual Meeting of Stockholders to be held on April 6,
2000, or any adjournment thereof.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS
To elect eight directors to serve until the next annual meeting.
Nominees:
</TABLE>
<TABLE>
<S> <C> <C>
Patrick J. Dirk Gene A. Bier William P. O'Reilly
Brian P. Dirk Robert S. Messina Dr. Harold L. Clark
John B. Zaepfel Norman B. Keider
</TABLE>
<TABLE>
<S> <C> <C>
/ / FOR / / WITHHELD
For, except vote withheld from the following nominee(s)
</TABLE>
2. AMENDMENT OF 1998 STOCK INCENTIVE PLAN
Proposal to amend the 1998 Stock Incentive Plan to increase the number of
shares of common stock specifically reserved for issuance under the plan by
1,500,000 shares, from 1,200,000 shares to 2,700,000 shares.
<TABLE>
<S> <C> <C>
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
(CONTINUED ON OTHER SIDE)
<PAGE>
3. RATIFICATION OF AUDITORS
Proposal to ratify the appointment of McGladrey & Pullen, LLP as auditors
for the fiscal year ending November 30, 2000.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business, as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 2 AND 3 AND FOR ALL NOMINEES NAMED IN PROPOSAL 1.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated: ________________________, 2000
Signature
-------------------------------------
Signature if held jointly
-------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
DO NOT FOLD, STAPLE OR MUTILATE
