KINNARD INVESTMENTS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 20, 1997
TO THE SHAREHOLDERS OF KINNARD INVESTMENTS, INC.
The 1997 Annual Meeting of Shareholders of Kinnard Investments, Inc.
will be held at the Minneapolis Convention Center, Room 208 CD, 1301 Second
Avenue South, Minneapolis, Minnesota, at 3:30 p.m. (Minneapolis time) on
Tuesday, May 20, 1997, for the following purposes:
1. To set the number of members of the Board of Directors at five
(5).
2. To elect members of the Board of Directors.
3. To approve the Kinnard Investments, Inc. 1997 Stock Option
Plan.
4. To take action on any other business that may properly come
before the meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form
of Proxy and the Company's Annual Report to Shareholders for the year ended
December 31, 1996.
Only Shareholders of record as shown on the books of the Company at the
close of business on April 1, 1997, will be entitled to vote at the Meeting or
any adjournment thereof. Each Shareholder is entitled to one vote per share on
all matters to be voted on at the Annual Meeting.
Please note that whether you own one or many shares, it is important
that your shares of Common Stock be represented at the Annual Meeting.
Therefore, please complete, date and sign the enclosed form of Proxy and mail it
promptly in the enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
Gerald M. Gifford
Secretary
Dated: April 18, 1997
Minneapolis, MN
<PAGE>
KINNARD INVESTMENTS, INC.
Annual Meeting of Shareholders
May 20, 1997
PROXY STATEMENT
The accompanying Proxy is solicited by the Board of Directors of
Kinnard Investments, Inc. (the "Company") for use at the Annual Meeting of
Shareholders of the Company to be held Tuesday, May 20, 1997, at the location
and for the purposes set forth in the Notice of Annual Meeting, and at any
adjournment thereof.
The cost of soliciting Proxies, including the preparation, assembly and
mailing of the Proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular remuneration, solicit Proxies personally
or by telephone.
Any shareholder giving a Proxy may revoke it at any time prior to its
use at the Annual Meeting by giving written notice of such revocation to the
Secretary or other officer of the Company or by filing a new written Proxy with
an officer of the Company. Personal attendance at the meeting is not, by itself,
sufficient to revoke a Proxy unless written notice of the revocation or a
subsequent Proxy is delivered to an officer before the revoked or superseded
Proxy is used at the meeting.
Proxies not revoked will be voted in accordance with the choice
specified by shareholders by means of the ballot provided on the Proxy for that
purpose. Proxies which are signed but which lack any such specification will,
subject to the following, be voted in favor of the proposals set forth in the
Notice of Meeting and in favor of the number and slate of directors proposed by
the Board of Directors and listed herein. If a shareholder abstains from voting
as to any matter, then the shares held by such shareholder shall be deemed
present at the Meeting for purposes of determining a quorum and for purposes of
calculating the vote with respect to such matter, but shall not be deemed to
have been voted in favor of such matter. Abstentions, therefore, as to any
proposal will have the same effect as votes against such proposal. If a broker
returns a "non-vote" proxy, indicating a lack of voting instruction by the
beneficial holder of the shares and a lack of discretionary authority on the
part of the broker to vote on a particular matter, then the shares covered by
such non-vote shall be deemed present at the Meeting for purposes of determining
a quorum but shall not be deemed to be represented at the Meeting for purposes
of calculating the vote required for approval of such matter.
The mailing address of the principal executive office of the Company is
Kinnard Financial Center, 920 Second Avenue South, Minneapolis, Minnesota 55402.
The Company expects that this Proxy Statement, the related Proxy and Notice of
Meeting will first be mailed to Shareholders on April 18, 1997.
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OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed April 1, 1997, as the
record date for determining shareholders entitled to vote at the Annual Meeting.
Persons who were not shareholders on such date will not be allowed to vote at
the Annual Meeting. At the close of business on April 1, 1997, 6,029,563 shares
of the Company's Common Stock, par value $.02, were issued and outstanding. The
Common Stock is the only outstanding class of capital stock of the Company
entitled to vote at the Annual Meeting. Each share of Common Stock is entitled
to one vote on each matter to be voted upon at the meeting. Holders of Common
Stock are not entitled to cumulative voting rights.
PRINCIPAL SHAREHOLDERS
The following table provides information concerning persons known to
the Company to be the beneficial owners of more than 5% of the Company's
outstanding Common Stock as of April 7, 1997:
Shares Percent
Name and Address Beneficially of
of Beneficial Owner Owned (1) Class (2)
- ------------------- ------------ ---------
John G. Kinnard and 892,034 (3) 14.0%
Company, Incorporated
Employee Stock Owner-
ship Plan and Trust
920 Second Ave. S.
Minneapolis, MN 55402
William F. Farley 327,500 5.2%
920 Second Avenue S.
Minneapolis, MN 55402
(1) Unless otherwise indicated, each person named or included in the group
has sole power to vote and sole power to direct the disposition of all
shares listed as beneficially owned by him.
(2) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of April 7, 1997, or within 60
days of such date are treated as outstanding only when determining the
percent of the class owned by such individual and when determining the
percent owned by the group.
(3) Such shares are held in trust for the benefit of participants in the
John G. Kinnard and Company, Incorporated Employee Stock Ownership Plan
and Trust (the "ESOP"). The participants have voting power over shares
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held by the ESOP which have been allocated to their accounts, and the
Trustees vote shares, if any, which have not been allocated to
participants' accounts.
MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of Common Stock
beneficially owned as of April 7, 1997, by each director and nominee for
director of the Company, by each executive officer of the Company named in the
Summary Compensation table, and by all directors and executive officers
(including the named individuals) as a group:
Shares Percent
Name of Beneficially of
Beneficial Owner Owned (1) Class (2)
- ------------------ ------------ ---------
William F. Farley 327,500 5.2%
Robert S. Spong 309,747 (3)(12) 4.8%
Thomas E. Moore 231,723 (4) 3.6%
Gerald M. Gifford 145,966 (5)(12) 2.3%
Andrew J. O'Connell 132,886 (6)(12) 2.1%
Stephen H. Fischer 105,642 (7)(8) 1.7%
Hilding C. Nelson 78,515 (8)(9) 1.2%
James W. Hansen 40,500 (10) *
Daniel R. Sass 15,408 (11) *
All Directors and Executive
Officers as a Group
(9 persons) 1,387,887 (12) 21.4%
*Less than one per cent
(1) See footnote (1) to preceding table.
(2) See footnote (2) to preceding table.
(3) Includes 117,297 shares held by Mr. Spong's wife and 12,108 shares
allocated to his account under the ESOP.
(4) Includes 25,000 shares which may be purchased pursuant to options which
were exercisable as of April 1, 1997, or will become exercisable within
60 days of such date and 1,904 shares allocated to Mr. Moore's account
under the ESOP.
(5) Includes 29,600 shares which may be purchased pursuant to options which
were exercisable as of April 1, 1997, or will become exercisable within
60 days of such date, and 9,591 shares allocated to Mr. Gifford's
account under the ESOP.
(6) Includes 37,000 shares which may be purchased pursuant to options which
were exercisable as of April 1, 1997, or will become exercisable within
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60 days of such date, and shares allocated to the ESOP accounts of Mr.
O'Connell (18,939 shares) and his wife (4,570 shares). Mr. O'Connell
disclaims beneficial ownership of the shares allocated to his wife's
ESOP account.
(7) Includes 5,613 shares allocated to Mr. Fischer's account under the
ESOP.
(8) Does not include 2,500 shares which will become purchasable by such
individual on May 20, 1997 pursuant to an automatic option grant under
the Company's 1997 Stock Option Plan if such individual is re-elected
as a director of the Company and the Plan is approved by the
shareholders. (See Proposal #3 below.)
(9) Includes 30,000 shares which may be purchased pursuant to options which
were exercisable as of April 1, 1997 or will become exercisable within
60 days of such date.
(10) Includes 7,500 shares which may be purchased pursuant to options which
were exercisable as of April 1, 1997, or will become exercisable within
60 days of such date.
(11) Includes 9,000 shares which may be purchased pursuant to options which
were exercisable as of April 1, 1997, or will become exercisable within
60 days of such date and 2,208 shares allocated to Mr. Sass' account
under the ESOP.
(12) Includes 138,100 shares which may be purchased pursuant to options
which were exercisable as of April 1, 1997, or will become exercisable
within 60 days of such date, 54,933 shares allocated to accounts under
the ESOP, and shares held in the Company's 401(k) and profit sharing
plan (over which participants have dispositive power but not voting
power) for Gerald M. Gifford (21,775 shares), Andrew J. O'Connell
(45,977 shares) and Robert S. Spong (72,589 shares).
ELECTION OF DIRECTORS
(Proposals #1 and #2)
General Information
The Bylaws of the Company provide that the number of directors shall be
not less than the minimum required by law (which is one) and that in accordance
with such requirement the number of directors to be elected for the ensuing year
shall be determined by the shareholders at each annual meeting. The Board of
Directors recommends that the number of directors be set at five and that five
directors be elected. Unless otherwise instructed, the Proxies will be so voted.
Under applicable Minnesota law, approval of the proposal to set the
number of directors at five, as well as the election of each nominee, requires
the affirmative vote of the holders of the greater of (1) a majority of the
voting power of the shares represented in person or by proxy at the Annual
Meeting with authority to vote on such matter, or (2) a majority of the voting
power of the minimum number of shares that would constitute a quorum for the
transaction of business at the Annual Meeting.
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In the absence of other instructions, the Proxies will be voted for
each of the following individuals. If elected, such individuals will serve until
the next annual meeting of shareholders or until their successors shall be duly
elected and shall qualify. All of the nominees are members of the present Board
of Directors. Messrs. James W. Hansen and Thomas E. Moore, current members of
the Board, have indicated they do not wish to stand for reelection. If, prior to
the Annual Meeting of Shareholders, it should become known that any one of the
following individuals will be unable to serve as a director after the Annual
Meeting by reason of death, incapacity or other unexpected occurrence, the
Proxies will be voted for such substitute nominee(s) as is selected by the Board
of Directors. Alternatively, the Proxies may, at the Board's discretion, be
voted for such fewer number of nominees as results from such death, incapacity
or other unexpected occurrence. The Board of Directors has no reason to believe
that any of the following nominees will be unable to serve.
<PAGE>
<TABLE>
<CAPTION>
Current Position(s) Principal Occupation(s) Director
Nominee Age With Company During Past Five Years Since
<S> <C> <C> <C> <C>
Hilding C. 58 Chairman and Chairman of the Company October 1979
Nelson Director since October 1995. From
June 1995 to October 1995,
acting President and Chief
Executive Officer of and
consultant to Pet Food
Warehouse, Inc. (retail pet
food and supplies). From
September 1988 to present,
private investor. In
periods more than five
years previously, President
of Lund International
Holdings, Inc. and of
Multaplex Corporation.
William F. 53 Chief Operating Chief Operating Officer of April 1997
Farley Officer and the Company and President
Director and Chief Executive
Officer of the Company's
subsidiary, John G.
Kinnard and Company,
Incorporated ("JGK") since
April 1997. From April
1996 to April 1997, private
investor. From March
1990 to April 1996, Vice
Chairman of First Bank
System.
Robert S. 62 Director Senior Vice President of May 1981
Spong JGK.
Stephen H. 53 Director Chief Executive Officer of February
Fischer PrimeVest Financial 1991
Services, Inc. ("PFS"),
now a subsidiary of
ReliaStar Financial
Corporation, since March
1992, and President and
Chief Financial Officer of
PFS since August 1986.
Treasurer of the Company
from February 1993, to
November 1996.
Andrew J. 42 Director Investment Executive with July
O'Connell JGK since 1978. Senior 1994
Vice President of JGK since
May 1992.
</TABLE>
Board and Committee Meetings
The Board of Directors has the following Committees: Compensation,
Stock Option, Audit, Nominations and Executive. The Compensation Committee
reviews and recommends compensation for officers and directors of the Company.
During fiscal 1997 such Committee consisted of Messrs. Nelson and Hansen and met
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twice. The Audit Committee reviews with the Company's independent accountants
the annual financial statements and the results of the annual audit. During
fiscal 1996 such Committee consisted of Messrs. Hansen and Nelson and met five
times. The Nominations Committee, which reviews and recommends nominations of
candidates for director, consisted of Messrs. Hansen and Nelson during fiscal
1996. The Committee did not hold any formal meetings during 1996, although
Committee members met informally several times. The Nominations Committee is
engaged in a search for additional outside directors. The Nominations Committee
will consider qualified nominees recommended by Company shareholders. Such
recommendations should be submitted in writing to the Secretary of the Company
and should include a biography of the nominee.
During fiscal 1996, the Board of Directors held eight meetings. Each
incumbent director attended 75% or more of the total number of meetings (held
during the period(s) for which he has been a director or served on committee(s))
of the Board and of committee(s) of which he was a member.
Directors Fees
Under current compensation plans, the Company pays the directors who
are not employees of the Company or a subsidiary, for their services as
directors of the Company, the sum of $750 per month plus $500 per regular board
meeting and $250 per special board and each committee meeting attended.
Under the Company's 1990 Stock Option Plan, each nonemployee director
has received, upon re-election to the Board each year, an option to purchase
2,500 shares of the Company's Common Stock at a price equal to the fair market
value of the Company's Common Stock as defined in the Plan. On May 15, 1996 the
Company granted options to purchase 2,500 shares to Messrs. Nelson and Hansen,
who were re-elected as directors at the 1996 annual meeting of shareholders, at
an option price of $4.40 per share. Nonemployee directors will continue to
receive automatic options under the Company's 1997 Stock Option Plan if such
Plan is approved by shareholders. (See Proposal #3 below.)
Since October 1995, Hilding C. Nelson has been serving as Chairman of
the Board and a member of the Executive Committee, for which he has been paid
the regular outside director fees described above, additional compensation based
on time expended on Company business and for 1996 a bonus of $25,000. In 1996
Mr. Nelsons' aggregate cash compensation as a director was $176,970. In
addition, on May 15, 1996, Mr. Nelson was granted a five-year option under the
Company's 1990 Stock Option Plan to purchase 15,000 shares of Common Stock of
the Company at an option price of $4.40 per share.
Certain Relationships and Related Transactions
(a) Andrew J. O'Connell, Thomas E. Moore and Robert S. Spong, directors
of the Company, are employees of JGK. They earned in 1996 commissions, bonuses
and other compensation and benefits from JGK, on the same bases and under the
same policies as other employees, in the aggregate amounts of $844,518, $378,228
and $164,604, respectively. Under a program applicable to all of JGK's
investment executives based on their individual production a five year option
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was granted to Mr. O'Connell during January 1996 to purchase 7,500 shares at
$4.04 per share. In addition under a program applicable to the JGK Management
Team, five-year options were granted to Messrs. O'Connell and Moore during
January 1996 to purchase 5,000 and 10,000 shares, respectively, at $4.04 per
share. During the current fiscal year, options to purchase an aggregate of
15,000 shares were granted to each of Mr. O'Connell and Mr. Moore at an option
price of $5.98 per share.
(b) In October 1996 the Company entered into a Deferred Compensation
Agreement with Stephen H. Fischer, President and CEO of PrimeVest Financial
Services, Inc. See footnote 4 to Summary Compensation Table for a description of
the terms of such Agreement.
(c) Certain directors and officers of the Company (and members of the
immediate families of such persons) maintain margin accounts with JGK and have
margin account indebtedness outstanding from time to time. All such indebtedness
is incurred in the ordinary course of business and on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and do not involve more than
normal risk of collectibility or present other unfavorable features.
(d) On April 7, 1997 the Company entered into a Subscription and
Purchase Agreement with William F. Farley whereby Mr. Farley purchased 325,000
Units of securities of the Company for $1,706,250 or $5.25 per Unit, each Unit
consisting of one share of Common Stock of the Company and a warrant to purchase
an additional share at a price of $6.00 per share. The fair market value of a
share of the Company's Common Stock on such date was $5.00 per share. The
warrants issued become exercisable as to 125,000 on December 31, 1997 and as to
200,000 on December 31, 1998 and expire on April 6, 2002. The Agreement provides
Mr. Farley certain participatory and demand registration rights exercisable on
or after April 7, 2000.
On April 7, 1997 the Company also entered into an employment agreement
with William F. Farley pursuant to which he was elected President, Chief
Executive Officer and Chairman of the Board of Directors of JGK and Chief
Operating Officer and a director of the Company. The Agreement will expire
December 31, 1999 subject to annual one-year extensions if notice of termination
is not given by either party six months prior to an expiration date. Mr. Farley
is to be paid base salary at a rate of $250,000 per annum in 1997 and 1998. For
1997, Mr. Farley is guaranteed a minimum bonus of $280,000 and for 1998
$250,000. For 1999 and any extension years, his base salary and bonus is to be
subject to a plan to be adopted by the Board of Directors. In addition, Mr.
Farley will participate in all Company and JGK employee benefit plans and be
reimbursed for certain expenses. In addition, the Company is loaning Mr. Farley
$125,000 in exchange for a promissory non-interest bearing note which is due at
the termination of his employment.
Mr. Farley's agreement contains provision for payments to him in the
event of his termination of employment with the Company and JGK for certain
reasons. If he is terminated by the Company without "cause" or resigns for "good
reason," as such terms are defined in the agreement, he will be paid his base
salary, bonus and benefits for the balance of the term of the agreement. In
addition, he will be paid his base salary and a bonus equal to two times his
base salary, for an additional 12 months. Further, Mr. Farley will become vested
in all stock options, benefits and perquisites to which he would have been
entitled to receive had he remained through the term of the agreement.
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In connection with his employment, Mr. Farley was granted an incentive
stock option and a non-qualified stock option, each a ten year option for 82,500
shares, vesting at the rate of 20% on December 31 of each year 1997 through 2001
and exercisable at a price of $6.00 per share. In the event of the termination
of his employment other than for cause or good reason, and in the event of a
change of control of the Company, all of Mr. Farley's options will become fully
vested.
In the event of a "change of control" in the Company, as defined in the
employment agreement, vesting of Mr. Farley's stock options will accelerate and
he will be entitled to payment to cover all base salary, bonuses, benefits and
perquisites that he would receive if he were to remain employed for an
additional 36 months at his then current base salary, with his annual bonus
calculated at two times his current base salary. The payment will not be made
during any month following the change of control in which he continues in the
employment of the Company. If the change of control is not initiated by the
Company, payments to Mr. Farley will be grossed up to adjust for the impact of
any excise tax imposed on amounts exceeding limits under the Internal Revenue
Code.
Mr. Farley is subject to confidentiality restrictions under the terms
of his employment agreement and may not compete with the Company or its
subsidiaries for the longer of the period one year after his termination of
employment or until December 3, 1999.
APPROVAL OF 1997 STOCK OPTION PLAN
(Proposal #3)
General
The Board of Directors has adopted, subject to shareholder approval,
the Company's 1997 Stock Option Plan (the "Plan") and reserved 1,000,000 shares
of the Company's Common Stock for issuance pursuant to the Plan.
A general description of the 1997 Plan is set forth below, but such
description is qualified in its entirety by reference to the full text of the
Plan, a copy of which may be obtained without charge upon written request to the
Company's Secretary.
Description of Plan
Purpose. The purpose of the Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers, key employees and others upon
whose efforts the success of the Company will depend to a large degree by
encouraging stock ownership in order to increase such individuals' proprietary
interest in the Company's success.
Term. The term of the Plan is indefinite; however, the Board may
terminate the Plan at any time provided such termination will not affect options
then outstanding and provided, further, that no incentive stock options may be
granted under the Plan after March 7, 2007.
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Administration. The Plan is administered by the Stock Option Committee
of the Board. The Plan gives broad powers to the Committee to administer and
interpret the Plan, including the authority to select the individuals to be
granted options and to prescribe the particular form and conditions of each
option granted (which may vary from optionee to optionee).
Eligibility. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the Plan. All employees,
directors and officers of, and consultants and advisors to, the Company or any
subsidiary are eligible to receive nonqualified stock options. As of April 1,
1997, the Company had approximately 350 employees, officers and directors.
Options. When an option is granted under the Plan, the Committee, in
its discretion, specifies the option price, the type of option (either
"incentive" or "nonqualified") to be granted, and the number of shares of Common
Stock which may be purchased upon exercise of the option. The total number of
shares which may be subject to option grants to any one individual in any one
calendar year may not exceed 200,000. The exercise price of an incentive stock
option may not be less than 100% of the fair market value of the Company's
Common Stock and, unless otherwise determined by the Committee, the exercise
price of a nonqualified option will be 100% of the fair market value of the
Company's Common Stock on the date of grant. The market value of the Company's
Common Stock on April 1, 1997 was $5.125. The term during which the option may
be exercised and whether the option will be exercisable immediately, in stages
or otherwise are set by the Committee, but the term of an incentive stock option
may not exceed ten years from the date of grant. Optionees may pay for shares
upon exercise of options with cash, certified check or Common Stock of the
Company valued at the stock's then fair market value. Each option granted under
the Plan is nontransferable during the lifetime of the optionee.
Generally, under the form of option agreement which is used for options
granted under the Plan, if the optionee's affiliation with the Company
terminates before expiration of the option for reasons other than death, the
optionee has a right to exercise the option for 30 days after termination of
such affiliation or until the option's original expiration date, whichever is
earlier. If the termination is because of death, the option typically is
exercisable until its original stated expiration or until the six-month
anniversary of the optionee's death, whichever is earlier. The Board or the
Committee may impose additional or alternative conditions and restrictions on
the incentive or nonqualified stock options granted under the Plan; however,
each incentive option must contain such limitations and restrictions upon its
exercise as are necessary to ensure that the option will be an incentive stock
option as defined under the Internal Revenue Code.
Under the Plan, each nonemployee director of the Company is
automatically granted an option to purchase 2,500 shares of Common Stock each
year upon his or her election or reelection to the Board by the shareholders.
Each such option will be a nonqualified stock option, will expire five years
after the date it is granted, and will become exercisable immediately upon the
date of grant. If a nonemployee director ceases to be a director of the Company
the option will remain exercisable for 30 days, provided, that if such
termination is because of death, the option will remain exercisable until the
earlier of the six-month anniversary of the director's death or the expiration
of the option's original term.
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Amendment. The Board of Directors may from time to time suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment may impair the terms and conditions of any
outstanding option to the material detriment of the optionee without the consent
of the optionee. In addition, no such revision or amendment may, without the
approval of the Company's shareholders, (a) materially increase the number of
shares subject to the Plan except as provided in the case of stock splits,
consolidations, stock dividends or similar events; (b) change the designation of
the class of employees eligible to receive options; (c) decrease the price at
which options will be granted; or (d) materially increase the benefits accruing
to optionees under the Plan. Furthermore the Plan may not, without the approval
of the Company's shareholders, be amended in any manner which will cause the
incentive stock options to fail to meet the requirements of incentive stock
options as defined under the Internal Revenue Code.
The Board of Directors will equitably adjust the maximum number of
shares of Common Stock reserved for issuance under the Plan, the number of
shares covered by each outstanding option and the option price per share in the
event of stock splits or consolidations, stock dividends or other transactions
in which the Company receives no consideration.
Federal Income Tax Consequences of the Plan. Under present law, no tax
results upon the grant of a nonqualified option pursuant to the Plan. However,
in the year that a nonqualified stock option is exercised, the optionee must
recognize compensation taxable as ordinary income equal to the difference
between the option price and the fair market value of the shares on the date of
exercise. The Company normally will receive a deduction equal to the amount of
compensation the optionee is required to recognize as ordinary income if the
Company complies with any applicable federal income tax withholding
requirements.
Incentive stock options granted under the Plan are intended to qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code.
Under Section 422, an optionee recognizes no taxable income when the option is
granted. Further, the optionee generally will not recognize any taxable income
when the option is exercised if he or she has at all times from the date of the
option's grant until three months before the date of exercise been an employee
of the Company. The Company ordinarily is not entitled to any income tax
deduction upon the grant or exercise of an incentive stock option. Certain other
favorable tax consequences may be available to the optionee if he or she does
not dispose of the shares acquired upon the exercise of an incentive stock
option for a period of two years from the granting of the option and one year
from the receipt of the shares.
Plan Benefits. The following table shows the total number of stock
options that have been received by the following individuals and groups under
the Plan, subject to shareholder approval of the Plan:
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Total Number of
Name and Position/Group Options Received (1)
Gerald M. Gifford, Secretary 7,500
Stephen H. Fischer, Former Treasurer 2,500 (2)
Daniel R. Sass, Treasurer 0
Current Executive Officer Group 172,500 (3)
Non-Executive Officer Director Group 12,500 (4)
Non-Executive Officer Employee Group 15,000
(1) This table reflects only the total stock options granted as of
April 7, 1997, without taking into account exercises or
cancellations. Because future grants of stock options are
subject to the discretion of the Committee, the future
benefits that may be received by these individuals or groups
under the Plan cannot be determined at this time, except for
the automatic option grants to outside directors as described
above.
(2) Includes 2,500 share option which will be granted on the date
of the 1997 Annual Meeting if the Plan is approved by the
shareholders.
(3) Includes options for 165,000 shares granted to William F.
Farley in connection with his employment by the Company.
(4) Includes 2,500 share options which will be granted to Messrs.
Fischer and Nelson on the date of the 1997 Annual Meeting if
the Plan is approved by the shareholders.
Vote Required
The Board of Directors recommends that the shareholders approve the
1997 Stock Option Plan. Approval of the Plan requires the affirmative vote of
the greater of (i) a majority of the shares represented at the meeting with
authority to vote on such matter or (ii) a majority of the voting power of the
minimum number of shares that would constitute a quorum for the transaction of
business at the meeting.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Board of Directors is composed of an outside
director, James W. Hansen, and a second director, Hilding C. Nelson, who also
serves as Chairman of the Board. The Committee is responsible for developing and
making recommendations to the Board with respect to the compensation to be paid
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<PAGE>
to the Chief Executive Officer of the Company and to the other principal
executive officers of the Company and its operating subsidiaries (solely JGK
since the sale of PFS in October 1996).
Overview and Philosophy. The Company's executive compensation program
is comprised of base salaries, annual cash bonuses, long-term incentive
compensation in the form of stock options, and various benefits, including
participation in the Company's pension plan and employee stock ownership plan
("ESOP"), both of which are generally available to all employees of the Company
and have contribution formulas which are related to the Company's performance
and vesting schedules which reward long-term service to the Company.
The Company entered into an employment agreement with Stephen H.
Fischer in connection with the Company's acquisition of PFS in 1991. The
agreement was for a term of five years and Mr. Fischer's compensation was
established annually by the Compensation Committee on the same basis as for
other principal executive officers. PFS was sold by the Company on October 31,
1996 and Mr. Fischer remained in the employment of PFS although he continues to
serve as a director of the Company.
The Company has followed a policy of paying annual base salaries which
are less than the industry's average as reported by the Securities Industry
Association and relying on annual cash bonuses and long-term incentive
compensation to retain executive officers. The Compensation Committee believes
long-term incentives enhance the concept of ownership which emphasize profits
and directly ties executive compensation to shareholder value. Annual cash
bonuses and long-term stock option incentives are tied to the profitability of
the Company and are not awarded if the Company fails to achieve a profitable
year or if goals are not met.
Compensation. The Company has continued the compensation policies and
practices initiated in 1992, which have included moderate increases during
profitable periods and reductions during unprofitable periods. Base salaries of
officers were increased in 1996 to reflect individual performances and
profitability of the Company.
For 1996, bonuses were paid from a pool established by each operating
subsidiary the gross amount of which was determined primarily on the basis of
return on equity at the beginning of the fiscal year in excess of a minimum
amount. Participants in each subsidiary's bonus pool included some individuals
who are not considered to be executive officers of the Company and are not
included in the compensation table below. Allocation of the bonus pool of each
subsidiary was recommended by the chief executive officer or management
committee of each subsidiary to the Compensation Committee. Bonuses in 1996 for
certain officers, including Mr. Gifford in the table below, were larger than in
other profitable years because they shared in a special allocation of the bonus
pool as members of the Office of the President which functioned during the
Company's search for a chief executive officer.
Long-term compensation in the form of stock options was awarded in
February of 1996 based on the Company's financial performance in 1995 and the
level of responsibility of the individual officer. Performance was judged on the
basis of achievement of budgeted goals.
Contributions to the Company's pension plan and ESOP are determined for
executive officers on the same basis as for all other employees. Annual
- 13 -
<PAGE>
contributions to the pension plan are made at the rate of 5% of total
compensation paid during the year subject to IRS limitations. Contributions to
the ESOP are made at the discretion of the Company's Board of Directors.
The Company provides medical and insurance benefits to its executive
officers which are generally available to all Company employees. Some executive
officers of the Company participate in the Company's employee stock purchase
plan which is also generally available to all employees and to which the Company
does not contribute. The amount of perquisites allowed to executive officers, as
determined in accordance with the rules of the Securities and Exchange
Commission, did not exceed 10% of salary for 1996.
Chief Executive Officer Compensation. The position of chief executive
officer was vacant in 1996 as the Company conducted a search for a new such
officer. In April 1997 William F. Farley was employed as President, Chief
Executive Officer and Chairman of the Board of JGK and Chief Operating Officer
of the Company.
Summary. Base salary increases in 1996 were higher than in 1994 and
1995 reflecting the Company's profitability and individual performances. Bonuses
were paid and ESOP contributions were made for 1996 based on the Company's
profitability. Options were granted to executives for 1996 because budgeted
objectives were exceeded. The Compensation Committee believes compensation paid
for 1996 generally reflected the Company's financial performance.
James W. Hansen
Hilding C. Nelson, Members of the Compensation Committee
Summary Compensation Table
The following table sets forth certain information regarding
compensation earned during each of the Company's last three fiscal years by each
of the Company's executive officers whose salary and bonus compensation exceeded
$100,000 for fiscal 1996. During fiscal 1996 the Company did not have a person
serving as Chief Executive Officer.
- 14 -
<PAGE>
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------
Awards
-----------------------------
Annual Compensation
----------------------------
Securities
Underlying All Other
Name and Principal Fiscal Options Compensa-
Position Year Salary ($)(1) Bonus ($) /SARs (#)(2) tion ($)
- ------------------------- ------ ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gerald M. Gifford, 1996 137,685 221,913 15,000 15,928(3)
Secretary of KII and 1995 93,220 166,501 10,000 12,638
Executive Vice 1994 100,136 -0- None 6,092
President of JGK
Daniel R. Sass, 1996 75,012 95,000 5,000 15,928(3)
Treasurer of KII and 1995 56,448 84,590 2,500 10,977
of JGK 1994 54,000 -0- None 2,700
Stephen H. Fischer, 1996 105,920 249,188 None 114,418(4)
Former Treasurer of 1995 128,621 35,000 5,000 12,638
KII and President 1994 127,483 15,000 None 7,370
and Chief Executive
Officer of PFS
</TABLE>
1 Includes commission income.
2 All options were granted subsequent to the close of the fiscal year for
which the award was made.
3 Amount reflects Company contributions to the Pension Plan and ESOP of
$7,500 and $8,428, respectively.
4 Amount reflects Company contributions to the Pension Plan and ESOP of
$6,518 and $7,900, respectively, and $100,000 which has been accrued
pursuant to a Deferred Compensation Agreement entered into with Mr.
Fischer in connection with the Company's sale of PrimeVest Financial
Services, Inc., which provides for the payment to Mr. Fischer of the
sum of $100,000 plus interest at a rate equal to Prime plus one point
on the earlier of (A) January 4, 1999, (B) within 60 days after a
"change of control" as defined in such Agreement or (C) Mr. Fischer's
death.
Option/SAR Grants During 1996 Fiscal Year
The following options were granted to the named executive officers
during fiscal 1996 based on the achievement of performance objectives for fiscal
1995. The Company has not granted any stock appreciation rights.
- 15 -
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants(1) Option Term
- ------------------------------------------------------------------------------------------- ----------------------------
Number of
Securities Percent of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees Base Price Expiration
Name (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------------- -------------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Gerald M. Gifford 10,000 4.8% $4.04 2/7/01 $11,162 $25,407
Daniel R. Sass 2,500 1.2% $4.04 2/7/01 $2,790 $6,385
Stephen H. Fischer 5,000 2.4% $4.04 2/7/01 $5,580 $12,704
</TABLE>
(1) All options were granted on February 7, 1996, and were immediately
exercisable on the date of grant.
Option/SAR Exercises During 1996 Fiscal
Year and Fiscal Year End Option/SAR Values
The following table provides information related to options exercised
by the named executive officers during the 1996 fiscal year and the number and
value of options held at fiscal year end. The table does not include options
awarded on the basis of fiscal 1996 performance because such options were
granted in 1997.
<PAGE>
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares FY-End (#) FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($)(1) Unexercisable Unexercisable(1)
- ---- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Gerald M. Gifford 6,000 $ 9,120 20,600/0 $23,196/0
Daniel R. Sass 0 $ N/A 4,000/0 $6,844/0
Stephen H. Fischer 8,750 $ 13,738 0/0 0/0
</TABLE>
(1) Based on the difference between the closing price of the Company's
Common Stock as reported by Nasdaq on the date of exercise or at fiscal
year end, as the case may be, and the option exercise price.
Stock Performance Chart
The following chart compares the yearly percentage change in the
cumulative total shareholder return on the Company's Common Stock during the
five fiscal years ended December 31, 1996 with the cumulative total return on
- 16 -
<PAGE>
the Nasdaq Composite Index and the Nasdaq Financial Index. The comparison
assumes $100 was invested on December 31, 1991 in the Company's Common Stock and
in each of the foregoing indices and assumes reinvestment of dividends.
<TABLE>
<CAPTION>
Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Kinnard $100.00 $119.93 $122.87 $ 48.57 $ 94.83 $150.43
Nasdaq Composite $100.00 $116.38 $133.59 $130.59 $184.67 $227.16
Nasdaq Financial $100.00 $143.02 $166.23 $166.62 $242.61 $311.06
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANT
The accounting firm of Deloitte & Touche LLP has served as independent
auditors for the Company since April 1992 and has been selected by the Board of
Directors to continue for the current fiscal year. Representatives of Deloitte &
Touche LLP are expected to be present at the Annual Meeting, will be given an
opportunity to make a statement regarding financial and accounting matters of
the Company if they so desire, and will be available at such meeting to respond
to appropriate questions from the Company's shareholders.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than ten percent shareholders ("Insiders") are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based on a review of the copies of such
reports furnished to the Company, during the fiscal year ended December 31,
1996, all Section 16(a) filing requirements applicable to Insiders were complied
with except that a Form 3 was filed late by Daniel R. Sass.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the annual meeting in calendar year 1998 must be
received by the Company by December 17, 1997, to be includable in the Company's
proxy statement and related proxy for the 1998 annual meeting.
- 17 -
<PAGE>
OTHER BUSINESS
Management knows of no other matters to be presented at the meeting. If
any other matter properly comes before the meeting, the appointees named in the
Proxies will vote the Proxies in accordance with their best judgment.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1996, including its Report on Form 10-K filed with the
Securities and Exchange Commission, accompanies this Notice of Annual Meeting
and Proxy Statement. No part of such Annual Report is incorporated herein and no
part thereof is to be considered proxy soliciting material.
Dated: April 18, 1997
Minneapolis, MN
- 18 -
<PAGE>
KINNARD INVESTMENTS, INC.
PROXY FOR ANNUAL MEETING
May 20, 1997
The undersigned hereby appoints HILDING C. NELSON and GERALD M.
GIFFORD, and each of them, with full power of substitution, his or her Proxies
to represent and vote, as designated below, all shares of the Common Stock of
Kinnard Investments, Inc. registered in the name of the undersigned at the 1997
Annual Meeting of Shareholders of the Company to be held at the Minneapolis
Convention Center, Room 208 CD, 1301 Second Avenue South, Minneapolis,
Minnesota, at 3:30 p.m., Minneapolis time, on May 20, 1997, and at any
adjournment thereof. The undersigned hereby revokes all proxies previously
granted with respect to such Meeting.
The Board of Directors recommends that you vote FOR each proposal.
1. Set the number of directors at five (5).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Elect directors. (Nominees: H. Nelson, W. Farley, R. Spong, S.
Fischer, A. O'Connell)
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to
above (except those whose vote for all nominees
names have been written listed above
on the line below)
-------------------------------------
3. Approve the Company's 1997 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Other Matters. 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 AS DIRECTED OR, IF NO
DIRECTION IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date , 1997
----------------------
-------------------------------------------
-------------------------------------------
PLEASE DATE AND SIGN ABOVE exactly as name
appears at the left, indicating, where
proper, official position or representative
capacity. For stock held in joint tenancy,
each joint owner should sign.
<PAGE>
Kinnard Investments, Inc.
1997 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Committee" shall mean a Committee of two or more directors who shall be
appointed by and serve at the pleasure of the Board. As long as the Company's
securities are registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended, then, to the extent necessary for compliance with Rule
16b-3, or any successor provision, each of the members of the Committee shall be
a "Non-Employee Director." For purposes of this Section 1(b) "Non-Employee
Director" shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.
(b) The "Company" shall mean Kinnard Investments, Inc., a Minnesota corporation.
(c) "Fair Market Value" shall mean (i) if such stock is reported by the Nasdaq
National Market or Nasdaq SmallCap Market or is listed upon an established stock
exchange or exchanges, the reported closing price of such stock by the Nasdaq
National Market or Nasdaq SmallCap Market or on such stock exchange or exchanges
on the date the option is granted or, if no sale of such stock shall have
occurred on that date, on the next preceding day on which there was a sale of
stock; (ii) if such stock is not so reported by the Nasdaq National Market or
Nasdaq SmallCap Market or listed upon an established stock exchange, the average
of the closing "bid" and "asked" prices quoted by the National Quotation Bureau,
Inc. (or any comparable reporting service) on the date the option is granted, or
if there are no quoted "bid" and "asked" prices on such date, on the next
preceding date for which there are such quotes; or (iii) if such stock is not
publicly traded as of the date the option is granted, the per share value as
determined by the Board, or the Committee, in its sole discretion by applying
principles of valuation with respect to all such options.
(d) The "Internal Revenue Code" is the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Non-Employee Director" shall mean members of the Board who are not
employees of the Company or any subsidiary.
(f) "Option Stock" shall mean Common Stock of the Company (subject to adjustment
as described in Section 13) reserved for options pursuant to this Plan.
<PAGE>
(g) The "Optionee" means an employee of the Company or any Subsidiary to whom an
incentive stock option has been granted pursuant to Section 9; a consultant or
advisor to or director (including a Non-Employee Director), employee or officer
of the Company or any Subsidiary to whom a nonqualified stock option has been
granted pursuant to Section 10; or a Non-Employee Director to whom a
nonqualified stock option has been granted pursuant to Section 11.
(h) "Parent" shall mean any corporation which owns, directly or indirectly in an
unbroken chain, fifty percent (50%) or more of the total voting power of the
Company's outstanding stock.
(i) The "Plan" means the Kinnard Investments, Inc. 1997 Stock Option Plan, as
amended hereafter from time to time, including the form of Option Agreements as
they may be modified by the Board from time to time.
(j) A "Subsidiary" shall mean any corporation of which fifty percent (50%) or
more of the total voting power of outstanding stock is owned, directly or
indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and its
Subsidiaries by facilitating the retention of competent personnel and by
furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its Subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan, and through the granting of
"nonqualified stock options" pursuant to Sections 10 and 11 of this Plan. Any
incentive stock options granted after adoption of the Plan by the Board of
Directors shall be treated as nonqualified stock options if shareholder approval
is not obtained within twelve months after the adoption of the Plan by the
Board.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as required in
Section 2.
- 2 -
<PAGE>
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time (collectively referred to as the
"Administrator"). The Administrator shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described herein) to
determine, in its sole discretion, whether an incentive stock option or
nonqualified stock option shall be granted, the individuals to whom, and the
time or times at which, options shall be granted, the number of shares subject
to each option and the option price and terms and conditions of each option. The
Administrator shall have full power and authority to administer and interpret
the Plan, to make and amend rules, regulations and guidelines for administering
the Plan, to prescribe the form and conditions of the respective stock option
agreements (which may vary from Optionee to Optionee) evidencing each option and
to make all other determinations necessary or advisable for the administration
of the Plan. The Administrator's interpretation of the Plan, and all actions
taken and determinations made by the Administrator pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties concerned.
Notwithstanding anything in the Plan to the contrary, an Optionee shall not, in
any calendar year, be granted incentive or nonqualified stock options which, in
total, provide for the purchase of more than 200,000 shares of Option Stock.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the administration
of the Plan. In the event the Board appoints a Committee as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion and without
approval of the shareholders, designate those employees, officers, directors,
consultants, and advisors of the Company or of any Subsidiary to whom
nonqualified stock options shall be granted under this Plan; provided, however,
that consultants or advisors shall not be eligible to receive stock options
hereunder unless such consultant or advisor renders bona fide services to the
Company or Subsidiary and such services are not in connection with the offer or
sale of securities in a capital raising transaction. The Administrator shall,
from time to time, at its discretion and without approval of the shareholders,
designate those employees of the Company or any Subsidiary to whom incentive
stock options shall be granted under this Plan. The Administrator may grant
additional incentive stock options or nonqualified stock options under this Plan
to some or all participants then holding options or may grant options solely or
partially to new participants. In designating participants, the Administrator
shall also determine the number of
- 3 -
<PAGE>
shares to be optioned to each such participant. The Board may from time to time
designate individuals as being ineligible to participate in the Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized but
unissued shares of Option Stock. One Million (1,000,000) shares of Option Stock
shall be reserved and available for options under the Plan; provided, however,
that the total number of shares of Option Stock reserved for options under this
Plan shall be subject to adjustment as provided in Section 13 of the Plan. In
the event that any outstanding option under the Plan for any reason expires or
is terminated prior to the exercise thereof, the shares of Option Stock
allocable to the unexercised portion of such option shall continue to be
reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time to
time during a period of ten (10) years from the effective date as defined in
Section 3. Nonqualified stock options may be granted pursuant to the Plan from
time to time after the effective date of the Plan and until the Plan is
discontinued or terminated by the Board. Any incentive stock option granted
during such ten-year period and any nonqualified stock option granted prior to
the termination of the Plan by the Board shall remain in full force and effect
until the expiration of the option as specified in the written stock option
agreement and shall remain subject to the terms and conditions of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant to
this Plan with cash, personal check, certified check or, if approved by the
Administrator in its sole discretion, Common Stock of the Company valued at such
Stock's then Fair Market Value, or such other form of payment as may be
authorized by the Administrator. The Administrator may, in its sole discretion,
limit the forms of payment available to the Optionee and may exercise such
discretion any time prior to the termination of the option granted to the
Optionee or upon any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure
- 4 -
<PAGE>
compliance with Rule 16b-3, or any successor provision, as then in effect, of
the General Rules and Regulations under the Securities Exchange Act of 1934, if
applicable.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be subject to
the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state the
total number of shares covered by the incentive stock option. To the extent
required to qualify the Option as an incentive stock option under Section 422 of
the Internal Revenue Code, or any successor provision, the option price per
share shall not be less than one hundred percent (100%) of the Fair Market Value
of the Common Stock per share on the date the Administrator grants the option;
provided, however, that if an Optionee owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of its Parent or any Subsidiary, the option price per share of an
incentive stock option granted to such Optionee shall not be less than one
hundred ten percent (110%) of the Fair Market Value of the Common Stock per
share on the date of the grant of the option. The Administrator shall have full
authority and discretion in establishing the option price and shall be fully
protected in so doing.
(b) Term and Exercisability of Incentive Stock Option. The term during which any
incentive stock option granted under the Plan may be exercised shall be
established in each case by the Administrator. To the extent required to qualify
the Option as an incentive stock option under Section 422 of the Internal
Revenue Code, or any successor provision, in no event shall any incentive stock
option be exercisable during a term of more than ten (10) years after the date
on which it is granted; provided, however, that if an Optionee owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of its parent or any Subsidiary, the
incentive stock option granted to such Optionee shall be exercisable during a
term of not more than five (5) years after the date on which it is granted.
The Option Agreement shall state when the incentive stock option becomes
exercisable and shall also state the maximum term during which the option may be
exercised. In the event an incentive stock option is exercisable immediately,
the manner of exercise of the option in the event it is not exercised in full
immediately shall be specified in the Option Agreement. The Administrator may
accelerate the exercisability of any incentive stock option granted hereunder
which is not immediately exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under this Section 9 shall
contain such other provisions as the Administrator shall deem advisable. Any
such
- 5 -
<PAGE>
Option Agreement shall contain such limitations and restrictions upon the
exercise of the option as shall be necessary to ensure that such option will be
considered an "incentive stock option" as defined in Section 422 of the Internal
Revenue Code or to conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to this Section 10 shall be
evidenced by a written Option Agreement. The Option Agreement shall be in such
form as may be approved from time to time by the Administrator and may vary from
Optionee to Optionee; provided, however, that each Optionee and each Option
Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state the
total number of shares covered by the nonqualified stock option. Unless
otherwise determined by the Administrator, the option price per share shall be
one hundred percent (100%) of the Fair Market Value of the Common Stock per
share on the date the Administrator grants the option.
(b) Term and Exercisability of Nonqualified Stock Option. The term during which
any nonqualified stock option granted under the Plan may be exercised shall be
established in each case by the Administrator. The Option Agreement shall state
when the nonqualified stock option becomes exercisable and shall also state the
maximum term during which the option may be exercised. In the event a
nonqualified stock option is exercisable immediately, the manner of exercise of
the option in the event it is not exercised in full immediately shall be
specified in the stock option agreement. The Administrator may accelerate the
exercisability of any nonqualified stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to withhold and
deduct from future wages of the Optionee all legally required amounts necessary
to satisfy any and all withholding and employment-related taxes attributable to
the Optionee's exercise of a nonqualified stock option. In the event the
Optionee is required under the Option Agreement to pay the Company, or make
arrangements satisfactory to the Company respecting payment of, such withholding
and employment-related taxes, the Administrator may, in its discretion and
pursuant to such rules as it may adopt, permit the Optionee to satisfy such
obligation, in whole or in part, by electing to have the Company withhold shares
of Common Stock otherwise issuable to the Optionee as a result of the option's
exercise equal to the amount required to be withheld for tax purposes. Any stock
elected to be withheld shall be valued at its Fair Market Value, as of the date
the amount of tax to be withheld is determined under applicable tax law. The
Optionee's election to have shares withheld for this purpose shall be made on or
before the date the option is exercised or, if later, the date that the amount
of tax to be withheld is determined under applicable tax law. Such election
shall be approved by the Administrator and otherwise comply with such rules as
the Administrator may adopt to
- 6 -
<PAGE>
assure compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities Exchange Act
of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this Section 10
shall contain such other provisions as the Administrator shall deem advisable.
SECTION 11.
GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Upon Election or Re-election to Board by Shareholders. Each Non-Employee
Director who, on and after the date this Plan is approved by the Company's
shareholders, is elected or re-elected as a director of the Company or whose
term of office continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder meeting,
automatically be granted an option to purchase 2,500 shares of the Common Stock
at an option price per share equal to 100% of the Fair Market Value of the
Common Stock on the date of such election, re-election or shareholder meeting.
Options granted pursuant to this subsection (a) shall be immediately exercisable
in full.
(b) General. No director shall receive more than one option pursuant to
subsection (a) of this Section 11 in any one fiscal year. All options granted
pursuant to this Section 11 shall be designated as nonqualified options and
shall be subject to the same terms and provisions as are then in effect with
respect to granting of nonqualified options to officers and employees of the
Company except that the option shall expire on the earlier of (i) one month
after the Optionee ceases to be a director (except by death) and (ii) five years
after the date of grant. Notwithstanding the foregoing, in the event of the
death of a Non-Employee Director, any option granted to such Non-Employee
Director pursuant to this Section 11 may be exercised at any time within six
months of the death of such Non-Employee Director or on the date on which the
option, by its terms expires, whichever is earlier.
SECTION 12.
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part, by
the Optionee other than by will or by the laws of descent and distribution and,
during the Optionee's lifetime, the option may be exercised only by the
Optionee. If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.
The Administrator may, in its sole discretion, permit the Optionee to
transfer any or all nonqualified stock options to any member of the Optionee's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any
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successor provision, or to one or more trusts whose beneficiaries are members of
such Optionee's "immediate family" or partnerships in which such family members
are the only partners; provided, however, that the Optionee receives no
consideration for the transfer and such transferred nonqualified stock option
shall continue to be subject to the same terms and conditions as were applicable
to such nonqualified stock option immediately prior to its transfer.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company, the
number of shares of Option Stock reserved under Section 6 hereof and the number
of shares of Option Stock covered by each outstanding option and the price per
share thereof shall be adjusted by the Board to reflect such change. Additional
shares which may be credited pursuant to such adjustment shall be subject to the
same restrictions as are applicable to the shares with respect to which the
adjustment relates.
Unless otherwise provided in the stock option agreement, in the event of an
acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to as
a "transaction"), all outstanding options shall become immediately exercisable,
whether or not such options had become exercisable prior to the transaction;
provided, however, that if the acquiring party seeks to have the transaction
accounted for on a "pooling of interests" basis and, in the opinion of the
Company's independent certified public accountants, accelerating the
exercisability of such options would preclude a pooling of interests under
generally accepted accounting principles, the exercisability of such options
shall not accelerate. In addition to the foregoing, in the event of such a
transaction, the Board may provide for one or more of the following:
(a) the complete termination of this Plan and cancellation of outstanding
options not exercised prior to a date specified by the Board (which date shall
give Optionees a reasonable period of time in which to exercise the options
prior to the effectiveness of such transaction);
(b) that Optionees holding outstanding incentive or nonqualified options shall
receive, with respect to each share of Option Stock subject to such options, as
of the effective date of any such transaction, cash in an amount equal to the
excess of the Fair Market Value of such Option Stock on the date immediately
preceding the effective date of such transaction over the option price per share
of such options; provided that the Board may, in lieu of such cash payment,
distribute to such Optionees shares of stock of the Company or shares of stock
of any corporation succeeding the Company by reason of such transaction, such
shares having a value equal to the cash payment herein; or
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(c) the continuance of the Plan with respect to the exercise of options which
were outstanding as of the date of adoption by the Board of such plan for such
transaction and provide to Optionees holding such options the right to exercise
their respective options as to an equivalent number of shares of stock of the
corporation succeeding the Company by reason of such transaction.
The Board may restrict the rights of or the applicability of this Section 13 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
The grant of an option pursuant to the Plan shall not limit in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 14.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless and
until there has been compliance, in the opinion of Company's counsel, with all
applicable legal requirements, including without limitation, those relating to
securities laws and stock exchange listing requirements. As a condition to the
issuance of Option Stock to Optionee, the Administrator may require Optionee to
(i) represent that the shares of Option Stock are being acquired for investment
and not resale and to make such other representations as the Administrator shall
deem necessary or appropriate to qualify the issuance of the shares as exempt
from the Securities Act of 1933 and any other applicable securities laws, and
(ii) represent that Optionee shall not dispose of the shares of Option Stock in
violation of the Securities Act of 1933 or any other applicable securities laws.
As a further condition to the grant of any incentive or nonqualified stock
option or the issuance of Option Stock to Optionee, Optionee agrees to the
following:
(a) In the event the Company advises Optionee that it plans an underwritten
public offering of its Common Stock in compliance with the Securities Act of
1933, as amended, and the underwriter(s) seek to impose restrictions under which
certain shareholders may not sell or contract to sell or grant any option to buy
or otherwise dispose of part or all of their stock purchase rights of the
underlying Common Stock, Optionee will not, for a period not to exceed 180 days
from the prospectus, sell or contract to sell or grant an option to buy or
otherwise dispose of any incentive or nonqualified stock option granted to
Optionee pursuant to the Plan or any of the underlying shares of Common Stock
without the prior written consent of the underwriter(s) or its
representative(s).
(b) In the event the Company makes any public offering of its securities and
determines in its sole discretion that it is necessary to reduce the number of
issued but unexercised stock purchase rights so as to comply with any states
securities or Blue Sky law limitations with respect thereto, the Board of
Directors of the Company shall have
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the right (i) to accelerate the exercisability of any incentive or nonqualified
stock option and the date on which such option must be exercised, provided that
the Company gives Optionee prior written notice of such acceleration, and (ii)
to cancel any options or portions thereof which Optionee does not exercise prior
to or contemporaneously with such public offering.
(c) In the event of a transaction (as defined in Section 13 of the Plan) which
is treated as a "pooling of interests" under generally accepted accounting
principles, Optionee will comply with Rule 145 of the Securities Act of 1933 and
any other restrictions imposed under other applicable legal or accounting
principles if Optionee is an "affiliate" (as defined in such applicable legal
and accounting principles) at the time of the transaction, and Optionee will
execute any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock certificate
issued upon exercise of an option granted pursuant to the Plan to assure
compliance with this Section 14.
SECTION 15.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the Optionee without
the consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 13 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits accruing
to Optionees under the Plan without the approval of the shareholders of the
Company if such approval is required for compliance with the requirements of any
applicable law or regulation. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code.
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SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee to
exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
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