NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 20, 1997
To the Stockholders of
Escalade, Incorporated
You are hereby notified that the Annual Meeting of the Stockholders of
Escalade, Incorporated will be held at the Holiday Inn Select Airport, 2501
South High School Road, Indianapolis, Indiana, on Saturday, April 26, 1997 at
2:00 P.M., local time, for the following purposes:
1. To elect to the Board eight (8) Directors as set forth herein.
2. To approve the Company's 1997 Director Stock Compensation and
Option Plan as adopted by the Board of Directors on February 22,
1997.
3. To approve the Company's 1997 Incentive Stock Option Plan as
adopted by the Board of Directors on February 22, 1997.
4. To approve the appointment of the firm Geo. S. Olive &
Co.LLC, to serve as independent auditors for the Company for
the year 1997.
5. To transact such other business that may properly come
before the meeting or any adjournment thereof.
Stockholders of record at the close of business on February 28,
1997 will be entitled to vote at the meeting.
All persons who find it convenient to do so are cordially invited
to attend the meeting in person. In any event, please sign, mark and
return the Proxy enclosed with this Notice at your earliest convenience.
By order of the Board of Directors
John R. Wilson
--------------
JOHN R. WILSON
Vice President & Chief
Financial Officer
PROXY STATEMENT
The Board of Directors of Escalade, Incorporated (hereinafter referred
to as "Escalade" or the "Company"), 817 Maxwell Avenue, Evansville, Indiana
47717 ((812) 467-1200) is soliciting proxies the form of which is enclosed,
for the Annual Meeting of Stockholders to be held on Saturday, April 26,
1997, at 2:00 p.m. local time. Each of the 3,094,051 shares of common stock
outstanding on February 28, 1997 is entitled to one vote on all matters acted
upon at the meeting and only Stockholders of record on the books of the
Company at the close of business on February 28, 1997 will be entitled to
vote at the meeting, either in person or by proxy. The shares represented by
all properly executed proxies which are sent to the Company will be voted as
designated and each not designated will be voted affirmatively. Unless
discretionary authority is withheld, all other matters coming before the
meeting will be voted according to the best judgment of the proxies. Each
person giving a proxy may revoke it by giving notice to the Company in
writing or in open meeting at any time before it is voted. The proxy
statement is being mailed to shareholders on or about March 20, 1997.
The expense of soliciting proxies will be borne by the Company. Proxies
will be solicited principally by mail, but may also be solicited by Directors,
Officers, and other regular employees of the Company, who will receive no
compensation therefore in addition to their regular salaries. Bankers and
others who hold stock in trust will be asked to send proxy materials to the
beneficial owners of the stock, and the Company may reimburse them for their
expenses.
The Annual Report of the Company for the year of 1996 is being mailed to
you with this proxy statement, but such report and financial statements are
not a part of this proxy statement.
<TABLE>
CERTAIN BENEFICIAL OWNERS
Under Rule 13(d) of the Securities Exchange Act of 1934, a beneficial owner of a
security is any person who directly or indirectly has or shares voting power or investment
power over such security. Such beneficial owner under this definition needs not enjoy the
economic benefit of such securities. The following table sets forth certain information
regarding beneficial ownership of the Company's Common Stock by its Executive Officers and by
the only stockholders deemed to be beneficial owners of 5% or more of the Common Stock of the
Company as of February 28, 1997.
<CAPTION>
Title of Name and Address Amount and Nature Percentage
Class of Beneficial Owner of Ownership of Class
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Executive Officers
Common Stock Robert E. Griffin 546,625 (1) 17.7% (1)
817 Maxwell Avenue
Evansville, Indiana 47717
Common Stock C. W. "Bill" Reed 96,444 (2) 3.1% (2)
817 Maxwell Avenue
Evansville, Indiana 47717
Common Stock John R. Wilson 39,815 (3) 1.3% (3)
817 Maxwell Avenue
Evansville, Indiana 47717
Other 5% Stockholders
Common Stock Lida M. Kinnicutt 234,395 7.6%
11 Highwood Road
Bloomfield, Connecticut 06002
Common Stock Andrew and Charmenz Guagenti 244,902 (4) 7.9% (4)
216 Water Street
Newburgh, Indiana 47630
<FN>
(1) Includes 208,050 shares held by his spouse and 49,800 shares held
by his children. Mr. Griffin disclaims beneficial ownership of
those shares. Also, includes 672 shares held jointly with his
spouse and 6,900 shares issuable upon exercise of outstanding
stock options.
(2) Includes 23,000 shares issuable upon the exercise of outstanding
stock options.
(3) Includes 1,731 shares held by his spouse. Mr. Wilson disclaims
beneficial ownership of those shares. Also includes 17,250 shares
issuable upon exercise of outstanding stock options.
(4) Includes 123,355 shares owned by Mr. Guagenti directly and in his
directed IRA and 121,547 shares owned by Mrs. Guagenti directly
in her directed IRA and as Trustee. Mr. and Mrs. Guagenti each
disclaims beneficial ownership of the shares held by the other.
The executive officers of the Company are as follows: Robert E.
Griffin (age 62), Chairman and Chief Executive Officer, C.W.
(Bill) Reed (age 50), President and Chief Operating Officer, and
John R. Wilson (age 55), Vice President and Chief Financial
Officer. The executive officers' terms expire April 26, 1997.
</TABLE>
<TABLE>
ITEM NO. 1
ELECTION OF DIRECTORS
The Board of Directors voted to set the size of the Board at eight members. All persons proposed
for election to the Board of Directors are presently Directors except C.W. "Bill" Reed. Those persons
whose names are set forth below are standing for election. The term of office of the Directors is
until the next meeting of the stockholders and until their successors are elected and qualified.
Information with respect to each of the Directors is set forth as follows:
<CAPTION>
Shares of Common
Stock of the Company
Beneficially owned on
February 28, 1997
<S>
Name and Principal Occupation Director Percent of
During the Past Five Years Since (1) Age Number Class
- --------------------------------------------------------------------------------------------
<C> <C> <C> <C>
Yale A. Blanc-Consultant to Martin Yale 1972 75 33,499 (2) 1.1% (2)
Industries, Inc.(a subsidiary of the Company)
Gerald J. Fox-Private Investor,
Senior Vice President of Oppenheimer & Co.,
Inc. in the Institutional Sales Department
from 1984 till 1992. (3) 1968 62 91,075 (4) 2.9% (4)
Robert E. Griffin-Chairman and Chief
Executive Officer of the Company since
March, 1994, Previously President
and Chief Executive Officer since 1976 1973 62 546,625 (5) 17.7% (5)
Blaine E. Matthews, Jr.-Director and
Corporate Secretary of Matthews 1812
House, Inc. since 1979, a mail order
supplier of cakes and food gifts. (3) 1965 59 98,071 3.2%
Robert D. Orr-Private Investor,
Ambassador to Singapore from 1989
till 1992 and Governor of the State
of Indiana from 1981 till 1989 1992 79 100,785 (6) 3.3% (6)
C. W. "Bill" Reed-President and Chief
Operating Officer of the Company since
February, 1994 and President of Martin
Yale Industries, Inc. since 1980 -- 50 96,444 (7) 3.1% (7)
A. Graves Williams, Jr.-Private
Investor, President and Director
of The Irwin Company, Wilmington,
Ohio, a manufacturer of drill bits,
screwdrivers, measuring tapes and
similar tools, from 1978 till 1993. (3) 1958 64 81,819 (8) 2.6% (8)
Keith P. Williams-President of
Good Earth Tools, Inc., Crystal City,
Missouri since 1964, a company special-
izing in wear-proofing with tungsten
carbide. (3) 1982 69 67,233 (9) 2.2% (9)
All (9) Directors and Executive Officers as a Group 1,155,366 37.3%
(1) On March 8, 1973 the Board of Directors of the Williams
Manufacturing Company became the Board of Directors of Escalade,
Incorporated pursuant to an Agreement and Plan of reorganization
under which the Williams Manufacturing Company merged into
Escalade. The nominees whose period began prior to 1973 were
directors of Williams since the dates shown.
(2) Includes 4,243 shares held by his spouse, Mr. Blanc disclaims
beneficial ownership of those shares.
(3) Mr. A. Graves Williams, Jr., Mr. Keith P. Williams, and Karen
Williams Fox are first cousins. Mr. Gerald J. Fox is married to
Karen Williams Fox. Lida M. Kinnicutt is the sister of Blaine E.
Matthews, Jr. All such persons disclaim beneficial ownership of
shares held by any of the foregoing persons of whom he or she is
related.
(4) Includes 54,535 shares held by his spouse and 2,000 shares held by
Mr. Fox as trustee for the benefit of H. P. Korn. Mr. Fox disclaims
beneficial ownership of those shares.
(5) See note (1) under "Certain Beneficial Owners".
(6) Includes 15,734 shares held by his spouse. Mr. Orr disclaims
beneficial ownership of those shares.
(7) See note (2) under "Certain Beneficial Owners".
(8) Includes 81,802 shares held by his spouse. Mr. Williams disclaims
beneficial ownership of those shares.
(9) Includes 3,829 shares held by his spouse and 8,173 shares held by
Good Earth Tools, Inc. Mr. Williams disclaims beneficial
ownership of those shares.
While there is no reason to believe that any of the persons
nominated will, prior to the date of the meeting, refuse or be unable to
accept the nomination, should any person nominated so refuse or become
unable to accept, it is the intention of the persons named in the proxy
to vote for such other person or persons as the Directors recommend.
BOARD OF DIRECTORS, ITS COMMITTEES, MEETINGS, AND FUNCTIONS
The Board of Directors of the Company currently consists of one
member who is an executive officer (Robert E. Griffin) and six non-employee
members (Yale A. Blanc, Gerald J. Fox, Blaine E. Matthews, Jr.,
Robert D. Orr, A. Graves Williams, Jr., and Keith P. Williams). Mr.
Reed, a nominee for director, is an executive officer of the Company.
During 1996 the Board of Directors had four meetings. All
Directors attended 100% of the meetings except Mr. A. Graves Williams,
Jr. who attended 50% of the meetings.
The Company has a standing Audit Committee of the Board of
Directors. The Audit Committee is composed of Blaine E. Matthews, Jr.
and A. Graves Williams, Jr. It held one meeting in 1996. The main
functions performed by the Audit Committee are to (1) review with the
independent auditors their observations on internal controls of the
Company and the competency of financial accounting personnel, (2) review
with the chief accounting officer and independent auditors, the
accounting for specific items or transactions as well as alternative
accounting treatments and their effects on earnings, and (3) recommend
the firm of independent certified public accountants to be engaged by
the Company.
The Board of Directors has a Compensation Committee consisting of
Gerald J. Fox and A. Graves Williams, Jr. This committee met one time
in 1996 to review salaries and compensation levels within the Company.
The Board of Directors also has a Stock Option Committee consisting of
A. Graves Williams, Jr., Gerald J. Fox and Keith P. Williams. This
committee did not meet during 1996 because the incentive stock option
plan expired in 1994 and no option awards were possible. The Board of
Directors has no nominating committee.
To the best of the Company's knowledge, all of the Company's
directors, officers and 10% or more shareholders have timely filed with
the Securities and Exchange Commission all reports required to be so
filed pursuant to Section 16 of the Securities Exchange Act of 1934 for
1996 except for Gerald J. Fox, Blaine E. Matthews, Jr., Robert D. Orr
and A. Graves Williams, Jr. who each had one delinquent Form 4 filing.
</TABLE>
<TABLE>
EXECUTIVE COMPENSATION
Summary
The following table is a summary of the compensation paid by
the Company to Messrs. Griffin, Reed, and Wilson for the last three
years.
<CAPTION>
Annual Long Term
Compensation Compensation
----------------------------- -------------
Name and Other Annual Stock All Other
Principal Year Salary Bonus Compensation Options Compensation
Position $ $ $(2) (# Shares) $(3)
<S> <C> <C> <C> <C> <C> <C>
Robert E. Griffin 1994 115,538 44,183 28,769 --------- 6,998
Chairman, CEO 1995 116,816 44,872 31,468 --------- 134,735
and Director 1996 116,000(1) 185,000 34,420 --------- 70,746(4)
C.W. "Bill" Reed 1994 175,000 74,441 14,385 11,500 7,531
President and 1995 179,900 87,500 15,734 --------- 7,187
COO 1996 183,518(1) 289,755 17,210 --------- 8,033
John R. Wilson 1994 74,539 29,456 10,745 5,750 5,479
Vice President 1995 74,014 29,915 11,753 -------- 2,154
and CFO 1996 75,000(1) 100,000 12,856 -------- 3,664
<FN>
(1) Of the amounts shown, the following was deferred pursuant to the
Company's 401K retirement plan; Mr. Griffin ($8,150), Mr. Reed ($9,500)
and Mr. Wilson ($6,792). This amount also includes directors fees for
Mr. Griffin ($26,000).
(2) The amounts shown are the interest earned pursuant to the Company's
deferred compensation plan.
(3) In 1996, the amounts shown include the Company's contribution to
the 401K retirement plan; Mr. Griffin ($2,664), Mr. Reed ($7,859) and
Mr. Wilson ($2,220) and the dollar value of the group term life
insurance premiums paid by the Company; Mr. Griffin ($2,282), Mr. Reed
($174) and Mr. Wilson ($1,444).
(4) This amount also includes the dollar value ($65,800) of the benefit
of premiums paid by the Company in 1996 for a split-dollar life
insurance policy for Mr. Griffin. The Company has a collateral
assignment from the policy equal to its payments. The Company will be
reimbursed for all premium payments made by the company relating to the
policy in the event of death or from cash value of the policy at the
time of termination of the split-dollar agreement.
</TABLE>
Stock Options
In 1996, no stock options were granted to any of the Company's
executive officers nor did any such persons exercise any stock
options. The following table shows the number of outstanding
stock options held by such persons and the possible value of such
options as of December 28, 1996.
<TABLE>
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR END OPTION VALUES
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options At Options At
Acquired 12/28/96 12/28/96
on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
Name (#) $ (#) $(1)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert E. Griffin -------- --------- 5,175/1,725 9,419/ 3,139
C. W. "Bill" Reed -------- --------- 15,525/7,475 46,558/12,851
John R. Wilson -------- --------- 12,650/4,600 42,245/ 8,539
</TABLE>
(1) The value of unexercised options is calculated by determining the
difference between $8.75 per share, the last reported sale price of the
common stock on the Nasdaq National Market on December 28, 1996, and the
exercise price of the option as of such date, multiplied by the number
of shares subject to the option.
Compensation of Directors
During 1996 non-employee Directors of the Company received a
retainer of $5,000 and a regular meeting fee of $2,000 for each meeting
attended. The Chairman of the Audit Committee and the Compensation
Committee received a $1,000 Chairman fee. Directors are reimbursed for
their expenses incurred for attending the meetings.
Mr. Griffin received $18,000 for performing his duties as Chairman
of the Board and for serving on the Board of Directors and its
committees. Mr. Griffin also receives a fee of $2,000 for each meeting
attended.
Compensation and Stock Option Committee Report on Executive Compensation
Executive compensation is determined by the Compensation Committee
of the Board of Directors. Stock option grants are determined by the
Stock Option Committee of the Board of Directors. Both committees are
comprised entirely of non-management Directors. Based on the Company's
past compensation practices, the Company does not currently believe that
Section 162 (m) of the Internal Revenue Code, which limits the
deductibility of executive compensation in certain events, will
adversely affect the Company's ability to obtain a tax deduction for
compensation paid to its executive officers.
Report of the Compensation Committee
The Company's compensation package for its executive officers
consists primarily of base salary, incentive profit sharing bonuses and
stock option grants. Stock option grants are determined by the Stock
Option Committee and are discussed under that Committee's separate
report. Base salaries and incentive profit sharing bonuses are
determined by this Committee.
In general, base salary levels are set at the beginning of each
year at levels believed by this Committee to be sufficient to attract
and retain qualified executives when considered with the other
components of the Company's compensation structure. The primary
considerations in determining whether base salaries will be adjusted is
the Company's income level generated in the previous year and any
changes in level of responsibility. The Committee also subjectively
reviews the individual performance of each executive officer. For 1996,
in view of the increased income from operations to an income of $447,733
in 1995 from a loss of $2,403,421 in 1994 the Committee believed that
some base salaries should be held at the same level and some not
increased more than 3%. The Committee honored Mr. Griffin's request
that his base salary not be increased for 1996.
This Committee believes that a significant portion of total annual
cash compensation should be subject to the Company's actual performance
achieved in that year. Consequently, the incentive profit sharing
bonuses of the Company's executive officers can be a significant
percentage of their overall compensation. Each of the Company's
subsidiaries has in place an incentive profit sharing plan where the
amounts payable thereunder are based primarily upon the subsidiary's
after tax return on equity and after tax return on assets and, to a
lesser degree, upon the results of customer satisfaction surveys. At
the beginning of each year, the Committee reviews, approves and/or
modifies target levels suggested by management for each of these three
components for each subsidiary.
If the subsidiary meets or exceeds its targets in one or more of
the performance components, a bonus pool is created with respect to such
component for payment to the subsidiary's employees. An additional 20%
of any amounts payable under the subsidiary's incentive profit sharing
plan is payable to the Company. The Company in turn distributes the
incentive compensation received from each subsidiary to the Company's
executive officers based on a pre-determined percentage. Accordingly,
each executive officer's incentive profit sharing is directly linked to
the performance by each of the Company's operating subsidiaries. The
percentage and amount attributable to each individual executive officer
is reviewed by this Committee on an annual basis. This Committee
approved Mr. Griffin's portion, under the plan, of $185,000 for 1996.
In 1996, the Company's office and graphic arts machines and
equipment subsidiary and the company's sporting goods subsidiaries
exceeded their target levels for each of the three incentive profit
sharing components and a bonus pool was created with respect to those
operations. Therefore, the 1996 bonus amounts paid to Mr. Griffin and
the Company's other executive officers were generated from the
Company's office and graphic arts machines and equipment subsidiary and
the Company's sporting goods subsidiaries. After incentive profit
sharing and taxes the Company's consolidated net income of $5,247,117
generated a R.O.A. (on average beginning and ending assets) of 9.4% and
a R.O.E. (on beginning equity) of 22.5%.
Gerald J. Fox A. Graves Williams, Jr.
Report of Stock Option Committee
The Company maintains a Stock Option Committee of the board of
Directors, whose primary purpose is to determine annual stock option
grants to the Company's executive officers and other eligible employees.
No stock options were granted in 1996 due to the expiration of the
Company's 1984 Incentive Stock Option Plan in 1994.
The Stock Option Committee continues to believe that stock options
are an effective incentive to encourage stock ownership by officers and
key employees of the Company and its subsidiaries so that those persons
acquire or increase their proprietary interest in the success of the
Company. Beginning in 1995 and continuing in 1996, the members of the
Stock Option Committee and other members of the Company's Board of
Directors have considered ways in which the Company could more
effectively use stock options to motivate enhanced performance
throughout the Company. Upon the conclusion of such studies and
analysis, the Stock Option Committee recommends that the Company adopt
new stock option plans as further explained in this Proxy Statement.
A. Graves Williams, Jr. Gerald J. Fox Keith P. Williams
Compensation Committee and Stock Option Committee Interlocks and Insider
Participation
In 1996, Messrs. Fox, Graves Williams and Keith Williams were non-employee
Directors of the Company and comprised the Company's
Compensation and Stock Option Committees. No other Director or
executive officer of the Company serves on any board of directors or
compensation committee of any entity which compensates any of Messrs.
Fox, Graves Williams or Keith Williams.
Financial Performance
The graph below compares the Company's cumulative shareholder
return on Company common stock to a broad equity market index and to an
industry index for the past five years. The broad equity market index
selected by the Company is the CRSP Total Return Index for The Nasdaq
Stock Market (U.S. Companies) which includes all domestic companies
traded on the Nasdaq market as are the Company's shares. The published
industry index selected by the Company is the Nasdaq Total Return
Industry Index for Nasdaq Non-Financial Stock which is comprised of all
Nasdaq traded companies having the standard industrial classification
(SIC) code of 1 through 59 and 70 and above, which are all of the
non-financial industries (SIC) codes. The Company's SIC code falls within
these parameters and the Company is not aware of any other single
company that is engaged in both the same industries as Escalade.
The following graph assumes the investment of $100 in the
Company's common stock on December 31, 1991 and the investment of an
equal amount in each of the above referenced indices.
<TABLE>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Escalade 100.000 126.392 178.935 110.412 90.799 211.864
Nasdaq U. S. 100.000 116.378 133.595 130.587 184.674 227.164
Nasdaq Non-Financial 100.000 109.394 126.300 121.444 169.244 205.629
</TABLE>
The Company's line graph has been plotted based upon its actual year
end dates which is the last Saturday in December of each year. The line
graphs for each of the two indices have been plotted based upon the last
trading date in such calender years.
Other Securities Filings
The information contained in this Proxy Statement under the
sub-headings "Compensation and Stock Options Committees" and "Financial
Performance" are not, and should not be deemed to be, incorporated by
reference into any prior filings by the Company under the Securities Act
of 1933 or the Securities Exchange Act of 1934 that purport to
incorporate future filings or portions thereof by reference (including
this proxy statement).
ITEM NO. 2
APPROVAL OF 1997 DIRECTOR STOCK COMPENSATION AND OPTION PLAN
Background
The Board of Directors is proposing for Stockholder approval the
Escalade, Incorporated 1997 Director Stock Compensation and Option Plan
(the "Directors Plan"). The purpose of the Directors Plan is to
strengthen the link to the common interests of Stockholders as well as
enable the Company to attract and retain outstanding individuals to
serve as members of the Board of Directors by providing such persons
opportunities to acquire shares of the Company's common stock.
The following description of the Directors Plan is a summary of its
terms and is qualified in its entirety by reference to the complete text
of the Directors Plan, a copy of which is attached as Exhibit A to this
Proxy Statement.
Description of Plan
The Directors Plan reserves 100,000 shares of the Company's common
stock for issuance to members of the Board of Directors who elect to
receive their annual retainer fee, regular meeting fees or chairman fees
in shares of common stock, and for grants of non-qualified stock options
to those directors. All members of the Board of Directors are eligible
to participate in the Directors Plan whether or not they are salaried
officers or employees of the Company or any subsidiary. If there is a
lapse, expiration, termination or cancellation of any option prior to
the issuance of shares, those shares may again be used for new awards
under the Directors Plan.
Each Director may make an election to receive 25%, 50%, 75% or 100%
of his or her annual retainer fee, regular meeting fees or chairman fees
in shares of common stock on the last day of the retainer period
determined by dividing the elected portion of fees by the fair market
value of one share of the Company's common stock as of the first day of
the retainer period. Each Director receiving shares of common stock in
accordance with the foregoing election shall automatically be granted a
nonqualified stock option on that date at an option price equal to the
fair market value of the common stock on that date. The number of
shares subject to the option shall be equal to fifty percent of the
number of shares to be received by the Director pursuant to the election
described above. In all instances fractions will be disregarded and the
remaining amount of such fees will be paid in cash.
Terms of Option Grants
Each option is granted for a term of five years and becomes fully
exercisable after two years from the date of grant. The option price
must be paid in cash.
No option granted under the Directors Plan shall be transferable,
otherwise than by will or, if the Director dies intestate, by the laws
of descent and distribution. All options shall be exercisable during
the Director's lifetime only by the Director or his legal
representative. Notwithstanding the foregoing, an option may be
transferable to the Director's immediate family or trusts or family
partnerships for the benefit of such persons. In the event of a
Director's death or retirement, such options may be exercised within one
year after the Director's death or retirement.
The Board of Directors of the Company may suspend or terminate the
Directors Plan at any time. The Board of Directors may also amend the
Directors Plan from time to time in such respects as the Board of
Directors may deem advisable, except for increasing shares reserved
under the Directors Plan, which needs Stockholder approval.
The Directors Plan contains provisions for automatic adjustment of
awards in the event of a merger, consolidation, or reorganization, or
issuance of shares by the Company without new consideration.
Federal Tax Treatment
A Director will recognize ordinary income upon the payment of the
elected portion of fees in stock in an amount equal to the fair market
value of the stock on the date of receipt and the Company will be
entitled to a deduction in the same amount.
A Director will not recognize taxable income at the time of the grant
of the option. The Director will recognize ordinary income upon the
exercise of an option in an amount equal to the excess of the fair
market value of the stock on the date of exercise of the option over the
amount paid for the stock.
As a result of the optionee's exercise of an option, the Company will
be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. The Company's deduction will
be taken in the Company's taxable year in which the option is exercised.
Other Information
Based on total directors' retainer and meeting fees paid in fiscal
year 1996, if all directors elect to receive shares in lieu of all
annual retainers, regular meeting fees and chairman fees, under the
Directors Plan all directors on a cumulative basis would receive during
fiscal year 1997 9,375 shares of the Company's common stock and stock
options totaling 4,687 shares of the Company's common stock, based on
the price of the Company's common stock of $10.88 per share as of the
close of business on February 28, 1997.
The affirmative vote of holders of a majority of the shares of common
stock represented and entitled to vote at the meeting is required for
approval of the Directors Plan. Abstentions will count as a vote
against the proposal, but broker nonvotes will have no effect.
The Board of Directors recommends a vote FOR approval of the
Escalade, Incorporated 1997 Director Stock Compensation and Option Plan.
ITEM NO. 3.
APPROVAL OF 1997 INCENTIVE STOCK OPTION PLAN
Background
The Board of Directors is proposing for Stockholder approval the
Escalade, Incorporated 1997 Incentive Stock Option Plan (the "Option
Plan"). In the opinion of the Board of Directors, stock option plans
are successful in encouraging ownership of the Company's common stock by
corporate officers and key managerial personnel of the Company. Stock
option plans provide additional incentives for these employees to
contribute to the success of the Company and to assist the Company in
attracting and retaining the services of outstanding employees.
The following description of the Option Plan is a summary of its
terms and is qualified in its entirety by reference to the complete text
of the Option Plan, a copy of which is attached as Exhibit B to this
Proxy Statement.
Material Features of the Option Plan
The Option Plan provides for the granting of incentive stock options
to corporate officers and key managerial personnel of the Company for
the purchase of a maximum of 300,000 shares of the Company's common
stock. Such maximum is subject to adjustment upon the occurrence of
contingencies set forth in Section 12 of the Option Plan. The Company's
three executive officers and approximately 40 additional key employees
are currently considered eligible to participate in the Option Plan.
Directors of the Company who are not also employees are not eligible to
participate in the Option Plan.
The Option Plan will be administered by the Stock Option Committee of
the Board of Directors. Grants of options under the Option Plan may be
awarded by the Committee to the key employees whose responsibilities and
performance merit special recognition based upon such criteria as the
Committee may apply from time to time. Subject to the provisions of the
Option Plan, the Committee will have other general supervisory and
interpretative authority and will determine the dates of grants, the
number of shares to be granted under the options, and the terms of
exercise of the options. In all events, the Committee has discretion as
to the actual number of options granted and the grantees in each year.
Options granted under the Option Plan will be exercisable for up to
five years from the date of grant. The exercise price for options
granted under the Option Plan will be not less than 100% of the fair
market value of the Company's common stock on the date of grant, except
that in the case of options granted to employees who own more than 10%
of the voting shares of the Company, the exercise price will be not less
than 110% of the fair market value of the Company's common stock on the
date of grant.
The Option Plan permits payment of the option exercise price to be
made by delivering shares of the Company's common stock, including an
exchange of shares to be received on exercise of an option. The end
result of such an exchange would be that the exercising option holder
would receive a net number of shares from the option exercise equal to
the difference between the total number of shares for which exercise was
requested and that number of shares the fair market value of which is
equal to the exercise price to be paid by delivery of shares.
Under the Option Plan the Company requires an exercising option
holder to make payment to the Company sufficient to cover applicable
withholding taxes on the option exercise transaction. The Company will
retain from the total number of shares for which exercise was requested
that number of shares the fair market value of which is equal to the
amount of such taxes unless the exercising option holder elects to make
such payment to the Company in cash.
Options granted under the Option Plan are not transferable, except by
will or by the laws of descent and distribution. The options are
exercisable only by the option holder or the option holder's estate.
Each option must be exercised no later than three months after the
termination of the option holder's employment with the Company or a
parent or subsidiary corporation of the Company, except in cases where
termination is due to death or permanent disability (as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")).
The Company wishes to maintain an option holder's rights in the event
of a change in control of the Company (defined in the Option Plan as any
event or transaction which would result in (i) any person beneficially
owning 40% or more of the Company's outstanding voting securities
(unless arranged or approved in advance by the Company's Board of
Directors), (ii) the Company not being the surviving corporation or, if
the surviving corporation, where the Company's common stock is converted
into shares of any other company (other than in a reincorporation), or
(iii) a change in control as determined in the discretion of a majority
of the Company's Board of Directors). Therefore, the Option Plan
provides that any outstanding options which have not fully vested as of
the date of such change in control shall automatically vest and become
immediately exercisable unless the option holder agrees otherwise.
The Option Plan will terminate no later than April 25, 2007. The
Board of Directors may amend the Option Plan, but no amendment may cause
the Option Plan to fail to qualify as a plan for the issuance of
"incentive stock options" under Section 422 of the Code. Also, the
Company's Board of Directors may not amend the Option Plan without the
approval of the Stockholders if such amendment would increase the
maximum number of shares issuable under the Option Plan, change the
minimum price at which shares may be optioned or take any other action
for which the applicable tax, securities or other laws require
Stockholder approval. Any amendment of the Option Plan shall apply to
all options granted on or after the date of such amendment. If such
amendment were also applied to options granted prior to the date of the
amendment and would adversely affect the rights of such option holder,
the amendment may be made with regard to such prior options only with
the consent of such option holder.
Federal Tax Consequences
Options granted under the Option Plan are intended to qualify as
"incentive stock options" under Section 422 of the Code and to receive
the favorable tax treatment afforded thereunder. If an option holder
disposes of shares received upon the exercise of an option after the
later of two years after the date of grant of the option or one year
after the date of exercise, and if the option holder is an employee of
the Company (or a parent or subsidiary corporation of the Company, or a
corporation or parent or subsidiary corporation of such corporation
issuing or assuming the option in a transaction to which Section 424(a)
of the Code applies) or the disposition of the shares occurs either
within the three-month period immediately following the termination of
such employment for reasons other than death or permanent disability or
within the applicable period provided by the Code for termination due to
death or permanent disability, any gain or loss recognized by the option
holder upon disposition of such shares will be long-term capital gain or
loss. The option holder's basis in the shares for tax purposes (other
than for purposes of the alternative minimum tax) will be the amount of
the option holder's exercise price for such shares. The excess of the
fair market value of the option shares at the time of exercise over the
exercise price will be treated as an item of adjustment, however, and
such excess may be taxed in the year of exercise under the alternative
minimum tax provisions as a result of such treatment. The fair market
value of the option shares at the time of exercise of the option will be
the option holder's basis in the shares for the alternative minimum tax
computation in the year of disposition.
Options for shares which are exercisable for the first time by any
option holder during any calendar year which have an aggregate fair
market value in excess of $100,000 shall be treated as options which are
not "incentive stock options," in accordance with Section 422(d)(1) of
the Code. The option holder will recognize ordinary income at the time
of exercise of the options exceeding the $100,000 threshold and the
Company will receive a corresponding deduction. The amount of ordinary
income recognized will be equal to the excess, if any, of the fair
market value of the shares underlying such options on the exercise date
over the exercise price for the shares.
Except as described below, the Company will not be allowed a
deduction for federal income tax purposes upon the grant or exercise of
options under the Option Plan or upon the sale of shares received upon
exercise thereof. If an option holder disposes of the shares purchased
upon the exercise of an option before the later of two years after the
date of grant of the option or one year after the exercise, the option
holder will recognize ordinary income at the time of disposition of the
shares acquired on exercise. The amount of ordinary income recognized
will be equal to the excess, if any, of the fair market value of the
shares on the exercise date or the amount realized, if less, over the
exercise price for the shares. The Company may deduct an amount equal
to the taxable income so recognized by the option holder in the taxable
year the disposition occurred. Any excess amount realized will be
treated as gain from the sale of a capital asset under the rules
described above. If the holding period is met but the option holder was
not an employee of the Company at all times from the date of grant of
the option until, in the case of termination for reasons other than
death or permanent disability, the date three months prior to the date
of exercise or, in the case of death or permanent disability, the
applicable date provided by the Code, the option holder will recognize
the excess of the fair market value of the shares over the exercise
price as ordinary income and the Company will receive a corresponding
deduction. The restrictions do not apply to the estate or heir of a
deceased option holder that exercises an option or holds shares acquired
upon exercise of an option.
The affirmative vote of holders of a majority of the shares of common
stock represented and entitled to vote at the meeting is required for
approval of the Option Plan. Abstentions will count as a vote against
the proposal, but broker nonvotes will have no effect.
The Board of Directors recommends a vote FOR the approval of the
Escalade, Incorporated 1997 Incentive Stock Option Plan.
ITEM NO. 4
APPROVAL OF AUDITORS
The Management proposes and recommends that the Stockholders approve
the selection by the Board of Directors of the firm of Geo. S. Olive &
Co.LLC to serve as independent auditors for the Company for the year
1997. The firm has served as independent auditors for the Company since
1977. Audit services performed by Geo. S. Olive & Co.LLC during the
fiscal year most recently completed include examinations of the
financial statements of the Company and its subsidiaries, services
related to filings with the Securities and Exchange Commission, and
consultations on matters related to accounting, financial reporting and
filing of Federal and State Income Tax Returns.
In the event the appointment of Geo. S. Olive & Co.LLC, as
independent auditors for 1997 is not approved by the shareholders, the
adverse vote will be considered as a direction to the Board of Directors
to select other auditors for the following year. However, because of
the difficulty and expense of making any substitution of auditors so
long after the beginning of the current year, it is contemplated that
the appointment for the year 1997 will be permitted to stand unless the
Board finds other good reason for making a change. Management
recommends a vote "FOR" the approval of the appointment of Geo. S. Olive
& Co.LLC.
RESULTS OF THE 1996 ANNUAL MEETING
3,533,429 shares or 85.5% of the outstanding shares of the Company
were voted in person or by proxy at the 1996 annual meeting which was
held April 26, 1996. The proposals to elect to the Board seven
Directors and to approve the appointment of Geo. S. Olive & Co.LLC to
serve as independent auditors for the Company for the year 1996 were
approved by the shareholders.
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Shareholder proposals for shareholder action at the 1998 annual
meeting must be presented in writing at the offices of the Company on or
before January 15, 1998. Only such proposals as are (1) required by
Securities and Exchange Commission Rules, and are (2) permissible
shareholder motions under the Corporation Law of the State of Indiana
will be included on the 1998 meeting docket.
OTHER BUSINESS
The management does not know of any other business to be presented to
the meeting and does not intend to bring any other matters before the
meeting. However, if any matters properly come before the meeting, it
is intended that the persons named in the accompanying Proxy will vote
thereon according to their best judgment and interest of the Company.
By order of the Board of Directors
JOHN R. WILSON
- --------------
JOHN R. WILSON
Vice-President &
Chief Financial Officer
EXHIBIT A
ESCALADE, INCORPORATED
1997 DIRECTOR STOCK COMPENSATION AND OPTION PLAN
1. Purpose.
The purpose of the Escalade, Incorporated 1997 Director Stock
Compensation and Option Plan (the "Plan") is to foster and promote the
long-term financial success of Escalade, Incorporated (the "Company") by
(i) aligning the personal interests of the directors with those of the
Company's stockholders and (ii) attracting and retaining outstanding
persons to serve as directors by enabling them to participate in the
Company's growth through stock ownership.
2. Shares Reserved under the Plan.
There is hereby reserved for issuance under the Plan an aggregate
of 100,000 shares of common stock, no par value, of the Company ("Common
Stock") which may be authorized and unissued or treasury shares. If
there is a lapse, expiration, termination or cancellation of any option
granted under this Plan, all shares then subject to such option may
again be used under this Plan.
3. Participation.
Participation in this Plan is open to all members of the Board of
Directors of the Company, whether or not they are salaried officers or
employees of the Company or any subsidiary.
4. Election to Receive Annual Retainer and Fees in Shares of Company Stock.
Each director may make an election to receive 25%, 50%, 75% or 100%
of his or her annual retainer fee, chairman fee or regular meeting fees
in shares of Company Common Stock. An election pursuant to this
paragraph must be made in writing and delivered to the Secretary of the
Company before the first day of the director's first annual retainer
period for which the election is to be effective. Any election shall be
effective from the first day of the retainer period and for successive
retainer periods until terminated by the director by written notice
given not less than ten days prior to the commencement of a retainer
period. The election will entitle the director to receive on the last
day of any annual retainer period for which the election is effective a
number of shares of Company stock determined by dividing the elected
portion of the fees for that retainer period by the fair market value of
one share of the Company's Common Stock as of the first day of the
retainer period. In the event any person becomes a director other than
at the beginning of an annual retainer period, such person may make an
election before the date on which such person becomes a director and
will receive on the last day of such annual retainer period all or a
portion of his or her retainer for the balance of that annual retainer
period in shares of Company stock determined by dividing all or the
elected portion of the retainer for the balance of such retainer period
by the fair market value of one share of the Company's Common Stock on
the first day of the period of service.
Any fraction of a share shall be disregarded and the remaining
amount of the retainer or meeting fees shall be paid in cash. Subject
to applicable tax, securities and other laws, all shares of Company
common stock issued pursuant to this paragraph 4 and specifically
approved by the Board prior to issuance shall be freely transferable by
the recipient. Absent specific Board approval, any such shares must be
held by the recipient for no less than six months prior to the
disposition thereof.
For purposes of this paragraph, unless otherwise specified by the
Board, an annual retainer period shall begin immediately after an annual
meeting of the stockholders of the Company and end immediately before
the succeeding annual meeting.
5. Options to be Granted under the Plan.
Each director electing to receive shares of Common Stock for all or
a portion of his or her retainer fee, chairman fee or regular meeting
fees during an annual retainer period pursuant to paragraph 4 hereof
shall automatically be granted a non-qualified stock option on that
date, at an option price equal to the fair market value of the Common
Stock on that date. The number of shares subject to the option shall be
equal to 50% of the number of shares to be received by the director
pursuant to paragraph 4 hereof. Any fraction of a share shall be
disregarded. The option shall be subject to the following terms and
conditions:
(i) No option may be exercised during the first two years
following the date of grant. Each option shall be fully exercisable on
or after the second anniversary of the date of grant. An option shall
also become fully exercisable upon the death of a director while serving
on the Board or upon the retirement of a director from the Board at any
time at or after age 62 or with the consent of the Board.
(ii) No option may be exercised after termination of the
director's service on the Board for any reason other
than death or retirement. Any option granted under the Plan may be
exercised for 12 months after retirement or death. However, no option
may be exercised more than five years from the date the option is
granted.
(iii) An option may be exercised by delivery of written
notice of exercise to the Secretary of the Company, accompanied by a
check payable to the order of the Company for the full purchase price of
the shares being purchased and any required tax withholding.
(iv) No option shall be transferable other than by will or
the laws of descent and distribution and shall be exercisable during the
director's lifetime only by the director or the director's guardian or
legal representative. If a director dies during the option period, any
option may be exercised by his or her estate or the person to whom the
option passes by will or the laws of descent and distribution.
Notwithstanding the foregoing, an option may be transferred to the
director's immediate family or trusts or family partnerships for the
benefit of such persons.
(v) The grant of any option may also be subject to other
provisions as the Company deems appropriate, including, without
limitation, provisions imposing restrictions on resale or other
disposition of the Common Stock issuable upon exercise of any option and
such provisions as may be appropriate to comply with federal or state
securities laws and stock exchange requirements.
(vi) If the Company shall at any time change the number of
issued shares of Common Stock without new consideration to the Company
(such as by stock dividend or stock split), the total number of shares
reserved for issuance under this Plan and the number of shares covered
by each outstanding option shall be adjusted so that the consideration
payable to the Company and the value of each option shall not be
changed. If, during the term of any option, the Common Stock
of the Company shall be changed into another kind of
stock or into securities of another corporation or cash or other
property, whether as a result of reorganization, sale, merger,
consolidation or other similar transaction, the holder of any option
shall thereafter be entitled to receive upon its due exercise the
securities, cash or other consideration the holder would have been
entitled to receive immediately prior to the effective date of any such
transaction for shares of Common Stock not theretofore purchased which
could have been acquired through the exercise of such option.
6. Administration.
This Plan is intended to be self-governing and requires no
discretionary action by any administrative body with respect to any
transaction under the Plan. All grants of options to directors under
the Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the terms of the Plan. To the extent, if
any, that questions of administration arise, they shall be resolved by
the entire Board of Directors.
7. Fair Market Value.
For purposes of this Plan, fair market value shall mean the closing
sale price for a share of the Company's Common Stock on the relevant
date as reported by the primary stock exchange or stock market on which
the Common Stock is authorized for trading, or such other source for
reports of trading of the Common Stock as the Company's Board of
Directors may reasonably select from time to time. If there are no
reported trades of Common Stock on the relevant date, then Fair Market
Value shall be determined as of the close of business on the next
following business day on which there is a reported trade. If this
method is not available or does not accurately reflect the fair market
value of the Common Stock, then the Company's Board of Directors shall
make a good faith determination of the fair market value using any
reasonable method of valuation.
8. Taxes.
The Company shall be entitled to withhold the amount of any tax
attributable to any shares deliverable under the Plan after giving the
person entitled to receive such delivery notice as far in advance as
practicable and the Company may defer making delivery, if any such tax
is payable, until indemnified to its satisfaction.
9. Amendment, Suspension and Termination of Plan.
The Board of Directors may suspend or terminate the Plan at any
time and may amend it from time to time in such respects as the Board of
Directors may deem advisable in order that any grants thereunder shall
conform to, or otherwise reflect, any change in applicable laws or
regulations, or to permit the Company or its directors to enjoy the
benefits of any change in applicable laws or regulations; provided,
however, that no amendment shall be made without Share Owner approval,
which increases the number of shares reserved for issuance hereunder.
No such amendment, suspension or termination shall impair the rights of
directors under any outstanding options.
10. Stockholder Approval and Term.
This Plan was adopted by the Board of Directors of the Company on
February 22, 1997. The Plan shall be null and void if stockholder
approval is not obtained at the Company's 1997 annual meeting of
stockholders. The term of the Plan shall be for a ten-year period from
the date of stockholder approval.
EXHIBIT B
ESCALADE, INCORPORATED
1997 INCENTIVE STOCK OPTION PLAN
1. Effective Date.
This Plan known as the Escalade, Incorporated 1997 Incentive Stock
Option Plan (the "1997 Plan") was adopted on February 22, 1997 by the
Board of Directors (the "Board") of Escalade, Incorporated (the
"Company"), subject to approval at the Company's 1997 annual meeting of
stockholders.
2. Purpose.
This 1997 Plan is to afford an incentive to selected employees of
the Company and of any subsidiaries of the Company to acquire a
proprietary interest in the Company and to enable the Company and its
subsidiaries to attract and retain such employees. It is further
intended that options issued pursuant to this 1997 Plan will constitute
incentive stock options within the meaning of Section 422 of the Code
(as defined herein).
3. Definitions.
The following terms, when capitalized, shall have the designated
meanings set forth below, unless a different meaning is plainly required
by the context.
(a) "Change in Control" shall mean any of the following:
(i) any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act) who is or becomes a beneficial
owner of (or otherwise has the authority to vote), directly or
indirectly, securities representing forty percent (40%) or more of the
total voting power of all of the Company's then outstanding voting
securities, unless through a transaction arranged by, or consummated
with the prior approval of the Company's Board of Directors; or
(ii) the Company becomes a party to a merger,
consolidation or share exchange in which either (A) the Company will not
be the surviving corporation or (B) the Company will be the surviving
corporation and any outstanding shares of Common Stock of the Company
will be converted into shares of any other company (other than a
reincorporation or the establishment of a holding company involving no
change of ownership of the Company) or other securities or cash or other
property (excluding payments made solely for fractional shares); or
(iii) any other event that a majority of the
Company's Board of Directors, in its sole discretion, shall determine
constitutes a Change of Control.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder. Any
specific provisions of the Code referenced herein shall be deemed to
refer to corresponding provisions of any amendment, revision, or
successor of the Code or such provisions adopted in lieu of the
referenced provisions.
(c) "Committee" shall mean the committee appointed for
purposes of this 1997 Plan by the Company's Board of Directors from time
to time by a resolution passed by a majority of the Board, or if no such
committee has been appointed, then the Company's Board of Directors in
its entirety.
(d) "Common Stock" shall mean the Company's common stock,
no par value per share as authorized by the Company's Certificate of
Incorporation as of the effective date of this 1997 Plan and any class
of stock subsequently authorized by the Company and issued in
replacement of the then outstanding shares of the Company's common
stock.
(e) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated
thereunder. Any specific provisions of the Exchange Act referenced
herein shall be deemed to refer to corresponding provisions of any
amendment, revision, or successor of the Exchange Act or such provisions
adopted in lieu of the referenced provisions.
(f) "Exercise Date" shall mean the date that the Secretary
of the Company receives written notice from an option grantee that the
option grantee is exercising his or her right to purchase shares of
Common Stock underlying an option granted under this 1997 Plan.
(g) "Fair Market Value" shall mean the closing sale price
for a share of Common Stock on the relevant date as reported by the
primary stock exchange or stock market on which the Common Stock is
authorized for trading, or such other source for reports of trading of
the Common Stock as the Committee may reasonably select from time to
time. If there are no reported trades of Common Stock on the relevant
date, then Fair Market Value shall be determined as of the close of
business on the next following business day on which there is a reported
trade. If this method is not available or does not accurately reflect
the fair market value of the Common Stock, then the Committee shall make
a good faith determination of the fair market value using any reasonable
method of valuation.
(h) "Grant Date" shall mean the date that the Committee
approves the granting of an option under this 1997 Plan.
(i) "Incentive Stock Option" shall mean an option which
qualifies as an incentive stock option under Section 422 of the Code.
(j) "Option" shall mean any stock option granted or to be
granted under the 1997 Plan for the purchase of a fixed number of shares
of Common Stock at an exercise price established in accordance with
Section 6.
(k) "Parent Corporation" shall have the definition
provided in Section 424 of the Code.
(l) "Subsidiary Corporation" shall have the definition
provided in Section 424 of the Code.
4. Shares Available for Option Grants.
The shares of the Company's stock which may be optioned and sold
under this 1997 Plan shall not exceed 300,000 shares of Common Stock,
which shares may be taken from the unissued but authorized shares of
Common Stock, from treasury shares, or from Common Stock purchased by
the Company from the open market. If for any reason an option under
this 1997 Plan expires in whole or in part prior to exercise, shares
subject to such expired option may again be subjected to an option under
this 1997 Plan.
5. Eligibility; Continued Service.
Options shall be granted only to persons who on the Grant Date are
employees of the Company or of any Parent Corporation or Subsidiary
Corporation of the Company. The Committee will determine the employees
to whom options are to be granted and the number of shares subject to
each option. Participation in this 1997 Plan and the exercise or
non-exercise of any option granted are entirely voluntary on the part of
each employee to whom the option is offered.
Under the terms of Section 422 of the Code, an option may be
granted at any time prior to April 26, 2007; and an option may be
exercised at any time within such time period as fixed by the Committee
(but in no event more than five years after the Grant Date of such
option). In determining stock ownership under this Section 5 and under
Section 6, the attribution rules of Section 424(d) of the Code shall
apply.
6. Exercise Price.
The price at which shares of Common Stock may be purchased under
Incentive Stock Options granted hereunder shall be fixed by the
Committee and shall not be less than the following:
(a) 110% of the Fair Market Value on the Grant Date (but not less
than par value), with respect to an option granted to an individual who
owns more than ten percent of the value of the total outstanding stock
of the Company or of any Parent Corporation or Subsidiary Corporation of
the Company; or
(b) the Fair Market Value on the Grant Date (but not less than par
value), with respect to an option granted to individuals other than
those described in subsection (a).
7. Exercise of Option.
Options may be exercised from time to time by delivering to the
Secretary of the Company written notice of exercise stating the number
of shares of Common Stock with respect to which an option is being
exercised. Upon exercise, the exercise price shall be paid in full by
(a) cash or check payable to the Company in United States dollars, (b)
delivery of shares of Common Stock, or (c) a combination of both. The
option grantee shall have the sole discretion as to which of the
foregoing payment methods shall be utilized in connection with any
exercise of an option. Payment by delivery of shares of Common Stock
may be made by (i) the delivery of Common Stock already owned by the
option grantee, or (ii) the exchange, in successive steps, of Common
Stock to be received from the exercise of the option, with the result
that the option grantee will receive from the exercise a net number of
shares of Common Stock represented by the difference between the total
number of shares with respect to which the option is being exercised and
that number of shares the Fair Market Value (determined as of the
Exercise Date) of which is equal to that portion of the price being paid
by the delivery of shares of Common Stock.
8. Withholding Taxes.
The Company or a Parent Corporation or Subsidiary Corporation of
the Company shall require a payment from an option grantee to cover
applicable withholding taxes. Upon the issuance of shares of Common
Stock following an option exercise, the Company shall retain or sell
without notice the number of shares of Common Stock otherwise to be
issued to the option grantee which shares have an aggregate Fair Market
Value (determined by the Company as of the Exercise Date) sufficient to
satisfy the amount of any tax required by any government to be withheld
or otherwise deducted and paid with respect to such payment, remitting
any cash balance relating to fractional shares to the option grantee;
provided, however, that upon providing written notice to the Company no
later than the Exercise Date, the option grantee shall have the right to
provide the Company with sufficient funds prior to the issuance of the
shares to enable the Company to pay such tax.
9. Time of Grant, Period of Options, and Right to
Exercise.
Subject to the provisions and limitations of this 1997 Plan,
options may be granted by the Company at such time or times as may be
determined by the Committee during the period this 1997 Plan is in
effect. The time or times when options granted hereunder or portions
thereof shall become exercisable, the expiration dates of the options,
the manner of their exercise, the number of options granted to each
option grantee, and the terms of payment of the exercise price shall be
as determined by the Committee at or prior to the respective Grant Dates
of the options.
Prior to the expiration of the option, each option granted
hereunder shall be exercisable (to the extent the option grantee's right
to exercise such option has vested) (a) during the lifetime of the
option grantee only by the option grantee (except as provided in the
following paragraph), and (b) while the option grantee is an employee of
either the Company, a Parent Corporation or Subsidiary Corporation of
the Company, or a corporation or Parent Corporation or Subsidiary
Corporation of such corporation issuing or assuming the option in a
transaction to which Section 424(a) of the Code applies, or within the
three (3) month period immediately following the termination of such
employment for reasons other than death or permanent disability (as
defined in Section 22(e)(3) of the Code) or within the applicable period
provided by the Code for termination due to death or permanent
disability.
In the event of the death of an option grantee at a time when the
option grantee is entitled to exercise an option or any part thereof,
the option grantee's estate, or any person who acquires the right to
exercise the option grantee's option by bequest or inheritance or by
reason of the option grantee's death, shall have such rights to exercise
the option grantee's option as provided in the grant of the option to
the option grantee as shall be permissible in the case of Incentive
Stock Options under the Code.
10. Limitation on Exercisability.
The aggregate Fair Market Value (determined as of the Grant Date)
of the shares of Common Stock issuable pursuant to the Incentive Stock
Options granted under this 1997 Plan and under any other plan of the
Company and any Parent Corporation and Subsidiary Corporation of the
Company which are exercisable for the first time by any option grantee
during any calendar year shall not exceed $100,000. Options for shares
which are exercisable for the first time by any option grantee during
any calendar year in excess of $100,000 shall be treated as nonqualified
stock options, in accordance with Section 422(d)(1) of the Code.
11. Non-Transferability.
Options granted hereunder shall be personal to the option grantee,
and shall be non-assignable and non-transferable otherwise than by will
and by the law of descent and distribution.
12. Adjustment of Shares.
In the event there is any change in the Common Stock by reason of a
stock dividend paid in shares of Common Stock, a recapitalization, a
reclassification, a merger, a stock split, a split-up, a split-off, a
spin-off, or a combination of shares with respect to the Common Stock,
the exercise price under any option outstanding hereunder and the number
of shares as to which such option is then exercisable shall be
automatically adjusted by the Committee at the time of the event such
that the option grantee's proportionate interest shall be maintained as
before the occurrence of such event; and in any such case, an
appropriate adjustment shall also be made in the total number of shares
of Common Stock reserved for the future granting of options under this
1997 Plan. Any such adjustment made by the Committee pursuant to this
1997 Plan shall be binding upon the holders of all unexpired option
rights outstanding hereunder. The Company shall give to each option
grantee appropriate information as to any such adjustments.
Except as expressly provided herein, the option grantee shall have
no rights by reason of any subdivision or consolidation of shares of
stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, merger, or consolidation or
spinoff of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of
shares of Common Stock subject to the option. The grant of an option
pursuant to this 1997 Plan shall not affect 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 or to consolidate or to dissolve, liquidate or sell, or transfer
all or any part of its business or assets.
13. Change in Control.
If a Change in Control of the Company occurs, the Committee shall
make arrangements for the substitution of new options for the options,
or for the assumption of the options, provided that such arrangements
shall meet the requirements of Section 424(a) of the Code.
Notwithstanding the foregoing, any outstanding options subject to
vesting which have not fully vested as of the date of a Change in
Control shall automatically vest and become immediately exercisable
unless the option grantee agrees otherwise.
14. Administration.
This 1997 Plan shall be administered by the Committee, or, if no
Committee has been appointed by the Board, shall be administered by the
Board. All actions of the Committee shall be subject to the approval of
the Board.
The interpretation and construction by the Committee of any
provisions of the 1997 Plan or of any option granted under it shall be
final unless otherwise determined by the Company's Board of Directors.
No member of the Company's Board of Directors or the Committee shall be
liable for any action or determination made in good faith with respect
to the 1997 Plan or any option granted under it.
15. Indemnification.
In addition to such other rights of indemnification as they may
have as directors or as members of the Committee, the members of the
Committee shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the 1997 Plan or any option granted thereunder, and
against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such Committee
member is liable for negligence or misconduct in the performance of his
duties; provided that within 60 days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the
same.
16. Form of Option.
Each option granted hereunder shall contain such provisions and
conditions in addition to those included in this 1997 Plan as the
Committee shall deem advisable, provided that no such additional
provisions or conditions shall be inconsistent with this 1997 Plan.
17. Duration and Amendment.
This 1997 Plan shall expire, unless sooner terminated by the Board,
on April 25, 2007. This 1997 Plan may be terminated at any time as to
all shares not then subject to outstanding options, by a resolution duly
adopted by the Board. Neither the expiration nor the termination of
this 1997 Plan shall affect any option theretofore granted hereunder.
The Board may from time to time amend this 1997 Plan, except that:
(a) the Board may not cause this 1997 Plan, as amended, to
fail to qualify as a plan for the issuance of Incentive Stock Options;
and
(b) the Board must obtain the approval of the stockholders
before the Board may:
(i) increase the maximum number of shares for which
options may be granted under this 1997 Plan, except as set forth in
Section 12 above;
(ii) change the limitation with respect to the
minimum price at which shares may be optioned; or
(iii) take any other action for which the applicable
tax, securities or other laws require the approval of the stockholders.
Any amendment of this 1997 Plan shall apply to all options granted
on or after the date of such amendment. If such amendment were also
applied to options granted prior to the date of the amendment and would
adversely affect the rights of such option grantee, the amendment may be
made with regard to such prior options only with the consent of such
option grantee.
18. Modification, Extension and Renewal of Options.
Subject to the terms and conditions and within the limitations of
this 1997 Plan, the Company's Board of Directors may modify, extend or
renew outstanding options granted under this 1997 Plan, or accept the
surrender of outstanding options (to the extent not theretofore
exercised)and authorize the granting of new options in substitution
therefore (to the extent not theretofore exercised). Notwithstanding
the foregoing however, no modification of an option shall, without the
consent of the optionee, alter or impair any rights or obligations under
any option theretofore granted under this 1997 Plan.
19. No Rights as a Stockholder.
An option grantee or a transferee of an option shall have no rights
as a stockholder with respect to any shares covered by his option until
the date of the issuance of a stock certificate to him for such shares.
No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other
rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Sections 12 or 13 hereof.
20. Registration of Shares.
Each option shall be subject to the requirement that, if at any
time the Committee shall determine, in its discretion, that the listing,
registration, or qualification of the shares of Common Stock subject to
such option upon any securities exchange or under any state or federal
law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the
granting of such option or the issue or purchase of shares thereunder,
such option may not be exercised in whole or in part unless such
listing, registration, qualification, consent, or approval shall have
been effected or obtained.
21. Rule 16b-3 Savings Clause.
To the extent that they apply to persons subject to Section 16 of
the Exchange Act, transactions under this 1997 Plan are intended to
comply with all applicable conditions of Rule 16b-3 of the General Rules
and Regulations of the Exchange Act. Any provision of this 1997 Plan or
action by the Committee or the Board shall be interpreted, wherever
possible, to comply, and to the extent that it does not comply, it shall
be deemed to be null and void, to the extent permitted by law and deemed
advisable by the Committee.
22. Notices.
All notices given, made, delivered, or transmitted to an option
grantee by the Company shall be deemed duly given when mailed first
class mail, postage prepaid, and addressed to the option grantee at the
address last appearing on the records of the Company. An option grantee
may change the address as shown on the records of the Company by giving
written notice thereof to the Company.
