SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934.
FILED BY THE REGISTRANT /X/
FILED BY A PARTY OTHER THAN THE REGISTRANT / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for the Use of the Commission Only (as permitted by
rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or
sec. 240.14a-12
KEY TRONIC CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Persons(s) Filing Proxy Statement if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount
on which the filing fee is calculated and state how it was
determined):
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party
4) Date Filed:
- -----------------------------------------------------------------------------
KEY TRONIC CORPORATION
September 22, 1995
Dear Shareholder:
The attached Notice of Annual Meeting of Shareholders and Proxy Statement
relate to the Annual Meeting of Shareholders of Key Tronic Corporation, a
Washington corporation (the "Company"), to be held on Thursday, October 26,
1995, at 1:00 p.m. Pacific time at the principal executive offices of the
Company, 4424 N. Sullivan Road, Spokane, Washington 99216.
Whether or not you will attend the Annual Meeting in person and
regardless of the number of shares you own, we request that you complete,
sign, date and return the enclosed proxy card promptly in the accompanying
postage-prepaid envelope. You may, of course, attend the Annual Meeting and
vote in person, even if you have previously returned your proxy card.
Sincerely,
/s/ Stanley Hiller, Jr.
Stanley Hiller, Jr.
Chairman of the Board of Directors
<PAGE>
KEY TRONIC CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 26, 1995
To the Shareholders of KEY TRONIC CORPORATION:
The Annual Meeting of Shareholders of Key Tronic Corporation, a
Washington corporation (the "Company"), will be held on Thursday, October
26, 1995, at 1:00 p.m. Pacific time at the principal executive offices of
the Company, 4424 N. Sullivan Road, Spokane, Washington 99216 (the "Annual
Meeting"), for the following purposes:
1. To elect eleven directors of the Company to hold office until the
next Annual Meeting of Shareholders and until their successors are elected
and have qualified;
2. To consider and vote upon adoption of an amendment to the Amended
and Restated 1990 Stock Option Plan for Non-Employee Directors;
3. To consider and vote upon adoption of the 1995 Key Tronic
Corporation Executive Stock Option Plan;
4. To ratify the appointment of Deloitte & Touche LLP as independent
auditors for fiscal year 1996; and
5. To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
Record holders of the Company's Common Stock at the close of business on
September 7, 1995 (the "Record Date") are entitled to notice of and to vote at
the Annual Meeting and any adjournments or postponements thereof.
Even if you will attend the Annual Meeting, please complete, sign, date
and return the enclosed proxy to the Company in the enclosed postage-prepaid
envelope in order to ensure that your shares will be voted at the Annual
Meeting. You may vote your shares in person at the Annual Meeting even if you
have previously returned your proxy card to the Company.
By Order of the Board of Directors,
/s/ Ronald F. Klawitter
Spokane, Washington _______________________________
September 22, 1995 Ronald F. Klawitter, Acting Secretary
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT
AT THE ANNUAL MEETING.
<PAGE>
First mailed to shareholders on or about September 22, 1995
KEY TRONIC CORPORATION
PROXY STATEMENT
INTRODUCTION
GENERAL
The preceding Notice of Annual Meeting of Shareholders, this Proxy
Statement and the enclosed proxy card are being furnished by Key Tronic
Corporation, a Washington corporation (the "Company"), to the holders of
outstanding shares of Common Stock, no par value, of the Company ("Common
Stock") in connection with the solicitation of proxies by the Board of
Directors of the Company from holders of such shares. The proxies are to be
used at the Annual Meeting of Shareholders of the Company to be held on
Thursday, October 26, 1995, at 1:00 p.m. Pacific time at the principal
executive offices of the Company, 4424 N. Sullivan Road, Spokane, Washington
99216, and any adjournments or postponements thereof (the "Annual Meeting").
The proxies appoint Stanley Hiller, Jr., Wendell J. Satre and Yacov A.
Shamash, any of them and their substitutes, as proxy to vote all shares
represented at the Annual Meeting pursuant to this proxy solicitation.
RECORD DATE, PROXIES, REVOCATION
Record holders of the Common Stock at the close of business on September
7, 1995 (the "Record Date") are entitled to notice of and to vote at the
Annual Meeting. As of the Record Date, 8,513,205 shares of Common Stock
were issued and outstanding. A proxy card for use at the Annual Meeting is
enclosed with this Proxy Statement. All completed, signed and dated proxies
returned to the Company will be voted at the Annual Meeting in accordance
with the instructions thereon. If no instructions are given on an otherwise
signed and dated proxy card, the proxy will be voted FOR the election of
nominees for director named below, FOR adoption of the amendment to the
Amended and Restated 1990 Stock Option Plan for Non-Employee Directors, FOR
adoption of the 1995 Key Tronic Corporation Executive Stock Option Plan and
FOR the ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for fiscal 1996. Any proxy may be revoked
at any time before it has been voted by giving written notice of revocation
to the Secretary of the Company at the address set forth above; by delivering
a completed, signed proxy bearing a date later than any earlier proxy; or by
voting shares in person at the Annual Meeting. The mere presence at the
Annual Meeting of the shareholder who has given a proxy will not revoke
such proxy.
1 <PAGE>
VOTING
Each share of Common Stock outstanding is entitled to one vote on each
matter presented for a vote of the shareholders at the Annual Meeting. Under
applicable law and the Company's Restated Articles of Incorporation and
Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the
eleven nominees for election of directors who receive the greatest number of
votes cast for the election of directors by the shares present in person or
represented by proxy and entitled to vote shall be elected directors and (ii)
matters 2, 3 and 4 listed in the accompanying Notice of Annual Meeting of
Shareholders will be approved if the number of votes cast in favor of each
proposal exceeds the number of votes cast against it. In the election of
directors, any action other than a vote for a nominee will have the practical
effect of voting against the nominee. An abstention from voting or a broker
nonvote will have no effect on the approval of matters 2, 3 or 4 since neither
represents a vote cast. With respect to matters 2 and 3, proxies marked
"abstain" will be treated as a vote against the matter only for the purpose
of determining whether the matter has been approved for purposes of Section
16 of the Securities Exchange Act of 1934, as amended, for all other purposes
proxies marked "abstain" will not be counted as voting with respect to the
matter.
PROPOSAL 1
ELECTION OF DIRECTORS
Eleven directors are to be elected at the Annual Meeting to serve until
the next Annual Meeting of Shareholders and until their respective successors
have been elected and have qualified. The eleven nominees receiving the
highest number of affirmative votes will be elected as directors. In the
event any nominee is unable or unwilling to serve as a nominee or director,
the proxies may be voted for the balance of those nominees named and for any
substitute nominee designated by the present Board of Directors or the proxy
holders to fill such vacancy, or for the balance of those nominees named
without nomination of a substitute, or the size of the Board of Directors may
be reduced in accordance with the By-laws of the Company. The Board of
Directors has no reason to believe that any of the persons named will be
unable or unwilling to serve as a nominee or as a director if elected.
The following information has been provided to the Company with respect
to the nominees to the Board of Directors:
Robert H. Cannon, Jr., age 71, has been a director of the Company since
September 1992. Professor Cannon has been Charles Lee Powell Professor at the
Department of Aeronautics and Astronautics, Stanford University since 1979.
From 1979 to 1990 he was also Chairman of the Department. Previously,
Professor Cannon served as Assistant Secretary of Transportation and as Chief
Scientist of the United States Air Force. Professor Cannon has served on the
General Motors Science Advisory Committee since 1975, serving as Chairman from
1980 to 1984. He also serves on the Board of Directors of Parker Hannifin
Corporation.
Thomas W. Cason, age 52, has been a director of the Company since
February 1994. He served as President and Chief Operating Officer of the
Company from February 1994 through August 1995. Mr. Cason has been President
of Progressive Tractor & Implement Co., Inc., an agricultural equipment
dealership, since 1991. He was Senior Vice President and Chief Financial
Officer of Baker Hughes Incorporated from July 1989 to December 1990. Mr.
Cason was President and Chief Executive Officer of Milpark Drilling Fluids,
a subsidiary of Baker Hughes Incorporated, prior thereto. Mr. Cason also
serves on the Board of Global Marine, Inc.
Michael R. Hallman, age 50, has been a director of the Company since
July 1992. Mr. Hallman served as Vice President and later President of
Boeing Computer Services from March 1987 to February 1990. He served as
President and Chief Operating Officer of Microsoft Corporation from March 1990
through March 1992. Mr. Hallman has been with the Hallman Group, a
consulting organization, since April 1992. Mr. Hallman also serves on the
Board of Directors of Intuit, Inc., Infocus Systems, Amdahl Corporation and
Timeline, Inc.
Stanley Hiller, Jr., age 70, has been a director of the Company and
Chairman of the Company's Executive Committee since February 1992. He
served as Chief Executive Officer of the Company from February 1992 through
August 1995 and has served as Chairman of the Board since September 1, 1995.
Mr. Hiller is the Senior Partner of Hiller Investment Company and Managing
Partner of the Hiller Group, a corporate management organization (the "Hiller
Group"), and has served as Chairman of the Board, Chief Executive Officer or
Senior Officer of numerous corporations over the last 50 years. Through the
2 <PAGE>
Hiller Group, which he founded in the late 1960s, he has brought together
groups of executives who become actively involved in the direct management
of companies, usually at the request of its managers, directors or
shareholders. During the past 20 years, Mr. Hiller has concentrated his
efforts in the area of restructuring troubled companies, including G. W.
Murphy Industries (diversified manufacturing and services), Reed Tool
Company (tool manufacturing), Baker International (Baker-Hughes) (oil
field service), The Bekins Company (moving and storage) and York
International (air conditioning manufacturing). Mr. Hiller also serves on
the Board of Directors of The Boeing Company ("Boeing").
Kenneth F. Holtby, age 73, has been a director of the Company since
March 1992. He served in various positions in engineering, technology,
product development and program management for Boeing since 1947. He most
recently served as Senior Vice President of Engineering and as a member of
the Corporate Executive Counsel for Boeing until his retirement in 1987. Mr.
Holtby currently serves as a consultant to Boeing.
Dale F. Pilz, age 69, has been a director of the Company since April
1992. Mr. Pilz was Chief Executive Officer of Flowind Corporation from 1986
to 1990. He served as President of Omninet Corporation from 1985 to 1986.
Prior to that, Mr. Pilz was Chief Executive Officer and President of GTE
Sprint Communications from 1983 to 1985 and also served as Chief Executive
Officer and President of GTE Spacenet Corporation from 1983 to 1985.
Wendell J. Satre, age 77, has been a director of the Company since 1988
and served as Chairman of the Board of Directors from July 1991 through August
1995. Mr. Satre also served as a director from 1983 through 1986 and served
as Acting President of the Company from August 1991 through February 1992.
Mr. Satre is the retired Chairman of the Board and Chief Executive Officer
of the Washington Water Power Company, a public utility headquartered in
Spokane, Washington. Mr. Satre also serves on the Boards of Directors of
Alascom, a subsidiary of Pacific Telephone, Inc., which is a subsidiary of
Pacificorp, and Coeur d' Alene Company.
Yacov A. Shamash, age 45, has been a director of the Company since 1989.
He has been the Dean of Engineering and Applied Sciences at the State
University of New York campus at Stony Brook since 1992. Professor Shamash
developed and directed the NSF Industry/University Cooperative Research Center
for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and
also served as Chairman of the Electrical and Computer Engineering Department
at Washington State University from 1985 until 1992.
Clarence W. Spangle, age 70, has been a director of the Company since
July 1992. A former Chairman of Memorex and President of Honeywell
Information Systems, Mr. Spangle has been an independent management consultant
since 1985. Mr. Spangle also serves on the Board of Directors of Apertus
Technologies, Inc.
William E. Terry, age 62, has been a director of the Company since August
1992. Mr. Terry retired from Hewlett Packard in December 1993 where he served
in a number of executive positions during the past 35 years. Mr. Terry also
serves on the Board of Directors of Altera Corporation.
Fred W. Wenninger, age 56, has been a director since September 1, 1995.
He has served as President and Chief Executive Officer of the Company since
September 1, 1995. Mr. Wenninger served as President and Chief Executive
Officer and a director of Iomega Corporation, a computer mass storage company,
from May 1989 until January 1994. From February 1986 until April 1989, he
was President of Bendix/King, an avionics division of Allied Signal
Corporation. From 1963 to 1986 he was employed by Hewlett Packard, the last
eight years in General Manager positions at divisions which developed and
produced computers and workstations. Mr. Wenninger has a Ph.D. in
Engineering from Oklahoma State University. He is a director of Norand
Corporation and Hach Corp.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES
NAMED ABOVE.
THE BOARD OF DIRECTORS AND COMMITTEES
All directors hold office until the next Annual Meeting of Shareholders
and until their successors have been elected and have qualified. There are
no family relationships among any of the directors or executive officers of
the Company.
3 <PAGE>
The Company's Board of Directors met eight times during fiscal 1995.
During fiscal 1995, each director attended 75% or more of the total number of
Directors meetings and meetings of committees of the Board of Directors on
which the director served during the time he served on the Board or Committee.
The Audit Committee, which currently consists of Dr. Shamash (chairman)
and Messrs. Holtby, Pilz and Zirkle, met two times during fiscal 1995. The
Audit Committee selects the firm of certified public accountants to audit the
financial statements of the Company for the fiscal year for which they are
appointed, and monitors the effectiveness of the audit effort and the
Company's financial and accounting organization, financial reporting and
internal controls.
The Compensation and Administration Committee (the "Compensation
Committee"), which currently consists of Messrs. Pilz (chairman), Satre,
Pearson and Spangle, met four times during fiscal 1995. The Compensation
Committee establishes and reviews annually the Company's general compensation
policies applicable to the Company's executive officers, reviews and approves
the level of compensation awarded to the Company's Chief Executive Officer
and other officers and key management employees, prepares and delivers
annually to the Board a report disclosing compensation policies applicable
to the Company's executive officers and the basis for the Chief Executive
Officer's compensation during the last fiscal year, makes recommendations
to the Board regarding changes to existing compensation plans and, through
the Stock Option Sub-Committee of the Compensation Committee, administers
the Company's stock option plans, including determining the individuals to
receive options and the terms of such options.
The Executive Committee, which currently consists of Messrs. Hiller
(chairman), Cason, Pilz and Satre, held three meetings during fiscal 1995.
The Executive Committee generally exercises the authority of the Board
of Directors with respect to the management and operation of the Company.
The Board of Directors does not have a Nominating Committee or a
committee performing the function of a nominating committee. Although there
are no formal procedures for shareholders to recommend nominations, the Board
of Directors will consider recommendations from shareholders, which should be
addressed to Ronald F. Klawitter, Vice President of Finance, Treasurer and
Acting Secretary, at the Company's address listed above. See "Employment
Contracts, Termination and Change in Control Arrangements--The Hiller
Agreement."
DIRECTOR COMPENSATION
Each director who is not an employee of the Company receives a quarterly
retainer of $1,500, a fee of $750 for each Board meeting attended in person
and a fee of $250 for each Board meeting attended by telephone. Directors
also receive a fee of $250 for each committee meeting attended, except that
directors receive a fee of $1,000 for each Executive Committee meeting
attended (which payment is in lieu of any payment for a Board meeting attended
on the same day). Committee chairmen receive an additional fee of $100 for
each committee meeting attended. Directors also receive payment of
out-of-pocket expenses related to their service as such.
Pursuant to an April 1989 employment agreement (the "Zirkle Agreement"),
Mr. Zirkle is compensated for consulting services and for a covenant by him
not to engage in activities competitive with the businesses of the Company.
Under the Zirkle Agreement, Mr. Zirkle receives a base annual salary of
$91,489 plus cost of living increases which have accrued since April 18, 1989,
payable in 26 installments over the course of the year, as well as
reimbursement of expenses, if any, incurred in connection with the provision
of such services. No such expenses were incurred in fiscal 1995. The Company
also pays for Mr. Zirkle's medical insurance, which for fiscal 1995 amounted
to $3,723. Mr. Zirkle received $117,489 in salary pursuant to the Zirkle
Agreement during fiscal 1995. Under the Zirkle Agreement, upon Mr. Zirkle's
death the Company will pay to Mr. Zirkle's wife, if she survives him,
beginning the first month after Mr. Zirkle's death and ending on the last day
of the month in which Mr. Zirkle's wife dies, one-half of the compensation
that would have been payable to Mr. Zirkle under the Zirkle Agreement had he
lived during this period. This death benefit is not assignable by Mr.
Zirkle or his wife.
4 <PAGE>
EXECUTIVE OFFICERS
In addition to Mr. Wenninger, the following persons are the executive
officers of the Company:
Craig D. Gates, age 36, joined the Company as Vice President of
Engineering in October of 1994. Mr. Gates has a Bachelor of Science Degree
in Mechanical Engineering and a Masters in Business Administration from the
University of Illinois, Urbana. From 1983 he held various engineering and
management positions within the Microswitch Division of Honeywell, Inc., in
Freeport, Illinois and from 1991 to October 1994 he served as Director of
Operations, Electronics for Microswitch.
Ronald F. Klawitter, age 43, has been Vice President of Finance and
Treasurer of the Company since November 1992 and Acting Secretary since
November 1994. From 1987 to 1992, Mr. Klawitter was Vice President, Finance
at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc.
Jack W. Oehlke, age 49, has been Senior Vice President of Operations of
the Company since January 1995. From December 1993 to January 1995, he served
as Vice President of Manufacturing Operations of the Company. Mr. Oehlke
served as Director of Operations, Director of Quality and in various
management positions within manufacturing, engineering and quality functions
of the Microswitch Division of Honeywell, Inc., from 1968 to 1993.
Richard T. Tinsley, age 47, has been Vice President of Quality Assurance
of the Company since November 1993. Mr. Tinsley was the owner of Tinsley
Associates from May 1993 to September 1993 and served as Director of
Manufacturing Operations, Director of Quality and Quality Assurance Manager at
Compaq Computer Corporation from 1982 to 1993. From 1972 to 1982, Mr. Tinsley
worked for Texas Instruments, Inc., as Printer Manufacturing Manager and New
Products Program Manager.
All executive officers hold office until their successors are elected and
have qualified.
PRINCIPAL SHAREHOLDERS AND SECURITY
OWNERSHIP OF MANAGEMENT
The following table provides certain information which has been furnished
to the Company regarding beneficial ownership of the Common Stock as of the
Record Date, with respect to (i) each person known by the Company to own
beneficially more than 5% of the Company's Common Stock; (ii) each director
and nominee for director of the Company; (iii) the Chief Executive Officer
and each of the executive officers of the Company other than the Chief
Executive Officer named in the Summary Compensation table (collectively, the
"Named Executive Officers"); and (iv) all directors and executive officers of
the Company as a group.
<TABLE>
<S><C>
Number of Shares Percentage
Name of Beneficial Owner* Beneficially Owned <F1> of Class<F1>
BEA Associates 1,122,300 13.2%
153 East 53rd Street
One Citicorp Center
New York, NY 10022
FMR Corporation 585,300 6.9%
82 Devonshire Street
Boston, MA 02109
Dimensional Fund Advisors, Inc. 495,800<F2> 5.9%
1299 Ocean Avenue, Suite 650
Santa Monica, CA 90401
5 <PAGE>
Hiller Key Tronic Partners 2,587,002<F3> 23.7%
4424 N. Sullivan Road
Spokane, WA 99216
LGZ, Inc. 142,378<F4> 1.7%
4424 N. Sullivan Road
Spokane, WA 99216
Robert H. Cannon, Jr. 18,651<F5> **
Thomas W. Cason 202,876<F6> 2.3%
Michael R. Hallman 22,401<F7> **
Stanley Hiller, Jr. 1,808,792<F8> 18.8%
Kenneth F. Holtby 36,401<F9> **
Royce G. Pearson 166,722<F10> 2.0%
Dale F. Pilz 20,851<F11> **
Wendell J. Satre 24,000<F12> **
Yacov A. Shamash 4,500 **
Clarence W. Spangle 18,651<F13> **
William E. Terry 22,401<F14> **
Fred Wenninger -- **
Lewis G. Zirkle 165,038<F15> 1.9%
Ronald F. Klawitter 56,376<F16> **
Jack W. Oehlke 41,810<F17> **
Richard T. Tinsley 39,695<F18> **
All officers and directors as a
group (17 persons) (5)-(18)<F19> 2,668,176 21.7%
___________________
* Unless otherwise noted, the address for each named shareholder is in care
of the Company at its principal executive offices.
** Less than 1%.
<FN>
<F1> Percentage beneficially owned is based on 8,513,205 shares of Common
Stock outstanding on the Record Date. A person or group of persons is
deemed to beneficially own as of the record date any shares which such
person or group of persons has the right to acquire within 60 days after
the record date. In computing, the percentage of outstanding shares held
6 <PAGE>
by each person or group of persons, any shares which such person or
person's has the right to acquire within 60 days after the record date,
are deemed to be outstanding, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
<F2> All such shares are held in portfolios of DFA Investment Dimensions
Group, Inc., a registered open-end investment company ("DFA Investment"),
or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans. Dimensional Fund
Advisors, Inc. ("Dimensional") serves as investment manager for each
of the foregoing entities. Dimensional disclaims beneficial ownership
of all such shares. Dimensional has sole voting power with respect to
327,200 shares. Persons who are officers of Dimensional also serve
as officers of DFA Investment. These persons, as officers of DFA
Investment, hold voting power with respect to 495,800 shares owned by
DFA Investment.
<F3> Includes 2,396,923 shares subject to presently exercisable options
pursuant to the Hiller Option Agreement (as defined below) between the
Company and Hiller Key Tronic Partners, a Washington limited partnership
("HKT Partners") and 190,079 shares held by HKT Partners. Excludes
100 shares owned directly by Mr. Hiller, as to which HKT Partners
disclaims beneficial ownership. See textual disclosure beginning on page
10 below.
<F4> Represents shares owned by LGZ, Inc., a Washington corporation ("LGZ").
Mr. Zirkle owns a controlling interest in and is the Chairman of the
Board of LGZ. Does not include 22,660 shares owned by Mr. Zirkle. Also
does not include 2,000 shares owned by Mr. Zirkle's wife. Mr. Zirkle
disclaims any beneficial interest in shares owned by LGZ or his wife.
<F5> Represents 6,666 shares issuable upon exercise of a director stock option
and Mr. Cannon's pro rata interest (11,985 shares) in shares held by HKT
Partners and shares issuable upon the exercise of options held by HKT
Partners.
<F6> Represents Mr. Cason's pro rata interest in shares issuable upon the
exercise of options held by HKT Partners.
<F7> Represents 6,666 shares issuable upon exercise of a director stock option
and Mr. Hallman's pro rata interest (15,735 shares) in shares held by HKT
Partners and shares issuable upon the exercise of options held by HKT
Partners.
<F8> Includes 1,808,692 shares held and shares issuable upon the exercise of
presently exercisable stock options, which shares represent the pro rata
interest of Mr. Hiller in the interest of entities controlled by Mr.
Hiller in shares held by HKT Partners and shares issuable upon the
exercise of options owned by HKT Partners. Also includes 100 shares
owned directly by Mr. Hiller, as to which HKT Partners disclaims
beneficial ownership. See textual disclosure beginning on page 10
below.
<F9> Includes 6,666 shares issuable upon exercise of a director stock option
and Mr. Holtby's pro rata interest (15,735 shares) in shares held by HKT
Partners and shares issuable upon the exercise of options held by HKT
Partners.
<F10>Represents Mr. Pearson's pro rata interest in shares held by HKT Partners
and shares issuable upon the exercise of options held by HKT Partners.
<F11>Includes 6,666 shares issuable upon exercise of a director stock option
and Mr. Pilz's pro rata interest (12,985 shares) in shares held by HKT
Partners and shares issuable upon the exercise of options held by HKT
Partners.
<F12>Excludes 1,200 shares owned by Mr. Satre's grandchildren under the
Uniform Gifts to Minors Act. Mr. Satre disclaims beneficial ownership
of these shares.
<F13>Represents 6,666 shares issuable upon exercise of a director stock option
and Mr. Spangle's pro rata interest (11,985 shares) in shares held by HKT
Partners and shares issuable upon the exercise of options held by HKT
Partners.
<F14>Includes 6,666 shares issuable upon exercise of a director stock option
and Mr. Terry's pro rata interest (14,735 shares) in shares held by HKT
Partners and shares issuable upon the exercise of options held by HKT
Partners.
7 <PAGE>
<F15>Includes 142,378 shares owned by LGZ. Mr. Zirkle owns a controlling
interest in and is the Chairman of the Board of LGZ. Does not include
2,000 shares owned by Mr. Zirkle's wife. Mr. Zirkle disclaims any
beneficial interest in shares owned by LGZ or his wife.
<F16>Represents 30,274 shares issuable upon exercise of employee stock
options and Mr. Klawitter's pro rata interest (26,102 shares) in
shares held by HKT Partners and shares issuable upon the exercise of
options held by HKT Partners.
<F17>Represents 14,500 shares issuable upon exercise of employee stock
options and Mr. Oehlke's pro rata interest (26,822 shares) in shares
held by HKT Partners and shares issuable upon the exercise of options
held by HKT Partners. Also includes Common Stock allocated to Mr.
Oehlke as a participant in the Company's Variable Investment Plan
(488 shares) as of July 1, 1995.
<F18>Represents 18,000 shares issuable upon exercise of employee stock
options and Mr. Tinsley's pro rata interest (19,751 shares) in
shares held by HKT Partners and shares issuable upon the exercise of
options held by HKT Partners. Also includes Common Stock allocated
to Mr. Tinsley as a participant in the Company's Variable Investment
Plan (1944 shares) as of July 1, 1995.
<F19>Includes 72,774 shares subject to issuance pursuant to employee
stock options. Does not include Common Stock allocated to officers
as participants in the Company's Variable Investment, Stock Bonus or
Employee Stock Ownership Plans after July 1, 1995
</FN>
</TABLE>
EXECUTIVE COMPENSATION
COMPENSATION TABLES
Set forth below is information on the annual and long-term compensation
for services in all capacities for the fiscal year ended July 1, 1995 of
those persons who were, at July 1, 1995, (i) the Chief Executive Officer and
(ii) the Named Executive Officers. For information regarding the Company's
current executive officers, see "Executive Officers."
<TABLE>
<S><C>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
-------------------
Annual Compensation Awards Payouts
----------------------------------------- Securities
Other Annual Underlying All Other
Name and Fiscal Salary<F20> Bonus<F21>Compensation Options Compensation
Principal Position Year ($) ($) ($)<F22> (#)<F23> ($)<F24>
- ----------------- ------ ------- ------- ------------- --------- ------- ------------
Stanley Hiller, Jr.<F25>1995 -- -- -- -- -- --
Chief Executive 1994 -- -- -- -- -- --
Officer 1993 -- -- -- -- -- --
Thomas W. Cason 1995 $200,425 $168,750 -- -- -- --
President and Chief 1994 66,904 -- $10,995 25,000 -- --
Operating Officer 1993 -- -- -- -- -- --
Jack W. Oehlke 1995 139,621 105,250 39,531 9,000 -- $3,491
Senior Vice 1994 61,251 8,000 26,044 20,000 -- 777
President 1993 -- -- -- -- -- --
Richard T. Tinsley 1995 135,025 65,651 38,698 6,000 -- 3,376
Vice President, 1994 77,899 -- 46,819 30,000 -- 650
Quality 1993 -- -- -- -- -- --
Ronald F. Klawitter 1995 120,910 73,500 -- 8,815 -- 3,023
Vice President, 1994 90,938 -- -- 5,867 -- 2,273
Finance & Treasurer 1993 50,778 -- -- 20,000 -- 474
____________________
8 <PAGE>
<FN>
<F20> Includes amounts deferred under the 401(k) component of the Company's
Variable Investment Plan.
<F21> Represents dollar value of cash bonuses earned by the named executive
officers during the fiscal year indicated. Includes cash signing
bonus of $16,000 paid in 1995 and $8,000 paid in 1994 to Jack W. Oehlke.
<F22> In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal
benefits has been omitted in those instances where such perquisites and
other personal benefits constituted less than the lesser of $50,000 or
ten percent of the total of annual salary and bonus for the named
executive officer for such year. Dollar amounts shown consist of
relocation expenses, except with respect to Mr. Cason, amounts shown
represent housing and automobile allowance.
<F23> Does not include stock options granted to HKT Partners, a partnership
in which entities controlled by Mr. Hiller, and in which Messrs.
Cason, Oehlke, Tinsley and Klawitter, individually, hold limited
partnership interests. See notes (3), (6) and (16) through (20) to
"Principal Shareholders and Security Ownership of Management."
<F24> Represents Company matching payments in 1995, 1994 and 1993 under the
Company's Variable Investment Plan.
<F25> Mr. Hiller served as executive officer of the Company from February 1992
through August 1995. Pursuant to an agreement entered into in February
1992 between the Company and the Hiller Group, a corporate management
organization, Mr. Hiller received no salary for his services as an
executive officer and director of the Company. See the textual
disclosure beginning on page 10 below.
</FN>
</TABLE>
OPTION GRANTS IN 1995 FISCAL YEAR
The following table sets forth information concerning individual grants
of stock options made during fiscal 1995 to each of the individuals identified
9 <PAGE>
in the Summary Compensation Table.
<TABLE>
<S><C>
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of
Underlying Granted To Stock Price Appreciation for
Options Granted Employees in Exercise Expiration Option Term<F27>
NAME (#)<F26> Fiscal 1995 ($/Share) Date 5%($) 10%($)
- ------------------ ------------ ------------ --------- ---------- -------- ---------
Stanley Hiller, Jr. -- -- -- -- --
Thomas W. Cason -- -- -- -- -- --
Jack W. Oehlke 9,000 4.92% $7.25 8/05/04 $41,035 $103,992
Richard T. Tinsley 6,000 3.28% $7.25 8/05/04 27,357 69,328
Ronald F. Klawitter 8,815 4.82% $7.25 8/05/04 40,192 101,854
___________________________
<FN>
<F26>Options vest at the rate of 50% per year on the first anniversary of the
date of grant and the second anniversary of the date of grant.
<F27>The rates of appreciation shown in the table are for illustrative
purposes only pursuant to applicable SEC requirements. Actual values
realized on stock options are dependent on actual future performance of
the Company, among other factors. Accordingly the amounts shown may not
necessarily be realized.
</FN>
</TABLE>
The following table provides information on the exercise of options to
purchase Common Stock by the Named Executive Officers in fiscal 1995 and such
officers' unexercised options to purchase Common Stock at July 1, 1995.
<TABLE>
<S><C>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995
AND FISCAL YEAR-END OPTION VALUES
Shares Number of Shares
Acquired Underlying Unexercised Value of Unexercised
on Value Options at Fiscal In-The-Money Options
Exercise Realized Year End (#) at Fiscal Year-End($)<F29>
Name (#) ($)<F28> Exercisable Unexerciseable Exercisable Unexercisable
- ------------------- -------- -------- ----------- -------------- ----------- --------------
Stanley Hiller, Jr. 486,729 $3,042,056 1,645,631 0 $18,924,756 0
Thomas W. Cason 0 N/A 12,500 12,500 112,500 $112,500
Jack W. Oehlke 0 N/A 10,000 19,000 80,000 158,750
Richard T. Tinsley 0 N/A 15,000 21,000 131,250 183,750
Ronald F. Klawitter 0 N/A 22,934 11,749 174,804 96,935
______________
<FN>
<F28>This amount represents the aggregate of the number of shares acquired
on exercise multiplied by the difference between the closing price of
the Common Stock on the Nasdaq National Market on the respective
option exercise date minus the exercise price for the relevant option.
<F29>This amount represents the aggregate of the number of in-the-money
options multiplied by the difference between the closing price of the
Common Stock on the Nasdaq National Market on June 30, 1995 and the
exercise prices for the relevant options.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS
The Hiller Agreement. On February 1, 1992, the Company approved an
agreement with the Hiller Group, a corporate management organization (the
"Hiller Agreement"), under which Stanley Hiller and other members of the
Hiller Group would become involved in the management of the Company. Under
the Hiller Agreement, Mr. Hiller was appointed a director, Chief Executive
Officer and Chairman of the Company's Executive Committee in February 1992
and acquired the right to designate three additional persons to be appointed
to the Company's Board of Directors. Under these arrangements, Mr. Hiller
currently receives no salary for his services as an executive officer and
director of the Company, and no such salary is currently anticipated to be
paid in the foreseeable future.
The Hiller Option Agreement. In connection with the Hiller Agreement,
the Company entered into an agreement (the "Hiller Option Agreement"), which
was approved by the Company's shareholders in May 1992. The Hiller Option
Agreement provides that HKT Partners may purchase from the Company up to
2,396,923 shares of Common Stock (which shares would represent approximately
16% of the outstanding Common Stock on the Record Date on a fully diluted
basis, including all outstanding and unexercised options and warrants), at an
exercise price of $4.50 per share, subject to proportional adjustment in the
number of shares and the exercise price in the event of any recapitalization,
stock split, stock dividend or similar transaction (the "Hiller Option").
The last reported sale price of the Common Stock on the last trading day prior
to the Board's approval of the Hiller Option was $3.125 per share. Pursuant
to the Hiller Agreement, the Company also approved the authorization of an
additional 300,000 shares of Common Stock issuable upon exercise of options to
be granted under the Company's Employee Stock Ownership Plan to senior
officers of the Company, which increase also was approved by the Company's
shareholders in May 1992. The Hiller Option became fully exercisable on
March 1, 1994 and expires on March 1, 1997.
10<PAGE>
Hiller Key Tronic Partners. HKT Partners is a Washington limited
partnership created by the Hiller Group in connection with the Hiller Option
Agreement and related matters. Mr. Hiller, as the sole shareholder of HKT,
Inc., a Washington corporation and the General Partner of HKT Partners, and
as a General Partner of Hiller Investment Partners, a California limited
partnership and a limited partner of HKT Partners, currently has a 66.29%
interest in HKT Partners; Mr. Pearson, former President and a director of
the Company, currently has a 6.5% ownership interest in HKT Partners as a
limited partner. Each partner of HKT Partners will share in the economic
benefit of the Hiller Option (including any appreciation in the value of
shares subject to the Hiller Option above the exercise price of such
options) to the extent of their respective partnership interest. The
following directors have received a .5% ownership interest in HKT Partners:
Robert H. Cannon, Jr.; Michael R. Hallman; Kenneth F. Holtby; Dale F. Pilz;
Clarence W. Spangle; and William E. Terry. Messrs. Cason, Gates, Klawitter,
Oehlke and Tinsley, respectively have received 10.3%, .42%, 1.23%, 1.27%
and .93% ownership interests in HKT Partners. From the beginning of fiscal
year 1995 through August 1995, Messrs. Cason, Oehlke, Klawitter, Tinsley
and Gates, respectively received cash distributions of a portion of their
limited partnership interests in HKT Partners in the amounts of $548,843,
$123,500, $119,700, $89,300, and $44,156.
Pearson Agreement. In connection with the Hiller Agreement, the Company
entered into a termination agreement with Mr. Pearson. Pursuant to this
agreement, Mr. Pearson is entitled to receive one year's salary, payable
during a two-year period after Mr. Pearson's termination.
Employment Contracts. Pursuant to an employment contract, effective
February 8, 1994, Mr. Cason agreed to serve as the Company's President and
Chief Operating Officer for a projected period of approximately two years. He
received an initial base salary of $180,000 and eligibility to participate in
the Company's bonus incentive plan as offered to its key employees. In
addition the Company granted to Mr. Cason, options to purchase 25,000 shares
of Common Stock at an exercise price of $7.00 per share (the market price on
the date of grant). Mr. Cason also received a $1,790 per month living and car
allowance in lieu of payment of relocation related expenses. On September 1,
1995, Mr. Cason resigned as President and Chief Operating Officer of the
Company. His option, which was not yet exercisable, to purchase 12,500 shares
of Common Stock expired upon his resignation.
Pursuant to an employment contract, dated December 27, 1993, amended
on January 11, 1995, Mr. Oehlke received an initial salary of $122,500 per
year, a cash signing bonus of $24,000 and eligibility to participate in the
Company's bonus incentive plan as offered to its key employees from time to
time. In addition the Company granted to Mr. Oehlke, options to purchase
20,000 shares of Common Stock at an exercise price of $8.00 per share (the
market price on the date of grant) and agreed to pay Mr. Oehlke's relocation
related expenses.
Pursuant to an employment contract, dated November 11, 1993, Mr. Tinsley
received an initial base salary of $135,000 per year and eligibility to
participate in the Company's bonus incentive plan as offered to its key
employees from time to time. In addition the Company granted to Mr. Tinsley
options to purchase 30,000 shares of Common Stock at an exercise price of
$7.25 per share (the market price on the date of grant) and agreed to pay
Mr. Tinsley's relocation related expenses.
Pursuant to an employment contract, executed December 9, 1992, Mr.
Klawitter received an initial base salary of $88,000 per year and
eligibility to participate in the Company's bonus incentive plan as offered
to its key employees from time to time. In addition the Company granted to
Mr. Klawitter options to purchase 20,000 shares of Common Stock at an
exercise price of $8.25 per share (the market price on the date of grant)
and agreed to pay Mr. Klawitter's relocation related expenses.
Each of the employment contracts entered into described above imposes
upon the employee standard non-disclosure, confidentiality and covenant not to
compete provisions. The above employment contracts provide that the Company
may terminate employment at any time. The Employment Contracts provide that
upon termination of employment by the Company, other than for cause, or upon
termination by the employee in the event the Company changes the substantive
responsibilities and duties of the employee in such a way as to constitute a
demotion; the Company shall continue to pay employee's base salary in effect
prior to termination for a period of one year after termination.
Stock Option Plans. The Company's executive stock option plans and non-
employee directors stock option plan provide that upon a change of control of
the Company the vesting of outstanding options will be accelerated.
11<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Board of Directors has a Compensation Committee, presently consisting
of Messrs. Pilz, Pearson, Satre and Spangle. Mr. Pearson, a director of the
Company, was an executive officer of the Company from February 1992 to
February 1994.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
Key Tronic's compensation philosophy established by the Compensation
Committee is that annual total cash compensation should vary with the
performance of the Company and long-term incentives should be aligned with the
interests of the Company's shareholders. The Company's compensation plan is
designed to allow the Company to attract, motivate and retain highly qualified
individuals and is consistent with the short-term and long-term goals of the
Company.
Compensation of the Company's executive officers, except as otherwise
noted in this report, and excluding the Chief Executive Officer (individually,
a "Key Employee" and, collectively, the "Key Employees"), has three primary
elements: base salary, annual performance bonus and an annual stock option
grant.
Base salaries are established following a review of competitive
information related to comparable companies, in similar industries, located in
the Northwest. Annual bonuses are tied to the profitability of the Company
and the Key Employee's contribution to the Company's performance. Annual
stock option incentive grants are based upon base salary and a stock
performance goal established by the Compensation Committee. Annual stock
option grants to executive officers are made under the Company's employee
stock option plan.
The Company's compensation policy with respect to Mr. Hiller is unique.
Mr. Hiller received no salary, annual bonus or annual stock option for his
services as Chief Executive Officer during fiscal years 1995, 1994 or 1993.
Mr. Hiller will be compensated by the exercise of the Hiller Option, a
substantial option to purchase shares of the Company's Common Stock.
BASE SALARIES
The Company's philosophy emphasizes performance-based pay. The goal is
to have base salary represent a target percentage of an officer's total
annual compensation. Prior to setting compensation levels for officers, the
Compensation Committee reviews competitive information related to comparable
companies, in similar industries, located in the Northwest. These companies
include some but not all of the companies appearing in the Nasdaq Computer
Manufacturer Index in the performance graph on page 14. The Compensation
Committee indexes base salary ranges to be slightly below average competitive
levels in the Northwest. During fiscal 1995, officer pay ranges were adjusted
upward to be consistent with the Compensation Committee's established index.
Management recommendations other than those of the subject officer are
considered by the Compensation Committee in establishing an individual
officer's recommended salary. The Compensation Committee also considers
factors related to individual performance, individual responsibility, Company
performance based on net earnings and external competitive factors. The Board
as a whole establishes each officer's annual salary. Officers who also serve
as directors abstain from voting when their own annual salary is determined.
ANNUAL BONUS
The Compensation Committee established a Key Employee incentive bonus
plan for fiscal 1995. The plan was based upon a combination of individual
goals and Company profit goals. A minimum Company profit goal had to be
achieved before any payment was to be made under the plan. Bonus payments
under the plan were to be based on three performance levels: threshold
achievement, expected achievement, and over-achievement of a combination of
individual goals and Company net earnings goals. Over-achievement payments
under the plan were intended to be higher than comparable industry averages
for annual incentive bonus plans by an amount approximately equal to the
amount by which base salary was below comparable industry averages. Payments
were to be based upon a percentage of base salary. The payment percentage
12<PAGE>
ranges were established in descending order for the President, all other
officers and all other Key Employees. Mr. Hiller, the Company's Chief
Executive Officer during 1995, did not participate in the plan. For fiscal
year 1995 the over-achievement performance level was met and all named
executive officers, except the Chief Executive Officer, and certain other
Key Employees were paid bonuses in accordance with the incentive bonus plan
for fiscal 1995.
ANNUAL STOCK OPTION
The Compensation Committee's policies make long-term incentive
compensation an important part of motivating and retaining Key Employees.
Such long-term incentive compensation is consistent with the interests of
the Company's shareholders in that it ties executive compensation to the
performance of the Company's stock. The Compensation Committee believes that
long-term incentive compensation can best be implemented through the granting
of annual stock options. The Compensation Committee makes the determination
to grant an option based upon each Key Employee's position in the Company
and base salary. The number of shares issuable upon exercise of each option
is calculated by dividing each Key Employee's base salary by a stock
performance index number which is uniformly applied when calculating the
number of shares issuable upon exercise of options granted annually to Key
Employees. The index number is established by the Compensation Committee and
reflects the Company's goals for improving the performance of the Company's
stock. The stock performance index number may be changed by the
Compensation Committee. The Chief Executive Officer and the President and
Chief Operating Officer may recommend to the Compensation Committee that the
aggregate number of shares issuable upon exercise of such options be
reallocated among the Key Employees, based on individual performance. The
Compensation Committee may consider such reallocation in its sole discretion.
The exercise price of the options is equal to the closing price of the Common
Stock on the date of grant as quoted by the Nasdaq National Market, as
reported in The Wall Street Journal. The options vest 50% per year commencing
one year from the date of grant. As members of the Hiller Group with rights
to some portion of the value of the stock issuable upon exercise of the stock
option granted to HKT Partners pursuant to the Hiller Agreement, Mr. Hiller
and Mr. Cason did not participate in this plan during the 1995 fiscal year.
Stock options were granted to all other named executive officers and certain
other Key Employees during fiscal 1995 in accordance with the Compensation
Committee's policies.
CHIEF EXECUTIVE OFFICER
Pursuant to the Hiller Agreement, Mr. Hiller received as compensation in
lieu of salary, bonus or other remuneration an interest in the value of the
2,396,923 shares of the Common Stock issuable upon exercise of the Hiller
Option granted to HKT Partners. As the sole shareholder of HKT, Inc., a
Washington corporation and the General Partner of HKT Partners, and as a
General Partner of Hiller Investment Partners, a California limited
partnership and a limited partner of HKT Partners, Mr. Hiller has a 66.29%
interest in HKT Partners. The Board of Directors approved the Hiller Option
in February 1992 subject to the approval of the Company's shareholders. The
Company's shareholders approved the Hiller Option at a Special Meeting held
for such purpose on May 13, 1992 (the "Special Meeting"). As a result, Mr.
Hiller's compensation as Chief Executive Officer was determined by the entire
Board of Directors and the shareholders present and voting in person or via
proxy at the Special Meeting. Mr. Hiller's compensation is based upon the
premise that he be compensated only to the extent that the value of the
Company's stock increases.
Compensation payments in excess of $1 million to the Chief Executive
Officer or four other most highly compensated executive officers are subject
to a limitation on deductibility for the Company under Section 162(m) of the
Internal Revenue Code of 1986, as amended. Certain performance-based
compensation is not subject to the limitation on deductibility. To the
extent that there is no adverse effect on the Company's performance-related
compensation philosophy or on the Company's ability to provide competitive
compensation, it is the policy of the Compensation Committee and the Board
of Directors to minimize executive compensation that is not deductible by the
Company for tax purposes.
COMPENSATION COMMITTEE
Mr. Satre served as Acting President of the Company from August 1991
through February 1992. Mr. Pearson served as President and Chief Operating
Officer of the Company from March 1992 until his resignation in February
1994. No other member of the Compensation Committee is a former or current
13<PAGE>
officer or employee of the Company or any of its subsidiaries. The Stock
Option Sub-Committee consisting of Messrs. Pilz, Satre and Spangle
administered the Company's stock option plans during fiscal 1995.
COMPENSATION COMMITTEE
----------------------
Dale F. Pilz - Chairman
Royce G. Pearson
Wendell J. Satre
Clarence W. Spangle
STOCK OPTION SUB-COMMITTEE
--------------------------
Dale F. Pilz, Chairman
Wendell J. Satre
Clarence W. Spangle
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Common Stock of the Company for the last five fiscal years with the
cumulative total return of (i) the CRSP Total Return Index for The Nasdaq
Stock Market (U.S. and Foreign) (the "CRSP Nasdaq (US & Fgn) Index") and
(ii) the CRSP Index for Nasdaq Computer Manufacturer Stocks (the "CRSP
Computer Index"). This graph assumes the investment of $100 on June 30,
1990 in the Company's Common Stock, the CRSP Nasdaq Index and the CRSP
Computer Index and assumes dividends are reinvested. Measurement points are
at the last trading day of the fiscal years ended June 30, 1991, July 4, 1992,
July 3, 1993, July 2, 1994 and July 1, 1995. The Nasdaq, (U.S. and foreign)
Market Index is composed of companies included within all Standard Industrial
Classification (SIC) codes. The SIC code of all companies included in the
Nasdaq Computer Manufacturer Index is 357. The Company will provide a list
of companies included in the indexes to any shareholder upon written request
to the Company's Acting Secretary.
Measurement Period Key Tronic CRSP Nasdaq (US CRSP Com-
(Fiscal Year Covered) Corporation & Fgn) Index puter Index
06/30/90 $100.0 $100.0 $100.0
06/30/91 80.0 105.8 96.5
07/04/92 137.1 126.8 112.1
07/03/92 228.6 161.3 144.5
07/02/94 142.9 159.0 112.3
07/01/95 365.7 210.2 199.8
14<PAGE>
CERTAIN TRANSACTIONS
Pursuant to an agreement approved by the Board of Directors in January
1993, Hiller Investment Company ("Hiller Investment") is entitled to receive
$24,000 per month in reimbursement for expenses incurred by Hiller Investment
in connection with the provision of clerical and other services to the
Company. Hiller Investment received $329,580 pursuant to this agreement in
fiscal 1995. Mr. Hiller is Senior Partner of Hiller Investment. Mr. Hiller
does not receive any salary from the Company's reimbursement paid to Hiller
Investment.
Effective September 1, 1995, Fred Wenninger became President and Chief
Executive Officer of the Company and a member of the Board of Directors.
Pursuant to an employment agreement, effective September 1, 1995, Mr.
Wenninger receives an initial base salary of $300,000 per year. Pursuant to
the agreement Mr. Wenninger is also eligible to participate in the Company's
annual bonus incentive plan with his annual bonus targeted at 50% of base
salary, based upon meeting specific objectives for each fiscal year as
agreed to in advance with the Board. Higher annual bonuses can be achieved
based upon his exceeding these objectives with a maximum annual bonus of 75%
of his base salary. For fiscal year 1996, the Board recognizing that Mr.
Wenninger did not have the opportunity to participate in the determination of
the objectives which drive the fiscal 1996 bonus plan, agreed to guarantee him
a minimum cash bonus of $150,000. Mr. Wenninger was granted upon hire 225,000
shares of non-qualified stock options pursuant to Key Tronic's current stock
option plan which vest in two consecutive annual installments of 50% each.
These options are priced at market as of September 1, 1995. Mr. Wenninger was
also granted on September 1, 1995, 50,000 phantom stock option units, the unit
value of which equals the market price of Key Tronic stock on September 1,
1995. The phantom stock option units vest and become exercisable in five equal
annual installments. Should the Company have a major change of ownership
(defined as 50% or more of its outstanding and issued Common Stock being
purchased by an individual, group of individuals, or corporate entity)
during Mr. Wenninger's employment, the vesting of his non-qualified options
and phantom stock option units will be accelerated immediately so that both
are 100% vested. If Mr. Wenninger elects to leave the Company after such a
change of control, he will be paid one year's annual base salary in a lump
sum payment. Should Mr. Wenninger's employment with the Company be terminated
by the Board for any reason(s) other than for cause he will be paid one
year's annual base salary in a lump sum payment. No bonus or portion thereof
will be paid, except for bonus earned for a prior year but not yet paid. As
of the date of his termination of employment for other than cause, he will
receive that amount of phantom stock units which equates to that portion of
the five year vesting period that will have passed as of his date of
termination. No severance payments or acceleration of vesting of stock
options or phantom stock option units will occur if termination is voluntary
or for "cause."
Fred Wenninger, President and Chief Executive Officer and a director of
the Company, is the sole stockholder of Star Hawk Aviation, Inc. The Company
entered into an agreement on July 27, 1995 to obtain certain aviation services
from Star Hawk Aviation, Inc. and will make payments to Star Hawk Aviation,
Inc. for hanger fees for one aircraft and aircraft rental fees. The Company
believes that the terms of its business relationship with Star Hawk Aviation,
Inc. are no less favorable to the Company than could be obtained from an
unrelated party.
PROPOSAL 2
ADOPTION OF AMENDMENT TO THE AMENDED AND RESTATED
1990 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Board of Directors has adopted, and submits for shareholder approval,
amendments to the Key Tronic Corporation Amended and Restated 1990 Stock
Option Plan for Non-Employee Directors, which was adopted in 1990 and
previously amended and restated in 1993 (the "Directors Plan").
The Company has adopted the Directors Plan to attract and retain the
services of experienced, knowledgeable non-employee directors and to provide
an incentive for such directors to increase their proprietary interest in
the Company's long-term success and progress. In July 1995, the Board of
Directors amended and restated the Directors Plan, subject to shareholder
approval, to: (i) change the grant provisions; (ii) add a change of control
provision which provides for accelerated vesting and termination of options;
(iii) make various technical changes to conform the Directors Plan to Rule
16b-3 and the requirements of that Rule for a plan to qualify as a non-
discretionary, formula plan; and (iv) make certain other technical changes.
The amendments do not increase the number of shares available for option
grants under the Directors Plan. The amendments will be effective as of
July 27, 1995 (the date such amendments were approved by the Board of
Directors), provided shareholder approval of such amendments is obtained at
15<PAGE>
the Annual Meeting. The Board of Directors believes that the Directors Plan,
as amended, is essential to help attract and retain experienced, knowledgeable
outside directors.
Set forth below is a description of the principal features of the
Directors Plan and the amendments to it, and the benefits that the Company
would have granted under the Directors Plan, as amended, if it had been in
effect over the prior fiscal year. This description does not purport to be
complete and is qualified in its entirety by reference to the Directors Plan.
Copies of the Directors Plan will be available at the Annual Meeting and may
also be obtained by sending a written request to the Company's Acting
Secretary.
GENERAL PROVISIONS OF THE DIRECTORS PLAN
The Directors Plan provides for the granting of non-qualified stock
options to non-employee directors of the Company. The total number of
shares of Common Stock for which options may be granted under the Directors
Plan is 300,000 shares. On September 7, 1995, the closing price of the
Company's Common Stock was $14.875.
The Directors Plan currently provides that each director of the Company
who is not an employee of the Company and is an independent and outside
director of the Company shall, upon election or appointment to the Board
of Directors, receive an option to acquire 10,000 shares on the date of the
first meeting of the Board of Directors following the director's election or
appointment to the Board of Directors which is attended by such director,
unless on such date the stock of the Company is not publicly traded, in which
event the grant shall be made effective as of the next following day on which
the Company's stock is publicly traded. The Directors Plan also currently
provides that such non-employee directors shall be eligible to receive
additional options under the Directors Plan. As of July 27, 1995, options for
a total of 150,000 shares had been granted and remained outstanding, options
for a total of 26,600 shares had been exercised, and a total of 123,400 shares
remained available for future option grants under the Directors Plan. The
grant provisions of the Directors Plan are being amended such that, as
amended, each director whose first election to the Board of Directors occurs
after July 27, 1995 shall automatically, and without any further authorization
or approval by the plan administrator or the Board of Directors, be granted (i)
an option to purchase 10,000 shares on the third business day following such
director's first election to the Board of Directors provided such director is
a Non-Employee Director (as defined below) on the date of such first election;
and (ii) an option to purchase 10,000 shares on the third business day
following the first anniversary date of such director's first election to the
Board of Directors provided such director is a Non-Employee Director on the
date of such anniversary. A director shall be a "Non-Employee Director" on
the date of any such election if, on such date and for one year prior to such
date, such director has not been an employee of the Corporation or any of its
subsidiaries. No other options shall be granted under the Directors Plan, as
amended, except as specifically provided above.
The Directors Plan currently provides that it shall be administered by
an outside professional administrator and/or non-director employees of the
Company as appointed by the Chief Executive Officer of the Company, and that
the members shall not be directors of the Company. The Directors Plan also
currently provides that, subject to the terms of the Directors Plan, the plan
administrator shall have the power to construe the provisions of the Directors
Plan, to determine all questions arising thereunder and to adopt and amend
such rules and regulations for the administration of the Directors Plan as it
may deem desirable. The administration provisions of the Directors Plan are
being amended such that, as amended, the Directors Plan will be administered
by a committee appointed by the Board of Directors, which committee shall
consist of two or more members of the Board of Directors who are not eligible
to participate in the Directors Plan. The new plan administrator will have
the same power to construe provisions, determine questions and adopt and amend
rules and regulations relating to the Directors Plan, except that the
selection of directors to whom options are to be granted, the timing of
grants, the number of shares subject to any option, the exercise price of
any option, the periods during which any option may vest and be exercised,
and the term of any option shall be as provided in the Directors Plan, as
amended, and the plan administrator shall have no discretion as to any such
matters.
The Directors Plan currently provides that each option shall have the
following terms. The exercise price shall be the fair market value of the
optioned shares (defined as the closing price as reported in the Wall Street
Journal) on the grant date. The option shall vest and is exercisable to the
extent of one-third per year of the optioned shares, beginning one year from
the grant date. Payment of the exercise price may be in whole or in part
shares of the Company already owned and fully paid for, valued at fair market
value on the exercise date, and any withholding tax required by the Company.
The option shall expire not more than ten years from the grant date but shall
16<PAGE>
be subject to earlier termination as follows: (i) in the event of the
optionee's death, the option may be exercised within one year after the date
of death or prior to the date on which the option expires by its terms,
whichever is earlier and (ii) in the event the optionee ceases to be a
director of the Company, the portion of the option which is vested at the
date of such cessation may be exercised within one year after the date of such
cessation or prior to the date on which the option expires by its terms,
whichever is earlier. An option shall not be assigned or transferred by the
optionee otherwise than by will or the laws of descent and distribution, and
an option shall be exercisable during the lifetime of the optionee only by
the optionee. Any agreement evidencing an option may contain such other
terms, provisions and conditions not inconsistent with the Directors Plan as
may be determined by the plan administrator. These provisions of the
Directors Plan relating to terms of the options are being amended in certain
technical respects to conform them to other amendments being made to the
Directors Plan, to conform them to the non-discretionary plan or other
requirements of Rule 16b-3, or to clarify such provisions. The amendments
include that the term of an option shall be five years (rather than not
more than five years).
If an option expires or terminates without being exercised in full, the
shares representing the unexercised portion shall again be available for grant
under the Directors Plan.
The amendments to the Directors Plan will add a change of control
provision to the Directors Plan as follows. Notwithstanding any provision of
the Directors Plan or any option agreement to the contrary, any option (or
unexercised portion thereof) shall, unless previously lapsed and terminated
become vested and exercisable in full immediately prior to the occurrence of
a change in control, (as such term is defined below); provided, that such
acceleration will not occur if it would render unavailable "pooling of
interests" accounting treatment for any merger, consolidation, statutory share
exchange or other reorganization of the Company. If the vesting and
exercisability of any options (or portion thereof) hereunder are accelerated
such options (or portion thereof) shall otherwise remain outstanding and
subject to the other terms and conditions of the Directors Plan and the option
agreement. A Change in Control shall be deemed to occur if any of the
following shall occur: (A) any "person" other than the Company, any Subsidiary
or any employee benefit plan of the Company or any Subsidiary, is or becomes
the "beneficial owner" directly or indirectly, of securities of the Company
representing forty percent (40%) or more of the combined voting power of the
Company's then-outstanding securities (other than as a result of an
acquisition by any such person of securities directly from the Company); (B)
the first purchase of Common Stock pursuant to a tender or exchange offer
(other than a tender or exchange offer made by the Company or any Subsidiary);
(C) the approval by the Company's stockholders of a merger or consolidation,
a statutory share exchange, a sale or disposition of all or substantially all
the Company's assets or a plan of liquidation or dissolution of the Company;
or (D) during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless the election or
nomination for the election by the Company's stockholders of each new director
was approved by a vote of at least two-thirds (2/3) of the directors then
still in office who were directors at the beginning of the period.
The Directors Plan currently provides that the Board of Directors may
amend, terminate or suspend the Directors Plan at any time in its sole
discretion, provided that shareholder approval is required for any amendment
which would (i) increase the number of shares subject to the Directors Plan,
(ii) reduce the option price below 100% of the fair market value of the shares
subject to the option at the time the option was granted, (iii) increase
beyond 10,000 the number of shares for which options may be granted to each
director, (iv) change the timing with respect to which options are granted or
exercisable and (v) make any other change which would require shareholder
approval under applicable law, including Section 16(b), and provided further
that, if required to qualify as a non-discretionary plan under Rule 16b-3, the
Directors Plan may be amended no more frequently than every six months. The
amendment provisions of the Directors Plan are being amended such that, as
amended, the Board of Directors will have the same power to amend, terminate
or suspend the Directors Plan, provided that shareholder approval will be
required for any amendment which would (i) increase the aggregate number of
shares subject to the Directors Plan, (ii) reduce the option price of the
shares subject to any option, (iii) increase the number of options, or the
number of shares for which any options, may be granted to each director, (iv)
change the timing with respect to which options are granted or exercisable, or
(v) make any other change which would require shareholder approval under
applicable law, including Rule 16b-3 generally and the non-discretionary plan
provisions of Rule 16b-3 specifically, and provided further that if required to
qualify as a non-discretionary plan under Rule 16b-3, the Directors Plan
(including without limitation the provisions either stating the amount and
price of securities to be awarded and specifying the timing of awards, or
setting forth a formula that determines the amount, price and timing) may be
amended no more frequently than once every six months.
17<PAGE>
Notwithstanding the foregoing, the Directors Plan shall in any event, if
not sooner terminated, be terminated on July 27, 2005.
The Directors Plan currently provides that the aggregate number of
shares for which options may be granted under the Directors Plan, the number
of shares subject to each outstanding option, the aggregate number of shares
with respect to which an option may be granted annually to a director, and
the price per share specified in each option may all be adjusted, as the
Plan Administrator shall determine in its sole discretion or as may be
required, for any increase or decrease in the number of issued shares of
Common Stock of the Company resulting from a subdivision or consolidation of
shares, other similar capital adjustment, payment of a stock dividend, or
other increase in such shares effected without receipt of consideration by,
or merger or consolidation of, or sale of all or substantially all of the
assets of, or liquidation of, the Company. The adjustment provisions of the
Directors Plan are being amended such that under the Directors Plan, as
amended, the kind (as well the number of shares) will be subject to adjustment
and the number and kind of shares will be appropriately adjusted (rather than
being adjusted by the plan administrator in its sole discretion or as may be
required). The adjustment provisions are also being amended in certain
technical respects to conform them to other amendments being made to the
Directors Plan, to conform them to the non-discretionary plan or other
requirements of Rule 16b-3, or to clarify such provisions.
The amendments to the Directors Plan will also add a provision to the
Directors Plan regarding the intended status of the Directors Plan under Rule
16b-3 as follows. The Directors Plan and transactions thereunder are intended
to comply with all applicable provisions of Rule 16b-3 generally and with all
applicable non-discretionary plan provisions of Rule 16b-3 specifically. To
the extent any provision of the Directors Plan or action by the plan
administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law. To the extent any provision of Rule 16b-3 required
to be included in the Directors Plan to accomplish the intent thereof is
omitted, the same is incorporated therein by reference.
The Directors Plan is also being amended in certain other technical
respects to conform it to other amendments being made to the Directors Plan,
to conform it to the non-discretionary plan or other requirements of Rule
16b-3, or to clarify provisions of the Directors Plan.
Amended Directors Plan Benefits
Under the Directors Plan, as amended, each director whose first election
to the Board of Directors occurs after July 27, 1995 and who qualifies as a
Non-Employee Director on the applicable dates of election will be eligible to,
and will automatically, participate in the Directors Plan, as amended.
Because the participation of directors in the Directors Plan, as amended, is
dependent on several factors, it is not possible to state the number of
directors who will participate in the Directors Plan, as amended, the names or
positions of any such directors, or the number of options that will be granted
to any such directors except that any such director will receive a maximum of
two options for 10,000 shares each under the automatic grant provisions of
the Directors Plan, as amended.
All directors nominated for election at the Annual Meeting, excluding
those who are also executive officers, will receive no option grants under
the Directors Plan, as amended, when it becomes effective. In addition all
current directors, excluding those directors who are also executive officers,
would have received no option grants if the Directors Plan, as amended, had
been in effect over the prior fiscal year (assuming for such purpose that it
provided for grants to directors whose first such election occurred after
July 27, 1994). This is not necessarily indicative of options that may
be granted under the Directors Plan, as amended, in the future. All options
previously granted under the Directors Plan were granted at fair market value
on the date of grant.
Federal Income Tax Consequences
The following is a summary of certain federal income tax consequences of
the Directors Plan.
All options granted under the Directors Plan will be non-qualified stock
options. Non-qualified stock options do not qualify as "incentive stock
options" under Section 422 of the Code and do not qualify for any special tax
benefits to the optionee.
18<PAGE>
An optionee will not recognize any taxable income at the time he or she
is granted an option. However, upon exercise of an option, the optionee will
recognize ordinary income for federal tax purposes measured by the excess of
the then fair market value of the shares over the option price.
Upon a sale of any shares acquired pursuant to the exercise of an option,
the difference between the sale price and the optionee's basis in the shares
will be treated as a capital gain or loss and will be characterized as long
term capital gain or loss if the shares have been held for more than one year
at the date of sale by the optionee. The optionee's basis for determination
of gain or loss upon the subsequent sale of shares acquired upon the exercise
of an option will be the amount paid for such shares plus any ordinary income
recognized as a result of the exercise of the option.
In general, there will be no federal tax consequences to the Company upon
the grant or termination of an option or a sale by the optionee of the shares
acquired through exercise of an option. However, upon the exercise of an
option, the Company will be entitled to a deduction for federal income tax
purposes equal to the amount of ordinary income that the optionee is required
to recognize as a result of the exercise.
If there is an acceleration of the vesting or payment of options and/or
an acceleration of the exercisability of options upon a change of control, all
or a portion of the accelerated benefits may constitute "excess parachute
payments" under Section 280G of the Code. An excess parachute payment is not
deductible by the Company. Moreover, the optionee receiving an excess
parachute payment incurs an excise tax of 20% of the excess parachute
payment.
The foregoing summary of the federal income tax consequences of the
Directors Plan is based on the Company's understanding of present federal tax
law and regulations. The summary does not purport to be complete or
applicable to every specific situation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
APPROVE THE AMENDMENTS TO THE DIRECTORS PLAN.
PROPOSAL 3
ADOPTION OF THE 1995 KEY TRONIC CORPORATION
EXECUTIVE STOCK OPTION PLAN
The Board of Directors has adopted, and submits for shareholder approval,
the 1995 Key Tronic Corporation Executive Stock Option Plan (the "Plan").
The Company has adopted the Plan to enhance the profitability and value
of the Company for the benefit of its shareholders by providing equity
ownership opportunities and performance-based incentives to better align the
interests of officers and key employees with those of shareholders. The
Plan is also designed to enhance the profitability and value of the Company
for the benefit of its shareholders by providing a means to attract, retain
and motivate officers and other key employees who make important contributions
to the success of the Company. The Plan is intended to replace the Company's
Executive Stock Option Plan which has terminated.
Set forth below is a description of the principal features of the Plan
and the benefits that the Company has granted under the Plan, subject to
shareholder approval. This description does not purport to be complete and is
qualified in its entirety by reference to the Plan. Copies of the Plan will
be available at the Annual Meeting and may also be obtained by sending a
written request to the Company's Acting Secretary.
General Plan Provisions
The Plan provides for the granting of non-qualified stock Options
("Options") to employees of the Company. The number of shares of the
Company's stock which may be issued in connection with Options will not exceed
1,500,000 shares. No more than 300,000 of such shares may be granted to any
one individual during any fiscal year. On September 7, 1995, the closing
price of the Company's Common Stock was $14.875.
The Plan is administered by a committee (the "Committee") which consists
of two or more members of the Board of Directors who are "disinterested
19<PAGE>
persons" as defined in Rule 16b-3 ("Rule 16b-3") under the Securities Exchange
Act of 1934 ("Exchange Act") and "outside directors" as defined in Section
162(m) of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder (the "Code"). The Committee may amend the Plan at any time.
However, the Committee may not amend the Plan without shareholder approval
if such amendment would (i) cause the Plan to fail to meet the requirements
of Rule 16b-3 or (ii) violate applicable law. No Option may be granted under
the Plan on or after the 10th anniversary date of the date the Plan is
approved by the Company's shareholders, but Options granted prior to such
10th anniversary may extend beyond that date.
Under the Plan, the Committee may grant Options at such times, in such
amounts, and to such recipients as the Committee may determine. Options may
be granted, however, only to employees of the Company and its affiliates.
Any amendment or termination of the Plan will not adversely affect any
Option granted prior to such amendment or termination. However, any Option
may be modified or canceled by the Committee, in its sole discretion, if and
to the extent permitted by the Plan or applicable agreement or with the
consent of the participant to whom such Option was granted.
For all Options, the Option price will be as determined by the
Committee, but will be no less than the fair market value of the Company's
stock at the time the Option is granted. The other terms of an Option,
including its term, vesting and exercisability, and termination, will be
determined by the Committee. The applicable agreement for any Option may
include a Change of Control provision, and the Committee, in its sole
discretion, may specify in the agreement the definition of a Change of
Control and the effect a Change of Control will have on the agreement and the
related Options. The effect of a Change of Control provision may include
accelerating vesting (or otherwise affecting the terms) of the Option upon a
Change in Control. The occurrence of a Change of Control shall not limit the
Committee's authority, described above to modify or cancel any Option.
If an Option expires or is terminated, surrendered, or canceled without
having been fully exercised, the unused shares of the Company's stock covered
by any such Option shall again be available for grant under the Plan to any
participant who is not subject to Section 16. If there is any change in the
Company's stock by reason of any stock split, stock dividend, spin-off, split-
up, spin-out, recapitalization, merger, consolidation, reorganization,
combination or exchange of shares, or any other similar transaction, the number
and kind of shares of the Company's stock for which Options may be granted
under the Plan, the number of shares of the Company's stock subject to
outstanding Options and the price thereof, as applicable, will be
appropriately adjusted by the Committee.
Except as may be provided in an applicable agreement, any Option may be
converted, modified, forfeited, or canceled, or the restrictions or conditions
applicable to such Option waived or accelerated, prospectively or
retroactively, in whole or in part, by the Committee, but (unless the
participant is not in compliance with all applicable provisions of the Plan
or with any applicable agreement or the participant has acted in a manner
contrary to the best interests of the Company or an affiliate of the Company)
no such action may adversely affect the rights of a participant under any
Option granted prior to such action without his or her consent.
The Committee will not permit the re-pricing of Options by any method,
including by cancellation and reissuance. Upon the exercise of an Option,
payment may be made either (i) in cash, or (ii) with the consent of the
Committee, (A) by the surrender of all or part of the Company's stock issuable
upon exercise of the Option, (B) by the tender to the Company of its stock
owned by the participant having a fair market value equal to the amount due
to the Company, (C) in other property, or (D) by any combination of the
foregoing. At any time any Option granted under the Plan is exercised, the
Company may withhold, in cash or in shares of the Company's stock, any amount
necessary to satisfy withholding requirements applicable to such distribution
or exercise of an Option.
Unless otherwise determined by the Committee and specified in an
applicable agreement, an Option granted under the Plan may not be transferred
or assigned (either during life or death) by the participant to whom it is
granted.
Options Granted Under The Plan
Under the Plan, all employees of the Company are eligible to participate.
Because the officers and employees who may participate and the amount of their
Options are determined by the Committee, in its sole discretion, it is not
possible to state the names or positions of, or the number of Options that may
be granted to, the Company's officers and employees. The maximum number of
shares for which Options may be granted to any one individual during any
fiscal year is 300,000.
20<PAGE>
In July and September, 1995, the Committee granted Options, subject to
shareholder approval of the Plan. The Options have been granted as long-term
incentive compensation to approximately 27 key employees who have had, and are
expected to continue to have, a significant role in improving the
profitability and value of the Company for the benefit of its shareholders.
The following table shows Options which have been granted to date, subject
to shareholder approval of the Plan and which may not be exercised until
shareholder approval is obtained. This table is not necessarily indicative
of Options that may be granted under the Plan in the future.
<TABLE>
<S><C>
Options Granted
As of 9/7/95
Number of Shares
Name and Position of Company's Stock<F30>
Stanley Hiller, Jr. ---
Thomas W. Cason ---
Jack W. Oehlke 15,000
Richard T. Tinsley 7,500
Ronald F. Klawitter 15,000
All current (as of 9/1/95) 275,000
executive officers as a
group (5 persons)
All current directors who ---
are not executive officers
as a group
Each nominee for election as 225,000
a director
Fred W. Wenninger
Each associate of any of ---
such directors (none)
Each other person who ---
received or is to receive 5%
of such options (none)
All employees, including all 94,000
current officers who are not
executive officers, as a
group (23 persons)
<FN>
<F30> All options granted at an exercise price of $16.25 per share (the
closing price of the Company's Common Stock on date of grant, July 27, 1995)
except for options granted to Mr. Wenninger at $15.25 per share (the closing
price of the Company's Common Stock on date of grant, September 1, 1995).
</FN>
</TABLE>
Federal Income Tax Consequences
The following is a summary of certain federal income tax consequences of
the Plan.
The 1993 Omnibus Budget Reconciliation Act ("OBRA") became law in August
1993. Under the new law, publicly-held companies may be limited as to income
tax deductions to the extent that total remuneration (including stock option
exercises) for certain executive officers exceeds $1 million in any one year.
OBRA, however, provides an exception for "performance-based" remuneration,
21<PAGE>
including stock options. OBRA requires that certain actions must be taken by
a compensation committee of two or more outside directors and that the
material terms of such remuneration must be approved by a majority vote of
the shareholders in order for stock options to qualify as "performance-based"
remuneration. No regulations have been issued that interpret this provision
of OBRA, and the conference report that was issued by the Joint Committee on
Taxation is unclear as to what action must be taken and at what time to ensure
that stock options are treated as "performance-based" remuneration. The
Company has been advised that, based on the proposed regulations and the
conference report, the Plan complies with all requirements of OBRA for stock
options to be treated as "performance-based" remuneration.
All Options granted under the Plan will be non-qualified stock options.
Non-qualified stock options do not qualify as "incentive stock options" under
Section 422 of the Code and do not qualify for any special tax benefits to the
optionee.
An optionee will not recognize any taxable income at the time he or she
is granted an Option. However, upon exercise of an Option, the optionee will
recognize ordinary income for federal tax purposes measured by the excess of
the then fair market value of the shares over the option price.
Upon a sale of any shares acquired pursuant to the exercise of an Option,
the difference between the sale price and the optionee's basis in the shares
will be treated as a capital gain or loss and will be characterized as long
term capital gain or loss if the shares have been held for more than one year
at the date of sale by the optionee. The optionee's basis for determination of
gain or loss upon the subsequent sale of shares acquired upon the exercise of
an Option will be the amount paid for such shares plus any ordinary income
recognized as a result of the exercise of the Option.
In general, there will be no federal tax consequences to the Company upon
the grant or termination of an Option or a sale by the optionee of the shares
acquired through exercise of an Option. However, upon the exercise of an
Option, the Company will be entitled to a deduction for federal income tax
purposes equal to the amount of ordinary income that the optionee is required
to recognize as a result of the exercise.
If there is an acceleration of the vesting or payment of Options and/or
an acceleration of the exercisability of Options upon a change of control,
all or a portion of the accelerated benefits may constitute "excess parachute
payments" under Section 280G of the Code. An excess parachute payment is not
deductible by the Company. Moreover, the optionee receiving an excess
parachute payment incurs an excise tax of 20% of the excess parachute payment.
The foregoing summary of the federal income tax consequences of the Plan is
based on the Company's understanding of present federal tax law and
regulations. The summary does not purport to be complete or applicable to
every specific situation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
APPROVE THE PLAN.
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF AUDITORS
Deloitte & Touche LLP served as the Company's independent auditors since
1983 and has been appointed by the Board of Directors as the Company's
independent auditors for the fiscal year ending June 29, 1996. In the event
that ratification of this appointment of auditors is not approved by a majority
of the shares of Common Stock voting at the Annual Meeting in person or by
proxy, management will review its future selection of auditors.
Representatives of Deloitte & Touche LLP are expected to be present at
the Annual Meeting with the opportunity to make a statement, if they desire to
do so, and they are expected to be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF DELOITTE & TOUCHE AS THE COMPANY'S INDEPENDENT AUDITORS.
SHAREHOLDER PROPOSALS
To be considered for presentation to the Annual Meeting of Shareholders to
be held in 1996, a shareholder proposal must be received by Ronald F.
Klawitter, Vice President of Finance, Treasurer and Acting Secretary, Key
Tronic Corporation, 4424 N. Sullivan Road, Spokane, Washington 99216, no
later than May 24, 1996.
22<PAGE>
OTHER MATTERS
Compliance With Section 16(a) of the Exchange Act. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires the Company's executive
officers and directors and persons who own more than 10% of the Company's
Common Stock (collectively, "Reporting Persons") to file reports of ownership
and changes in ownership with the Securities and Exchange Commission ("SEC")
and Nasdaq. Reporting Persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely
on its review of the copies of such forms received or written representations
from certain Reporting Persons that no Forms 5 were required, the Company
believes that during fiscal 1995 all the Reporting Persons complied with all
applicable filing requirements.
Solicitation Expenses. The expense of printing and mailing proxy
material will be borne by the Company. In addition to the solicitation of
proxies by mail, solicitation may be made by certain directors, executive
officers and other employees of the Company by personal interview, telephone
or facsimile. No additional compensation will be paid for such solicitation.
The Company will request brokers and nominees who hold stock in their names
to furnish proxy material to beneficial owners of the shares and will
reimburse such brokers and nominees for their reasonable expenses incurred
in forwarding solicitation material to such beneficial owners.
Other Matters. The Board of Directors knows of no other business that
will be presented to the Annual Meeting. If any other business is properly
brought before the Annual Meeting, it is intended that proxies in the
enclosed form will be voted in respect thereof in accordance with the
judgment of the persons voting the proxies.
It is important that the proxies be returned promptly and that your
shares be represented. Shareholders are urged to fill in, sign and promptly
return the accompanying form in the enclosed envelope.
By Order of the Board of Directors,
/s/ Ronald F. Klawitter
Ronald F. Klawitter
Acting Secretary
Spokane, Washington
September 22, 1995
23<PAGE>
KEY TRONIC CORPORATION
4424 N. Sullivan Road, Spokane, Washington 99216
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING
OCTOBER 26, 1995
STANLEY HILLER, JR., WENDELL J. SATRE, AND YACOV A. SHAMASH, or any of
them, each with the power of substitution, are hereby authorized to represent
and vote all shares of the undersigned, with all the powers which the
undersigned would possess if personally present, at the Annual Meeting of
Shareholders of Key Tronic Corporation to be held on Thursday, October 26,
1995, and any adjournment or postponement thereof.
UNLESS OTHERWISE SPECIFIED THIS PROXY WILL BE VOTED IN FAVOR OF
PROPOSAL 1, PROPOSAL 2, PROPOSAL 3 AND PROPOSAL 4.
1. Election of Directors: WITHHOLD AUTHORITY to vote
FOR all nominees listed below / / for all nominees listed below / /
FOR, except vote withheld from the following nominee(s):
______________________________________________________________
Election of eleven directors (or if any nominee is not available for
election, such substitute as the Board of Directors or the
proxyholders may designate). Nominees:
Robert H. Cannon, Jr., Thomas W. Cason, Michael R. Hallman, Stanley
Hiller, Jr., Kenneth F. Holtby, Dale F. Pilz, Wendell J. Satre,
Yacov A. Shamash, Clarence W. Spangle, William E. Terry and Fred W.
Wenninger
______________________________________________________________
2. Adoption of Amendment to the Amended and Restated 1990 Stock Option
Plan for Non-Employee Directors.
/ / FOR / / AGAINST / / ABSTAIN
______________________________________________________________
3. Adoption of the 1995 Key Tronic Corporation Executive Stock Option
Plan.
/ / FOR / / AGAINST / / ABSTAIN
______________________________________________________________
4. Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for fiscal year 1996.
/ / FOR / / AGAINST / / ABSTAIN
_______________________________________________________________
(Continued and to be signed and dated on other side.)
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
and accompanying proxy statement, ratifies all that said Proxies or their
substitutes may lawfully do by virtue hereof, and revokes all prior proxies.
Shares represented by this proxy will be voted as directed by the shareholder.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and any adjournment
or postponement thereof.
If you wish to vote in accordance with the Board of Directors'
recommendations, just sign and date below. You need not mark any boxes.
PLEASE SIGN, DATE AND RETURN PROMPTLY. Mark / / for address change:
Please sign exactly as your name appears
herein. Joint owners should each sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such.
_______________________________________________
Signature Date
_______________________________________________
Signature Date
No postage is required if this proxy is returned in the enclosed envelope and
mailed in the United States
THE FOLLOWING DOCUMENTS, WHICH ARE NOT BEING PROVIDED TO SECURITY
HOLDERS, ARE APPENDED PURSUANT TO RULE 14(a)-101, ITEM 10(b)(2)(ii)(G)(3).
KEY TRONIC CORPORATION
AMENDED AND RESTATED
1990 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
(AMENDED AND RESTATED EFFECTIVE AS OF JULY 22, 1993)
ARTICLE I.
PURPOSES OF THE PLAN
The purposes of the Key Tronic Corporation 1990 Stock Option Plan for
Non-Employee Directors (the "Plan") are to attract and retain the services of
experienced, knowledgeable non-employee directors for Key Tronic Corporation
(the "Corporation") and to provide an incentive for such directors to increase
their proprietary interest in the Corporation's long-term success and progress.
ARTICLE II.
SHARES SUBJECT TO THE PLAN
The total number of shares of Common Stock, no par value (the "Shares"),
of the Corporation for which options may be granted under the Plan is Three
Hundred Thousand (300,000), subject to adjustment in accordance with Article
VI hereof. The Shares shall be authorized and unissued shares and shall
include shares representing the unexercised portion of any option granted
under the Plan which expires or terminates without being exercised in full.
ARTICLE III.
ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee appointed by the Board of
Directors of the Corporation to administer the Plan, which committee shall
consist of two or more members of the Board of Directors who are not eligible
to participate in the Plan (the "Plan Administrator"). Subject to the terms
of the Plan, the Plan Administrator shall have the power to construe the
provisions of the Plan, to determine all questions arising thereunder and to
adopt and amend such rules and regulations for the administration of the Plan
as it may deem desirable. Notwithstanding the foregoing, the selection of
directors to whom stock options are to be granted, the timing of such grants,
the number of shares subject to any option, the exercise price of any option,
the periods during which any option may vest and be exercised, and the term of
any option shall be as provided hereinafter, and the Plan Administrator shall
have no discretion as any to such matters.
ARTICLE IV.
PARTICIPATION IN THE PLAN
Each director of the Corporation whose first election to the Board of
Directors occurs after July 27, 1995 shall automatically, and without any
further authorization or approval by the Plan Administrator or the Board of
Directors, be granted (i) an option to purchase ten thousand (10,000) Shares
on the third business day following such director's first election to the
Board of Directors, provided such director is a Non-Employee Director (as
defined below) on the date of such first election; and (ii) an option to
purchase ten thousand (10,000) Shares on the third business day following the
first anniversary date of such director's first election to the Board of
Directors, provided such director is a Non-Employee Director on the date of
such anniversary. A director shall be a "Non-Employee Director" on the date
of any such election if, on such date and for one year prior to such date,
such director has not been an employee of the Corporation or any of its
subsidiaries. The "Grant Date" of an option shall be the date the option is
granted pursuant to the terms of this Article IV. No other options shall be
granted under the Plan except as specifically provided above.
ARTICLE V.
OPTION TERMS
Each option granted to a Non-Employee Director under the Plan and the
issuance of shares hereunder shall be subject to the following terms.
A. Option Agreement. Each option granted under the Plan shall be
evidenced by an option agreement (an "Agreement") duly executed on behalf of
the Corporation and by the Non-Employee Director to whom such option is
granted. Each Agreement shall comply with and be subject to the terms and
conditions of the Plan and shall conclusively evidence by the optionee's
signature thereon that it is the intent of the optionee to continue to serve
as a director of the Corporation for the remainder of the term for which he or
she was elected. Any Agreement may contain such other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the Plan
Administrator.
B. Option Exercise Price. The option exercise price for an option
granted under the Plan shall be equal to the fair market value of the Shares
covered by the option on the option's Grant Date. For purposes of the Plan,
"fair market value" means the closing price of the Company's stock as reported
in the Wall Street Journal.
C. Time and Manner of Exercise of Option. Options shall vest and are
exercisable to the extent of one-third (1/3) per year of the option shares
granted, beginning one year from the Grant Date of the option, and may be
exercised to the full extent vested at one time or in part from time to time.
Any option may be exercised by giving written notice, signed by the person
exercising the option, to the Secretary of the Corporation stating the number
of Shares with respect to which the option is being exercised, accompanied by
payment in full for such Shares, which payment may be in whole or in part in
shares of the Common Stock of the Corporation already owned and fully paid for
by the person or persons exercising the option, valued at fair market value at
the time of such exercise and any withholding tax required by the Corporation.
D. Term of Options. Each option shall expire ten (10) years from the
Grant Date thereof, but shall be subject to earlier termination as follows:
(i) In the event of the death of an optionee, the option granted to
such optionee may be exercised within one (1) year after the date of death of
such optionee or prior to the date on which the option expires by its terms,
whichever is earlier, by the estate of such optionee, or by any person or
persons whom the optionee shall have designated in writing on forms prescribed
by and filed with the Corporation or, if no such designation has been made by
the person or persons to whom the optionee's rights have passed, by will or
the laws of descent and distribution.
(ii) In the event that an optionee ceases to be a director of the
Corporation, the portion of the option granted to such optionee which is vested
at the date the director ceases to be a director of the Corporation may be
exercised by him or her within one (1) year after the date such optionee
ceases to be a director of the Corporation or prior to the date on which
the option expires by its terms, whichever is earlier.
E. Transferability. The right of any optionee to exercise an option
granted to him or her under the Plan shall not be assignable or transferable
by such optionee otherwise than by will or the laws of descent and distribution
(as more specifically provided in Article V D(i) above), and any such option
shall be exercisable during the lifetime of such optionee only by such
optionee.
F. Participant's or Successor's Rights as Shareholders. Neither the
recipient of an option under the Plan nor his or her successor(s) in interest
shall have any rights as a shareholder of the Corporation with respect to any
Shares subject to an option granted to such person until such person becomes a
holder of record of such Shares.
G. Regulatory Approval and Compliance. The Corporation shall not be
required to issue any certificate or certificates for shares of its stock upon
the exercise of an option granted under the Plan, or record as a holder of
record of such Shares the name of the individual exercising an option under
the Plan, without obtaining, to the Plan Administrator's complete satisfaction,
the approval of all regulatory bodies deemed necessary by the Plan
Administrator and without complying, to the Plan Administrator's complete
satisfaction, with all rules and regulations under federal, state or local
law deemed applicable by the Plan Administrator.
ARTICLE VI.
CAPITAL ADJUSTMENTS
The aggregate number (and kind) of Shares with respect to which options may
be granted under the Plan as provided in Article II, the number (and kind) of
Shares subject to each outstanding option, the number (and kind) of Shares with
respect to which an option may be granted to a Non-Employee Director under the
Plan as provided in Article IV, and the price per share specified in each such
option, shall all be appropriately adjusted for any increase or decrease in the
number of issued shares of Common Stock of the Corporation resulting from a
subdivision or consolidation of shares or any other similar capital adjustment,
any payment of a stock dividend, any other increase or decrease in such shares
effected without receipt of consideration by the Corporation, any merger or
consolidation of the Corporation, or any sale of all or substantially all of
the assets of, or any liquidation of, the Corporation.
ARTICLE VII.
STATUS OF PLAN
The Plan and transactions under the Plan are intended to comply with all
applicable provisions of Rule 16b-3 (as defined below) generally and with all
applicable non-discretionary plan provisions of Rule 16b-3 specifically. To
the extent any provision of the Plan or action by the Plan Administrator fails
to so comply, it shall be deemed null and void, to the extent permitted by
law. To the extent any provision of Rule 16b-3 required to be included in
the Plan to accomplish the intent hereof is omitted, the same is incorporated
herein by this reference.
ARTICLE VIII.
EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan
shall be borne by the Corporation, and none of such expenses shall be charged
to any optionee.
ARTICLE IX.
CHANGE OF CONTROL
Notwithstanding any other provision of the Plan or any option agreement
to the contrary, (but subject to the provisions of Section 16), any Option
hereunder (or unexercised portion thereof) shall, unless previously lapsed
and terminated become vested and exercisable in full immediately prior to
the occurrence of a Change in Control, (as such term is defined below);
provided, that such acceleration will not occur if it would render
unavailable "pooling of interests" accounting treatment for any merger,
consolidation, statutory share exchange or other reorganization of the
Company. Upon the occurrence of a Change in Control which also involves
an event described in Article VI, the number and kind of shares and the
purchase price per share of any Options (or portion thereof) hereunder
shall be adjusted in the manner described therein. If the vesting and
exercisability of any Options (or portion thereof) hereunder are accelerated
in the manner described in this Section 2 (e) such Options (or portion
thereof) shall otherwise remain outstanding and subject to the other terms
and conditions of the Plan and this Option Agreement. As used herein, a
Change in Control shall be deemed to occur if any of the following shall
occur: (A) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Company, any Subsidiary or
any employee benefit plan of the Company or any Subsidiary, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing forty
percent (40%) or more of the combined voting power of the Company's
then-outstanding securities (other than as a result of an acquisition by
any such person of securities directly from the Company); (B) the first
purchase of Common Stock pursuant to a tender or exchange offer (other than
a tender or exchange offer made by the Company or any Subsidiary); (C) the
approval by the Company's stockholders of a merger or consolidation, a
statutory share exchange, a sale or disposition of all or substantially all
the Company's assets or a plan of liquidation or dissolution of the Company;
or (D) during any period of two (2) consecutive years, individuals who at
the beginning of such period constitute the Board of Directors cease for
any reason to constitute at least a majority thereof, unless the election
or nomination for the election by the Company's stockholders of each new
director was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who were directors at the beginning of the period.
ARTICLE X.
APPROVAL OF SHAREHOLDERS
If required by law or in order to qualify the Plan generally, or as a
non-discretionary plan specifically, under Rule 16b-3, as amended from time to
time, or any successor rule ("Rule 16b-3") promulgated under the Securities
Exchange Act of 1934, as amended, or to qualify the Corporation's Common Stock
for listing on a national securities exchange or the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or the NASDAQ/National
Market System, the Plan shall be subject to approval by the vote of
shareholders holding at least a majority of the voting stock of the
Corporation, voting in person or by proxy at a duly held shareholders' meeting.
Nonetheless, options may be granted prior to shareholder approval, if required,
provided this Plan has been authorized and approved by a majority of the
non-participating directors and any grant so made prior to shareholder
approval is made contingent upon the Plan being approved by the Company's
shareholders, if required, as provided for above.
ARTICLE XI.
TERMINATION AND AMENDMENT OF THE PLAN
The Board of Directors may amend, terminate or suspend the Plan at any
time, in its sole and absolute discretion; provided, however, that without
the approval of shareholders, if such approval is required as provided in
Article X above, no amendment shall (a) increase the aggregate number of
Shares subject to the Plan; (b) reduce the option price of the Shares subject
to any option; (c) increase the number of options, or the number of Shares for
which any option, may be granted to each Non-Employee Director; (d) change the
timing with respect to which such options are granted or exercisable; or (e)
make any other change which would require shareholder approval under
applicable law, including Rule 16b-3 generally and the non-discretionary plan
provisions of Rule 16b-3 specifically; and provided further, that if required
to qualify as a nondiscretionary plan under Rule 16b-3, the Plan (including
without limitation the provisions either stating the amount and price of
securities to be awarded and specifying the timing of awards, or setting forth
a formula that determines the amount, price and timing) may be amended no more
frequently than once every six (6) months. Notwithstanding the foregoing, the
Plan shall in any event, if not sooner terminated, be terminated as of the end
of July 27, 2005.
ARTICLE XII.
EFFECTIVE DATE
The original effective date of the Plan was January 19, 1990. The 1995
amendments to the Plan shall be effective as of July 27, 1995, provided
shareholder approval of such amendments is obtained at the 1995 annual
meeting of shareholders of the Corporation.
1995 KEY TRONIC CORPORATION
EXECUTIVE STOCK OPTION PLAN
ARTICLE I
NAME AND PURPOSE
1.1 Name. The name of this Plan is the "1995 Key Tronic Corporation
Executive Stock Option Plan".
1.2 Purpose. The purpose of the Plan is to enhance the profitability and
value of the Company for the benefit of its shareholders by providing
equity ownership opportunities and performance based incentives to
better align the interests of officers and key employees with those
of shareholders. The Plan is also designed to enhance the
profitability and value of the Company for the benefit of its
shareholders by providing a means to attract, retain and motivate
officers and other key employees who make important contributions to
the success of the Company.
ARTICLE II
DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION
2.1 General Definitions. The following terms, when used in the Plan,
unless otherwise specifically defined or unless the context clearly
otherwise requires, shall have the following respective meanings:
(a) Affiliate. A Parent or Subsidiary of the Company or any other
entity designated by the Committee in which the Company owns at
least a 50% interest(including, but not limited to, partnerships
and joint ventures).
(b) Agreement. The document which evidences the grant of an Option
under the Plan and which sets forth the Option and the terms,
conditions and provisions of, and restrictions relating to, such
Option.
(c) Board. The Board of Directors of the Company.
(d) Change of Control. A "Change of Control" as defined in any
Agreement.
(e) Code. The Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
(f) Company. Key Tronic Corporation.
(g) Committee. The Board's Committee or any successor committee
appointed by the Board to administer this Plan.
(h) Common Stock. The Company's Common Stock, no par value.
(i) Effective Date. The date that the Plan is approved by the
shareholders of the Company which must occur within one year
after approval by the Board. Any grants of Options prior to
the approval by the shareholders of the Company shall be void
if such approval is not obtained.
(j) Employee. Any person employed by the Employer.
(k) Employer. The Company and all Affiliates.
(l) Exchange Act. The Securities Exchange Act of 1934, as amended
from time to time, and the regulations promulgated thereunder.
(m) Fair Market Value. The closing price of a Share on the National
Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System on a given date, or, in the absence of
sales on a given date, the closing price on NASDAQ on the last
day on which a sale occurred prior to such date.
(n) Fiscal Year. The taxable year of the Company which is its
fiscal year ending on or around June 30.
(o) Option. An option to purchase Shares granted under the Plan.
Each Option granted hereunder shall be a Non-Qualified Stock
Option which is an Option that does not meet the statutory
requirements of an Incentive Stock Option under Code Section
422.
(p) Parent. Any corporation (other than the Company or a
Subsidiary) in an unbroken chain of corporations ending with
the Company if, at the time of the grant of an Option, each of
the corporations (other than the Company or a Subsidiary) owns
stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such
chain.
(q) Participant. An Employee who is granted an Option under the
Plan. Options may be granted only to Employees.
(r) Plan. The 1995 Key Tronic Corporation Executive Stock Option
Plan and all amendments and supplements to it.
(s) Rule 16b-3. Rule 16b-3, as amended from time to time, or any
successor rule promulgated under the Exchange Act.
(t) Securities Act. The Securities Act of 1933, as amended from
time to time, and the regulations promulgated thereunder.
(u) SEC. The Securities and Exchange Commission.
(v) Share. A share of Common Stock.
(w) Subsidiary. Any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company if, at
the time of grant of an Option, each of the corporations, other
than the last corporation in the unbroken chain, owns stock
possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such
chain.
2.2 Other Definitions. In addition to the above definitions, certain
terms used in the Plan and any Agreement may be defined in other
portions of the Plan or in such Agreement.
2.3 Conflicts in Provisions. In the case of any conflict between
different provisions of the Plan or between provisions of the Plan
and any Agreement, the provisions in the Article of the Plan which
specifically governs the applicable Option shall control over those
in a different Article of the Plan or in such Agreement.
ARTICLE III
COMMON STOCK SUBJECT TO PLAN
3.1 Number of Shares. The aggregate number of Shares for which Options
may be granted under the Plan shall be 1.5 million (1,500,000), all
of which may be awarded to Participants who are subject to Section
16 of the Exchange Act. During any Fiscal Year within the term of
this Plan, no more than three hundred thousand (300,000) of such
Shares may be granted to any one individual. Such Shares may be
authorized but unissued Shares, reacquired Shares, Shares acquired
on the open market specifically for distribution under this Plan,
or any combination thereof.
3.2 Reusage. If an Option expires or is terminated, surrendered or
canceled without having been fully exercised, the unused Shares
covered by any such Option shall again be available for grant under
the Plan to any Participant who is not subject to Section 16 of the
Exchange Act.
3.3 Adjustments. If there is any change in the Common Stock of the
Company by reason of any stock split, stock dividend, spin-off,
split-up, spin-out, recapitalization, merger, consolidation,
reorganization, combination or exchange of shares, or any other
similar transaction, the aggregate number and kind of Shares for
which Options may be granted under the Plan, and subject to change
of control provisions of the Agreement, the number and kind of
Shares subject to each outstanding Option and the price per Share
thereof, as applicable, shall be appropriately adjusted by the
Committee.
ARTICLE IV
ELIGIBILITY
4.1 Determined By Committee. The Participants and the Options they
receive under the Plan shall be determined by the Committee in
its sole discretion. In making its determinations, the Committee
shall consider past, present and expected future contributions of
Participants and potential Participants to the Employer. Members
of the Committee and any other persons whose participation in the
Plan would cause disqualification of this or any other benefit
plan intended to be qualified under Rule 16b-3 are ineligible to
participate in the Plan.
ARTICLE V
ADMINISTRATION
5.1 Committee. The Plan shall be administered by the Committee. The
Committee shall consist of two or more members of the Board who
are "disinterested persons" as defined in Rule 16b-3 and are
"outside directors" as defined in Code Section 162(m).
5.2 Authority. Subject to the terms of the Plan, the Committee shall
have sole discretionary authority to:
(a) determine the individuals to whom Options are granted, the
type(s) and amounts of Options granted, the date of grant, and
the duration of Options granted;
(b) determine the other terms, conditions and provisions of, and
restrictions relating to, each Option granted;
(c) interpret and construe the Plan and all Agreements;
(d) prescribe, amend and rescind rules and regulations relating to
the Plan;
(e) determine the content and form of all Agreements;
(f) resolve all questions relating to Options or the Plan;
(g) maintain accounts, records and ledgers relating to Options;
(h) maintain records concerning its decisions and proceedings;
(i) employ agents, attorneys, accountants or other persons for such
purposes as the Committee considers necessary or desirable; and
(j) do and perform all other acts which it may deem necessary or
appropriate to administer the Plan and carry out the purposes of
the Plan.
5.3 Delegation. Except as required by Rule 16b-3 with respect to grants
of Options to individuals who are subject to Section 16 of the
Exchange Act or as otherwise required for compliance with Rule 16b-3
or other applicable law, the Committee may delegate all or any part
of its authority under the Plan to any Employee, Employees or
committee of Employees.
5.4 Decisions of Committee and its Delegates. All decisions made by the
Committee, or (unless the Committee has specified an appeal process
to the contrary) any other person or persons to whom the Committee
has delegated authority, pursuant to the provisions hereof shall be
final and binding on all persons.
ARTICLE VI
AMENDMENT OF PLAN
6.1 Power of Committee. The Committee shall have the sole right and
power to amend the Plan at any time and from time to time; provided,
however, that the Committee may not amend the Plan, without approval
of the shareholders of the Company, in a manner which would:
(a) cause the Plan to fail to meet the requirements of Rule 16b-3;
or
(b) violate applicable law.
ARTICLE VII
TERM AND TERMINATION OF PLAN
7.1 Term. The Plan shall commence as of the Effective Date. No Option
shall be granted pursuant to the Plan on or after the tenth
anniversary date of the Effective Date, but Options granted prior to
such tenth anniversary may extend beyond that date to the date(s)
specified in the Agreement(s) covering such Options.
7.2 Termination. Subject to Article VIII, the Plan may be terminated at
any time by the Committee.
ARTICLE VIII
MODIFICATION OR TERMINATION OF OPTIONS
8.1 General. Subject to Section 8.2, the amendment or termination of
the Plan shall not adversely affect a Participant's rights under any
Option granted prior to such amendment or termination.
8.2 Committee's Right. Except as may be otherwise provided in an
Agreement, any Option granted may be converted, modified, forfeited
or canceled, prospectively or retroactively, in whole or in part, by
the Committee in its sole discretion; provided, however, that subject
to Section 8.3, no such action shall adversely affect the rights of
any Participant under any Option granted prior to such action without
his or her consent. Except as may be otherwise provided in an
Agreement, the Committee may, in its sole discretion, in whole or in
part, waive any restrictions or conditions applicable to, or
accelerate the vesting of, any Option.
8.3 Termination of Options under Certain Conditions. The Committee in
its sole discretion may cancel any unexpired, unpaid, or deferred
Options at any time if the Participant is not in compliance with
all applicable provisions of the Plan or with any Agreement or if
the Participant, whether or not he or she is currently employed by an
Employer, acts in a manner contrary to the best interests of the
Company or any Affiliate.
8.4 Awards to Foreign Nationals and Employees Outside the United States.
To the extent the Committee deems it necessary, appropriate or
desirable to comply with foreign law or practice and to further the
purpose of the Plan, the Committee may, without amending this Plan,
establish special rules applicable to Options granted to Partici-
pants who are foreign nationals, are employed outside the United
States, or both, including rules that differ from those set forth in
the Plan, and grant Options to such Participants in accordance with
those rules.
ARTICLE IX
CHANGE OF CONTROL
9.1 Right of Committee. The occurrence of a Change of Control shall not
limit the Committee's authority to take any action, in its sole
discretion, permitted by Section 8.2. The Committee, in its sole
discretion, may specify in any Agreement the effect a Change of
Control will have on such Agreement and the related Options.
ARTICLE X
AGREEMENTS AND CERTAIN OPTIONS
10.1 Grant Evidenced by Agreement. The grant of any Option under the
Plan shall be evidenced by an Agreement which shall describe the
specific Option granted and the terms and conditions of such Option.
The granting of any Option shall be subject to, and conditioned upon,
the recipient's execution of any Agreement required by the Committee.
Except as may be otherwise provided in an Agreement, capitalized
terms used in the Agreement shall have the respective meanings
assigned to such terms in the Plan, and the Agreement shall be
subject to all of the provisions of the Plan.
10.2 Provisions of Agreement. Each Agreement shall contain such
provisions as the Committee shall determine in its sole discretion
to be necessary, desirable and appropriate for the Option granted
which may include, but not necessarily be limited to, the following:
description of the Option; the Option's duration; the Option's
transferability; the exercise price, the exercise period and the
person or persons who may exercise the Option; the effect upon the
Option of the Participant's death, disability, change of duties or
termination of employment; the Option's conditions; subject to
Section 11.1, when, if, and how the Option may be forfeited,
converted into another Option, modified, exchanged for another
Option, or replaced; and the restrictions on any Shares purchased
or granted under the Plan.
ARTICLE XI
TANDEM AWARDS AND REISSUANCE OF OPTIONS
11.1 Cancellation and Reissuance of Options. The Committee will not
permit the repricing of Options by any method, including by
cancellation and reissuance.
ARTICLE XII
PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING
12.1 Payment. Upon the exercise of an Option, the amount due the
Company is to be paid:
(a) in cash;
(b) by the surrender of all or part of the shares issuable upon
exercise of the Option;
(c) by the tender to the Company of Shares owned by the Participant
and registered in his or her name having a Fair Market Value
equal to the amount due to the Company;
(d) in other property, rights and credits, deemed acceptable by
the Committee including the Participant's promissory note; or
(e) by any combination of the payment methods specified in (a)
through (c) above.
(f) notwithstanding the foregoing, any method of payment other than
in cash may be used only with the consent of the Committee or if
and to the extent so provided in an Agreement. The proceeds of
the sale of Shares purchased pursuant to an Option shall be
added to the general funds of the Company and used for general
corporate purposes.
12.2 Code Section 162(m). The Committee, in its sole discretion, may
require that one or more Agreements contain provisions which provide
that, in the event Section 162(m) of the Code, or any successor
provision relating to excessive employee remuneration, would operate
to disallow a deduction by the Company for all or part of any Option
under the Plan, a Participant's receipt of the portion of such Option
that would not be deductible by the Company shall be deferred until
the next succeeding year or years in which the Participant's
remuneration does not exceed the limit set forth in such provision
of the Code.
12.3 Withholding. The Company may, at the time any distribution is made
under the Plan, whether in cash or in Shares, or at the time any
Option is exercised, withhold from such distribution or Shares
issuable upon the exercise of an Option, any amount necessary to
satisfy federal, state and local withholding requirements with
respect to such distribution or exercise of such Option. Such
withholding may be satisfied, at the Company's option, either by
cash or the Company's withholding of Shares. An Agreement may
contain such withholding provisions as the Committee may deem
appropriate.
ARTICLE XIII
OPTIONS
13.1 Grant of Options. Options may be granted by the Committee under
the Plan.
13.2 Option Price. The purchase price for Shares subject to any Option
shall be no less than the Fair Market Value of the Shares at the
time the Option is granted.
13.3 Determination by Committee. Except as otherwise provided in
Section 13.2, the terms of any Option shall be determined by the
Committee.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 Termination of Employment. If the employment of a Participant by
the Employer terminates for any reason, all unexercised, deferred,
and unpaid Options may be exercisable or paid only in accordance
with rules established by the Committee and set forth in an
Agreement. These rules may provide, as the Committee in its sole
discretion may deem appropriate, for the expiration, forfeiture,
continuation, or acceleration of the vesting of all or part of
the Options.
14.2 Unfunded Status of the Plan. The Plan is intended to constitute
an "unfunded" plan for incentive compensation. With respect to
any payments or deliveries of Shares not yet made to a Participant
by the Company, nothing contained herein shall give any rights that
are greater than those of a general creditor of the Company. The
Committee may authorize arrangements to meet the obligations created
under the Plan to deliver Shares or payments hereunder consistent
with the foregoing.
14.3 Designation of Beneficiary. The Committee, in its sole discretion
may include a provision in the Agreement permitting the Participant
to specify, on a Beneficiary Designation," a beneficiary or
beneficiaries ("Designated Beneficiary") to exercise, in the event
of the death of the Participant, an Option to the extent exercise is
permissible under the Agreement. The Committee reserves the right to
review and approve Beneficiary Designations. The Participant may,
from time to time, revoke or change Participant's Beneficiary
Designation and Participant's Beneficiary Designation shall be
controlling over Participant's Will (or similar document passing
property at Participant's death) and the laws of intestacy. Unless
the Agreement provides to the contrary, in the event Participant
dies without a valid Beneficiary Designation as provided herein, all
rights under the Agreement shall lapse and terminate on the date of
Participant's death. For the purposes of this Section 15.3, a
Beneficiary Designation must be on such form (and only on such form)
as is prescribed by the Committee from time to time.
14.4 Nontransferability. Unless otherwise determined by the Committee
and specified in an Agreement, an Option granted under the Plan may
not be transferred or assigned (either during life or at death) by
the Participant to whom it is granted.
14.5 Rule 16b-3. With respect to Participants subject to Section 16 of
the Exchange Act, transactions under the Plan are intended to comply
with all applicable provisions of Rule 16b-3. To the extent any
provision of the Plan or action by the Plan administrators fails to
so comply, it shall be deemed null and void, to the extent permitted
by law and deemed advisable by the Committee.
14.6 Captions. The captions contained in the Plan and in any Agreement
are included only for convenience, and they shall not be construed
as a part of the Plan or such Agreement.
14.7 Number and Gender. The masculine, feminine and neuter, wherever
used in the Plan or in any Agreement, shall refer to either the
masculine, feminine or neuter; and, unless the context otherwise
requires, the singular shall include the plural and the plural the
singular.
14.8 Governing Law. The place of administration of the Plan and each
Agreement shall be in the State of Washington. The Plan and each
Agreement shall be governed by and construed in accordance with the
laws of the State of Washington, without giving effect to principles
relating to conflict of laws.
14.9 Compliance With Securities and Other Laws. The Plan, the grant and
exercise of any Option, and the obligations of the Company to issue
and/or deliver any Shares upon exercise of such Option, shall be
subject to the following conditions: compliance with all
applicable federal, state and foreign securities and other laws,
rules and regulations (including without limitation registration or
qualification, or an exemption therefrom, under all applicable
securities laws), obtaining all applicable consents and approvals of
any governmental or private regulatory body and completion of all
applicable listings on any securities exchange or trading system, in
each case as the Committee deems necessary or desirable and on terms
and conditions acceptable to it. The Company shall not be obligated
to undertake any action to comply with any such laws (including
without limitation any such registration or qualification), to
obtain any such consent or approval or to complete any such listing,
but the Committee, in its discretion, may elect to do so.
14.10 Agreements, Representations and Restrictions. The Committee may
require a Participant to execute such written agreements and
representations (including without limitation that the Shares to be
issued and/or delivered upon exercise of any Option are being
acquired for investment and not with a view to resale or
distribution thereof), require a Participant to furnish such
information, legal opinions or evidence, place such restrictive
legends upon any certificates for the Shares, and take such other
acts, in each case as the Committee deems necessary or desirable to
comply with applicable laws.
14.11 No Rights as Stockholder Until Issuance of Shares. A Participant
shall have no rights as a stockholder of the Company with respect to
any Shares to be issued upon exercise of an Option until such
Participant becomes a holder of record of such Shares.
14.12 Successors and Assigns. The Plan and any Agreement shall be
binding upon, and inure to the benefit of, the Company's
successors and assigns and shall be binding upon, and (to the extent
permitted) inure to the benefit of, any Participant's heirs,
successors and assigns.
14.13 No Employment Contract. Neither the adoption of the Plan nor any
Option granted hereunder shall confer upon any Employee any right
to continued employment nor shall the Plan or any Option interfere
in any way with the right of the Employer to terminate the
employment of any of its Employees at any time.
14.14 No Effect on Other Options. The receipt of Options under the
Plan shall have no effect on any other benefits to which a
Participant may be entitled from the Employer under another plan or
otherwise, and shall not preclude a Participant from receiving any
such other benefits.
