SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SSI SURGICAL SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(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.
6. Amount Previously Paid:
- --------------------------------------------------------------------------------
7. Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
8. Filing Party:
- --------------------------------------------------------------------------------
9. Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
SSI SURGICAL SERVICES, INC.
5776 Hoffner Avenue, Suite 200
Orlando, Florida 32822
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 2000
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of SSI Surgical Services, Inc., a New
York corporation (the "Company"), will be held on Monday, May 22, 2000, at 10:00
a.m. at the Philadelphia Airport Renaissance Hotel, Philadelphia, Pennsylvania,
for the following purposes:
1. To elect a Board of Directors for the ensuing year;
2. To consider and act upon a proposal to approve the adoption of the
Company's 2000 Stock Plan;
3. To consider and act upon a proposal to ratify the selection of the firm
of PricewaterhouseCoopers LLP as the Company's auditors for the fiscal year
ending December 31, 2000; and
4. To transact such other business as may properly come before the meeting
and any adjournments thereof.
Only shareholders of record at the close of business on April 10, 2000 are
entitled to notice of and to vote at the meeting.
Please complete and return the enclosed proxy card in the envelope
provided.
Orlando, Florida
April 20, 2000 By Order of the Board of Directors
Steven K. Chance
Secretary
1
<PAGE>
SSI SURGICAL SERVICES, INC.
5776 Hoffner Avenue, Suite 200
Orlando, Florida 32822
(407) 249-1946
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 22, 2000
Proxies in the form enclosed with this proxy statement are solicited by
the Board of Directors of SSI Surgical Services, Inc. (the "Company") for use at
the Annual Meeting of Shareholders to be held on Monday, May 22, 2000 at the
Philadelphia Airport Renaissance Hotel, Philadelphia, Pennsylvania or at any
adjournments thereof (the "Annual Meeting").
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before it is exercised by providing written notice to the
Secretary of the Company of such intent or by submitting a new proxy or voting
in person at the Annual Meeting. The shares represented by the proxy will be
voted in accordance with the instructions specified therein. If no instructions
are given in the proxy, the shares represented by the proxy will be voted for
the election as directors of the nominees listed below and for proposals 2 and 3
described below.
RECORD DATE AND VOTING PROCEDURE
Only shareholders of record at the close of business on April 10, 2000 are
entitled to vote at the Annual Meeting. At that date, 19,491,216 shares of
Common Stock of the Company were outstanding and entitled to vote. Holders of
Common Stock are entitled to cast one vote for each share held. A majority of
the outstanding shares present, in person or by proxy, will constitute a quorum
for the transaction of business at the meeting. Under the laws of the State of
New York, the Company's state of incorporation, "votes cast" at a meeting of
shareholders by the holders of shares entitled to vote are determinative of the
outcome of the matter subject to vote. Abstentions, broker non-votes, and
withheld votes will not be considered "votes cast". A "non-vote" occurs when a
broker or other nominee holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal. A plurality of the votes cast
at the meeting is required to elect the Directors. On all other matters, the
affirmative vote of a majority of the shares present, in person or proxy, and
voting on that matter is required for approval.
The persons named as attorneys in the proxies, Michael D. Klein, President
and Chief Executive Officer and Director and Harvey Cohen, Assistant Secretary
of the Company were selected by the Board of Directors. All properly executed
proxies returned in time to be counted at the Annual Meeting will be voted as
stated below under "Proposal Relating to Election of Directors". Any shareholder
giving a proxy has the right to withhold authority to vote for any individual
nominee to the Board of Directors by so marking the proxy in the space provided
thereon.
2
<PAGE>
In addition to the election of directors, the shareholders will consider
and vote upon a proposal to approve the 2000 Stock Plan and a proposal to ratify
the selection of the firm of PricewaterhouseCoopers LLP as the Company's
auditors for the fiscal year ending December 31, 2000, all as further described
in this proxy statement. Where a choice has been specified on the proxy with
respect to the foregoing matters, including the election of directors, the
shares represented by the proxy will be voted in accordance with the
specifications and will be voted FOR any such proposal if no specification is
indicated.
The Board of Directors of the Company knows of no other matters to be
presented at the Annual Meeting. If any other matter should be presented at the
Annual Meeting upon which a vote properly may be taken, including any proposal
to adjourn the Annual Meeting, shares represented by all proxies received by the
Board of Directors will be voted with respect thereto in accordance with the
judgment of the persons named as attorneys in the proxies.
The Annual Report on Form 10-K previously filed with the U.S. Securities
and Exchange Commission, containing financial statements for the fiscal year
ended December 26, 1999, is being mailed together with this proxy statement to
all shareholders entitled to vote. This proxy statement and the form of proxy
were first mailed to shareholders on or about April 22, 2000.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 10, 2000, the beneficial
ownership of the Company's voting securities by (i) each person who, to the
knowledge of the Company, beneficially owned more than 5% of the Company's
voting securities outstanding at such date, (ii) each current Director of the
Company, (iii) each executive officer of the Company and (iv) all current
Directors and executive officers as a group:
Number of Shares Percentage of Total
Name and Address (1) Beneficially Owned(2) Voting Securities(3)
- ---------------- ------------------ ------------------
John J. Sickler(4) 17,885,720 85.21%
c/o TFX Equities Incorporated ("TFX")
630 West Germantown Pike
Suite 450
Plymouth Meeting, PA 19462
D. Michael Deignan(5) 310,470 1.57%
Forrest R. Whittaker(6) 55,000 *
Michael D. Klein -- *
Larry C. Buckelew(7) 95,000 *
3
<PAGE>
Steven K. Chance -- *
Todd Riddell(8) 12,500 *
Michael T. Spagnuolo(9) 19,250 *
Michael S. Irwin(10) 13,750 *
Paul A. D'Alesio 12,500 *
---------- -----
All Executive Officers and Directors
as a group (11) 18,404,190 85.96%
- ----------
(1) Pursuant to the rules of the SEC, addresses are provided only for 5%
beneficial owners.
(2) Except as otherwise noted in the footnotes to this table, each person or
entity named in the table has sole voting and investment power with
respect to all shares shown as owned, based on information provided to the
Company by the persons and entities named in the table.
(3) Total Voting Securities are 19,491,296 shares of Common Stock. Pursuant to
the rules of the SEC, all outstanding options and warrants which are
exercisable within 60 days of March 10, 2000 ("Presently Exercisable
Securities") held by the relevant person or entity are included as
outstanding Total Voting Securities for purposes of determining that
person's or entity's Percentage of Total Voting Securities, but are not
included for purposes of determining any other person's or entity's
Percentage of Total Voting Securities.
(4) Consists of 16,385,720 shares of Common Stock and 1,500,000 Presently
Exercisable Securities held by TFX. 85,000 Presently Exercisable
Securities have been optioned to Mr. Buckelew. See Note 7. Mr. Sickler is
President of TFX and has voting and investment power over the shares held
by TFX. Mr. Sickler disclaims beneficial ownership of the shares held by
TFX.
(5) Consists of 63,300 shares of Common Stock owned and 247,170 Presently
Exercisable Securities.
(6) Consists of 55,000 Presently Exercisable Securities.
(7) Consists of 95,000 Presently Exercisable Securities. Mr. Buckelew was
granted an option to purchase 40,000 shares by the Company of which 10,000
shares are presently exercisable. Mr. Buckelew was also granted an option
by TFX to purchase 170,000 shares of common stock of the Company owned by
TFX, of which 85,000 shares are presently
4
<PAGE>
exercisable. The remaining 85,000 shares optioned to Mr. Buckelew which
are not presently exercisable are included in shares owned by TFX (Note
4).
(8) Consists of 12,500 Presently Exercisable Securities.
(9) Consists of 13,000 shares of Common Stock and 6,250 Presently Exercisable
Securities. Mr. Spagnuolo was also granted an option by TFX to purchase
25,000 shares of common stock of the Company owned by TFX, which are
included in shares owned by TFX (Note 4) but none of these shares are
presently exercisable.
(10) Consists of 10,000 shares of Common Stock and 3,750 Presently Exercisable
Securities.
(11) Consists of 16,484,520 shares of Common Stock and 1,919,670 Presently
Exercisable Securities.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business and affairs of the Company are managed under the direction of
its Board of Directors. The Board of Directors met five (5) times during the
fiscal year ended December 26, 1999 and, in addition, executed documents
authorizing action without meeting on two (2) occasions. The Audit Committee of
the Board of Directors, consisting of Messrs. Deignan, Chance and Whittaker
reviews with the Company's independent auditors the scope and timing of their
audit services and any other services they are asked to perform, the auditor's
report on the Company's financial statements following completion of their audit
and the Company's policies and procedures with respect to internal accounting
and financial controls. In addition, the Audit Committee makes annual
recommendations to the Board of Directors for the appointment of independent
auditors for the ensuing year. The Audit Committee met one (1) time during the
fiscal year ended December 26, 1999. The Compensation Committee of the Board of
Directors, consisting of Messrs. Buckelew, Whittaker and Sickler, reviews and
evaluates the compensation and benefits of all officers of the Company, reviews
general policy matters relating to compensation and benefits of employees of the
Company and makes recommendations concerning these matters to the Board of
Directors. The Compensation Committee met one (1) time during the fiscal year
ended December 26, 1999. The Board of Directors does not currently have a
standing nominating committee. Mr. Bartos resigned in August, 1999 and Mr. Klein
was not elected until February 24, 2000. Each of the directors attended at least
75% of the aggregate of all meetings of the Board of Directors and all
committees on which he serves which were held during his period of service
during 1999.
Directors and Executive Officers of the Company
The following table sets forth certain information regarding the
individuals who are directors and executive officers as of March 10, 2000 and
the positions currently held by each such person with the Company.
5
<PAGE>
Name Age Position
---- --- --------
Michael D. Klein 50 Director, President, Chief Executive Officer
Larry C. Buckelew(1) 46 Director, Chairman of the Board
Steven K. Chance(2) 54 Director, Secretary
D. Michael Deignan(2) 56 Director
John J. Sickler(1) 58 Director
Forrest R. Whittaker(1)(2) 50 Director
Todd Riddell 40 Senior Vice President, Chief Operating Officer
Michael T. Spagnuolo 37 Vice President, Marketing & Business Development
Michael S. Irwin 52 Vice President, Services and Solutions
Paul A. D'Alesio 42 Treasurer, Chief Financial Officer
(1) Member of Compensation Committee
(2) Member of Audit Committee
Directors
Michael D. Klein was elected a Director, President and Chief Executive
Officer on February 24, 2000. From January, 1997 to September, 1999 he was
President of Urotherapies, Inc. and from 1992 to 1996 he was Vice President and
then President of Caremark. These companies were engaged in physician management
and physician clinics.
Larry C. Buckelew was elected a Director on January 8, 1997 and Chairman
of the Board on January 8, 1999. In January, 1999 he was appointed President of
TFX Medical Group, a business segment of Teleflex Incorporated ("Teleflex"),
which includes TFX Surgical Group, of which he was President since December,
1996. Teleflex designs, manufactures and distributes products and services for
the automotive, marine, industrial, medical and aerospace markets. Prior to
December, 1996, he was President of LCB Consultants, a consulting firm, since
February, 1996 and President of Sunrise Medical, Inc., a manufacturer of medical
devices, from June, 1993.
Steven K. Chance was elected a Director on January 8, 1999. He is and has
been since 1993 Vice President, Secretary and General Counsel of Teleflex.
D. Michael Deignan was elected President, Chief Operating Officer and
Director of the Company on September 8, 1995 and Chief Executive Officer on
December 31, 1995. He resigned as President and Chief Executive Officer on
January 8, 1999. Since January 6, 2000 he has been President and Chief Executive
Officer of Vasomedical, Inc., a provider of noninvasive vascular device and
therapies to treat angina.
John J. Sickler has been a Director since January 8, 1997. He is and has
been since 1990 the President of TFX, a subsidiary of Teleflex engaged in
business development.
6
<PAGE>
Forrest R. Whittaker has been a Director of the Company since January 17,
1996. He is and has been since January 1, 1996 the President and Chief Executive
Officer of Paidos Health Management Services, Inc., a company providing health
services. Prior thereto, he was President and Chief Executive Officer of Paidos
Healthcare, Inc. from May, 1993.
Executive Officers
Todd Riddell was elected Senior Vice President on March 2, 1999 and Chief
Operating Officer on September 9, 1999. From July, 1997 to March, 1999 he was
Executive Vice President of SSI Surgical Services, Inc. which was acquired by
the Company, then Medical Sterilization, Inc., in January, 1999. For five years
prior thereto he was Vice President of Endoscopy Specialists, Incorporated
("ESI") which was acquired by the Company in January, 1999.
Michael T. Spagnuolo was elected Vice President Marketing and Development
on February 24, 2000. Prior thereto he was Vice President-On Site Operations
from March 2, 1999. For two years prior thereto he was Vice President/Sales for
SSI Surgical Services, Inc. ("SSI") which was acquired by the Company, then
Medical Sterilization, Inc., in January, 1999. For more than three years prior
to 1997 he was a consultant for medical services.
Michael S. Irwin was elected Vice President of Services and Solutions on
February 24, 2000. Prior thereto he was Vice President-Off Site Operations from
March 2, 1999. For two years prior to March 2, 1999 he was General Manager of
Sterilization Management Group ("SMG") which was acquired by SSI in August,
1998. SMG owned and managed five surgical instrument and linen reprocessing
facilities. From 1994 to 1997 he was a plant manager and division director of
operations for the Interwoven Division of Baxter Healthcare, Inc., a
manufacturer and distributor of medical supplies and equipment.
Paul A. D'Alesio was elected Treasurer and Chief Financial Officer on
March 2, 1999. For more than five years prior thereto he was Controller of Meyer
International, Inc., a holding company for distributors of building materials
and its subsidiaries.
Executive Compensation
Summary Compensation. The following table sets forth the compensation
earned by the Chief Executive Officer and the four most highly compensated
executive officers for the last three completed fiscal years of the Company. Mr.
D. Michael Deignan was the Company's Chief Executive Officer in 1997 and 1998
and he resigned January 8, 1999. Mr. Scott Bartos was elected President and
Chief Executive Officer on January 8, 1999 and resigned such positions on August
18, 1999.
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
--------------------------------------- ------------------ ---------------
Name and Principal Securities All Other
Position Year Salary($) Bonus($) Underlying Options Compensation($)
- ---------------------------- ---- -------- -------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Scott A. Bartos, Pres. & CEO 1999 115,946 90,973 100,000(1) 1,779(2)
Todd Riddell, Senior VP & COO 1999 143,439 99,974 50,000 2,222(2)
Michael T. Spagnuolo, VP 1999 119,077 36,414 25,000 1,799(2)
Michael S. Irwin, VP 1999 115,391 8,000 15,000 1,074(2)
Paul A. D'Alesio, Treas. & CFO 1999 89,779 -- 1,240(2)
D. Michael Deignan, Pres. & CEO (4) 1999 160,718 -- 2,329(2)
D. Michael Deignan, Pres. & CEO 1998 165,000 42,600 3,712(3)
D. Michael Deignan, Pres. & CEO 1997 159,461 -- 3,857(3)
</TABLE>
(1) These options were terminated pursuant to the option agreement on November
18, 1999 because of Scott Bartos' resignation on August 11, 1999.
(2) Represents the Company's matching contributions to the 401K Plan.
(3) Includes $2,207 in 1997 and $2,062 in 1998 in contributions by the Company
to vested and unvested defined contribution plans for Mr. Deignan's
benefit.
(4) See "Severance Agreement.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Number of Percentage of
Securities Total Options Exercise
Underlying Granted to or Base Grant Date
Options Employees in Price Expiration Present
Name Granted(#) Fiscal Year ($/Sh) Date Value $(3)
- ------------------ ----------- -------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Scott A. Bartos 100,000(1) 25.97% 1.06 3/2/09 59,184
Todd Riddell 50,000(2) 12.99% 1.06 3/2/09 29,592
Michael T. Spagnuolo 25,000(2) 06.49% 1.06 3/2/09 14,796
Michael S. Irwin 15,000(2) 03.90% 1.06 3/2/09 8,878
Paul A. D'Alesio 15,000(2) 03.90% 0.69 5/21/09 5,789
D. Michael Deignan -- -- -- -- --
</TABLE>
(1) These options were terminated pursuant to the option agreement November
18, 1999 because of Scott Bartos' resignation on August 11, 1999.
(2) One quarter of each option became exercisable one year after grant, one
quarter two years after grant, one quarter three years after grant and one
quarter four years after grant.
(3) The weighted average fair value of each option has been estimated on the
date of grant using the Black-Scholes options pricing model with the
following weighted average assumptions used for
8
<PAGE>
grants in 1999; no dividend yield; expected volatility of 90%; risk-free
interest rate of 5.65% to 6.61%; and expected lives ranging from
approximately 4.5 to 5 years. Weighted averages are used because of
varying assumed exercise dates.
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Number of
Securities Securities
Underlying Underlying
Unexercised Unexercised
Options at Options at
Fiscal Year End(#) Fiscal Year End(#)(1)
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------ --------------- -------------- ------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Scott A. Bartos 0 0 0 0 0 0
Todd Riddell 0 0 12,500 37,500 0 0
Michael T. Spagnuolo 0 0 6,250 18,750 0 0
Michael S. Irwin 0 0 3,750 11,250 0 0
Paul A. D'Alesio 0 0 0 15,000 0 0
D. Michael Deignan 0 0 247,170 0 0 0
</TABLE>
(1) Market value of underlying securities at year end minus the exercise
price.
Severance Agreement
The Company had a severance agreement with Mr. Deignan who resigned as
President and Chief Executive Officer on January 8, 1999. The agreement called
for payment of his base salary and benefits for a period of one year ending
January 7, 2000. Pursuant to the agreement, the Company paid $160,718 to Mr.
Deignan in 1999 and contributed $2,329 to the 401K Plan.
Compensation of Directors
Messrs. Deignan and Whittaker were the only Directors in 1999 who were not
employees of the Company or TFX. On March 2, 1999, the Directors approved an
annual fee of $3,000 plus a meeting fee of $500 for Messrs. Deignan and
Whittaker.
Certain Relationships and Related Transactions
John J. Sickler, a Director of the Company, is President of TFX, a
subsidiary of Teleflex. TFX owns 85.21% of the outstanding voting securities of
SSI.
Larry C. Buckelew, Chairman of the Board of Directors of the Company, is
President of TFX Medical Group, a business segment of Teleflex.
Steven K. Chance, a Director and Secretary of the Company, is Vice
President, Secretary and General Counsel of Teleflex.
9
<PAGE>
Transactions with Management and Others
On January 11, 1999, the Company consummated a transaction, pursuant to
which it exchanged 13,400,000 shares of Common Stock and warrants to purchase an
aggregate of 1,500,000 shares of Common Stock for all of the issued and
outstanding shares of ESI and all of the issued and outstanding shares of Common
Stock and Preferred Stock, not already held by the Company, of SSI, a joint
venture with TFX.
In connection with the Company's January 1999 acquisition of ESI and SSI
from TFX, the Company assumed approximately $6,500,000 of financing from
Teleflex. In addition, the Company has entered into a new revolving credit
facility with Teleflex. The agreement, the terms of which will be reviewed
annually beginning March 2002, provides the Company up to $15,000,000 of
unsecured financing. Interest under the new agreement will be payable at the
prevailing Prime rate of PNC Bank, plus 1.25 percent. Interest was charged on
the unpaid principal balance during 1999 at a fixed rate of 8 percent, amounting
to $649,000, $29,000 and $44,000 for the years ended December 26, 1999, December
31, 1998 and December 31, 1997, respectively.
The Company purchases from surgical instrument manufacturers the surgical
instruments included in instrument sets that are utilized in providing the
Company's services. Pilling Weck, a national surgical instrument manufacturer
and a subsidiary of Teleflex, has agreed to supply surgical instruments to the
Company. Purchases from Pilling Weck are made on commercial terms. Instrument
purchases from Pilling Weck, including instruments financed under capital lease
obligations, for the years ended December 26, 1999, December 31, 1998 and
December 31, 1997, were approximately $969,000, $556,000, and $701,000,
respectively.
Teleflex also charged the Company fees for executive management, legal,
treasury, tax and other financial services. Fees of $350,000 were charged for
the year ended December 26, 1999.
Item 1. Proposal Relating to Election of Directors
The Board of Directors of the Company has nominated six persons for
election as directors of the Company at the Annual Meeting. Full information
concerning the Nominees has been set forth under the caption "Directors and
Executive Officers of the Company". All of the Nominees are currently members of
the Company's Board of Directors. The Board Nominees and the year they first
joined the Board of Directors are:
10
<PAGE>
Nominee Year First Joined Board
------- -----------------------
Larry C. Buckelew 1997
Steven K. Chance 1999
D. Michael Deignan 1995
Michael D. Klein 2000
John J. Sickler 1997
Forrest R. Whittaker 1996
The directors of the Company are elected annually and hold office until
the next Annual Meeting of Shareholders and until their successors have been
elected and qualified or until their earlier death, resignation or removal.
Shares represented by all proxies received by the Board of Directors and not
marked so as to withhold authority to vote for any individual Board Nominee or
for all Nominees will be voted (unless one or more Nominees are unwilling or
unable to serve) FOR the election of the Nominees. The Board of Directors knows
of no reason why any Nominee should be unwilling or unable to serve, but if such
should be the case, proxies will be voted for the election of another person or
the Board of Directors may vote to fix the number of directors at a lesser
number. A plurality of the votes cast by the holders of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting is required for
the election of the Board Nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
NOMINEES AS DIRECTORS OF THE COMPANY.
Item 2. Proposal to Approve the 2000 Stock Plan
The 2000 Stock Plan ("2000 Plan") was recommended by the Board of
Directors on February 24, 2000, to be submitted for shareholder approval at the
Annual Meeting, and provides for the issuance of 500,000 shares of Common Stock
upon the exercise of options or in connection with awards or direct purchases of
Common Stock. The 2000 Plan is intended to succeed the Company's 1996 Stock Plan
which has approximately 115,000 shares remaining available for option grants.
However, the Company has agreed to grant to its new President and Chief
Executive Officer an additional 200,000 shares. After such grant there will be
no shares available for other option grants. The Board of Directors believes
that the Company's ability to continue to attract and retain qualified
employment candidates is in large part dependent upon the Company's ability to
provide such employment candidates long-term, equity-based incentives in the
form of stock options, awards and direct purchases as part of their
compensation. Also, the Board of Directors believes that the ability to grant
options, awards and direct purchases under the 2000 Plan will allow the Company
greater flexibility to motivate its employees, consultants, officers and
directors.
Approval of the Company's 2000 Plan will require the affirmative vote of a
majority of the votes cast by the holders of the Common Stock represented in
person or by proxy at the Annual Meeting.
11
<PAGE>
Description of the 2000 Plan
The purpose of the 2000 Plan is to provide incentives to officers,
directors, employees and consultants of the Company and any subsidiaries of the
Company (collectively "Related Companies"). Under the 2000 Plan, officers and
employees of the company and any Related Companies may be granted "incentive
stock options" ("ISO" or "ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and directors, officers,
employees and consultants of the Company and any Related Companies may be
granted options which do not qualify as ISOs ("Non-Statutory Option" or
"Non-Statutory Options") and, in addition, such persons may be granted awards of
stock in the Company ("Awards") and opportunities to make direct purchases of
stock in the Company ("Purchases"). Both ISOs and Non-Statutory Options are
referred to hereafter individually as an "Option" and collectively as "Options".
Options, Awards and Purchases are referred to hereafter collectively as "Stock
Rights". Approximately 430 employees, consultants, directors and officers will
be eligible to participate in the 2000 Plan.
Anything in the 2000 Plan to the contrary notwithstanding, the
effectiveness of the 2000 Plan and of the grant of all options thereunder is in
all respects subject to the approval of the 2000 Plan by the affirmative vote of
the majority of the votes cast on the matter at the Annual Meeting by the
holders of Common Stock. In the event that such shareholder approval is not
received at the 2000 Annual Meeting, then the 2000 Plan and any options granted
thereunder shall be void.
Administration. The 2000 Plan will be administered by the Board of
Directors (the "Board") or the Compensation Committee. Subject to the terms of
the 2000 Plan, the Board or the Compensation Committee have the authority to
determine the persons to whom Stock Rights shall be granted (subject to certain
eligibility requirements for grants of ISOs), the number of shares covered by
each such grant, the exercise or purchase price per share, the time or times at
which Stock Rights shall be granted, and other terms and provisions governing
the Stock Rights, as well as the restrictions, if any, applicable to shares of
Common Stock issuable upon exercise of Stock Rights. The Board or the
Compensation Committee has the authority to interpret the 2000 Plan and to
prescribe and rescind regulations pertaining to it.
Eligible Employees and Others. Subject to the above mentioned limitations,
ISOs under the 2000 Plan may be granted to any employee of the Company or any
Related Companies. Only those officers and directors of the Company who are
employees of the Company or any Related Companies may be granted ISOs under the
2000 Plan. To the extent that the aggregate fair market value (determined on the
date of grant of an ISO) of Common Stock for which ISOs granted to any employee
are exercisable for the first time by such employee during any calendar year
(under all stock option plans of the Company and any Related Companies) exceeds
$100,000, the Company intends to designate such excess options as Non-Statutory
Options. In addition, under the terms of the 2000 Plan, no employee may be
granted Options to acquire more than 400,000 shares of Common Stock. Otherwise,
there is no restriction as to the maximum or minimum amount of Options an
employee may receive. Non-Statutory Options, Awards and
12
<PAGE>
Purchases may be granted to any director, officer, employee or consultant of the
Company or any Related Companies.
Shares Subject to the 2000 Plan. The 2000 Plan authorizes the grant of
Stock Rights to acquire 500,000 shares of Common Stock. The number of shares of
Common Stock issuable under the 2000 Plan or subject to outstanding Stock Rights
is subject to adjustment as described hereinafter under "Changes in Stock;
Recapitalization and Reorganization". Pursuant to the terms of the 2000 Plan,
shares subject to Stock Rights which for any reason expire or are terminated
unexercised as to such shares may again be the subject of a grant under the 2000
Plan. The market value of the Common Stock is $0.906, based on the average of
the bid and ask prices of the Common Stock as reported by Nasdaq Bulletin Board
on March 10, 2000.
Granting of Options. Stock Rights may be granted under the 2000 Plan at
any time after May 22, 2000 and prior to May 22, 2010. The Board or Compensation
Committee may, with the consent of the optionee, convert an ISO granted under
the 2000 Plan to a Non-Statutory Option.
Non-Statutory Option Price. The exercise price per share of Non-Statutory
Options granted under the 2000 Plan cannot be less than the minimum legal
consideration required therefor under the laws of any jurisdiction in which the
Company or its successors in interest may be organized.
ISO Price. The exercise price per share of ISOs granted under the 2000
Plan cannot be less than the fair market value of the Common Stock on the date
of grant, or, in the case of ISOs granted to employees holding more than 10% of
the total combined voting power of all classes of stock of the Company or any
Related Companies, 110% of the fair market value of the Common Stock on the date
of grant.
Option Duration. The 2000 Plan requires that each Option shall expire on
the date specified by the Board or Compensation Committee, but not more than ten
years from its date of grant in the case of Options generally. However, in the
case of any ISO granted to an employee owning more than 10% of the total
combined voting power of all classes of stock of the Company or any Related
Companies, such ISO shall expire on the date specified by the Board or
Compensation Committee, but not more than five years from its date of grant.
Exercise of Options and Payment for Stock. Each Option granted under the
2000 Plan shall be exercisable as follows:
A. The Option will either be fully exercisable at the time of grant
or shall become exercisable in such installments as the Board or Compensation
Committee may specify.
B. Once an installment becomes exercisable, it remains exercisable
until expiration or termination of the Option, unless otherwise specified by the
Board or Compensation Committee.
13
<PAGE>
C. Each Option may be exercised from time to time, in whole or in
part, up to the total number of shares with respect to which it is then
exercisable.
D. The Board or Compensation Committee shall have the right to
accelerate the date that any installment of any Option becomes exercisable.
However, the Board or Compensation Committee may not accelerate the permitted
exercise date of any ISO granted to an employee if the acceleration would
violate Section 422(d) of the Code.
Effect of Termination of Employment, Death or Retirement. If the holder of
an ISO ceases to be employed by the Company or any Related Companies other than
by reason of death or disability, no further installments of his or her ISOs
will become exercisable, and the ISOs will terminate on the earliest of 3 months
from the date of termination of employment or their specified dates, except to
the extent that such ISOs shall have been converted into Non-Statutory Options.
If an optionee dies, any ISO held by the optionee may be exercised, to the
extent otherwise exercisable on the date of death, by the optionee's estate,
personal representative or beneficiary who acquires the ISO by will or by the
laws of descent and distribution, at anytime within 180 days from the date of
the optionee's death (but not later than the specified expiration date of the
ISO). If an ISO optionee ceases to be employed by the Company or any Related
Companies by reason of his or her permanent and total disability, the optionee
may exercise any ISO held by him or her on the date of termination of
employment, to the extent otherwise exercisable on that date, at any time within
180 days from the date of termination of employment (but not later than the
specified expiration date of the ISO).
Non-Statutory Options, Awards and Purchases are subject to such
termination and cancellation provisions as may be determined by the Board or
Compensation Committee.
Non-Assignability of Stock Rights. During the lifetime of the grantee,
only the grantee may exercise a Stock Right. No assignment or transfers are
permitted, except that Stock Rights may be transferred by will or by the laws of
descent and distribution and, with respect to Non-Statutory Options only,
transfers pursuant to a valid domestic relations order are permitted.
Changes in Stock; Recapitalization and Reorganization. In the event the
shares of Common Stock of the Company are subdivided or combined into a greater
or smaller number of shares or if the Company issues any shares of Common Stock
as a stock dividend on its outstanding Common Stock, the number of shares of
Common Stock of the Company deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such event.
Upon a consolidation, merger, or sale of all or substantially all of the
Company's assets (an "Acquisition"), the Board of Directors, the Compensation
Committee or the board of directors of any entity assuming the obligations of
the Company under the 2000 Plan ("Successor Board"), shall, as to outstanding
Options, take one or more of the following actions: continue
14
<PAGE>
such Options by substituting on an equitable basis for the shares then subject
to such Options either the consideration payable with respect to the outstanding
shares of Common Stock in connection with the Acquisition; or shares of stock of
the surviving corporation; or any equity securities of the successor corporation
or other securities as the Successor Board deems appropriate (the fair market
value of which may not exceed the fair market value of shares of Common Stock
subject to such Options immediately preceding the transaction). Alternatively,
upon written notice to the optionees, the Board of Directors, Compensation
Committee or the Successor Board may provide that all Options must be exercised,
to the extent then exercisable, within a specified number of days; or terminate
all Options in exchange for a cash payment equal to the excess of the fair
market value of the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof.
In the event of a recapitalization or reorganization of the Company
pursuant to which securities of the Company or of another corporation are issued
with respect to the outstanding shares of Common Stock, upon exercising an
Option, the holder thereof is entitled to receive for the purchase price paid
upon such exercise the securities he would have received if he had exercised his
Option prior to such recapitalization or reorganization.
Upon the happening of any of the foregoing events, the class and aggregate
number of shares that are subject to Stock Rights which previously have been or
subsequently may be granted under the 2000 Plan will also be appropriately
adjusted to reflect the events described above. Notwithstanding the foregoing,
with respect to ISOs, the foregoing adjustments may be made only after the Board
or Compensation Committee, in consultation with legal counsel, determines that
such adjustments would not constitute a modification of such ISOs or would not
cause adverse tax consequences to the holders of the ISOs.
In the event of the proposed dissolution or liquidation of the Company,
each Option will terminate immediately prior to the consummation of such
proposed action or at such other time and subject to such other conditions as
may be determined by the Compensation Committee.
Amendment, Suspension and Termination of the 2000 Plan. The Board of
Directors may terminate or amend the 2000 Plan in any respect at any time,
except that, without the approval of the Company's shareholders within twelve
months before or after the Board of Directors adopts a resolution authorizing
any of the following actions, (a) the total number of shares that may be issued
under the 2000 Plan may not be increased except as previously described under
"Changes in Stock; Recapitalization and Reorganization; (b) the benefits
accruing to participants under the 2000 Plan may not be increased (except by
adjustment referred to above); (c) the requirements as to eligibility for
participation in the Plan may not be materially modified; (d) the provisions
regarding eligibility for grants of ISOs may not be modified; (e) the provisions
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified except by adjustment referred to above); (f) the expiration date
of the 2000 Plan may not be extended; and (g) the Board of Directors may not
take any action which would cause the 2000 Plan to fail to comply with Rule
16b-3. No action of the Board of Directors or shareholders, however, may,
15
<PAGE>
without the consent of an optionee, alter or impair his rights under any Stock
Right previously granted to him.
Miscellaneous. The proceeds received by the Company from the sale of
shares pursuant to the 2000 Plan will be used for general purposes. The
Company's obligations to deliver shares is subject to the approval of any
governmental authority required in connection with the sale or issuance of such
shares. The exercise of Non-Statutory Options, Awards or Purchases for less than
fair market value may require the holder to recognize ordinary income and pay
additional withholding taxes in respect of such income, and the Compensation
Committee may condition the grant or exercise of an Option, Award or Purchase on
the payment to the Company of such taxes. Unless terminated earlier by the Board
of Directors, the 2000 Plan will expire at the end of the day on March 22, 2016.
Terms and Conditions of Options. Options will be evidenced by instruments
(which need not be identical) in such forms as the Board or Compensation
Committee may from time to time approve. Such instruments will conform to such
terms and conditions as are applicable under the 2000 Plan and may contain such
other provisions as the Board or Compensation Committee deems advisable which
are not inconsistent with the 2000 Plan, including restrictions applicable to
shares of Common Stock issuable upon exercise of Options.
Exercise of Options. Options may be exercised by giving written notice to
the Company at its principal office address. Such notice must identify the
Option being exercised and specify the number of shares as to which such Option
is being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Board or Compensation Committee, through delivery of shares of
Common Stock having a fair market value equal as of the date of the exercise to
the cash exercise price of the Option, or (c) at the discretion of the Board or
Compensation Committee, by delivery of the grantee's personal recourse note
bearing interest payable not less than annually at no less than 100% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, or
(d) at the discretion of the Board or Compensation Committee and consistent with
applicable law, through the delivery of an assignment to the Company of a
sufficient amount of the proceeds from the sale of the Common Stock acquired
upon the exercise of the Option and authorization to the broker or selling agent
to pay that amount to the Company, which sale must be at the grantee's direction
at the time of exercise; or (e) at the discretion of the Board or Compensation
Committee, by any combination of (a), (b), (c) and (d) above. The holder of an
Option will not have the rights of a shareholder with respect to the shares
covered by his Option until the date of issuance of a stock certificate to him
for such shares. Except as expressly provided in the 2000 Plan with respect to
changes in capitalization and stock dividends, no adjustment will be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
16
<PAGE>
Federal Income Tax Consequences
A. Incentive Stock Options. The following general rules are applicable to
holders of ISOs and to the Company for Federal income tax purposes under
existing law:
1. Generally, no taxable income results to the optionee upon the
grant of an ISO or upon the issuance of shares to him or her upon exercise of
the ISO.
2. No Federal income tax deduction is allowed to the Company upon
either grant or exercise of an ISO under the 2000 Plan.
3. If shares acquired upon exercise of an ISO are not disposed of
within two years following the date the ISO was granted or within one year
following the date the shares are transferred to the optionee pursuant to the
ISO exercise (the "Holding Periods"), the difference between the amount realized
on any subsequent disposition of the shares and the exercise price will
generally be treated as capital gain or loss to the optionee.
4. If shares acquired upon exercise of an ISO are disposed of on or
before the expiration of one or both of the requisite Holding Periods (a
"Disqualifying Disposition"), then in most cases the lesser of (i) any excess of
the fair market value of the shares at the time of exercise of the ISO over the
exercise price or (ii) the actual gain on disposition, will be treated as
compensation to the optionee and will be taxed as ordinary income in the year of
such disposition.
5. In any year that an optionee recognizes compensation income on a
Disqualifying Disposition of stock acquired by exercising an ISO, the Company
generally will be entitled to a corresponding deduction for Federal income tax
purposes.
6. Any excess of the amount realized by the optionee as the result
of a Disqualifying Disposition over the sum of (i) the exercise price and (ii)
the amount of ordinary income recognized under the above rules generally will be
treated as capital gain.
7. Capital gain or loss recognized on a disposition of shares will
be long-term capital gain or loss if the optionee's holding period for the
shares exceeds one year.
8. An optionee may be entitled to exercise an ISO by delivering
shares of the Company's common Stock to the company in payment of the exercise
price, if the optionee's ISO agreement so provides. If an optionee exercises an
ISO in such fashion, special rules will apply.
9. In addition to the tax consequences described above, the exercise
of ISOs may result in a further "minimum tax" under the Code. The Code provides
that an "alternative minimum tax" (at a maximum rate of 28%) will be applied
against a taxable base which is equal to "alternative minimum taxable income",
reduced by a statutory exemption (subject to a phase-out). In general, the
amount by which the value of the Common Stock received upon exercise of
17
<PAGE>
the ISO exceeds the exercise price is included in the optionee's alternative
minimum taxable income. A taxpayer is required to pay the higher of his regular
tax or the alternative minimum tax. A taxpayer who pays alternative minimum tax
attributable to the exercise of an ISO may be entitled to a tax credit against
his or her regular tax liability in later years.
10. Special rules apply if the Common Stock acquired through the
exercise of an ISO is subject to vesting, or is subject to certain restrictions
on resale under Federal securities laws applicable to directors, officers or 10%
stockholders.
B. Non-Statutory Stock Options. The following general rules are applicable
to holders of Non-Statutory Options and to the Company for Federal income tax
purposes under existing law:
1. The optionee generally does not recognize any taxable income upon
the grant of a Non-Statutory Option, and the Company is not allowed a Federal
income tax deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation
income at the time of exercise of the Non-Statutory Option in an amount equal to
the excess, if any, of the fair market value of the shares on the date of
exercise over the exercise price. The Company may be required to withhold income
tax on this amount.
3. When the optionee sells the shares acquired pursuant to the
exercise of a Non-Statutory Option, he or she generally will recognize a capital
gain or loss in an amount equal to the difference between the amount realized
upon the sale of the shares and his or her basis in the shares (generally, the
exercise price plus the amount taxed to the optionee as compensation income). If
the optionee's holding the shares exceeds one year, such gain or loss will be a
long-term capital gain or loss.
4. In general, the Company will be entitled to a Federal income tax
deduction when compensation is recognized by the optionee.
5. An optionee may be entitled to exercise a Non-Statutory Option by
delivering shares of the Company's Common Stock to the Company in payment of the
exercise price. If an optionee exercises a Non-Statutory Option in such fashion,
special rules will apply.
6. Special rules apply if the Common Stock acquired through the
exercise of a Non-Statutory Option is subject to vesting, or is subject to
certain restrictions on resale under Federal securities laws applicable to
directors, officers or 10% stockholders.
C. Special Rules for Restricted Stock. Officers, directors and 10%
shareholders of the Company may in some instances acquire Common Stock subject
to special rules under Section 83 of the Code because of certain securities laws
restrictions on resale ("Restricted Stock"). If an optionee acquires Restricted
Stock, the amount included in compensation income (in the case of a
Non-Statutory Option, or of an ISO if a disqualifying disposition of such stock
is made) or in
18
<PAGE>
alternative minimum taxable income (in the case of an ISO) generally will be
determined as of some later date and will equal the difference between the
amount paid for the Restricted Stock and its fair market value at that time,
unless the optionee files a timely election under Section 83(b) of the Code
electing to determine the amount of income at the time of exercise.
D. Awards and Purchases. Persons receiving Common Stock pursuant to an
Award or Purchase generally will recognize ordinary compensation income equal to
the fair market value of the shares received, in the case of an Award, or the
excess of the fair market value of the shares over the purchase price, in the
case of a Purchase. The Company generally will be entitled to a corresponding
Federal income tax deduction. When Common Stock acquired pursuant to an Award or
Purchase is sold, the seller generally will recognize capital gain or loss equal
to the difference between the amount realized upon the sale of shares and his or
her basis in the shares (generally, the fair market value of the shares when
acquired) which will be short- or long-term capital gain or loss depending upon
the seller's holding period. Special rules apply if the purchase price (in the
case of a Purchase) is paid by delivering shares of Common Stock, or if the
stock acquired pursuant to an Award or Purchase is Restricted Stock (as
described above).
E. Capital Gains and Losses. Although capital gain is generally subject to
Federal income tax on individuals at the same rates as ordinary income, the
maximum rate of tax on "net capital gain" (i.e., the excess of net long-term
capital gain over net short-term capital loss) is 28%, whereas the maximum rate
of tax on ordinary income and net short-term capital gain currently is 39.6%. In
addition, capital losses may be used to offset an equal amount of capital gains,
whereas at most $3,000 of net capital loss may be deducted against ordinary
income each year.
F. $1,000,000 Annual Deduction Limitation. Section 162(m) of the Code
provides that compensation paid to certain highly paid executive officers is not
deductible by the Company for Federal income tax purposes to the extent such
compensation exceeds $1,000,000 in any taxable year of the corporation unless
the excess compensation qualifies for an exception. One exception is for
"qualified performance-based compensation". Compensation recognized pursuant to
the exercise of Non-Statutory Options (or with respect to ISOs, perhaps pursuant
to a Disqualifying Disposition of stock) may qualify for the performance based
exception if certain requirements are met. The provisions of the proposed 2000
Plan are designed to enable the Company to qualify options granted thereunder
for the performance-based exception in the discretion of the Board of Directors
and the Compensation Committee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE COMPANY'S 2000 PLAN.
Item 3. Ratification of Selection of Auditors
The Board of Directors, upon the recommendation of the Audit Committee,
has selected the firm of PricewaterhouseCoopers LLP, independent accountants, to
serve as auditors for the fiscal year ending December 31, 2000.
PricewaterhouseCoopers LLP has served as the Com-
19
<PAGE>
pany's auditors for the fiscal year ending December 26, 1999. It is expected
that a member of PricewaterhouseCoopers LLP will be present at the Annual
Meeting with the opportunity to make a statement if so desired and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS AUDITORS.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended for inclusion in the proxy statement to
be furnished to all shareholders entitled to vote at the next Annual Meeting of
Shareholders of the Company must be received at the Company's principal
executive offices not later than January 1, 2001. In order to curtail
controversy as to the date on which a proposal was received by the Company, it
is suggested that proponents submit their proposals by Certified Mail, Return
Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company, and in
addition to soliciting shareholders by mail through its regular employees, the
Company may request banks, brokers, and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Company registered
in the names of a nominee and, if so, will reimburse such banks, brokers and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
costs. Solicitation by officers and employees of the Company may also be made of
some shareholders in person or by mail, telephone or telegraph following the
original solicitation.
20
