SCHEDULE 14A INFORMATION
(Rule 14a-101)
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 Section 240.14a-11(c) or
Section 240.14a-12
Elmer's Restaurants, Inc.
---------------------------------------
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: Set forth the
amount on which the filing fee is calculated and state how
it was determined.
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
ELMER'S RESTAURANTS, INC.
11802 S.E. Stark Street
P.O. Box 16938
Portland, OR 97292-0938
Notice of Annual Meeting of Shareholders
August 5, 1999
To the Shareholders of Elmer's Restaurants, Inc.:
Notice is hereby given that the annual meeting of the
shareholders of Elmer's Restaurants, Inc., an Oregon
corporation (the "Company"), will be held at Elmer's Pancake
and Steak House, 9848 N Whitaker Road, Portland, Oregon
97217, on August 5, 1999, at 2:00 p.m., Pacific Daylight
Time, for the following purposes:
1. Electing a Board of Directors to serve for the ensuing
staggered terms and until their successors are elected;
2. To approve an Employee Stock Purchase Plan under which
each eligible employee may contribute between 1% and 10% of
his or her gross cash compensation through payroll
deductions and, on the last day of each purchase period, the
amount withheld is used to purchase shares of common stock
at not less than 85% of the lesser of the fair market value
of a share of common stock on either the first or last day
of the purchase period.
3. To ratify, adopt and approve the proposed Stock Option
Plan described in the Proxy Statement under which stock
options may be granted to officers, directors, consultants,
employees, attorneys, advisors and similar parties.
4. To ratify and approve Indemnification Agreements
between the Company and its directors and officers at the
level of Vice-President and above.
5. To approve and ratify the appointment of
PricewaterhouseCoopers LLP, as the Company's independent
public accountants for the year ending March 31, 1999.
6. Transacting any other business that properly comes before
the meeting.
The foregoing items of business are more fully
described in the Proxy Statement accompanying this Notice.
The Board of Directors has fixed the close of business on
June 21, 1999 as the record date (the "Record Date") for the
determination of shareholders of record that will be
entitled to notice of and to vote at the annual meeting.
Accompanying this Notice is a Proxy. WHETHER OR NOT YOU
EXPECT TO BE AT THE ANNUAL MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY in the postage-prepaid
envelope enclosed for that purpose. If you plan to attend
the Annual Meeting and wish to vote your shares personally,
you may do so at any time before the Proxy is voted. In
other words, you may attend the meeting in person even
though you have sent in your proxy, since retention of the
proxy is not necessary for admission to or identification at
the meeting.
All shareholders are cordially invited to attend the
meeting.
By Order of the Board of Directors
___/s/ Juanita Nelson______________
-----------------------------------
Juanita Nelson
Secretary
Portland, Oregon
June 21, 1999
PLEASE NOTE THAT ALL SHAREHOLDERS ARE CORDIALLY INVITED TO
ATTEND THE MEETING IN PERSON. TO ENSURE YOUR REPRESENTATION
AT THE MEETING, HOWEVER, PLEASE VOTE, DATE, SIGN, AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-
PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
ELMER'S RESTAURANTS, INC.
11802 SE Stark Street
Portland, Oregon 97216
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
August 5, 1999
The Board of Directors of Elmer's Restaurants, Inc., an
Oregon corporation (the "Company") is soliciting a proxy in
the form accompanying this proxy statement for use at the
annual meeting of shareholders to be held on August 5, 1999
and at any adjournments thereof. This Proxy Statement will
be first sent to shareholders on or about July 12, 1999.
The Company will bear the cost of preparing and mailing the
proxy, proxy statement, and any other material furnished to
the shareholders by the Company in connection with the
annual meeting. Proxies will be solicited by use of the
mails, and officers and employees of the Company may,
without additional compensation, also solicit proxies by
telephone or personal contact. Copies of solicitation
materials will be furnished to fiduciaries, custodians, and
brokerage houses for forwarding to beneficial owners of the
stock held in their names.
Any shares of stock of the Company held in the name of
fiduciaries, custodians, or brokerage houses for the benefit
of their clients may only be voted by the fiduciary,
custodian, or brokerage house itself -- the beneficial owner
may not vote the shares directly and must instruct the
person or entity in whose name the shares are held how to
vote the shares held for the beneficial owner. Therefore,
if any shares of stock of the Company are held in "street
name" by a brokerage house, only the brokerage house, at the
instructions of its client, may vote the shares.
Any person giving a Proxy in the form accompanying this
proxy statement has the power to revoke it at any time
before its exercise. A Proxy may be revoked by written
notice (of an instrument of revocation) to the Secretary of
the Company at any time prior to the Annual Meeting or by
executing a later dated Proxy or by attending the Annual
Meeting and affirmatively electing to vote in person while
attending the meeting. However, a shareholder who attends
the meeting need not revoke the Proxy and vote in person
unless the shareholder wishes to do so. All valid,
unrevoked Proxies will be voted at the annual meeting in
accordance with the instructions given. Unless contrary
instructions are indicated on the Proxy, all shares
represented by valid Proxies received pursuant to this
solicitation (and not revoked before they are voted) will be
voted for the election of the Board's nominees for
directors, the approval of the Employee Stock Purchase Plan
and Stock Option Plan (and grants thereunder), the approval
of the Indemnification Agreements between the Company and
its officers and directors and the ratification and approval
of the appointment of PricewaterhouseCoopers, LLP as the
Company's independent public accountants. As to any other
business which may properly come before the annual meeting
and be submitted to a vote of the shareholders, Proxies
received by the Board will be voted in accordance with the
best judgment of the holders thereof.
Upon written request to Juanita Nelson, Secretary of
the Company, directed to the Company's offices at P.O. Box
16938, Portland, Oregon 97292-0938, any person whose Proxy
is solicited by this Proxy Statement will be provided,
without charge, a copy of the Company's Annual Report on
Form 10-K, including financial statements and schedules.
These materials can also be obtained from the Securities and
Exchange Commission's EDGAR website at http://www.sec.gov/
cgi-bin/srch-edgar?elmers+adj+restaurants.
VOTING
The Company's Common Stock is the only outstanding
voting security of the Company. Shareholders of record on
the Record Date will be entitled to notice of and to vote at
the annual meeting or any adjournments thereof. On the
Record Date, there were 1,586,229 shares of Common Stock
outstanding, representing the only voting securities of the
Company and voting as a single class. Each share of Common
Stock is entitled to one vote. The Common Stock does not
have cumulative voting rights.
Votes cast by Proxy or in person at the Annual Meeting
will be counted by the person appointed by the Company to
act as Inspector of Election for the Annual Meeting. The
Inspector of Election will treat shares represented by
Proxies that reflect abstentions or include "broker non-
votes" as shares that are present and entitled to vote for
purposes of determining the presence of a quorum.
Abstentions or "broker non-votes" do not constitute a vote
"for" or "against" any matter and thus will be disregarded
in the calculation of "votes cast." Any unmarked Proxies,
including those submitted by brokers or nominees, will be
voted in favor of the nominees of the Board and the
proposals herein, as indicated in the accompanying Proxy
card. The approval of the Board's nominees for election and
the other proposals stated herein will be decided by the
affirmative vote of a majority of the outstanding shares of
Common Stock.
PROPOSAL I
----------
ELECTION OF DIRECTORS
The Board currently consists of seven members. The
Board of Directors of the Company has the ability to amend
the Bylaws of the Company without submitting such amendments
to a shareholder vote. The Board of Directors recently
adopted certain Bylaw amendments. The Company's Bylaws, as
amended, provide for the classification of the Board into
three classes, as nearly equal in number as possible, with
staggered terms of office and provides that upon the
expiration of the term of office for a class of directors,
nominees for such class shall be elected for a term of three
years or until their successors are duly elected and
qualified. After a transitional arrangement, Directors will
serve for three years, with one class being elected each
year. In the opinion of the Board of Directors, the Board
classification amendment was desirable to ensure stability
and continuity in the management of the Company's business
and affairs. Although there have been no material problems
in the past with respect to stability or continuity of the
Board of Directors, the Board believes that the longer time
required to elect a majority of a classified Board will help
to prevent the occurrence of such problems in the future.
The provisions for classification of Directors will apply in
all years. Changes in the composition of the whole Board
would take up to three years and a change of a majority of
the Directors would require two successive annual meetings.
At this meeting, two nominees for director are to be
elected as Class I directors, two nominees for director are
to be elected as Class II directors and three nominees for
director are to be elected as Class III directors. The
Class I nominees are William W. Service and Paul Welch. The
Class II nominees are Corydon Jensen and Thomas C. Connor.
The Class III nominees are Bruce Davis, Richard Williams and
Donald Woolley. As a result of the transitional
arrangements required to give effect to the Board
classification, the Class I, Class II and Class III
directors elected at this annual meeting shall have one
year, two year and three year initial terms of office,
respectively, and successors thereafter elected in each
class shall be elected to three year terms. If no contrary
indication is made, Proxies in the accompanying form are to
be voted for such nominees or, in the event any such nominee
is not a candidate or is unable to serve as a director at
the time of the election (which is not currently expected),
for any nominee who shall be designated by the Board to fill
such vacancy. All of the seven nominees are currently
directors of the Company. The Board of Directors has no
reason to believe that any of the nominees will be
unavailable or unable to serve if elected.
INFORMATION REGARDING DIRECTORS
The information set forth below as to each nominee for
director has been furnished to the Company by the respective
nominees for director:
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A ONE-YEAR TERM EXPIRING AT THE
2000 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C> <C>
NAME AGE PRESENT POSITION WITH THE
COMPANY
- ---- --- ----------------------------
William W. Service, Jr. 38 Director and Chief
Executive Officer
Paul Welch ............ 71 Director
</TABLE>
Bill Service, 38, is the Chief Executive Officer of
several companies engaged in the restaurant business:
Jaspers Food Management, Inc. (1993-present), CBW, Inc.
(1995-1999) (which acquired the majority shareholding
interest in the Company in 1998 and subsequently merged with
the Company in February 1999), and Oregon Food Management,
Inc. (1996-present). He has served as a director of the
Company since 1998.
Paul Welch, 71, owns and operates two Elmer's Pancake
and Steak House franchises in Vancouver, Washington, one
since 1978 and one since 1994. He has served as a director
of the Company since 1983.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A TWO-YEAR TERM EXPIRING AT THE
2001 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C> <C>
NAME AGE PRESENT POSITION WITH THE
COMPANY
- ---- --- ----------------------------
Corydon H. Jensen ........ 56 Director
Thomas C. Connor ......... 45 Director
</TABLE>
Corydon "Cordy" Jensen, 56, is the President and owner
of numerous multi-unit restaurant and lounge operations,
including The Oregon Electric Station Restaurant, Steelhead
Brewery, Station Masters, Inc. and McKenzie Brewery Co. Mr.
Jensen is also Secretary and Director of Centennial Bancorp
and is the director of nine privately held companies engaged
in the restaurant and lounge business. He has served as a
director of the Company since 1998.
Thomas C. Connor, 45, has been a real estate investor
since 1974, with investments in several companies engaged in
the hospitality or real estate development businesses,
including Connor Enterprises, Inc., Budgeted Inns of Oregon,
Inc., Connor Industries, Inc., Spring Holdings, Inc., and 5
C's Properties, Inc. Mr. Connor has also served as a
director of numerous privately held companies engaged in the
hospitality or real estate development businesses. He has
served as a director of the Company since 1998.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM EXPIRING AT THE
2002 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C> <C>
NAME AGE PRESENT POSITION WITH THE
COMPANY
- ---- --- ----------------------------
Bruce Davis ..............38 Director and President
Richard Williams .........59 Director
Donald W. Woolley ........40 Director
Bruce Davis, 38, is the President of several companies
engaged in the restaurant business: Jaspers Food Management,
Inc. (1993- present), CBW Inc. (1995-1999) (which acquired
the majority shareholding interest in the Company in 1998
and subsequently merged with the Company in February 1999),
and Oregon Food Management, Inc.(1996-present). He has
served as a director of the Company since 1998.
Richard "Dick" Williams, 59, is the President and Chief
Executive Officer of Centennial Bancorp. He has been a
director of Centennial Bancorp since 1981. He has served as
Vice Chairman of Centennial Bank since 1992 and has been its
Chief Executive Officer since 1977. He has served as a
director of the Company since 1998.
Don Woolley, 40, has been a real estate investor since
1984, with investments in numerous companies involved in the
timber or real estate development industries, including
Eagle's View Management Company, Inc., Manzana Bros., Ltd.,
and Spring Holdings, Inc. Mr. Woolley has also served as a
director of numerous privately held companies engaged in the
hospitality, timber or real estate development industries.
He has served as a director of the Company since 1998.
BOARD MEETINGS AND COMMITTEES
The Company's Board held 4 regularly scheduled meetings
and no special telephonic meetings during the year ended
March 31, 1999. No nominee for director who served as a
director during the past year attended fewer than 75% of the
aggregate of the total number of meetings of the Board and
the total number of meetings of committees of the Board on
which he served. The Company's Board of Directors has an
Audit Committee and established a Compensation Committee.
The Company does not have a Nominating Committee or any
other committee.
COMPENSATION COMMITTEE
The Compensation Committee consists of Messrs. Williams,
Connor and Welch. The Compensation Committee determines and
makes recommendations for salaries, incentives and other
forms of compensation for the Company's senior executive
officers, directors, and employees of the Company and
administers the 1999 Stock Option Plan. The Compensation
Committee held 2 meetings during the year ended March 31,
1999.
AUDIT COMMITTEE
The Audit Committee consists of Messrs. Welch, Williams
and Woolley. The Audit Committee reviews the Company's
accounting practices, internal accounting controls, and
financial results, makes recommendations concerning the
engagement of independent public accountants, reviews with
the independent public accountants the plans and results of
the audit engagement, approves professional services
provided by the independent public accountants, reviews the
independence of the independent public accountants,
considers the range of audit and non-audit fees and oversees
the adequacy of the Company's internal accounting controls.
The Audit Committee held no meetings during the year ended
March 31, 1999.
COMPENSATION OF DIRECTORS
The employee-directors of the Company have never
received any cash compensation from the Company for services
rendered as directors. Prior to August 1998, the Company
did reimburse out of pocket expenses incurred by directors
in attending meetings of the Board of Directors. On the
18th day of February 1999, each director who is not an
employee of the Company (each an "Outside Director") was
granted an option, subject to shareholder approval, to
purchase 10,000 shares of Common Stock exercisable at $4.75
per share. In addition, each person who is initially
elected to the Board and who is an Outside Director at the
time of such election or anniversary thereafter will be
granted an annual option to purchase 2,000 additional shares
of Common Stock on the anniversary date of the initial
election. These options are subject to five year straight
line vesting schedules and are defined as non-qualified
options. All non-qualified options have a fifteen year term
and are subject to a five year vesting schedule with 20% of
the total grant vesting annually. Effective February 18
1999, Outside Directors will be paid quarterly fees in the
annual cash sum of $5,000.
VOTE REQUIRED; ELECTION OF DIRECTORS
If a quorum is present and voting at the Annual
Meeting, the seven nominees receiving the affirmative vote
of a majority will be elected to the Board. Votes withheld
from any nominee, abstentions and broker non-votes will be
counted for purposes of determining the presence or absence
of a quorum. Abstentions and broker nonvotes will have no
effect on the results of the vote. The Proxies will be
voted with respect to the election of the nominees in
accordance with the instructions specified in the Proxy
form. If no instructions are given, Proxies will be voted
for the election of the nominees. If any nominee is not
available as a candidate for director, the Proxies may be
voted for another candidate or other candidates nominated by
the Board of Directors, in accordance with the authority
conferred in the Proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" EACH OF THE NOMINEES LISTED ABOVE. PROXIES SOLICITED
BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY OTHERWISE ON THE ACCOMPANYING PROXY.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers And Key Employees
The executive officers and key employees of the Company
and their ages as of June 21, 1999 are as follows:
</TABLE>
<TABLE>
<S> <C> <C>
NAME AGE POSITION
- ---- --- --------
William W. Service...38 Chief Executive Officer and Chief
Financial Officer
Bruce Davis ......38 President
Jerry Scott ......45 Vice President, Operations
Juanita Nelson ......63 Secretary and Controller
</TABLE>
Executive Officers
Bill Service, 38, is the Chief Executive Officer of
several companies engaged in the restaurant business:
Jaspers Food Management, Inc. (1993-present), CBW Inc. (1995-
1999) (which acquired the majority shareholding interest in
the Company in 1998 and subsequently merged with the Company
in February 1999), and Oregon Food Management, Inc. (1996-
present). He has served as Chief Executive Officer of the
Company since 1998.
Bruce Davis, 38, is the President of several companies
engaged in the restaurant business: Jaspers Food Management,
Inc. (1993- present), CBW Inc. (1995-1999) (which acquired
the majority shareholding interest in the Company in 1998
and subsequently merged with the Company in February 1999),
and Oregon Food Management, Inc.(1996-present). He has
served as President of the Company since 1998.
Key Employees
Jerry Scott, 45, has served as Vice President in charge
of operations since August 1998. Prior to that, and since
November 1995, Mr. Scott served as Vice President of
Operations for Jaspers Food Management, Inc. He served from
November 1994 to November 1995 as Regional Director of
Operations of Macheezmo Mouse Restaurants, Inc. and from
June 1993 to September 1994 as Director of Operations of
Mission Investment Company.
Juanita Nelson, 63, has served as Controller of the
Company since 1985 and as Secretary since February 1998.
For more than five years prior to joining the Company, Mrs.
Nelson was the Office Manager of the Red Lion Inns and
Thunderbird Motor Inns corporate office.
Compensation Information
The table below sets forth information concerning the
annual and long-term compensation for services rendered in
all capacities to the Company during the fiscal years ended
March 31, 1999, 1998 and 1997 of the Chief Executive Officer
of the Company, the other four most highly compensated
executive officers of the Company who were serving as
executive officers at March 31, 1999 and one additional
individual, Ms. Anita Goldberg, who would have been named
but for the fact that she was not serving as an executive
officer at the end of the fiscal year ended March 31, 1999
(the "Named Executive Officers"). None of the Named
Executive Officers served for any of 1997 and 1998 (other
than Ms. Goldberg), or all of 1999. Therefore, salary
amounts are not reflected for 1996 - 1997. Salary amounts
for 1999 do not reflect salary for a full year. Certain
executive officers who would otherwise have been named are
excluded because each officer's total annual salary and
bonus did not exceed $100,000.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning
the compensation for services in all capacities for the 1998
and 1999 fiscal years of the Chief Executive Officer and the
other four most highly compensated executive officers of the
Company as of March 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
NAME AND FISCAL LONG
TERM COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS
SECURITIES UNDERLYING
OPTIONS (1)
- ------------------ ---- ------ ----- ---------------------
William W. Service 1999 $0 $0 15,000
Chief Executive Officer 1998 $0 -- --
Bruce Davis 1999 $0 $0 15,000
President 1998 $0 -- --
Anita Goldberg(2)
Former President 1998 $120,000 $66,531 --
</TABLE>
(1) Dollar values of non-qualified stock option awards
are based on the fair market value at the time of grant,
viz. 15,000 non-qualified options at a strike price of $4.75
per share. The Company's non-qualified option awards vest
over a five-year period (with the first 20% of the award
vesting annually on the anniversary of the date of grant),
except that the options granted to the named executives as
listed in the table will be fully vested on August 25, 1999.
(2) Ms. Goldberg resigned from the Board and Company
effective December 29, 1998. Ms. Goldberg's annualized
salary for fiscal year ended March 31, 1999 was $120,000.
Pursuant to an employment agreement, Ms. Anita Goldberg,
then President of the Company, was paid $120,000 in fiscal
1998. In March 1998, the Board of Directors authorized
incentive compensation payable to Ms. Goldberg equal to ten
percent of annual earnings above $200,000 (before tax and
incentive payment).
OPTION GRANTS TABLE FOR FISCAL YEAR ENDED MARCH 31, 1999
The following table sets forth information regarding
stock options granted during fiscal 1999 to the Named
Executive Officers. The Company does not have any
outstanding stock appreciation rights.
<TABLE>
<S> <C> <C> <C>
<C>
Number of Percent of
Securities Total Options
Underlying Granted to Exercise Market
Options Employees in Price Per Price at
Granted (#) Fiscal Year Share Date of
($/SH) Grant(1)
----------- ------------- --------- ---------
William W. Service 15,000 12.55% $4.75 $4.75
Bruce Davis 15,000 12.55% $4.75 $4.75
</TABLE>
<TABLE>
<S> <C> <C> <C>
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
Price Appreciation
for Option Term(3)
Expiration --------------------
Date (2) 5% 10%
---------- --- ---
- -
William W. Service 2/18/14 $77,000 $226,000
Bruce Davis 2/18/14 $77,000 $226,000
</TABLE>
(1) Exercise price per share is the closing price on
February 18, 1999.
(2) The options granted to the Named Executives as listed
in the table will be fully vested on August 25, 1999.
(3) Gains are reported net of the option exercise price,
but before taxes associated with exercise. These values also
do not take into account amounts required to be paid as
income taxes under the Internal Revenue Code and any
applicable state laws or option provisions providing for
termination of an option following termination of
employment, non-transferability or vesting. These amounts
represent certain assumed rates of appreciation shown
(compounded annually) from the date of grant until the end
of the option term and are calculated based on the
requirements promulgated by the Securities and Exchange
Commission. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock
and overall stock market conditions. The amounts reflected
in this table will not necessarily be achieved and do not
reflect the Company's estimate of future stock price growth
of the shares of the Company's Common Stock.
DIRECTOR COMPENSATION
The Company compensates its directors who are not
employees by granting them options to purchase shares of the
Company's Common Stock. In fiscal 1999, the non-employee
directors were each granted non-qualified options to
purchase 10,000 shares of Common Stock exercisable at $4.75
per share and during the term of office, are eligible for
additional annual grants of 2,000 non-qualified options.
All non-qualified options have a fifteen year term and are
subject to a five year vesting schedule with 20% of the
total grant vesting annually. Non-employee Directors also
receive in cash the annual sum of $5,000 paid in quarterly
increments.
1999 STOCK OPTION PLAN
The Board of Directors is proposing and recommending
adoption of the 1999 Stock Option Plan by the shareholders
to provide additional incentives to employees, Directors,
advisors and consultants of the Company. The Board adopted
the 1999 Stock Option Plan in February 1999. Approximately
250 directors, officers, employees and consultants are
currently eligible to participate in the 1999 Stock Option
Plan. The Company has initially reserved 320,000 shares of
Common Stock for issuance upon exercise of options granted
under the 1999 Stock Option Plan. As of June 21, 1999,
options to purchase an aggregate of 269,500 shares of Common
Stock at prices ranging from $4.75 to $6.25 were outstanding
under the 1999 Stock Option Plan. Nonqualified stock
options and incentive stock options may be granted under the
1999 Stock Option Plan subject to shareholder approval.
The 1999 Stock Option Plan is administered by the
Compensation Committee. However, the Board will make most
decisions regarding Outside Directors (and employee
directors who are members of the Compensation Committee)
under the 1999 Stock Option Plan. The Compensation
Committee (or the Board in the case of Outside Directors (or
employee directors who are members of the Compensation
Committee)) is authorized to select from among the eligible
employees, officers, directors, advisors and consultants the
individuals to whom options are to be granted and to
determine the number of shares to be subject thereto and the
terms and conditions thereof, consistent with the 1999 Stock
Option Plan. The Compensation Committee also is authorized
to adopt, amend and rescind rules relating to the
administration of the 1999 Stock Option Plan. The 1999
Stock Option Plan provides for grants of nonqualified stock
options to Outside Directors. Each Outside Director serving
as a member of the Board and who has been reelected to serve
for an additional term, if applicable, during such term will
be granted an option to purchase 2,000 shares of Common
Stock on April 1 annually.
Nonqualified stock options granted under the 1999 Stock
Option Plan will provide for the right to purchase Common
Stock at a specified price, which may not be less than 85%
of the fair market value of the Common Stock on the date of
grant and usually will become exercisable (in the discretion
of the Compensation Committee (or the Board in the case of
Outside Directors or employee directors who are members of
the Compensation Committee)) in one or more installments
after the date of grant. Incentive stock options, if
granted, will be designed to comply with, and will be
subject to restrictions contained in, the Internal Revenue
Code, including exercise prices equal to at least 100% of
fair market value of Common Stock on the date of grant, but
may be subsequently modified to disqualify them (or if
disqualified) from treatment as incentive stock options.
Incentive stock options may be granted only to employees.
No option granted under the 1999 Stock Option Plan may have
a term of greater than fifteen years from the date of grant.
The period during which the right to exercise an option
vests in the optionee shall be set by the Compensation
Committee. However, unless the Compensation Committee
states otherwise no option will be exercisable by an
optionee subject to Section 16 of the Securities Exchange
Act of 1934, as amended, ("Exchange Act") within the period
ending six months and one day after the date the option is
granted. In addition, options granted to Outside Directors
will become exercisable in annual installments of 20% on
each of the first, second, third, fourth and fifth
anniversaries of the date of grant.
As soon as practicable, the Company shall register
under the Securities Act the Common Stock delivered or
deliverable pursuant to the Options granted under the 1999
Option Plan on SEC Form S-8 if available to the Company for
this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available
to effect such registration), in accordance with the rules
and regulations governing such forms, as soon as such forms
are available for registration to the company for this
purpose. The Company will use its good faith efforts to
cause the registration statement to become effective as soon
as possible and will file such supplements and amendments to
the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a)
one year following the expiration of the option period of
the last Option outstanding, (b) the date the Company is no
longer a reporting company under the Exchange Act and (c)
the date all optionees have disposed of all shares delivered
pursuant to any Option. The Company may delay the foregoing
actions at any time and from time to time if the Committee
determines in its discretion that any such registration
would materially and adversely affect the Company's
interests or if there is no material benefit to optionees.
EMPLOYEE STOCK PURCHASE PLAN
The Board adopted the Employee Stock Purchase Plan (the
"Purchase Plan") in February 1999. The Board of Directors
is proposing and recommending adoption of the Purchase Plan
by the Company's shareholders to provide additional
incentives to employees of the Company. The Purchase Plan,
and the rights of participants to make purchases thereunder,
is intended to qualify under the provisions of Sections 421
and 423 of the Internal Revenue Code of 1986, as amended.
The purpose of the Purchase Plan is to provide an incentive
for employees of the Company to acquire an interest in the
Company through the purchase of Common Stock, thereby more
closely aligning the interests of the employees and the
shareholders. The Purchase Plan provides that an aggregate
of 100,000 shares of the Common Stock may be issued
thereunder. As of June 21, 1999, no shares of Common Stock
had been issued under the Purchase Plan. The Compensation
Committee shall administer the Purchase Plan or designate a
Plan Administrator thereunder.
The Purchase Plan is implemented through a series of 24-
month offering periods, with a new offering period
commencing on each February 1 and August 1 during the term
of the Purchase Plan. The first offering period (a 23-month
period) will commence on September 1, 1999. The purchase
price of the shares under the Purchase Plan will be funded
through payroll deductions during an offering period.
Currently, the payroll deductions may be any whole
percentage amount between 1% and 10% of a participant's base
salary, wages and commissions, but excluding bonuses and
overtime pay, on each payroll date during the offering
period. A participant may discontinue his or her
participation in the Purchase Plan at any time during the
offering period. In addition, a participant may, no more
than once during each offering period, reduce or increase
the rate of payroll deductions.
Subject to certain limitations contained in the
Purchase Plan, on the first day of each offering period,
each participant is granted an option to purchase, on each
exercise date during the offering period, a number of shares
of Common Stock determined by dividing the participant's
contributions to the Purchase Plan by the applicable
exercise price. Unless a participant withdraws from the
Purchase Plan, the participant's option to purchase shares
will be exercised automatically on each exercise date of the
offering period to purchase the maximum number of full
shares that may be purchased at the exercise price with the
accumulated payroll deductions in the participant's account.
The last day of each six-month period during each offering
period under the Qualified Stock Purchase Plan (i.e., each
July 31 and January 31) will be an exercise date under the
Purchase Plan.
Initially, the exercise price per share at which shares
will be sold under the Purchase Plan will be equal to the
lower of not less than 85% of the fair market value of the
Common Stock on the date of commencement of an offering
period or no less than 85% of the fair market value of the
Common Stock on each exercise date of the option. The
Compensation Committee may change the percentage rate from
85%; however, it may never be less than 85%. The fair
market value of a share of Common Stock on a given date will
be the closing price of the Common Stock on the NASDAQ Stock
Market on such date.
As soon as practicable, the Company shall register
under the Securities Act, the Common Stock delivered or
deliverable pursuant to the Options granted under the
Purchase Plan on SEC Form S-8 if available to the Company
for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available
to effect such registration), in accordance with the rules
and regulations governing such forms, as soon as such forms
are available for registration to the company for this
purpose. The Company will use its good faith efforts to
cause the registration statement to become effective as soon
as possible and will file such supplements and amendments to
the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a)
one year following the expiration of the option period of
the last Option outstanding, (b) the date the Company is no
longer a reporting company under the Exchange Act and (c)
the date all Optionees have disposed of all shares delivered
pursuant to any Option. The Company may delay the foregoing
actions at any time and from time to time if the Committee
determines in its discretion that any such registration
would materially and adversely affect the Company's
interests or if there is no material benefit to Optionees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999 (and excluding the period of April
1, 1998 to August 25, 1998), the Company's Board of
Directors, with the advice and recommendations of the
Compensation Committee, determined compensation matters. No
executive officer of the Company served as a member of the
Compensation Committee or Board of Directors of another
entity which had an executive officer who served on the
Company's Board of Directors or Compensation Committee
during the fiscal year ended March 31, 1999. During fiscal
year 1999, the Compensation Committee was comprised of
Thomas C. Connor, Richard Williams and Paul Welch. No
interlocking relationship exists between any member of the
Compensation Committee and any member of any other company's
board of directors or compensation committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee reviews and makes
recommendations to the Company's Board of Directors
regarding the Company's executive compensation program. In
that connection, the Compensation Committee reviews and
approves each of the elements of the executive compensation
program of the company and periodically assesses the
effectiveness and competitiveness of the program in total.
In addition, the Committee administers the Stock Option Plan
and Employee Stock Purchase Plan. Set forth below is the
Report of the Compensation Committee regarding compensation
paid by the Company to its executive officers during fiscal
1999.
The Company's compensation program for executive
officers is primarily comprised of combinations of elements
of base salary, bonus, and/or short and long-term incentives
in the form of stock option grants. Executives also
participate in various other benefit plans, including
medical and 401(k) plans, versions of which are generally
available to all employees of the Company.
Compensation Philosophy
The goals of the Company's executive compensation
program are to reward the achievement of the Company's
strategic goals and the creation and maximization of
shareholder value. The Company anticipates positioning base
salaries at competitive levels, except in the case of its
Named Executive Officers who, at this time, have been
awarded options to purchase shares of common stock in lieu
of annual salary. Stock option grants are intended to result
in no reward if the stock price does not appreciate, but may
provide substantial reward to executives as shareholders
benefit from stock price appreciation. However, the annual
cash bonus (or grant of stock options) compensation program
will be positioned to reward above competitive levels for
exceptional performance. The Company also believes in
providing rewards for the creation of shareholder value
through the use of stock options. The Company and the
Committee believe this philosophy will motivate the
executives and, thereby, reinforce the accomplishments of
the Company's strategic and financial goals. In the future,
the Company's philosophy will be to pay base salaries to
executives at levels that enable the Company to attract,
motivate and retain highly qualified executives. In
addition, the Company intends to give bonuses as a reward
for performance based upon individual performance and
overall Company financial results. The Company has not
established an annual incentive plan at this time.
Base Salary and Bonuses. Except as previously stated,
each Company executive receives a base salary, which when
aggregated with a bonus or options grant, is intended to be
competitive with similarly situated executives in other
companies at a comparable stage of development, considering
the experience, achievements and contributions of the
employees and the Company's industry. The Company targets
base pay at the level required to attract and retain highly
qualified executives. In determining salaries, individual
experience and performance and specific needs particular to
the Company are taken into account. Salary increases will be
designed to reflect competitive practices in the industry,
financial performance of the Company and individual
performance of the executive. The annualized sum of $120,000
was paid to Ms. Anita Goldberg, the former President of the
Company, in fiscal year 1999.
Long-Term Incentives. The objectives of the Company's
long-term incentive program are to offer opportunities for
stock ownership that are competitive with those at peer
companies and to encourage and create ownership and
retention of the Company's stock by key employees. Grant
levels under the Company's employee stock option plans are
made in consideration of awards to officers within peer
companies and an assessment of the executive's tenure,
responsibilities and current stock and option holdings.
In addition to base salary, executives are eligible to
receive an annual bonus. The Compensation Committee intends
to consider and adopt a formal Executive Incentive Bonus
Plan which would provide for year end cash bonuses to
executives based on the Company's and the executive's
performance for that year. It is anticipated that the amount
of bonus and the performance criteria will vary with the
position and role of the executive within the Company,
although bonuses will be significantly tied to the Company's
financial performance.
Stock, Options and Other Awards. The Company believes
that it is important for executives to have an equity stake
in the Company and, toward this end (and disclosed elsewhere
herein), has made option grants to key executives and other
employees in February and April 1999. Option grants have
taken into account the level of awards granted to executives
at companies in the Company's industry, the levels of cash
compensation earned by such executives, and the individual
executive's specific role at the Company. At the 1999
annual meeting of shareholders, the Board of Directors is
recommending that the shareholders approve a proposal for
the 1999 Stock Option Plan which includes, among other
things, provisions for stock options, stock appreciation
rights, restricted and deferred stock, bonus stock, awards
in lieu of cash obligations, and other stock-based awards,
to employees, including executive officers, consultants,
advisors and directors.
The Compensation Committee, comprised of Outside
Directors (who are not employees of the Company),
administers the 1999 Stock Option Plan. Awards to Outside
Directors or employee Directors are made by the Board.
CHIEF EXECUTIVE OFFICER COMPENSATION. William W.
Service does not have an employment agreement with the
Company and receives no salary or other form of cash
compensation from the Company in consideration for his
services as Chief Executive Officer. In February, 1999, Mr.
Service was awarded a non-qualified option to purchase
15,000 shares of Common Stock at an exercise price of $4.75
which will be fully vested on August 25, 1999. In April
1999, and to serve as compensation for period April 1, 1999
to March 30, 2000, Mr. Service was also granted an
additional non-qualified option to purchase 50,000 shares of
Common Stock at an exercise price of $6.25 per share which
will be fully vested on March 30, 2000. The Compensation
Committee believes that Mr. Service's compensation is below
the compensation paid to Chief Executive Officers of
comparable, publicly-held companies.
SECTION 162(m) COMPLIANCE
The Company does not presently anticipate any of the
Named Executive Officers to exceed the million-dollar non-
performance based compensation threshold of Section 162(m)
of the Internal Revenue Code. The Company and the Committee
will continue to monitor the compensation levels of the
Named Executive Officers and determine the appropriate
response to Section 162(m) when and if necessary. It is the
Company's intent to bring the stock option program into
compliance with Section 162(m), if necessary, to ensure that
stock option grants are excluded from compensation
calculation for the purposes of Section 162(m).
The foregoing report has been furnished by the
Compensation Committee.
Thomas C. Connor
Richard Williams
Paul Welch
June 21, 1999
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the
percentage change in the cumulative total shareholder return
on the Company's Common Stock against the cumulative total
return of the NASDAQ Composite Index and the Company's peer
group index. The Company's peer group consists of the
NASDAQ Retail Trade Stocks. The stock performance graph
assumes $100 was invested on April 1, 1994 and measures the
return thereon at various points based on the closing price
of the Common Stock on the dates indicated.
EDGAR Representation of Data Points Used in Printed Graphic.
<TABLE>
<S> <C> <C> <C>
PEER NASDAQ
MEASUREMENT PERIOD ELMER'S RESTAURANTS INC. GROUP COMPOSITE
3/31/94 100.00 100.00 100.00
3/31/95 108.33 98.05 111.25
3/31/96 125.00 122.80 151.06
3/31/97 158.33 123.82 167.83
3/31/98 308.33 183.54 254.43
3/31/99 400.00 185.76 342.44
</TABLE>
CERTAIN TRANSACTIONS
Paul Welch, a director of the Company, operates two
Elmer's restaurants in Vancouver, Washington, one since 1978
and the other since 1994. Under a franchise agreement with
the Company, Mr. Welch pays the Company a franchise royalty
fee of two percent of gross sales of each of the
restaurants. During fiscal 1999, $88,408 was paid to the
Company under this franchise agreement. Mr. Welch is
indebted to the Company in the aggregate amount of $97,857
under four promissory notes representing unpaid franchise
fees for fiscal years 1998 and 1999.
Effective February 18, 1999, the Board of Directors
unanimously voted to engage Jaspers Food Management, Inc.
("JFMI") to provide some of the Company's administrative and
accounting service needs for the operations of the Company's
five Ashley's and four Richard's restaurants. Two different
agreements were executed for each restaurant brand. William
Service and Bruce Davis each own 38% of the outstanding
common stock of JFMI and each serve on JFMI's 3 person Board
of Directors. JFMI's third director is Cordy Jensen who
owns 3.75% of the outstanding common stock of JFMI. Messrs.
Service and Davis each receive the annual compensation in
the sum of $12,000 from JFMI.
Boyd Coffee Company ("Boyd's"), which owns in excess of
5% of the Company's outstanding shares of Common Stock,
supplies coffee and related supplies to a number of
restaurants owned by the Company and its franchisees.
During the last fiscal year, a total of $506 was paid by the
Company to Boyd's.
Effective February 18, 1999, the Company merged with
its majority shareholder CBW, Inc. ('CBW'), a closely held
Oregon corporation, in a transaction in which the Company
was the surviving corporation. In consideration for the
issuance by the Company of 770,500 shares of the Company's
restricted common stock to CBW shareholders and the
assumption of approximately $4 million in debt owed by CBW
arising from CBW's acquisition of the controlling block of
the Company's common stock on August 25, 1998, the Company
acquired all the stock and assets of CBW including CBW's
wholly-owned subsidiary, CBW Food Company, LLC. The Company
entered into a new financing agreement in connection with
the merger whereby it borrowed funds to refinance existing
debt and debt of CBW totaling approximately $1,750,000.
As of March 31, 1999, the Company had outstanding
indebtedness for borrowed money of $1.25 million under a
term loan facility with Eagle's View Management Company,
Inc. (which is affiliated with Donald Woolley and members of
his family), assumed at the time of the merger with CBW,
Inc. The Eagle's View Management loan has a maturity of
approximately 5 years, an interest rate of 12%, requires
monthly payments of interest only, and is collateralized by
a second position on substantially all the assets owned by
the Company and does not impose financial covenants upon the
Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information with
respect to the number of shares of Common Stock
beneficially owned by (i) each director of the Company, (ii)
the Named Executive Officers, (iii) all directors and
executive officers of the Company as a group, and (iv) each
shareholder known by the Company to be a beneficial owner
of more than 5% of the Company's voting securities as of
June 21, 1999. The Company believes that except as
otherwise noted, each person or entity named has sole
investment and voting power with respect to the shares of
Common Stock indicated as beneficially owned by such person
or entity.
<TABLE>
<S> <C> <C>
SHARES PERCENTAGE OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) CLASS(2)
- ------------------------ ------------------------ ---------------
EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------
William W. Service (3) 133,212 8.4%
Bruce Davis (3) 133,212 8.4%
Corydon H. Jensen (3) 69,963 4.4%
Thomas C. Connor 96,349 6.07%
Richard Williams - -
Paul Welch - -
Donald Woolley 96,349 6.07%
Jerry Scott (4) 9,979 *
Juanita Nelson (4) - -
All executive officers
and directors as a
group (9 persons) 539,064 33.98%
CERTAIN SHAREHOLDERS
- --------------------
Richard Buckley 104,810 6.6%
Gary Weeks 104,810 6.6%
William W. Service,
Bruce N. Davis and
Cordy Jensen, Voting
Trustees (5) 559,709 35.28%
Boyd Coffee Company 83,400 5.26%
</TABLE>
*Representing less than 1%.
(1) For purposes of calculating beneficial ownership
percentages, 1,586,229 shares of Common Stock were deemed
outstanding.
(2) A person is deemed to be the beneficial owner of
securities that can be acquired within 60 days from the
date set forth above through the exercise of any option,
warrant, or right. Shares of Common Stock subject to
options, warrants, or rights which are currently exercisable
or exercisable within 60 days are deemed outstanding for
computing the percentage of the person holding such options,
warrants, or rights but are not deemed outstanding for
computing the percentage of any other person.
(3) The shares shown represent shares owned directly. See
Note (5) for information as to beneficial ownership of
shares of Common Stock held by a Voting Trust as to which
Messrs. Service, Jensen and Davis are Voting Trustees.
(4) Jerry Scott and Juanita Nelson occupy the positions of
Vice President, Operations and Controller respectively but
have been omitted from the disclosure regarding Named
Executive Officers because their individual annual
compensation did not exceed $100,000 for the fiscal year
ended March 31, 1999.
(5) William Service, Bruce Davis and Cordy Jensen are co-
trustees of a Voting Trust which holds these shares and
share voting power as to these shares. William Service
disclaims beneficial ownership of all but 133,212 shares
held in the Voting Trust. Bruce Davis disclaims beneficial
ownership of all but 133,212 shares held in the Voting
Trust. Cordy Jensen disclaims beneficial ownership of all
but 69,963 shares held in the Voting Trust.
As previously reported in prior filings with the
Securities and Exchange Commission, CBW, Inc. ("CBW")
acquired 705,000 shares of Common Stock in the Company
(representing 53.8% of the outstanding Common Stock) from
Anita Goldberg and Rudolph Mazurosky on August 25, 1998. The
consideration paid by CBW for the shares was $4,504,950.
CBW's financing for its acquisition of the shares was drawn
from two sources: (1) $600,000 from the purchase by Thomas
Connor and Donald Woolley of shares representing 25% of the
issued and outstanding common stock of CBW and (2)
$3,904,950 from a loan to CBW, Inc. by Eagle's View
Management Company, Inc. ("EVM"). EVM is affiliated with
Donald Woolley and members of his family. The loan from EVM
was for a total of $4,000,000. In connection with the
acquisition of the shares, the Company's Board of Directors
named certain shareholders of CBW, Inc. viz., Thomas Connor,
Bruce Davis, Corydon Jensen, William Service, and Donald
Woolley as directors and appointed William Service as Chief
Executive Officer, Bruce Davis as President, and Jerry Scott
as Vice President. The officers appointed occupied analogous
positions with CBW, Inc. at that time.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) ("Section 16(a)") of the Securities
Exchange Act of 1934, as amended, requires the Company's
executive officers, directors, and persons who own more than
ten percent of the Company's Common Stock to file reports of
ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). SEC regulations require that
persons filing these reports furnish copies to the Company.
Based solely on a review of the copies of the reports
received by the Company and on written representations of
certain reporting persons, the Company believes that all
Section 16(a) filing requirements applicable to its
executive officers and directors have been complied with
except that Thomas C. Connor and Donald Woolley did not
report on a timely basis dispositions of Common Stock made
effective February 1999. To the knowledge of the Company,
appropriate reports of such transactions are in the process
of being filed with the Securities and Exchange Commission.
INDEPENDENT AUDITORS
The Board of Directors has selected
PricewaterhouseCoopers LLP as the Company's independent
auditors for the fiscal year ended March 31, 1999.
Representatives of PricewaterhouseCoopers LLP will be
present at the annual meeting, will have the opportunity to
make a statement if they so desire, and will be available to
respond to appropriate questions.
PROPOSAL II
-----------
ADOPTION OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" OF THIS
PROPOSAL.
Adoption of Employee Stock Purchase Plan
- ----------------------------------------
The Board of Directors has adopted the Elmer's
Restaurants, Inc. Employee Stock Purchase Plan (the
"Purchase Plan") and directed that the Purchase Plan be
submitted to a vote of the shareholders at the Annual
Meeting. If approved by the shareholders, the Purchase Plan
will become effective September 1, 1999. On June 21, 1999,
the closing sale price reported on The NASDAQ Stock Market
for a share of the Common Stock was $6.31 (as reported by
the National Quotation Bureau, Inc.).
Purpose
- -------
The purpose of the Purchase Plan is to provide eligible
employees with an opportunity to acquire a proprietary
interest in the Company through the purchase of its Common
Stock and, thus, to develop a stronger incentive to work for
the continued success of the Company. The Purchase Plan is
an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code").
Administration
- --------------
The Purchase Plan will be administered by a Plan
Administrator appointed by the Board of Directors (the
"Administrator"). Subject to the provisions of the Purchase
Plan, the Administrator is authorized to determine any
questions arising in the administration, interpretation and
application of the Purchase Plan, and to make such uniform
rules as may be necessary to carry out its provisions.
Eligibility and Number of Shares
- --------------------------------
Up to 100,000 shares of Common Stock of the Company are
available for distribution under the Purchase Plan, subject
to appropriate adjustment, by the Administrator, in the
event of certain changes in the outstanding shares of Common
Stock by reason of stock dividends, stock splits, corporate
separations, recapitalizations, mergers, consolidations,
combinations, exchanges of shares or similar transactions.
Shares delivered pursuant to the Purchase Plan may be
acquired by purchase for the accounts of participants on the
open market or in privately negotiated transactions by a
registered securities broker/dealer selected by the Company
(the "Agent"), by direct issuance from the Company (whether
newly issued or reacquired shares) or by any combination
thereof.
Any employee of the Company or, subject to approval by
the Board of Directors, a parent or subsidiary corporation
of the Company (including officers and any directors who are
also employees) will be eligible to participate in the
Purchase Plan for any Purchase Period (as defined below) so
long as, on the first day of such Purchase Period, the
employee has completed at least 6 months of continuous
service. "Purchase Period" means two successive calendar
quarters of each year commencing February 1.
Any eligible employee may elect to become a participant
in the Purchase Plan for any Purchase Period by filing an
enrollment form in advance of the Purchase Period to which
it relates. The enrollment form will authorize payroll
deductions beginning with the first payday in such Purchase
Period and continuing until the employee modifies his or her
authorization, withdraws from the Purchase Plan or ceases to
be eligible to participate.
No employee may participate in the Purchase Plan if
such employee would be deemed for purposes of the Code to
own stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company.
The Company currently has approximately 250 employees
who are eligible to participate in the Purchase Plan.
Participation
- -------------
An eligible employee who elects to participate in the
Purchase Plan will authorize the Company to make payroll
deductions of a specified fixed dollar amount or whole
percentage from 1% to 10% of the employee's gross cash
compensation as-defined in the Purchase Plan. A participant
may, on February 1 or August 1, direct the Company to
increase or decrease the amount of deductions (within those
limits) or make no further deductions, as set forth in
greater detail in the Purchase Plan. A participant may also
elect to withdraw from the Purchase Plan at any time before
the end of a Purchase Period. In the event of a withdrawal,
all future payroll deductions will cease and the amounts
withheld will be refunded to the participant in cash as soon
as possible, subject to an administrative fee. Any
participant who stops payroll deductions may not thereafter
resume payroll deductions for that Purchase Period, and any
participant who withdraws from the Purchase Plan will not be
eligible to re-enter the Purchase Plan until the next
succeeding Purchase Period.
Amounts withheld under the Purchase Plan will be held
by the Company as part of its general assets until the end
of the Purchase Period and then applied to the purchase of
Common Stock of the Company as described below. No interest
will be credited to a participant for amounts withheld.
Purchase of Stock
- -----------------
As of the last day of each Purchase Period, the amounts
withheld for a participant in the Purchase Plan will be used
to purchase shares of Common Stock of the Company. The
purchase price of each share will be no less than 85% of the
lesser of the Fair Market Value (as defined in the Purchase
Plan) of a share of Common Stock on either the first or last
day of the Purchase Period. All amounts so withheld will be
used to purchase the number of shares of Common Stock
(including fractional shares) that can be purchased with
such amounts at such price, unless the participant has
properly notified the Company that he or she elects to
receive the entire amount in cash. If some or all of such
shares are acquired for the accounts of participants on the
open market or in privately negotiated transactions, the
Company will provide to the Agent such funds, in addition to
the funds available from participants' payroll deductions,
as may be necessary to permit the Agent to purchase that
number of shares (including brokerage fees and expenses).
No more than $25,000 in Fair Market Value (determined
on the last day of the respective Purchase Periods) of
shares of Common Stock may be purchased under the Purchase
Plan and all other employee stock purchase plans, if any, of
the Company and any parent or subsidiary corporation of the
Company by any participant for each calendar year.
If purchases by all participants would exceed the
number of shares of Common Stock available for purchase
under the Purchase Plan, each participant will be allocated
a ratable portion of such available shares. Any amount not
used to purchase shares of Common Stock will be refunded to
the participant in cash.
Shares of Common Stock acquired by each participant
will be held in a general securities brokerage account
maintained by the Agent for the benefit of all participants,
with the Agent maintaining individual subaccounts for each
participant (showing fractional share ownership to four
decimal places). Each participant will be entitled to vote
all shares held for the benefit of such participant in the
general securities brokerage account. Certificates for the
number of whole shares of Common Stock purchased by a
participant will be issued and delivered to him or her only
upon the request of such participant or his or her
representative. No certificates for fractional shares will
be issued and participants will instead receive cash
representing any fractional shares.
Dividends on a participant's shares held in the general
securities brokerage account will automatically be
reinvested in additional shares of Common Stock of the
Company, except if a participant desires to receive
dividends on the participant's shares in cash. Such
participant must request that a certificate for such shares
be issued to such participant. The purchase price of any
shares purchased through the reinvestment of dividends
("Reinvestment Shares") is determined as follows: (i) if,
with respect to any particular dividend payment, the Company
instructs its designated agent that any Reinvestment Shares
are to be purchased directly from the Company, the purchase
price of each such Reinvestment Share is the fair market
value of a share on the business day immediately preceding
the date of purchase; or (ii) if, with respect to any
particular dividend payment. the Company does not instruct
the agent to purchase Reinvestment Shares directly from the
Company, the agent will commingle all dividends paid on all
participants' shares held in the general securities
brokerage account and will purchase on the open market, or
in privately negotiated transactions, as soon as reasonably
practicable after the receipt of the dividends, as many
shares of Common Stock of the Company as can be acquired
with such commingled dividends, and the purchase price of
each such Reinvestment Share is the average price paid by
the agent in purchasing all Reinvestment Shares for all
participants with the proceeds of such dividend payment.
There is allocated to each participant's individual
subaccount such participant's pro rata portion of the shares
purchased with the commingled funds. The Company pays all
brokerage fees and expenses of the agent in connection with
the reinvestment of dividends.
Death, Disability, Retirement or Other Termination of
- -----------------------------------------------------
Employment
- ----------
If the employment of a participant terminates for any
reason, including death, disability or retirement, the
amounts previously withheld will be returned to the
participant or beneficiary, as the case may be and the
participant's interest in the securities brokerage account
will be liquidated as described in the Purchase Plan.
Rights Not Transferable
- -----------------------
The rights of a participant under the Purchase Plan are
exercisable only by the participant during his or her
lifetime. No right or interest of any participant in the
Purchase Plan may be sold, pledged, assigned or transferred
in any manner other than by will or the laws of descent and
distribution.
Amendment or Modification
- -------------------------
The Board of Directors may at any time amend the
Purchase Plan in any respect which shall not adversely
affect the rights of participants pursuant to shares
previously acquired under the Purchase Plan. Approval by
the shareholders of the Company is required to increase the
number of shares to be reserved under the Purchase Plan
(except for adjustments by reason of stock dividends, stock
splits, corporate separations, recapitalizations, mergers,
consolidations, combinations, exchanges of shares and
similar transactions).
Termination
- -----------
All rights of participants in any offering under the
Purchase Plan will terminate at the earlier of (i) the day
that participants become entitled to purchase a number of
shares of Common Stock equal to or greater than the number
of shares remaining available for purchase or (ii) at any
time, at the discretion of the Board of Directors. Upon
termination of the Purchase Plan, shares of Common Stock
will be purchased for participants in accordance with the
terms of the Purchase Plan, and cash, if any, previously
withheld and not used to purchase Common Stock will be
refunded to the participants.
Federal Tax Considerations
- --------------------------
The following discussion is intended to provide an
overview of the U.S. federal income tax laws which are
generally applicable to the Purchase Plan as of the date of
this Proxy Statement. People or entities in differing
circumstances may have different tax consequences, and the
tax laws may change in the future. This discussion is not
to be construed as tax advice.
Payroll deductions under the Plan will be made on an
after-tax basis. Participants will not recognize any
additional income as a result of participation in the Plan
until the disposal of shares acquired under the Plan or the
death of the Participant. Participants who hold their
shares for more than 24 months after the end of the Purchase
Period or die while holding their shares will recognize
ordinary income in the year of disposition or death equal to
the lesser of (i) the excess of the fair market value of the
shares on the date of disposition or death over the purchase
price paid by the participant or (ii) the excess of the fair
market value of the shares on the last day of the Purchase
Period over the purchase price paid by the participant. If
the 24-month holding period has been satisfied when the
participant sells the shares or if the participant dies
while holding the shares, the Company will not be entitled
to any deduction in connection with the transfer of such
shares to the participant.
Participants who dispose of their shares within 24
months after the shares were purchased will be considered to
have realized ordinary income in the year of disposition in
an amount equal to the excess of the fair market value of
the shares on the date they were purchased by the
participant over the purchase price paid by the participant.
If such dispositions occur, the Company generally will be
entitled to a deduction at the same time and in the same
amount as the participants who make those dispositions are
deemed to have realized ordinary income.
Participants will have a basis in their shares equal to
the purchase price of their shares plus any amount that must
be treated as ordinary income at the time of disposition of
the shares. Any additional gain or loss realized on the
disposition of shares acquired under the Purchase Plan will
be capital gain or loss.
Copy of Purchase Plan
- ---------------------
The full text of the Purchase Plan appears in Appendix
B to this Proxy Statement, to which Appendix reference is
made for a complete statement of the terms of the Purchase
Plan.
The Board of Directors recommends that shareholders
vote "FOR" this proposal. The affirmative vote of the
holders of a majority of the shares of Common Stock
represented at the annual meeting will be required for
adoption of the proposal.
PROPOSAL III
----------
APPROVAL OF THE
1999 STOCK OPTION PLAN
On February 18, 1999, the Board of Directors adopted
the 1999 Stock Option Plan (the "1999 Option Plan"), subject
to approval of shareholders at the Annual Meeting. As of
the date of adoption of the 1999 Option Plan by the Board,
there were approximately 250 officers and employees of the
Company and its subsidiaries who are eligible to participate
in the 1999 Option Plan.
The principal provisions of the 1999 Option Plan are
summarized below. Such summary does not, however, purport
to be complete and is qualified in its entirety by the terms
of the 1999 Option Plan, a copy of which is attached hereto
as Appendix C.
Description of 1999 Option Plan
The 1999 Option Plan provides for the granting of
options to acquire Common Stock, which may be either
incentive stock options ("ISOs") or nonqualified stock
options ("NSOs"). The 1999 Option Plan is administered by
the Compensation Committee ("Committee") of the Board of
Directors, and officers, directors, all employees of the
Company or any subsidiary and any consultant or adviser
providing bona fide services to the Company or any
subsidiary (provided that such services are not in
connection with the offer or sale of securities in a capital
raising transaction) whose participation in the 1999 Option
Plan is determined by the Committee to be in the best
interests of the Company are eligible to receive option
grants thereunder. The 1999 Option Plan does not have a
termination date, but a grant of an ISO may not occur 10
years after February 18, 1999, the effective date of the
1999 Option Plan. Receipt of option grants under the 1999
Option Plan is contingent upon the execution by each
prospective option holder of an agreement in such form as
the Committee may from time to time determine.
The 1999 Option Plan provides for the grant of options
to purchase up to 320,000 shares of Common Stock. The
purchase price per share of Common Stock subject to an
option is fixed by the Committee when the option is granted.
Options to purchase no more than 100,000 shares of Common
Stock may be granted to any one eligible individual per
year. The terms of options granted under the 1999 Option
Plan, including the vesting provisions of such options,
which may be modified from the default five year straight
line requirement set out in the 1999 Option Plan, will be
established at the time of grant. The Compensation
Committee, in its sole discretion, may rescind, modify or
waive any limitation or condition on the exercise of an
option contained in any option agreement so as to accelerate
the time at which an option may be exercised or extend the
period during which the option may be exercised. No person
may receive an ISO if, at the time of grant, such person
owns directly or indirectly more than 10% of the total
combined voting power of the Company unless the option price
is at least 110% of the fair market value of the Common
Stock and the exercise period of such ISO is by its terms
limited to five years. There is also a $100,000 limit on
the value of Common Stock (determined at the time of grant)
covered by ISOs that first become exercisable by an optionee
in any calendar year. No option granted to a reporting
person (which term includes directors and 10% shareholders)
under Section 16 of the Securities Exchange Act of 1934, as
amended, may be exercisable during the first six months
after the date of grant.
Payment for shares purchased under the 1999 Option Plan
may be made: (i) in cash or in cash equivalents; (ii) if
permitted by the option agreement, by exchanging shares of
Common Stock with a fair market value equal to or less than
the total option price plus cash for any difference; (iii)
if permitted by the option agreement, by delivery of a
promissory note of the person exercising the option; (iv) if
permitted by the option agreement, by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant
to the exercise of an option equal in value to the exercise
price; or (v) by a combination of the foregoing. Payment in
full of the option price need not accompany the written
notice of exercise provided the notice directs that the
stock certificate for the shares for which the option is
exercised be delivered to a licensed broker acceptable to
the Company as the agent for the individual exercising the
option and, at the time such stock certificate is delivered,
the broker tenders to the Company cash (or cash equivalents
acceptable to the Company) equal to the option price.
In the event of stock splits, stock dividends,
recapitalizations, combinations of shares or certain other
events, the 1999 Option Plan provides for adjustment of (ii)
the number of shares available for option grants, including
the maximum number of shares that may be granted to any one
individual, and (ii) the number of shares and the per share
exercise price for shares subject to unexercised options.
Upon any dissolution or liquidation of the Company, the sale
of substantially all of the Company's assets, a merger,
reorganization or consolidation in which the Company is not
the surviving corporation or any other transaction
(including, without limitation, a merger or reorganization
in which the Company is the surviving corporation) approved
by the Board which results in any person or entity owning
80% or more of the total combined voting power of all
classes of stock of the Company, the 1999 Option Plan and
the options issued thereunder will terminate, unless
provision is made in connection with such transaction for
the continuation of the plans and/or the assumption of the
options or for the substitution for such options of new
options covering the stock of a successor corporation or a
parent or subsidiary thereof, with appropriate adjustment as
to the number and kinds of shares and the per share exercise
price.
Options granted under the 1999 Option Plan generally
are transferable pursuant to the 1999 Option Plan terms.
The Board of Directors may terminate or amend the 1999
Option Plan at any time; provided, however, that any
amendment by the Board which, if not approved by the
Company's shareholders would cause the Plan to not comply
with Sections 162(m) or 422 of the Internal Revenue Code of
1986, as amended (the "Code"), shall not be effective unless
approved by the affirmative vote of shareholders who hold
more than 50% of the combined voting power of the
outstanding shares of voting stock of the Company present or
represented, and entitled to vote thereon at a duly
constituted shareholders' meeting.
Based on the closing price of $6.31 (approx.) per share
on June 21, 1999, the aggregate market value of the 320,000
shares of Common Stock issuable under the 1999 Option Plan
is $2.02 million. In February and April 1999, the Company
also made option grants to certain employees and all the
members of the Board of Directors covering approximately
269,500 shares of Common Stock.
Federal Income Tax Consequences
- -------------------------------
The grant of an option will not be a taxable event for
the optionee or the Company.
Incentive Stock Options: An optionee will not
recognize taxable income upon exercise of an ISO (except
that the alternative minimum tax may apply), and any gain
realized upon a disposition of shares of stock received
pursuant to the exercise of an ISO will be taxed as long-
term capital gain if the optionee holds the shares for at
least two years after the date of grant and for one year
after the date of exercise (the "holding period
requirement"). The Company will not be entitled to any
business expense deduction with respect to the exercise of
an ISO, except as discussed below.
For the exercise of an option to qualify for the
foregoing tax treatment, the optionee generally must be an
employee of the Company or a subsidiary from the date the
option is granted through a date within three months before
the date of exercise of the option. In the case of an
optionee who is disabled, the three-month period for
exercise following termination of employment is extended to
one year. In the case of an employee who dies, both the
time for exercising ISOs after termination of employment and
the holding period for stock received pursuant to the
exercise of the option are waived.
If all of the foregoing requirements are met except the
holding period requirement mentioned above, the optionee
will recognize ordinary income upon the disposition of the
stock in an amount generally equal to the excess of the fair
market value of the stock at the time the option was
exercised over the option exercise price (but not in excess
of the gain realized on the sale). The balance of the
realized gain, if any, will be capital gain. The employer
corporation will be allowed a business expense deduction to
the extent the optionee recognizes ordinary income subject
to Section 162(m) of the Code summarized below.
If an optionee exercises an ISO by tendering shares of
Common Stock with a fair market value equal to part or all
of the option exercise price, the exchange of shares will be
treated as a nontaxable exchange (except that this treatment
would not apply if the optionee had acquired the shares
being transferred pursuant to the exercise of an ISO and had
not satisfied the holding period requirement summarized
above). If the exercise is treated as a tax free exchange,
the optionee would have no taxable income from the exchange
and exercise (other than minimum taxable income as discussed
above) and the tax basis of the shares exchanged would be
treated as the substituted basis for the shares received.
If the optionee used shares received pursuant to the
exercise of an ISO (or another statutory option) as to which
the optionee had not satisfied the applicable holding period
requirement, the exchange would be treated as a taxable
disqualifying disposition of the exchanged shares.
If, pursuant to an option agreement, the Company
withholds shares in payment of the option price for
incentive options, the transaction should generally be
treated as if the withheld shares had been sold in a
disqualifying disposition after exercise of the option, so
that the optionee will realize ordinary income with respect
to such shares. The shares paid for by the withheld shares
should be treated as having been received upon exercise of
an incentive stock option, with the tax consequences
described above. However, the Internal Revenue Service has
not ruled on the tax treatment of shares received on
exercise of an incentive stock option where the option
exercise price is paid with withheld shares.
Non-Qualified Options: Upon exercising a NSO, an
optionee will recognize ordinary income in an amount equal
to the difference between the exercise price and the fair
market value of the stock on the date of exercise (except
that, if the optionee is subject to certain restrictions
imposed by the securities laws, the measurement date will be
deferred, unless the optionee makes a special tax election
within 30 days after exercise). Upon a subsequent sale or
exchange of shares acquired pursuant to the exercise of a
NSO, the optionee will have taxable gain or loss, measured
by the difference between the amount realized on the
disposition and the tax basis of the shares (generally, the
amount paid for the shares plus the amount treated as
ordinary income at the time the option was exercised).
If the employer corporation complies with applicable
reporting requirements and with the restrictions of Section
162(m) of the Code, it will be entitled to a business
expense deduction in the same amount and generally at the
same time as the optionee recognizes ordinary income. Under
Section 162(m) of the Code, if the optionee is one of
certain specified executive officers, then, unless certain
exceptions apply, the employer is not entitled to deduct
compensation with respect to the optionee, including
compensation related to the exercise of stock options, to
the extent such compensation in the aggregate exceeds $1.0
million for the taxable year. The options are intended to
comply with the exception to Section 162(m) for "performance-
based" compensation.
If the optionee surrenders shares of Common Stock in
payment of part or all of the exercise price for NSOs, no
gain or loss will be recognized with respect to the shares
surrendered (regardless of whether the shares were acquired
pursuant to the exercise of an incentive option) and the
optionee will be treated as receiving an equivalent number
of shares pursuant to the exercise of the option in a
nontaxable exchange. The basis of the shares surrendered
will be treated as the substituted tax basis for an
equivalent number of option shares received and the new
shares will be treated as having been held for the same
holding period as had expired with respect to the
transferred shares. The difference between the aggregate
option exercise price and the aggregate fair market value of
the shares received pursuant to the exercise of the option
will be taxed as ordinary income. The optionee's basis in
the additional shares will be equal to the amount included
in the optionee's income.
If, pursuant to an option agreement, the Company
withholds shares in payment of the option price for NSOs or
in payment of tax withholding, the transaction should
generally be treated as if the withheld shares had been sold
for an amount equal to the exercise price after exercise of
the option.
Reasons for Obtaining Shareholder Approval
- ------------------------------------------
The Board has approved the 1999 Option Plan subject to
shareholder approval at the annual meeting. The Company is
submitting the 1999 Option Plan for shareholder approval at
the annual meeting because shareholder approval is required
to (i) qualify the 1999 Option Plan under Section 422 of the
Code relating to the grant of ISOs, (ii) to comply with
applicable stock exchange rules and (iii) obtain a federal
income tax deduction under Section 162(m) of the Code for
compensation recognized by optionees in connection with the
exercise of options granted under the 1999 Option Plan.
Section 422 of the Code and applicable Treasury
regulations, among other things, condition ISO treatment for
option grants on shareholder approval of the stock option
plan pursuant to which the ISOs are granted. Under Section
162(m) of the Code and applicable Treasury regulations, no
deduction is allowed for annual compensation in excess of $1
million paid by a publicly traded corporation to its chief
executive officer and the four other most highly compensated
officers. Under those provisions, however, there is no
limitation on the deductibility of "qualified performance-
based compensation." To satisfy this definition: (i) the
compensation must be paid solely on account of the
attainment of one or more preestablished, objective
performance goals; (ii) the performance goals under which
compensation is paid must be established by a compensation
committee having the authority to establish and administer
performance goals and comprised solely of two or more
directors who qualify as "outside directors" for purposes of
the exception; (iii) the material terms under which the
compensation is to be paid must be disclosed to and
subsequently approved by shareholders of the corporation
before payment is made in a separate vote; and (iv) the
compensation committee must certify in writing before
payment of the compensation that the performance goals and
any other material terms were in fact satisfied. Under
applicable Treasury regulations, in the case of compensation
attributable to stock options, the performance goal
requirement (summarized in (i) above) and the shareholder
approval requirement (summarized in (iii) above) are deemed
satisfied, and the certification requirement (summarized in
(iv) above) is inapplicable, if (i) the grant or award is
made by a compensation committee satisfying the above
requirements; (ii) the plan under which the option is
granted states the maximum number of shares with respect to
which options may be granted during a specified time period
to an employee; (iii) under the option exercise price equals
or exceeds the fair market value of the stock on the date of
grant; and (iv) the stock option plan is approved by
shareholders.
The Company believes that stock options are an
important device to motivate and reward its employees and
employees of its subsidiaries, and further believes that
equity incentives represented by stock options enhance its
ability to attract and retain key personnel.
New Plan Benefits
The table below indicates options granted to date which
will be included under the 1999 Option Plan. The option
exercise price of options granted under the 1999 Option Plan
was not less than the fair market value of the Company's
Common Stock on the date of grant, as determined pursuant to
the Plan. All of such options have been NSOs, except where
indicated.
New Plan Benefits
------------------
<TABLE>
<S> <C> <C>
1999 Option Plan
- ----------------
Average Per Share Number
Name and Position Exercise Price($) of Options
Bruce Davis 4.75 15,000
Chairman of the Board
and President 6.25 50,000*
William W. Service 4.75 15,000
Chief Executive
Officer and Chief
Financial Officer 6.25 50,000*
Jerry Scott 4.75 15,000+
Vice President,
Operations
Juanita Nelson 4.75 10,000+
Secretary and
Controller
Executive Group
(7 persons) 5.16 180,000
Non-Executive Director
Group (5 persons) 4.75 50,000
Non-Executive Officer
Employee Group
(13 persons) 4.75 39,500+
* Granted effective April 21, 1999 and therefore not
included in disclosure of option grants for fiscal year
1999.
+ Incentive Stock Options
</TABLE>
Required Vote
The approval by the affirmative vote of the holders of
a majority of the shares of Common Stock present or
represented and entitled to vote at the annual meeting is
required to approve the 1999 Option Plan.
The Board of Directors recommends a vote "FOR" approval
of the 1999 Option Plan.
PROPOSAL IV
-----------
RATIFICATION AND APPROVAL OF INDEMNIFICATION AGREEMENTS
General:
- --------
Pursuant to authority granted by its Board of
Directors, the Company has entered into separate
indemnification agreements (the "Indemnification
Agreements"), each in the form attached hereto as Appendix
A, with its directors and non-director officers at the level
of Vice President and above. The Board believes that the
Indemnification Agreements are in the best interests of the
Company and its shareholders. In the Board's view, it is
extremely important for the Company to continue to be able
to retain and attract responsible and well-qualified
individuals to serve as its directors and officers. At the
same time, the Board feels that the Company's ability in
this regard is threatened by a growing risk of litigation
directed against corporate directors and officers generally,
and the difficult market for directors' and officers'
liability insurance, in which the available coverage is more
limited than in the past and the cost of which has increased
substantially. The Indemnification Agreements will, in the
Board's opinion, enhance the Company's ability to retain and
attract well-qualified directors and officers. At the
present time, no director has indicated that he will resign
as a director because of this problem.
Although shareholder approval of the Indemnification
Agreements is not required by law, the Board of Directors
considers it appropriate to submit the Indemnification
Agreements to the shareholders of the Company for their
ratification and approval, because the members of the Board
are parties to the agreements and, therefore the
beneficiaries of the rights contained in, the
Indemnification Agreements.
In the event shareholder approval is not received, the
Company's directors and officers would continue to have
indemnification rights provided by the Indemnification
Agreements, Oregon Revised Statutes (ORS 60.387 through
60.414), Articles of Incorporation, Bylaws and the Company's
directors' and officers' insurance policy, if any.
In the case of persons who from time to time in the
future become members of the Board of Directors or senior
officers of the Company, the Board anticipates that
Indemnification Agreements substantially in the form of
Appendix A hereto will, be entered into with such new
directors and officers, subject to being authorized by the
Board. A shareholder of the Company may be estopped from
making a claim that such agreements entered into by the
Company with directors and officers of the Company are
invalid, if the shareholder votes in favor of such
ratification and approval.
The Indemnification Agreements become effective upon
their execution and delivery and will, in accordance with
their terms, provide indemnification protection to the
Company's directors and officers who are parties thereto,
with respect to actions, suits and proceedings threatened or
commenced before, as well as after, such date. The Board of
Directors knows of no threatened, pending or completed
action, suit or proceeding to which the Indemnification
Agreements would apply. The Indemnification Agreements do
not extend to acts from which a director may not be relieved
of liability under applicable law, claims initiated by a
director, assertions not made in good faith or that are
frivolous, and claims arising from violations of Section
16(b) of the Securities and Exchange Act of 1934, as
amended.
The Company has no present plans to provide
indemnification protection to its directors and officers
beyond that provided by existing indemnification and
insurance protection and the Indemnification Agreements.
Existing Indemnification and Insurance Protection Apart From
- ------------------------------------------------------------
Indemnification Agreements
- --------------------------
Apart from the Indemnification Agreements, the Company
currently affords protection, by means of indemnification
and insurance, to its directors and officers. The Company
is incorporated under Oregon Law. Sections 60.387 through
60.414 of the Oregon Revised Statutes ("ORS") provide a
statutory framework covering indemnification of directors
and officers against liabilities and expenses arising out of
legal proceedings brought against them by reason of their
status or service as directors and officers. Article VII of
the Company's Articles of Incorporation also provides that
the Company shall indemnify its directors and officers to
the fullest extent permitted by Oregon Law.
The Corporation's Articles of Incorporation, Article
VII, and Bylaws, Section 9, provide that a director of the
Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
corporation or its shareholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or
a knowing violation of the law, (iii) for any unlawful
distribution under ORS 60.367, or (iv) for any transaction
from which the director derived an improper personal
benefit. The Articles and Bylaws also provide that the
Corporation will indemnify, to the fullest extent not
prohibited by law, any current or former director of the
Corporation who is made, or threatened to be made, a party
to an action, suit or proceeding by reason of the fact that
such person is or was a director, officer, employee or agent
of the Corporation of a fiduciary within the meaning of the
Employee Retirement Income Security Act of 1974 with respect
to any employee benefit plan of the Corporation, or serves
or served at the request of the Corporation as a director,
officer, employee or agent, or as a fiduciary of an employee
benefit plan, of another corporation, partnership, joint
venture, trust or other enterprise.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS
PROPOSAL. The affirmative vote of the holders of a majority
of the shares of Common Stock represented at the annual
meeting will be required for adoption of the proposal by the
shareholders.
The Board of Directors of the Company has the ability
to authorize the execution of Indemnification Agreements
without submitting such agreements to a shareholder vote.
The Board has determined that, in light of the nature of the
agreements and their potential effect of being viewed as
self-dealing, the shareholders should be provided with the
opportunity to approve such agreements. In the event that
the shareholders do not approve this Proposal, the Board of
Directors will exercise its authority to ratify and execute
the agreements as set forth herein.
PROPOSAL V
----------------
RATIFICATION AND APPROVAL OF APPOINTMENT OF
PRICEWATERHOUSECOOPERS, LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers
LLP as the Company's independent auditors for the fiscal
year ended March 31, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS
PROPOSAL. The affirmative vote of the holders of a majority
of the shares of Common Stock represented at the Annual
Meeting will be required for adoption of the proposal by the
shareholders.
DISCRETIONARY AUTHORITY
-----------------------
Although the Notice of Annual Meeting of Shareholders
provides for transaction of any business that properly comes
before the meeting, the Board of Directors has no knowledge
of any matters to be presented at the meeting other than
those referred to herein. The enclosed proxy, however,
gives discretionary authority if any other matters are
presented.
SHAREHOLDER PROPOSALS
---------------------
Any proposal of a shareholder intended to be presented
at the Company's 2000 Annual Meeting of Shareholders must be
received by the President of the Company for possible
inclusion in the Company's Proxy Statement, and notice of
meeting relating to that meeting by January 22, 2000.
Shareholder proposals must be made in compliance with
applicable legal requirements promulgated by the Securities
and Exchange Commission and be furnished to the President by
certified mail, return receipt requested.
COSTS OF SOLICITATION
---------------------
The entire cost of solicitation of proxies by the
Board of Directors will be borne by the Company. In
addition, to the use of the mails, proxies may be
solicited by personal interview, facsimile, telephone and
telegram by directors, officers and employees of the
Company. The Company expects to reimburse brokers or other
persons for their reasonable out-of-pocket expenses in
forwarding proxy material to beneficial owners.
YOU ARE URGED TO SIGN AND RETURN YOUR PROXY PROMPTLY TO
MAKE CERTAIN YOUR SHARES WILL BE VOTED AT THE 1999 ANNUAL
MEETING. FOR YOUR CONVENIENCE, A RETURN ENVELOPE IS
ENCLOSED.
By Order of the Board of Directors
Juanita Nelson
Secretary
June 21, 1999
PROXY
ELMER'S RESTAURANTS, INC.
Annual Meeting, August 5, 1999
PROXY SOLICITED BY BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints William W. Service,
Paul Welch, Corydon H. Jensen, Thomas C. Connor, Bruce
Davis, Richard Williams, Donald Woolley, and each of them,
proxies with power of substitution to vote on behalf of the
undersigned all shares which the undersigned may be entitled
to vote at the annual meeting of shareholders of Elmer's
Restaurants, Inc. (the "Company") on August 5, 1999 and any
adjournments thereof, with all powers that the undersigned
would possess if personally present, with respect to the
following:
1. Election of Directors
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
except as marked to vote for all
to the contrary nominees listed
below below
(Instructions: To withhold authority to vote for any
individual strike a line through the nominee's name below.)
William W. Service, Paul Welch, Corydon H. Jensen, Thomas C.
Connor, Bruce Davis, Richard Williams, and Donald Woolley.
2. A proposal to approve the Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY
3. A proposal to approve the 1999 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY
4. A proposal to ratify and approve the Indemnification
Agreements.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY
5. A proposal to approve and ratify the appointment of
PricewaterhouseCoopers, LLP, as the Company's independent
public accountants for the year ending March 31, 1999.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY
6. Transaction of any business that properly comes before
the meeting or any adjournments thereof. A majority of the
proxies or substitutes at the meeting may exercise all the
powers granted hereby.
(Continued and to be signed on the other side).
The shares represented by this proxy will be voted as
specified on the reverse hereof, but if no specification is
made, this proxy will be voted for the election of
directors. The proxies may vote in their discretion as to
other matters which may come before this meeting.
PROXY
Shares:.............................
Date: ________________________, 1999
____________________________________
Signature or Signatures
I PLAN TO ATTEND MEETING [ ] mark box.
COMMENTS/ADDRESS CHANGE
Please mark this box if you have written [ ]
comments/address change on the reverse side.
Please date and sign as name is imprinted hereon,
including designation as executor, trustee, etc., if
applicable. A corporation must sign its name by the
president or other authorized officer. When shares are held
by joint tenants, both should sign. The Annual Meeting of
Shareholders of Elmer's Restaurants, Inc. will be held on
Thursday, August 5, 1999, at 2:00 p.m., Pacific Daylight
Time, at Elmer's Pancake and Steak House, 9848 N. Whitaker
Road, Portland, Oregon 97217.
Please Note: Any shares of stock of the Company held in
the name of fiduciaries, custodians or brokerage houses for
the benefit of their clients may only be voted by the
fiduciary, custodian or brokerage house itself--the
beneficial owner may not directly vote or appoint a proxy to
vote the shares and must instruct the person or entity in
whose name the shares are held how to vote the shares held
for the beneficial owner. Therefore, if any shares of stock
of the Company are held in "street name" by a brokerage
house, only the brokerage house, at the instructions of its
client, may vote or appoint a proxy to vote the shares.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE
ENCLOSED ENVELOPE
/ FOLD AND DETACH HERE /
<PAGE>
APPENDIX A
ELMER'S RESTAURANTS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is
effective as of this ____ day of ______________, 19__, by
and between Elmer's Restaurants, Inc., an Oregon corporation
(the "Company" or "Elmer's"), and ________________
("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the
continued difficulty in obtaining liability insurance for
its directors, officers, employees, agents and fiduciaries,
the significant increases in the cost of such insurance and
the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize
the substantial increase in corporate litigation in general,
subjecting directors, officers, employees, agents and
fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has
been severely limited;
WHEREAS, Indemnitee does not regard the current
protection available as adequate under the present
circumstances, and the Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company
may not be willing to continue to serve in such capacities
without additional protection;
WHEREAS, the Company desires to attract and retain the
services of highly qualified individuals, such as
Indemnitee, to serve the Company and, in part, in order to
induce Indemnitee to continue to provide services to the
Company, wishes to provide for the indemnification and
advancing of expenses to Indemnitee to the maximum extent
permitted by law; and
WHEREAS, in view of the considerations set forth above,
the Company desires that effective upon consummation of the
Merger, Indemnitee shall be indemnified by the Company as
set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree
as follows:
(1) Indemnification
(a) Indemnification of Expenses. The Company
shall indemnify Indemnitee to the fullest extent permitted
by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made
a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or
alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that Indemnitee in good faith
believes might lead to the institution of any such action,
suit, proceeding or alternative dispute resolution
mechanism, whether civil, criminal, administrative,
investigative or other (hereinafter a "Claim") by reason of
(or arising in part out of) any event or occurrence related
to the fact that Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee,
agent or fiduciary of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of
any action or inaction on the part of Indemnitee while
serving in such capacity (hereinafter an "Indemnifiable
Event") against any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred
in connection with investigating, defending, being a witness
in or participating in (including on appeal), or preparing
to defend, be a witness in or participate in, any such
action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such
settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim
and any federal, state, local or foreign taxes imposed on
the Indemnitee as a result of the actual or deemed receipt
of any payments under this Agreement (collectively,
hereinafter "Expenses"), including all interest, assessments
and other charges paid or payable in connection with or in
respect of such Expenses. Such payment of Expenses shall be
made by the Company as soon as practicable but in any event
no later than five (5) days after written demand by
Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the
foregoing, (i) the obligations of the Company under Section
1(a) shall be subject to the condition that the Reviewing
Party (as described in Section 10(f) hereof) shall not have
determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in Section 1(c) hereof
is involved) that Indemnitee would not be permitted to be
indemnified under applicable law, and (ii) the obligation of
the Company to make an advance payment of Expenses to
Indemnitee pursuant to Section 2(a) (an "Expense Advance")
shall be subject to the condition that, if, when and to the
extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable
law, the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for
all such amounts theretofore paid; provided, however, that
if Indemnitee has commenced or thereafter commences legal
proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under
applicable law, any determination made by the Reviewing
Party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company
for any Expense Advance until a final judicial determination
is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be
charged thereon. If there has not been a Change in Control
(as defined in Section 10(c) hereof), the Reviewing Party
shall be selected by the Board of Directors, and if there
has been such a Change in Control (other than a Change in
Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately
prior to such Change in Control), the Reviewing Party shall
be the Independent Legal Counsel referred to in Section 1(c)
hereof. If there has been no determination by the Reviewing
Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in
whole or in part under applicable law, Indemnitee shall have
the right to commence litigation seeking an initial
determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof,
including the legal or factual bases therefor, and the
Company hereby consents to service of process and to appear
in any such proceeding. Any determination by the Reviewing
Party otherwise shall be conclusive and binding on the
Company and Indemnitee.
(c) Change in Control. The Company agrees that if
there is a Change in Control of the Company (other than a
Change in Control which has been approved by a majority of
the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with
respect to all matters thereafter arising concerning the
rights of Indemnitee to payments of Expenses and Expense
Advances under this Agreement or any other agreement or
under the Company's Certificate of Incorporation or Bylaws
as now or hereafter in effect, Independent Legal Counsel (as
defined in Section 10(d) hereof) shall be selected by
Indemnitee and approved by the Company (which approval shall
not be unreasonably withheld). Such counsel, among other
things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent Indemnitee would
be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees
to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify such counsel
against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating
to this Agreement or its engagement pursuant hereto.
(d) Mandatory Payment of Expenses.
Notwithstanding any other provision of this Agreement other
than Section 9 hereof, to the extent that Indemnitee has
been successful on the merits or otherwise, including,
without limitation, the dismissal of an action without
prejudice, in defense of any action, suit, proceeding,
inquiry or investigation referred to in Section 1(a) hereof
or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses
incurred by Indemnitee in connection therewith.
(2) Expenses; Indemnification Procedure
(a) Advancement of Expenses. The Company shall
advance all Expenses incurred by Indemnitee. The advances
to be made hereunder shall be paid by the Company to
Indemnitee as soon as practicable but in any event no later
than five (5) days after written demand by Indemnitee
therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee
shall, as a condition precedent to Indemnitee's right to be
indemnified under this Agreement, give the Company notice in
writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be
directed to the Chief Executive Officer of the Company at
the address shown on the signature page of this Agreement
(or such other address as the Company shall designate in
writing to Indemnitee). In addition, Indemnitee shall give
the Company such information and cooperation as it may
reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For
purposes of this Agreement, the termination of any Claim by
judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere,
or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct
or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have
made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief,
nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination
that Indemnitee should be indemnified under applicable law,
shall be a defense to Indemnitee's claim or create a
presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief.
In connection with any determination by the Reviewing Party
or otherwise as to whether the Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the
receipt by the Company of a notice of a Claim pursuant to
Section 2(b) hereof, the Company has liability insurance in
effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the
insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result
of such action, suit, proceeding, inquiry or investigation
in accordance with the terms of such policies.
(e) Selection of Counsel. In the event the
Company shall be obligated hereunder to pay the Expenses of
any Claim the Company, if appropriate, shall be entitled to
assume the defense of such Claim with counsel approved by
Indemnitee, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any
fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee
shall have the right to employ Indemnitee's counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the
employment of counsel by Indemnitee has been previously
authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct
of any such defense, or (C) the Company shall not continue
to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's counsel shall be at the expense
of the Company.
(3) Additional Indemnification Rights; Nonexclusivity
(a) Scope. The Company hereby agrees to indemnify
the Indemnitee to the fullest extent permitted by law,
notwithstanding that such indemnification is not
specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the
Company's Bylaws or by statute. In the event of any change
after the date of this Agreement in any applicable law,
statute or rule which expands the right of an Oregon
corporation to indemnify a member of its board of directors
or an officer, employee, agent or fiduciary, it is the
intent of the parties hereto that Indemnitee shall enjoy by
this Agreement the greater benefits afforded by such change.
In the event of any change in any applicable law, statute or
rule which narrows the right of an Oregon corporation to
indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, such change, to the extent not
otherwise required by such law, statute or rule to be
applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder
except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided
by this Agreement shall be in addition to any rights to
which Indemnitee may be entitled under the Company's
Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested directors, [Title 7
of] the Oregon Revised Statutes of the State of Oregon, or
otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity
even though Indemnitee may have ceased to serve in such
capacity.
(4) No Duplication of Payments. The Company shall not be
liable under this Agreement to make any payment in
connection with any Claim made against Indemnitee to the
extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation,
Bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.
(5) Partial Indemnification. If Indemnitee is entitled
under any provision of this Agreement to indemnification by
the Company for some or a portion of Expenses incurred in
connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to
which Indemnitee is entitled.
(6) Mutual Acknowledgment. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or
applicable public policy may prohibit the Company from
indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken
or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to
indemnify Indemnitee.
(7) Liability Insurance. To the extent the Company
maintains liability insurance applicable to directors,
officers, employees, agents or fiduciaries, Indemnitee shall
be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company's directors, if
Indemnitee is a director, or of the Company's officers, if
Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but
is a key employee, agent or fiduciary.
(8) Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant
to the terms of this Agreement:
(a) Excluded Actions or Omissions. To indemnify
Indemnitee for acts, omissions or transactions from which
Indemnitee may not be relieved of liability under applicable
law.
(b) Claims Initiated by Indemnitee. To indemnify
or advance expenses to Indemnitee with respect to Claims
initiated or brought voluntarily by Indemnitee and not by
way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement
or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating
to Claims for Indemnifiable Events, (ii) in specific cases
if the Board of Directors has approved the initiation or
bringing of such Claim, or (iii) as otherwise required under
Title 7 of the Oregon Revised Statutes, regardless of
whether Indemnitee ultimately is determined to be entitled
to such indemnification, advance expense payment or
insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee
for any expenses incurred by the Indemnitee with respect to
any proceeding instituted by Indemnitee to enforce or
interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions
made by the Indemnitee in such proceeding was not made in
good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify
Indemnitee for expenses and the payment of profits arising
from the purchase and sale by Indemnitee of securities in
violation of Section 16(b) of the Securities Exchange Act of
1934, as amended, or any similar successor statute.
(9) Period of Limitations. No legal action shall be
brought and no cause of action shall be asserted by or in
the right of the Company against Indemnitee, Indemnitee's
estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or
cause of action of the Company shall be extinguished and
deemed released unless asserted by the timely filing of a
legal action within such two-year period; provided, however,
that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period
shall govern.
(10) Construction of Certain Phrases
(a) For purposes of this Agreement, references to
the "Company" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
officers, employees, agents or fiduciaries, so that if
Indemnitee is or was a director, officer, employee, agent or
fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a
director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit
plan, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement
with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to
"other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes
assessed on Indemnitee with respect to an employee benefit
plan; and references to "serving at the request of the
Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes
duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee
benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to
in this Agreement.
(c) For purposes of this Agreement a "Change in
Control" shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended), other
than a trustee or other fiduciary holding securities under
an employee benefit plan of the Company or a corporation
owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company
representing more than 20% of the total voting power
represented by the Company's then outstanding Voting
Securities; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director
whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a
vote of at least two thirds (2/3) of the directors then
still in office who either were directors at the beginning
of the period or whose election or nomination for election
was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of
the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or
consolidation which would result in the Voting Securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at
least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation,
or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of (in one transaction or
a series of transactions) all or substantially all of the
Company's assets.
(d) For purposes of this Agreement, "Independent
Legal Counsel" shall mean an attorney or firm of attorneys,
selected in accordance with the provisions of Section 1(c)
hereof, who shall not have otherwise performed services for
the Company or Indemnitee within the last three years (other
than with respect to matters concerning the rights of
Indemnitee under this Agreement, or of other indemnitees
under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing
Party" shall mean any appropriate person or body consisting
of a member or members of the Company's Board of Directors
or any other person or body appointed by the Board of
Directors who is not a party to the particular Claim for
which Indemnitee is seeking indemnification, or Independent
Legal Counsel.
(f) For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company that
vote generally in the election of directors.
(11) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an
original.
(12) Binding Effect; Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to
all or substantially all of the business and/or assets of
the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a
substantial part, of the business and/or assets of the
Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no
such succession had taken place. This Agreement shall
continue in effect regardless of whether Indemnitee
continues to serve as a [director/officer] of the Company or
of any other enterprise at the Company's request.
(13) Attorneys' Fees. In the event that any action is
instituted by Indemnitee under this Agreement or under any
liability insurance policies maintained by the Company to
enforce or interpret any of the terms hereof or thereof,
Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee with respect to such action,
regardless of whether Indemnitee is ultimately successful in
such action, and shall be entitled to the advancement of
Expenses with respect to such action, unless as a part of
such action a court of competent jurisdiction over such
action determines that each of the material assertions made
by Indemnitee as a basis for such action were not made in
good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all
Expenses incurred by Indemnitee in defense of such action
(including costs and expenses incurred with respect to
Indemnitee's counterclaims and crossclaims made in such
action), and shall be entitled to the advancement Expenses
with respect to such action, unless as a part of such action
a court having jurisdiction over such action determines that
each of Indemnitee's material defenses to such action were
made in bad faith or were frivolous.
(14) Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and
shall be deemed duly given (i) if delivered by hand and
signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or
registered mail with postage prepaid, on the third business
day after the date postmarked. Addresses for notice to
either party are as shown on the signature page of this
Agreement, or as subsequently modified by written notice.
(15) Consent to Jurisdiction. The Company and Indemnitee
each hereby irrevocably consent to the jurisdiction of the
courts of the State of Oregon for all purposes in connection
with any action or proceeding which arises out of or relates
to this Agreement and agree that any action instituted under
this Agreement shall be commenced, prosecuted and continued
only in the State of Oregon, which shall be the exclusive
and only proper forum for adjudicating such a claim.
(16) Severability. The provisions of this Agreement shall
be severable in the event that any of the provisions hereof
(including any provision within a single section, paragraph
or sentence) are held by a court of competent jurisdiction
to be invalid, void or otherwise unenforceable, and the
remaining provisions shall remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent
possible, the provisions of this Agreement (including,
without limitations, each portion of this Agreement
containing any provision held to be invalid, void or
otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal
or unenforceable.
(17) Choice of Law. This Agreement shall be governed by and
its provisions construed and enforced in accordance with the
laws of the State of Oregon, as applied to contracts between
Oregon residents, entered into and to be performed entirely
within the State of Oregon, without regard to the conflict
of laws principles thereof.
(18) Subrogation. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of
such payment to all of the rights of recovery of Indemnitee,
who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to
enable the Company effectively to bring suit to enforce such
rights.
(19) Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be
effective unless it is in writing signed by both the parties
hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
(20) Integration and Entire Agreement. This Agreement sets
forth the entire understanding between the parties hereto
and supersedes and merges all previous written and oral
negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties
hereto.
(21) No Construction as Employment Agreement. Nothing
contained in this Agreement shall be construed as giving
Indemnitee any right to be retained in the employ of the
Company or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
ELMER'S RESTAURANTS, INC.
By:
Title:
Address:
______
AGREED TO AND ACCEPTED
INDEMNITEE:
(Signature)
(Name of Indemnitee)
(Address)
<PAGE>
APPENDIX B
ELMER'S RESTAURANTS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to
promote the interests of Elmer's Restaurants, Inc., an
Oregon corporation, by providing eligible employees with the
opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction
based employee stock purchase plan designed to qualify under
Section 423 of the Code.
Capitalized terms herein shall have the meanings
assigned to such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board or a
Committee constituted thereunder ("Committee"), which may
engage or appoint such persons, entities or agents ("Plan
Administrator") as it shall deem advisable to assist in the
administration of the Plan. The Board may from time to time
appoint or dismiss members of the Committee. A majority of
the members of the Board shall constitute a quorum and the
acts of the majority of the members present at a meeting or
the consent in writing signed by all the members of the
Board or Committee shall constitute the acts of the Board or
Committee. The Committee shall be vested with full
authority to make, administer, and interpret such rules and
regulations as it deems necessary to administer the Plan,
and any determination, decision, or action of the Committee
in connection with the construction, interpretation,
administration or application of the Plan shall be final,
conclusive, and binding upon all parties including the
Company, the Participants and any and all persons that claim
rights or interests under or through, a Participant. The
Committee may delegate all or part of its authority to one
or more of its members. The Plan Administrator shall have
full authority to interpret and construe any provision of
the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to
comply with the requirements of Code Section 423. Decisions
of the Plan Administrator shall be final and binding on all
parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be
shares of authorized but unissued or reacquired Common
Stock, including shares of Common Stock purchased on the
open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not
exceed(100,000) shares.
B. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and
class of securities issuable under the Plan, (ii) the
maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number
and class of securities and the price per share in effect
under each outstanding purchase right in order to prevent
the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for
purchase under the Plan through a series of successive
offering periods until such time as (i) the maximum number
of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have
been sooner terminated.
B. The initial offering period shall commence as of
the Effective Time of the Plan and shall continue until July
31, 2001. Thereafter, each successive offering period shall
be of 24 months duration. The next offering period shall
commence on the first business day in August 2001, and
subsequent offering periods shall commence as designated by
the Plan Administrator. Notwithstanding the above, the Plan
Administrator may shorten the duration of any offering
period to less than twenty-four (24) months provided that
such action is taken prior to the start date of such
offering period.
C. Each offering period shall be comprised of a
series of one or more successive Purchase Intervals.
Purchase Intervals shall run from the first business day in
February each year to the last business day in July of the
same year and from the first business day in August each
year to the last business day in January of the following
year. Accordingly, and notwithstanding the prior sentence,
the first Purchase Interval in effect under the initial
offering period shall commence at the Effective Time and
terminate on the last business day in July 2000.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the
start date of any offering period under the Plan may enter
that offering period on such start date or on any subsequent
Semi-Annual Entry Date within that offering period, provided
he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible
Employee after the start date of an offering period may
enter that offering period on any subsequent Semi-Annual
Entry Date within that offering period on which he or she is
an Eligible Employee.
C. The date an individual enters an offering period
shall be designated his or her Entry Date for purposes of
that offering period.
D. To participate in the Plan for a particular
offering period, the Eligible Employee must complete the
enrollment forms prescribed by the Plan Administrator
(including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan
Administrator (or its designate) on or before his or her
scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the
Participant for purposes of acquiring shares of Common Stock
during an offering period may be any multiple of one percent
(1%) of the Base Salary paid to the Participant during each
Purchase Interval within that offering period, up to a
maximum of ten percent (10%). The deduction rate so
authorized shall continue in effect throughout the offering
period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction
to become effective or the next Purchase Interval after
filing the appropriate form with the Plan Administrator.
The Participant may not, however, effect more than one (1)
such reduction per Purchase Interval.
(ii) The Participant may, prior to the
commencement of any new Purchase Interval within the
offering period, increase the rate of his or her payroll
deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the ten
percent (10%) maximum) shall become effective on the start
date of the first Purchase Interval following the filing of
such form.
B. Payroll deductions shall begin on the first pay
day following the Participant's Entry Date into the offering
period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period.
The amounts so collected shall be credited to the
Participant's book account under the Plan, but no interest
shall be paid on the balance from time to time outstanding
in such account. The amounts collected from the Participant
shall not be held in any segregated account or trust fund
and may be commingled with the general assets of the
Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon
the termination of the Participant's purchase right in
accordance with the provisions of the Plan.
D. The Participant's acquisition of Common Stock
under the Plan on any Purchase Date shall neither limit nor
require the Participant's acquisition of Common Stock on any
subsequent Purchase Date, whether within the same or a
different offering period.
E. With respect to each payroll period during an
Offering Period, a Participant's authorized payroll
deductions shall be deducted from Pay only after all other
discretionary and nondiscretionary payroll deductions
attributable to such Participant have first been deducted
from Pay for such period. To the extent a Participant's Pay
after such discretionary and nondiscretionary payroll
deductions have been deducted is less than the Participant's
authorized payroll deduction, hereunder the Participant's
remaining Pay, if any, shall be credited on his behalf to
the Payroll Deduction Account and the difference between the
authorized and actual deduction shall be disregarded and
never deducted from payroll or credited to the Payroll
Deduction Account.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be
granted a separate purchase right for each offering period
in which he or she participates. The purchase right shall
be granted on the Participant's Entry Date into the offering
period and shall provide the Participant with the right to
purchase shares of Common Stock, in a series of successive
installments over the remainder of such offering period,
upon the terms set forth below. The Participant shall
execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as
the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted
under the Plan to any Eligible Employee if such individual
would, immediately after the grant, own (within the meaning
of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or
more of the total combined voting power or value of all
classes of stock of the Corporation or any Corporate
Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase
right shall be automatically exercised in installments on
each successive Purchase Date within the offering period,
and shares of Common Stock shall accordingly be purchased on
behalf of each Participant (other than Participants whose
payroll deductions have previously been refunded pursuant to
the Termination of Purchase Right provisions below) on each
such Purchase Date. The purchase shall be effected by
applying the Participant's payroll deductions for the
Purchase Interval ending on such Purchase Date to the
purchase of whole shares of Common Stock at the purchase
price in effect for the Participant for that Purchase Date.
Any cash dividends paid on Shares credited to the
Participant's account shall be automatically applied to
purchase, at Company expense, additional Shares from the
Company at the Fair Market Value (as herein defined) of such
Shares as of the business day immediately preceding the date
of purchase, or on the open market at the market price at
the time of purchase, and such additional shares shall be
credited to the Participant's account. The purchase price of
any shares ("Reinvestment Shares") purchased through the
reinvestment of dividends is determined as follows: (i) if,
with respect to any particular dividend payment, the Company
instructs its designated agent that any Reinvestment Shares
are to be purchased directly from the Company, the purchase
price of each such Reinvestment Share is the fair market
value of a share on the business day immediately preceding
the date of purchase; or (ii) if, with respect to any
particular dividend payment. the Company does not instruct
the agent to purchase Reinvestment Shares directly from the
Company, the agent will commingle all dividends paid on all
participants' shares held in the general securities
brokerage account and will purchase on the open market, or
in privately negotiated transactions, as soon as reasonably
practicable after the receipt of the dividends. As many
shares of Common Stock of the Company as can be acquired
with such commingled dividends, and the purchase price of
each such Reinvestment Share is the average price paid by
the agent in purchasing all Reinvestment Shares for all
participants with the proceeds of such dividend payment.
There is allocated to each participant's individual
subaccount such participant's pro rata portion of the shares
purchased with the commingled funds. The Company pays all
brokerage fees and expenses of the agent in connection with
the reinvestment of dividends.
C. PURCHASE PRICE. The purchase price per share at
which Common Stock will be purchased on the Participant's
behalf on each Purchase Date within the offering period
shall not be less than eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock
on the Participant's Entry Date into that offering period or
(ii) the Fair Market Value per share of Common Stock on that
Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of
shares of Common Stock purchasable by a Participant on each
Purchase Date during the offering period shall be the number
of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the
Purchase Interval ending with that Purchase Date by the
purchase price in effect for the Participant for that
Purchase Date but in no event may any Participant purchase
more than 2,500 shares on any Purchase Date.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions
not applied to the purchase of shares of Common Stock on
any Purchase Date because they are not sufficient to
purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date.
However, any payroll deductions not applied to the purchase
of Common Stock by reason of the limitation on the maximum
number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following
provisions shall govern the termination of outstanding
purchase rights:
(i) A Participant may, at any time prior to the
next scheduled Purchase Date in the offering period,
terminate his or her outstanding purchase right by filing
the appropriate form with the Plan Administrator (or its
designate), and no further payroll deductions shall be
collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected
during the Purchase Interval in which such termination
occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next
Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions
collected with respect to the terminated right shall be
refunded as soon as possible. An administrative fee not
exceeding $75 shall be applied by the Company against such
refund.
(ii) The termination of such purchase right shall
be irrevocable, and the Participant may not subsequently
rejoin the offering period for which the terminated purchase
right was granted. In order to resume participation in any
subsequent offering period, such individual must re-enroll
in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death,
disability or change in status) while his or her purchase
right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase
right so terminates shall be immediately refunded. However,
should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the
last business day of the Purchase Interval in which such
leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase
Interval or (b) have such funds held for the purchase of
shares on his or her behalf on the next scheduled Purchase
Date. In no event, however, shall any further payroll
deductions be collected on the Participant's behalf during
such leave. Upon the Participant's return to active
service, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the
leave began, unless the Participant withdraws from the Plan
prior to his or her return.
G. CORPORATE TRANSACTION. Each outstanding purchase
right shall automatically be exercised, immediately prior to
the effective date of any Corporate Transaction, by applying
the payroll deductions of each Participant for the Purchase
Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price
per share not less than eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock
on the Participant's Entry Date into the offering period in
which such Corporate Transaction occurs or (ii) the Fair
Market Value per share of Common Stock immediately prior to
the effective date of such Corporate Transaction. However,
the applicable limitation on the number of shares of Common
Stock purchasable per Participant shall continue to apply to
any such purchase.
The Corporation shall use its best efforts to provide
prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt
of such notice, have the right to terminate their
outstanding purchase rights prior to the effective date of
the Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total
number of shares of Common Stock to be purchased pursuant to
outstanding purchase rights on any particular date exceed
the number of shares then available for issuance under the
Plan, the Plan Administrator shall make a pro-rata
allocation of the available shares on a uniform and
nondiscriminatory basis, and the payroll deductions of each
Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to
such individual, shall be refunded.
I. ASSIGNABILITY. The purchase right shall be
exercisable only by the Participant and shall not be
assignable or transferable by the Participant.
J. SHAREHOLDER RIGHTS. A Participant shall have no
shareholder rights with respect to the shares subject to his
or her outstanding purchase right until the shares are
purchased on the Participant's behalf in accordance with the
provisions of the Plan and the Participant has become a
holder of record of the purchased shares. Notwithstanding
the preceding provisions of this Article or any other
provision to the contrary, no Shares shall be purchased
hereunder or credited to the Participant's account until the
Plan is approved by the shareholders of the Company
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights
to acquire Common Stock pursuant to any purchase right
outstanding under this Plan if and to the extent such
accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under
this Plan and (ii) similar rights accrued under other
employee stock purchase plans (within the meaning of Code
Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more
than Twenty-Five Thousand Dollars ($25,000) worth of stock
of the Corporation or any Corporate Affiliate (determined on
the basis of the Fair Market Value per share on the date or
dates such rights are granted) for each calendar year such
rights are at any time outstanding. Notwithstanding
anything herein to the contrary, the maximum number of
Shares that may be purchased by any Participant as of any
Offering Period shall be reduced to that number which, when
the voting power or value thereof is added to the total
combined voting power or value of all classes of shares of
capital stock of the Company or its Subsidiaries the person
is already deemed to hold (excluding any number of Shares
which such person would be entitled to purchase under the
Plan), is one share less than five percent (5%) of the total
combined voting power or value of all classes of shares of
capital stock of the Company or its Subsidiaries. For
purposes of the foregoing, the rules of Section 424(d) of
the Code shall apply. For purposes of the preceding
sentence, "fair market value" shall be the value as of the
date of grant of each such Offering and the rules of Section
423(b)(8) of the Code shall apply.
B. For purposes of applying such accrual limitations
to the purchase rights granted under the Plan, the following
provisions shall be in effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of
installments on each successive Purchase Date during the
offering period on which such right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the
Participant has already accrued in the same calendar year
the right to acquire Common Stock under one (1) or more
other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined
on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were
at any time outstanding.
C. If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a
particular Purchase Interval, then the payroll deductions
which the Participant made during that Purchase Interval
with respect to such purchase right shall be promptly
refunded.
D. In the event there is any conflict between the
provisions of this Article and one or more provisions of the
Plan or any instrument issued thereunder, the provisions of
this Article shall be controlling.
IX. EFFECTIVE TIME AND TERM OF THE PLAN
A. The Plan shall become effective at the Effective
Time, provided no purchase rights granted under the Plan
shall be exercised, and no shares of Common Stock shall be
issued hereunder, until (i) the Plan shall have been
approved by the shareholders of the Corporation and (ii) the
Corporation shall have complied with all applicable
requirements of the Securities Act (including the
registration of the shares of Common Stock issuable under
the Plan on a Form S-8 (or similar) registration statement
filed with the Securities and Exchange Commission), all
applicable listing requirements of any stock exchange (or
the NASDAQ National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable
requirements established by law or regulation. In the event
such shareholder approval is not obtained, or such
compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan
shall terminate and have no further force or effect, and all
sums collected from Participants during the initial offering
period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan
shall terminate upon the earliest of (i) the last business
day in July 2009, (ii) the date on which all shares
available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or
(iii) the date on which all purchase rights are exercised in
connection with a Corporate Transaction. No further
purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the
Plan following such termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the
Plan at any time to become effective immediately following
the close of any Purchase Interval. However, the Board may
not, without the approval of the Corporation's shareholders,
(i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares
purchasable per Participant on any one Purchase Date, except
for permissible adjustments in the event of certain changes
in the Corporation's capitalization, (ii) alter the purchase
price formula so as to reduce the purchase price payable for
the shares of Common Stock purchasable under the Plan or
(iii) materially increase the benefits accruing to
Participants under the Plan or materially modify the
requirements for eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the
administration of the Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the
Participant any right to continue in the employ of the
Corporation or any Corporate Affiliate for any period of
specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate
Affiliate employing such person) or of the Participant,
which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any
reason, with or without cause.
C. The provisions of the Plan shall be governed by the
laws of the State of Oregon without resort to that State's
conflict-of-laws rules.
D. No Participant shall be permitted to sell, assign,
transfer, pledge, or otherwise dispose of or encumber such
Participant's interest in the payroll deduction book account
or any rights to purchase or to receive Shares under the
Plan other than by will or the laws of descent and
distribution and such rights and interests shall not be
subject to a Participant's debts, contracts or liabilities.
If a Participant purports to make a transfer, or a third
party makes a claim in respect of a Participant's rights or
interests, whether by garnishment, levy, attachment or
otherwise, such purported transfer or claim shall be treated
as a withdrawal from the Plan.
E. As soon as reasonably practicable following
termination of a Participant's employment with the Company
or any of its Subsidiaries for any reason whatsoever,
including, but not limited to, by reason of death,
disability or retirement, (i) the amount credited to the
payroll deduction book account on behalf of the Participant
shall be returned to the Participant or the Participant's
beneficiary, as the case may be, subject to Article XI(F)
and (ii) the Participant's interest in the payroll deduction
book account shall be liquidated in the manner described
below. As part of the procedure to liquidate the
Participant's interest in the payroll deduction book
account, the Participant may elect in writing on a form
acceptable to the Committee and received by the Plan
Administrator by the deadline set by the Committee, to have
the number of Shares credited to the payroll deduction book
account on behalf of the Participant sold at the
Participant's expense and cash paid to the Participant, or
to have such Shares transferred to the Participant's
individual brokerage account established at the
Participant's expense. If the Participant does not request
a sale or transfer by the deadline established by the
Committee or requests to receive a stock certificate, a
certificate for the whole Shares credited to the payroll
deduction book account on his behalf will be issued to the
Participant and the Participant will receive cash for any
fractional Shares credited to the payroll deduction book
account on his behalf.
F. Notwithstanding any provision in this Plan to the
contrary, if the Plan is not approved by the shareholders
of the Company prior to or within twelve (12) months after
the Effective Date of the Plan, the balance of each
Participant's payroll deduction book account shall be
refunded in its entirety, without interest, as soon as
reasonably practicable. If an eligible employee terminates
employment after the Ending Date of any Offering but prior
to the approval of the Plan by the shareholders of the
Company, then such employee may elect in writing, on a form
acceptable to the Committee, which form must be received by
the Plan Administrator by the deadline set by the Committee,
to have the balance credited to the payroll deduction book
account on his behalf as of any such ending date retained
and applied to purchase Shares following the subsequent
approval of the Plan by the shareholders of the Company, or
returned to the employee at a later date in the event the
shareholders do not approve the Plan. If such election is
not timely made or if such employee elects to receive cash,
such employee shall receive the balance credited to payroll
deduction book account on his behalf as of any such ending
date as soon as reasonably practicable after the passage of
such deadline or making such election.
G. In the event of reorganization recapitalization,
stock split, stock dividend, combination of' shares, merger,
consolidation, offerings of rights, or any other change in
the capital structure of the Company, the number, kind and
price of the shares that are available for purchase under
the Plan and the number of shares that an employee is
entitled to purchase shall be automatically adjusted to
reflect the change in capital structures provided, however,
that the Board shall retain the right to modify any such
adjustment in the manner it deems appropriate.
H. All notices or other communications by a
Participant under or in connection with the Plan including,
but not limited to enrollment agreements, shall be deemed to
have been duly given when received by the Plan Administrator
in the form prescribed.
I. Except as otherwise provided herein, this Plan
shall terminate at the earliest of the following:
(a) The date of the filing of a "Statement of
Intent to Dissolve" by the Company or the effective date of
a merger or consolidation wherein the Company is not to be
the surviving corporation, which merger or consolidation is
not between or among corporations affiliated with the
Company;
(b) The date the Board acts to terminate the Plan;
or
(c) The date when all of the shares that were
reserved for issuance hereunder have been purchased.
Upon termination of the Plan, the Company shall refund
to each Participant the remaining amount credited to each
Participant's payroll deduction book account after all
purchases have been made.
J. The Plan is intended to provide Shares for
investment and not for resale. The Company does not,
however, intend to restrict or influence employee's affairs
beyond established Company policies. A current or former
Participant may therefore sell Shares that are purchased
under the Plan at any time at his expense but, in any event,
no earlier than six months after the Shares have been
purchased and, subject to compliance with any federal or
state securities laws and Company policies. Each current
and former Participant assumes the risk of any market
fluctuations in the price of the Shares. Each current or
former Participant must notify the Company of any
disposition of Shares purchased under this Plan that is
described in Section 423(a)(1) of the Code, which is any
disposition within two years after the date of grant of the
option to purchase or any disposition within one year after
the transfer of the Shares to the Participant.
K. The Company's obligation to sell and deliver Shares
under this Plan is subject to any Governmental approval that
is required in connection with the authorization, issuance
or sale of such Shares.
IN WITNESS WHEREOF, Elmer's Restaurants, Inc. has
caused this Plan to be adopted effective as of February 18,
1999.
Elmer's Restaurants, Inc.
By:/s/ William W. Service
-------------------------
Title: Chief Executive Officer
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
APPENDIX
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the (i) regular base salary paid
to a Participant by one or more Participating Companies during
such individual's period of participation in one or more offering
periods under the Plan plus (ii) any pre-tax contributions made
by the Participant to any Code Section 401(k) salary deferral
plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate
Affiliate. The following items of compensation shall NOT be
included in Base Salary: (i) all overtime payments, bonuses,
commissions (other than those functioning as base salary
equivalents), profit-sharing distributions and other incentive-
type payments and (ii) any and all contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the
Participant's behalf by the Corporation or any Corporate
Affiliate under any employee benefit or welfare plan now or
hereafter established.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with
Code Section 424), whether now existing or subsequently
established.
F. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a
party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons
holding those securities immediately prior to such transaction,
or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean Elmer's Restaurants, Inc., an
Oregon corporation, and any corporate successor to all or
substantially all of the assets or voting stock of Elmer's
Restaurants, Inc. which shall by appropriate action adopt the
Plan.
H. EFFECTIVE TIME shall mean September 1, 1999 or the first
day of the month following approval of the Plan by the
shareholders of the Corporation. Any Corporate Affiliate which
becomes a Participating Corporation after such Effective Time
shall designate a subsequent Effective Time with respect to its
employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed
by a Participating Corporation on a basis under which he or she
is regularly expected to render more than twenty (20) hours of
service per week for more than five (5) months per calendar year
for earnings considered wages under Code Section 3401(a) and
shall have been so employed for a period of six months prior to
the Entry Date.
J. ENTRY DATE shall mean the date an Eligible Employee
first commences participation in the offering period in effect
under the Plan. The earliest Entry Date under the Plan shall be
the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the
following provisions:
(i) If the Common Stock is at the time traded on the
NASDAQ National or SmallCap Market, then the Fair Market Value
shall be the closing selling price per share of Common Stock on
the date in question, as such price is reported by the National
Association of Securities Dealers on the NASDAQ National or
SmallCap Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question
on the Stock Exchange determined by the Plan Administrator to be
the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which
such quotation exists.
L. SECURITIES ACT shall mean the Securities Act of 1933, as
amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the
Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and
such Corporate Affiliate or Affiliates as may be authorized from
time to time by the Board to extend the benefits of the Plan to
their Eligible Employees. The Participating Corporations in the
Plan as of the Effective Time are listed in attached Schedule A.
O. PAY means and includes (i) a Participant's regular
salary or earnings; (ii) a Participant's overtime pay and (iii)
bonuses designated by the Committee as being eligible to be used
to purchase Shares under this Plan. "Pay" shall not include any
other compensation, taxable or otherwise including without
limitation employee tips, moving/relocation expenses, imputed
income, option income, tax-gross-ups and taxable benefits.
P. PAYROLL DEDUCTIONS shall mean the Company's bookkeeping
entry that reflects the amount deducted from each Participant's
Pay for the purpose of purchasing Shares under the Plan, reduced
by amounts refunded to the Participant and amounts applied to
purchase Shares hereunder. Amounts deducted from each
Participant's Pay may be commingled with the general funds of the
Company. Except as otherwise stated, no interest shall be paid
or allowed on a Participant's payroll deductions.
Q. PLAN shall mean the Corporation's Employee Stock
Purchase Plan, as set forth in this document.
R. PLAN ADMINISTRATOR shall mean the committee of two (2)
or more Board members appointed by the Board to administer the
Plan.
S. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be the last
business day in January 2000.
T. PURCHASE INTERVAL shall mean each successive six (6)-
month period within the offering period at the end of which there
shall be purchased shares of Common Stock on behalf of each
Participant.
U. SEMI-ANNUAL ENTRY DATE shall mean the first business day
in February and August each year on which an Eligible Employee
may first enter an offering period.
V. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
<PAGE>
APPENDIX C
ELMER'S RESTAURANTS, INC.
1999 STOCK OPTION PLAN
1. Establishment, Purpose and Definitions
(a) Establishment. The Elmer's Restaurants, Inc. 1999
Stock Option Plan (the "Plan") is hereby adopted as of
February 18, 1999, subject to shareholder approval.
(b) Purpose. This Plan is established to encourage
employees, directors, officers, consultants, advisors and
affiliates of Elmer's Restaurants, Inc., an Oregon corporation
(the "Company"), and others who perform substantial or
significant services for the Company, to acquire an ownership
interest in the Company. The Plan is adopted in the belief that
providing employees, directors, officers, consultants and
advisors of the Company with a stake in the Company's successful
operation will act as an incentive to them to expand and improve
the profit position of the Company and will materially aid the
Company in obtaining and retaining such persons. The Company
intends that the Plan will stimulate the efforts of such persons
on the Company's behalf, will encourage such persons to provide
quality services to the Company, and will foster in such persons
a continuing, personal commitment to the Company.
(c) Effective Date. The Plan shall become effective as of
February 18, 1999 (the "Effective Date"). No Option granted
under the Plan shall become exercisable, however, until the Plan
is approved by the affirmative vote of the holders of a majority
of the shares of the Common Stock ("Common Stock") of the Company
represented at a shareholders meeting at which a quorum is
present and any such grant under the Plan prior to such approval
shall be conditioned on and subject to such approval. Subject to
this limitation, options may be granted under the Plan at any
time after the Effective Date and before termination of the Plan.
(d) Duration. The Plan shall continue in effect until all
shares available for issuance under the Plan have been issued.
The Board may suspend or terminate the Plan at any time except
with respect to options then outstanding under the Plan.
Termination of the Plan shall not affect any outstanding options
under the Plan.
2. Administration
The Plan shall be administered by the Compensation Committee
("Committee") of the Board of Directors (the "Board") of the
Company, if any, or failing that, the entire Board and thereupon
all references to the Committee in this Plan shall be deemed to
apply to the Board. The Committee shall have authority to
establish such rules and regulations as it deems necessary for
the proper administration of the Plan, and to make such
determinations and to take all such actions in relation to the
Plan as it deems necessary or advisable, consistent with the
Plan. The Committee shall make recommendations to the Board,
which shall have full power to grant options, adopt and amend
rules and regulations relating to administration of the Plan,
advance the lapse of any waiting period, accelerate any exercise
date, waive or modify any restriction applicable to shares
(except those restrictions imposed by law), construe and
interpret the Plan,
<PAGE> Page 1 of 20
prescribe, amend and rescind rules and regulations relating to
the Plan and make all other determinations necessary or advisable
for administration of the Plan. The Board may correct any defect
or supply any omission or reconcile any inconsistency in the Plan
or in any related agreement in the manner and to the extent it
shall deem expedient to carry the Plan into effect, and it shall
be the sole and final judge of any such matter. The Committee
shall exercise its powers with respect to incentive stock options
only in a manner consistent with the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, or any successor
code (the "Code"). All decisions, determinations and
interpretations of the Committee shall be binding on all grantees
and shall be final and conclusive.
3. Eligibility
Full-time and part-time employees of the Company, including
affiliates, officers and directors of the Company, together with
consultants, advisors and other persons who provide substantial
or significant services to the Company and who are selected by
the Committee (in its sole discretion), shall be eligible to
participate in the Plan (the "Participants"). No member of the
Committee shall participate in any decision that affects him or
her personally and directly. The Board shall also determine, at
the time of grant, which options granted to employees of the
Company shall be treated as incentive stock options.
4. Options
Options under the Plan may be granted in any one, or a
combination of, the following: (a) Incentive Stock Options
("ISO") (or other statutory stock options) and (b) Nonqualified
Stock Options ("NSO") (together, "Options" or "Stock Options").
All Options shall be subject to the terms and conditions set
forth herein and to such other terms and conditions as may be
established by the Committee. Determinations by the Committee
under the Plan, including determinations of the Participants, the
form, amount and timing of Options, the terms and provisions of
Options, and the agreements evidencing Options, need not be
uniform and may be made selectively among Participants who
receive, or are eligible to receive, Options hereunder, whether
or not such Participants are similarly situated. At the
discretion of the Board, an individual may be given an election
to surrender an award in exchange for the grant of a new award.
No employee may be granted options under the Plan for more than
an aggregate of 100,000 shares of Common Stock in any calendar
year.
5. Exercise of Options
(a) General. The Committee shall establish and set forth in
each agreement that evidences an Option the time at which or the
installments in which the Option shall vest and become
exercisable, which provisions may be waived or modified by the
Committee at any time. If not so established in the agreement
evidencing the Option, the Option will vest and become
exercisable according to the following schedule, which may be
waived or modified, including but not limited to providing for
the acceleration of vesting upon the occurrence of certain events
as specified herein or failing that, the agreement evidencing the
Option, by the Committee at any time:
<PAGE> Page 2 of 20
<TABLE>
<S> <C>
Period of optionee's continuous
employment or service with the
company or its subsidiaries Percent of total Option
from the grant or vesting date that is vested and exercisable
- ------------------------------- ------------------------------
After One Year 20%
Each Full Year Thereafter 20%
At or After Five Years 100%
</TABLE>
To the extent that the right to purchase shares has accrued
thereunder, an Option may be exercised from time to time by
written notice to the Company, in accordance with procedures
established by the Plan Administrator, setting forth the number
of shares with respect to which the Option is being exercised and
accompanied by payment in full as described herein. The Committee
may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time (or the lesser number of
remaining shares covered by the Option).
(b) Special Acceleration. Notwithstanding any other
provisions of the Plan, a special acceleration ("Special
Acceleration") of options outstanding under the Plan shall occur
with the effect set forth in sub-paragraph 5(c) at any time when
any one of the following events has taken place:
(i) The shareholders of the Company approve one of the
following ("Approved Transactions"):
(A) Any consolidation, merger or plan of exchange
involving the Company ("Merger") pursuant to which Common Stock
would be converted into cash; or
(B) Any sale, lease, or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company or the adoption of
any plan or proposal for the liquidation or dissolution of the
Company; or
(ii) A tender or exchange offer, other than one made
by the Company, is made for Common Stock (or securities
convertible into Common Stock) and such offer results in a
portion of those securities being purchased and the offeror after
the consummation of the offer is the beneficial owner (as
determined pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), directly or
indirectly, of at least 25 percent of the outstanding Common
Stock (an "Offer"); or
(iii) The Company receives a report on Schedule 13D of
the Exchange Act reporting the beneficial ownership by any person
of 20 percent or more of the Company's outstanding Common Stock,
except that if such receipt shall occur during a tender offer or
exchange offer by any person other than the Company or a wholly
owned subsidiary of the Company, Special Acceleration shall not
take place until the conclusion of such offer; or
(iv) During any period of 12 months or less,
individuals who at the beginning of such period constituted a
majority of the Board cease for any reason to constitute a
majority thereof unless the nomination or election of such new
directors was approved by a vote
<PAGE> Page 3 of 20
of at least two thirds of the directors then still in office who
were directors at the beginning of such period.
The terms used in this paragraph 5 and not defined elsewhere
in the Plan shall have the same meanings as such terms have in
the Exchange Act and the rules and regulations adopted
thereunder.
(c) Effect on Outstanding Options. Upon a Special
Acceleration pursuant to sub-paragraph 5(b), all options then
outstanding under the Plan shall immediately become exercisable
in full for the remainder of their terms or until terminated
pursuant to termination provisions herein.
(d) Option Period and Limitations on Exercise. No
Option granted to a person who is required to file reports under
Section 16(a) of the Securities Exchange Act of 1934 (as now in
effect or as hereafter amended) shall be exercisable during the
first six months after the date of grant. Without limiting the
foregoing but subject to the terms and conditions of the Plan,
the Board may in its sole discretion provide that an Option may
not be exercised in whole or in part for any period or periods of
time during which such Option is outstanding and may condition
exercisability (or vesting) of an Option upon the attainment of
performance objectives, upon continued service, upon certain
events or transactions, or a combination of one or more of such
factors, or otherwise, as set forth in the Option Agreement.
Subject to the parachute payment restrictions under subparagraph
5(g) however, the Board, in its sole discretion, may rescind,
modify, or waive any such limitation or condition on the exercise
of an Option contained in any Option Agreement, so as to
accelerate the time at which the Option may be exercised or
extend the period during which the Option may be exercised.
Notwithstanding any other provisions of the Plan, no Option
granted to an Participant under the Plan shall be exercisable in
whole or in part prior to the date on which the stockholders of
the Company approve the Plan.
(e) Method of Exercise. An Option that is exercisable
hereunder may be exercised by delivery to the Company on any
business day, at the Company's principal office, addressed to the
attention of the President, of written notice of exercise, which
notice shall specify the number of shares with respect to which
the Option is being exercised and shall be accompanied by payment
in full of the Option price of the shares for which the Option is
being exercised. The minimum number of shares of Stock with
respect to which an Option may be exercised, in whole or in part,
at any time shall be the lesser of (i) 100 shares or such lesser
number set forth in the applicable Option Agreement and (ii) the
maximum number of shares available for purchase under the Option
at the time of exercise. Payment of the Option price for the
shares of Common Stock purchased pursuant to the exercise of an
Option shall be made (i) in cash or in cash equivalents; (ii) to
the extent permitted by applicable law and under the terms of the
Option Agreement with respect to such Option, through the tender
to the Company of shares of Common Stock, which shares shall be
valued, for purposes of determining the extent to which the
Option Price has been paid thereby, at their fair market value
(determined in accordance with paragraph 7) on the date of
exercise; (iii) to the extent permitted by applicable law and
under the terms of the Option Agreement with respect to such
Option, by the delivery of a promissory note of the person
exercising the Option to the Company on such terms as shall be
set out in such
<PAGE> Page 4 of 20
Option Agreement; (iv) to the extent permitted by applicable law
and under the terms of the Option Agreement with respect to such
Option, by causing the Company to withhold shares of Common Stock
otherwise issuable pursuant to the exercise of an Option equal in
value to the Option Price or portion thereof to be satisfied
pursuant to this clause (iv); or (v) by a combination of the
methods described in (i), (ii), (iii), and (iv). An attempt o
exercise any Option granted hereunder other than as set forth
above shall be invalid and of no force and effect. Payment in
full of the Option Price need not accompany the written notice of
exercise provided the notice directs that the stock certificate
or certificates for the shares for which the Option is exercised
be delivered to a licensed broker acceptable to the Company as
the agent for the individual exercising the Option and, at the
time such Stock certificate or certificates are delivered, the
broker tenders to the Company cash (or cash equivalents
acceptable to the Company) equal to the Option Price. Promptly
after the exercise of an Option and the payment in full of the
Option Price of the shares of Common Stock covered thereby, the
individual exercising the Option shall be entitled to the
issuance of a stock certificate or stock certificates evidencing
his ownership of such shares. A separate stock certificate or
separate stock certificates shall be issued for any shares
purchased pursuant to the exercise of an Option that is an ISO,
which certificate or certificates shall not include any shares
that were purchased pursuant to the exercise of an Option that is
an NSO. Unless otherwise stated in the applicable Option
Agreement, an individual holding or exercising an Option shall
have none of the rights of a stockholder (for example, the right
to receive cash or stock dividend payments attributable to the
subject shares or to direct the voting of the subject shares)
until the shares of Stock covered thereby are fully paid and
issued to him. Except as provided herein, no adjustment shall be
made for dividends or other rights for which the record date is
prior to the date of such issuance.
(f) Date of Grant. The date of grant of an Option
under this Plan shall be the date as of which the Board approves
the grant.
(g) Parachute Limitations. Notwithstanding any other
provision of this Plan or of any other agreement, contract, or
understanding heretofore or hereafter entered into by the
Participant with the Company, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or
excludes application of this paragraph (an "Other Agreement"),
and notwithstanding any formal or informal plan or other
arrangement for the direct or indirect provision of compensation
to the grantee (including groups or classes of participants or
beneficiaries of which the grantee is a member), whether or not
such compensation is deferred, is in cash, or is in the form of a
benefit to or for the grantee (a "Benefit Arrangement"), if the
grantee is a "disqualified individual," as defined in Section
280G(c) of the Code, any Option held by that grantee and any
right to receive any payment or other benefit under this Plan
shall not become exercisable or vested (i) to the extent that
such right to exercise, vesting, payment, or benefit, taking into
account all other rights, payments, or benefits to or for the
grantee under this Plan, all Other Agreements, and all Benefit
Arrangements, would cause any payment or benefit to the grantee
under this Plan to be considered a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code as then in effect (a
"Parachute Payment") and (ii) if, as a result of receiving a
Parachute Payment, the aggregate after-tax amounts received by
the grantee from the Company under this Plan, all Other
Agreements, and all Benefit Arrangements would be less than the
maximum after-tax amount that could be received by him without
causing any such
<PAGE> Page 5 of 20
payment or benefit to be considered a Parachute Payment. In the
event that the receipt of any such right to exercise, vesting,
payment, or benefit under this Plan, in conjunction with all
other rights, payments, or benefits to or for the grantee under
any Other Agreement or any Benefit Arrangement would cause the
grantee to be considered to have received a Parachute Payment
under this Plan that would have the effect of decreasing the
after-tax amount received by the grantee as described in clause
(ii) of the preceding sentence, then the grantee shall have the
right, in the grantee's sole discretion, to designate those
rights, payments, or benefits under this Plan, any Other
Agreements, and any Benefit Arrangements that should be reduced
or eliminated so as to avoid having the payment or benefit to the
grantee under this Plan be deemed to be a Parachute Payment.
6. Shares Available for Grant of Options
(a) Shares Subject to Issuance or Transfer. Subject to
adjustment as provided in Section 6(b) hereof, there is hereby
reserved for issuance under the Plan Three Hundred and Twenty
Thousand (320,000) of the Company's authorized and unissued
common shares, no par value (the "Common Shares"). The shares
issued under the Plan may be authorized and unissued shares or
reacquired shares. If an Option granted under the Plan expires,
terminates or is canceled, the unissued shares subject to such
Option shall again be available under the Plan. The number of
shares available for granting awards in any year shall be
increased by the number of shares as to which Options granted
under the Plan have lapsed, expired, terminated or been canceled
or reacquired.
(b) Recapitalization Adjustment. In the event of a
reorganization, recapitalization, stock split, stock dividend,
merger, reincorporation, combination of shares, rights offering,
or any other change in the corporate structure or shares of the
Company ("Corporate Transaction"), the Committee may make such
adjustment as it deems appropriate (to preserve the benefit) in
the number and kind of shares authorized by the Plan, in the
number and kind of shares covered by Options that were previously
granted, in the Option price, in the fair market value of the
Common Shares, or otherwise as the Committee determines to be
appropriate to effect the purposes of the Plan. If the Company is
not the surviving corporation in any merger or consolidation
every Option outstanding under the Plan shall terminate as of the
effective date of such merger or consolidation, unless the
surviving corporation issues a new Option therefor or assumes
(with appropriate changes) the existing Option.
7. Stock Options
The Committee may grant Options which shall be subject to
the following terms and conditions and such other terms and
conditions as the Committee may prescribe:
(a) Employment Requirement for Incentive Stock Options.
Incentive Stock Options under the Plan shall be granted only to
full or part-time employees of the Company ("an Employee").
(b) Option Exercise Price. The exercise price per share
with respect to each Stock Option shall be determined by the
Committee. In the case of Incentive Stock Options, the
<PAGE> Page 6 of 20
exercise price shall not be less than 100% of the fair market
value of the Common Shares on the date the Stock Option is
granted, as determined by the Committee, except that the exercise
price for an Incentive Stock Option granted to a holder of more
than ten percent (10%) of the Company's outstanding shares shall
be at least 110 percent of such fair market value, and its
exercise period shall expire no later than five years from the
date the Option is granted. The Option price for Non-Statutory
Stock Options may not be less than 85 percent of the fair market
value of the shares on the date of grant. The fair market value
shall be deemed to be the closing price of the Common Stock as
reported in The Wall Street Journal on the day preceding the date
the Option is granted, or if there has been no sale on that date,
on the last preceding date on which a sale occurred, or such
other value of the Common Stock as shall be specified by the
Board.
(c) Payment. The exercise price for Common Shares purchased
under an Option shall be paid in full to the Company (subject to
withholding tax obligations, if any) by delivery of consideration
equal to the product of the Option exercise price and the number
of Common Shares purchased. Such consideration must be paid as
set forth in paragraph 5(e). In addition, to the extent
permitted by the Committee in its sole discretion, the price for
Common Shares purchased under an Option may be paid, either
singly or in combination with one or more of the alternative
forms of payment authorized by this Section, by (y) a promissory
note delivered pursuant to Section 16 or (z) such other
consideration as the Committee may permit. No Common Shares shall
be issued until full payment for them has been made. A grantee
of a Stock Option shall have none of the rights of a shareholder
until a certificate representing the Common Shares is issued.
(d) Period of Option. The period for exercise of each
Stock Option shall be fixed by the Committee, but shall not
exceed 15 years from the date the Stock Option is granted. In the
case of Incentive Stock Options, the exercise period shall expire
no later than 10 years from the date the Option is granted. No
Incentive Stock Option shall be granted on or after the tenth
anniversary of the effective date of the Plan and no Incentive
Stock Option shall be exercisable after the expiration of 10
years from the date it is granted.
(e) Exercise of Option. Any Common Shares not purchased on
the applicable exercise date may be purchased thereafter at any
time prior to the final expiration of the Stock Option. In no
event (including those specified in paragraph (f) of this
Section) shall any Stock Option be exercisable after its
specified expiration period.
(f) Termination of Employment.
(i) General Rule. Unless otherwise determined by the
Board, in the event the employment or service of the optionee
with the Company or a subsidiary terminates for any reason other
than because of physical disability or death as provided in
subparagraphs 7(f)(ii) and (iii), the Option may be exercised at
any time prior to the expiration date of the Option or the
expiration of 30 days after the date of such termination,
whichever is the shorter period, but only if and to the extent
the optionee was entitled to exercise the Option at the date of
such termination; provided, however, that such right to exercise
shall terminate completely if not
<PAGE> Page 7 of 20
exercised within 60 days (90 days in the case of Incentive Stock
Options) of the effective date of such termination or later,
subject to the Board's discretion. If an Employee's employment is
terminated as a result of deliberate, willful or gross
misconduct, as determined by the Company, all rights under the
Stock Option shall expire upon receipt of the notice of such
termination.
(ii) Termination Because of Total Disability. Unless
otherwise determined by the Board, in the event of the
termination of employment or service because of total disability,
the Option may be exercised at any time prior to the expiration
date of the Option or the expiration of 12 months after the date
of such termination, whichever is the shorter period, but only if
and to the extent the optionee was entitled to exercise the
Option at the date of such termination. The term "total
disability" means a mental or physical impairment which is
expected to result in death or which has lasted or is expected to
last for a continuous period of 12 months or more and which
causes the optionee to be unable, in the opinion of the Company
and two independent physicians, to perform his or her duties as
an employee, director, officer or consultant of the Company and
to be engaged in any substantial gainful activity. Total
disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians have
furnished their opinion of total disability to the Company.
(iii) Termination Because of Death. Unless otherwise
determined by the Board, in the event of the death of an optionee
while employed by or providing service to the Company or a
subsidiary, the Option may be exercised at any time prior to the
expiration date of the Option or the expiration of 12 months
after the date of such death, whichever is the shorter period,
but only if and to the extent the optionee was entitled to
exercise the Option at the date of such termination and only by
the person or persons to whom such optionee's rights under the
Option shall pass by the optionee's will or by the laws of
descent and distribution of the state or country of domicile at
the time of death.
(iv) Amendment of Exercise Period Applicable to
Termination. The Board, at the time of grant or at any time
thereafter, may extend the 30-day and 12-month exercise periods
any length of time not later than the original expiration date of
the Option, and may increase the portion of an Option that is
exercisable, subject to such terms and conditions as the Board
may determine.
(v) Failure to Exercise Option. To the extent that
the Option of any deceased optionee or of any optionee whose
employment or service terminates is not exercised within the
applicable period, all further rights to purchase shares pursuant
to such Option shall cease and terminate.
(g) Limits on Incentive Stock Options. Except as may
otherwise be permitted by the Code, the aggregate fair market
value (determined at the times the options are granted) of the
shares with respect to which Incentive Stock Options are
exercisable for the first time by any grantee during any calendar
year (under all incentive stock option plans of the Company)
shall not exceed One Hundred Thousand Dollars ($100,000). The
Board may at any time without the consent of the optionee convert
an Incentive Stock Option to a Non-Statutory Stock Option.
<PAGE> Page 8 of 20
(h) Limits on Exercise Period for Incentive Stock Options.
To qualify for Incentive Stock Option tax treatment, an Option
granted hereunder and designated as an Incentive Stock Option
must be exercised within three months after termination of
employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such Option
must be exercised within one year after such termination.
Employment shall not be deemed to continue beyond the first
90 days of a leave of absence unless the grantee's reemployment
rights are guaranteed by statute or contract. For purposes of
this paragraph, "total disability" shall be as defined in
paragraph 7(f)(ii). Total disability shall be deemed to have
occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total
disability to the Plan Administrator.
(i) In order to obtain certain tax benefits afforded to
Incentive Stock Options under Section 422 of the Code, the
grantee must hold the shares issued upon the exercise of an
Incentive Stock Option granted hereunder for two years after the
grant date of the Incentive Stock Option and one year from the
date of exercise. A grantee may be subject to the alternative
minimum tax at the time of exercise of an Incentive Stock Option.
The Committee may require a grantee to give the Company prompt
notice of any disposition of shares acquired by the exercise of
an Incentive Stock Option prior to the expiration of such holding
periods.
(j) Repricing of Stock Options. The Committee may, in its
discretion, amend the terms of any Stock Option (with the consent
of the affected Participant) to provide that the Option exercise
price of the Common Shares remaining subject to the original
award shall be reestablished at a price to be selected by the
Committee;
