SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-1(c) or Rule 14a-12
National Health Enhancement Systems, Inc.
-----------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Jefferey Zywicki
-----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)((1) or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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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: _/
-----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------
_/ Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] 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:
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(4) Date Filed:
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<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
3200 North Central Avenue
Suite 1700
Phoenix, AZ 85012
- - --------------------------------------------------------------------------------
Notice of Annual Meeting of Stockholders
June 20, 1996
- - --------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
National Health Enhancement Systems, Inc. (the "Company") will be held on
Thursday, June 20, 1996, at 4:00 p.m., local time, at the Company's corporate
offices at 3200 North Central Avenue Phoenix, Arizona 85012, for the following
purposes:
1. To elect directors to serve for the ensuing year and/or until
their successors are elected and qualified.
2. To approve an amendment to the Company's 1988 Stock Option Plan .
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 26,
1996, as the record date for the determination of stockholders entitled to
receive notice of and to vote at the meeting or any adjournment thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, please mark, sign, date,
and return the enclosed proxy card as promptly as possible in the postage-paid
envelope provided for this purpose.
Your attention is directed to the attached Proxy Statement and the
Company's 1996 Annual Report.
By order of the Board of Directors,
JEFFREY T. ZYWICKI
Secretary
Phoenix, Arizona
May 28, 1996
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
3200 North Central Avenue
Suite 1750
Phoenix, AZ 85012
- - --------------------------------------------------------------------------------
PROXY STATEMENT
- - --------------------------------------------------------------------------------
This Proxy Statement is furnished by the Board of Directors of National
Health Enhancement Systems, Inc. ("the Company") in connection with the Annual
Meeting of Stockholders to be held on June 20, 1996, at 4:00 p.m. local time, at
the Company's corporate offices at 3200 North Central Avenue, Phoenix, Arizona
85012. The proxy materials were mailed on or about May 28, 1996, to stockholders
of record at the close of business on April 26, 1996.
A. SOLICITATION OF PROXIES
-----------------------
The enclosed proxy is solicited by the Board of Directors of the
Company. A person giving the enclosed proxy has the power to revoke it at any
time before it is exercised, by (i) attending the meeting and voting in person;
(ii) duly executing and delivering a proxy bearing a later date; or (iii)
sending a written notice of revocation to the principal offices of the Company.
If the enclosed proxy is properly executed and returned to the Company
in time to be voted at the meeting, it will be voted as specified on the proxy,
unless it is revoked prior thereto. If no specification is made in the proxy,
the shares represented by the proxy will be voted for the election of the
nominees for directors named below, in favor of the proposed amendment to the
1988 Stock Option Plan, in favor of the proposed amendment to the Certificate of
Incorporation and with respect to any other matters which may come before the
meeting, at the discretion of the proxy holders.
The Company will pay the entire cost of soliciting these proxies,
including charges and expenses of brokerage firms and others who forward
solicitation material to beneficial owners of Common Stock. This solicitation
will be by use of the mails and, without additional compensation, directors and
officers of the Company may solicit proxies by further mailing, personal
conversation or telephone.
B. VOTING SECURITIES
-----------------
As of May 6, 1996, the Company had outstanding 4,356,480 shares of its
Common Stock. Stockholders of record of Common Stock on the record date are
entitled to one vote for each share held of record on each matter of business to
be considered at the annual meeting.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the election inspectors appointed for the meeting, who will
determine whether or not a quorum is present. Abstentions will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any matter
1
<PAGE>
submitted to the stockholders for a vote. As a result, any abstentions with
respect to any such matter will have the effect of a negative vote. If a broker
indicated on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter (also called broker non-votes)
those shares will be counted for quorum purposes but will not be considered as
present and entitled to vote with respect to that matter.
With respect to the election of directors, votes may be cast in favor
or withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. When a quorum is present, directors are elected by a
plurality vote, meaning the five persons receiving the most shares voted in
their favor shall be elected as directors. For approval of the amendment to the
1988 Stock Option Plan and any other matters submitted to stockholders when a
quorum is present, the vote of the holders of a majority of the stock having
voting power present in person or represented by proxy at the Annual Meeting is
required.
C. STOCKHOLDER PROPOSALS
---------------------
If any stockholder of the Company wishes to submit a proposal to be
inserted in the proxy material for the Annual Meeting of the stockholders in
1997, such proposal must comply with the requirements of Rule 14a-8 under the
Securities Exchange Act of 1934, as amended, and must be received by the
Secretary of the Company on or before January 28, 1997. No stockholder proposals
were received by the Company for the June 1996 Annual Meeting of Stockholders.
D. BOARD OF DIRECTORS
------------------
The Board of Directors is responsible for the overall affairs of the
Company. Pursuant to Article III of the Company's Bylaws, the number of
directors comprising the Board of Directors shall be fixed from time to time by
resolution of the Board of Directors. As of the date hereof, the Board of
Directors consists of five directors.
During the fiscal year ended January 31, 1996, the Board of Directors
met on six occasions. No director serving during fiscal year 1996 attended fewer
than seventy-five percent (75%) of the aggregate of the total number of meetings
of the Board of Directors and the total number of meetings held by all
committees of the Board on which the director served. The Board of Directors has
an Audit Committee and a Compensation Committee. It does not have a nominating
committee or a committee performing the functions of a nominating committee.
The Audit Committee of the Board of Directors, currently consisting of
directors Gardiner S. Dutton and Steven D. Wood, met once during fiscal 1996.
The Audit Committee recommends engagement of the Company's independent auditors,
and is primarily responsible for reviewing the scope of the audit and other
services performed by the Company's independent auditors and for reviewing and
evaluating the Company's accounting principles.
The Compensation Committee of the Board of Directors, currently
consisting of directors Gardiner S. Dutton and James W. Myers, did not formally
meet during fiscal 1996. The Compensation Committee reviews and approves the
Company's executive compensation policy. All options granted during the year
were made by the Board of Directors.
2
<PAGE>
The present terms of Gregory J. Petras, John P. Delmatoff, Gardiner S.
Dutton, James W. Myers and Steven D. Wood, Ph.D., the current members of the
Board of Directors, expire upon the election and qualification of their
successors at the Annual Meeting. The Company has nominated all of the current
directors to stand for reelection. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for the Company's five nominees.
Information respecting the names, ages, terms, and business experience of these
current directors and nominees is set forth below:
<TABLE>
<CAPTION>
NAME AND EXPERIENCE AGE DIRECTOR
SINCE
<S> <C> <C>
Gregory J. Petras - Mr. Petras has served as the Chairman 45 1983
of the Company since March 1996 and as the President
and a Director of the Company since July 1983 and Chief
Executive Officer since January 31, 1986. He had served as
the Company's Treasurer from December 1984 to December
1986. From April 1982 until December 1985, Mr. Petras was
also Executive Vice-President of the Arizona Heart Institute, Ltd.
("Institute"). In such capacity, Mr. Petras was responsible for
planning, marketing, advertising, program development and general
operations at the Institute. From February 1979 until April 1982,
Mr. Petras was the Administrator responsible for the business
operations of the Institute. Prior to joining the Institute, Mr. Petras
was a Manager with the healthcare consulting division of Arthur
Andersen & Co. located in Phoenix, Arizona.
John P. Delmatoff - Mr. Delmatoff has served as a director since 49 1993
April 1993. He was one of two shareholders of First Strategic
Group, Ltd. ("FSG"), which merged into a subsidiary of the
Company, and served as its President. FSG is a consulting firm
which specializes in the development of healthcare marketing and
advertising strategies. Prior to his ownership and management of
FSG, Mr. Delmatoff was a principal of Delmatoff Gerow Morris
Langhans, Inc., an advertising agency.
Gardiner S. Dutton - Mr. Dutton has served as a director of the 65 1991
Company since November 1991. From December 1990 to November
1995 Mr. Dutton Served as President and Chief Executive Officer
of Bowmar Instrument Corporation based in Phoenix, Arizona. From
November 1980 until December 1990, Mr. Dutton was Chairman
and Chief Executive Officer of Inertia Dynamics of Phoenix, Arizona,
a company engaged in the manufacturing of lawn and garden products.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME AND EXPERIENCE AGE DIRECTOR
SINCE
<S> <C> <C>
James W. Myers - Mr. Myers has served as a director of the 61 1989
Company since March 1989. Mr. Myers is principal of Myers
Management & Capital Group, a Phoenix, Arizona consulting firm
founded in January, 1996. From May 1989 to December 1995
Mr. Myers was President and Chief Executive Officer of Myers Craig
Vallone Francois, Inc., a Phoenix, Arizona consulting and investment
banking firm founded in May, 1986. Mr. Myers is a current director
of Royal Grip, Inc. and ILX, Inc.
Steven D. Wood, Ph.D. - Dr. Wood has served as a director of 51 1989
the Company since March 1989. Dr. Wood served as Associate Dean
for Graduate Programs at Arizona State University from July
1983 to June 1988, and is currently a Professor of Decision
and Information Systems at Arizona State University's College
of Business. Dr. Wood has co-authored three books and
published over seventy-five articles in professional journals
and texts. Dr. Wood has been involved with the development
and packaging of services and products for health care providers
and is a principal with Health Services Marketing, Ltd., which
licenses health care programs to hospitals and major medical vendors.
</TABLE>
Director Compensation
---------------------
Each director who is not employed by the Company is paid an annual fee
of $9,000. Employee directors serve without additional compensation for their
services as a director. In addition, directors may be awarded options under the
Company's 1988 Stock Option Plan.
Messers. Dutton, Myers & Wood all received options to purchase 4,000
shares of Common Stock at an exercise price of $1.3125 per share on August 22,
1995. All options were granted pursuant to the terms and conditions of the 1988
Stock Option Plan, and the exercise price of each option was equal to the fair
market value of the Common Stock on the date of grant. To date, Mr. Delmatoff
has received no options.
E. PROPOSED AMENDMENT TO THE 1988 STOCK OPTION PLAN
At the Meeting there will be submitted to stockholders a proposal to
ratify the Board of Directors' decision and recommendation to increase, by
100,000 shares, the number of shares of Common Stock reserved for issuance under
the Company's 1988 Stock Option Plan (the "1988 plan"). All of the 100,000
shares may be issued as either incentive or non-incentive stock options as
determined by the Board of Directors as defined by the 1988 Plan. All share
amounts hereinafter set forth reflect giving effect for the Company's
two-for-one stock split in the form of a stock dividend to shareholders of
record on January 25, 1996.
The 1988 Plan, as adopted by the Company's stockholders on June 16,
1988, provided for an aggregate of 200,000 shares reserved for issuance
thereunder. On June 14, 1989, June 13, 1991, June
4
<PAGE>
11, 1992 and June 14, 1995, by majority vote, the stockholders approved an
additional 200,000, 500,000, 500,000 and 200,000 shares, respectively, for a
total of 1,600,000 shares reserved for issuance under the 1988 plan. As of
January 31, 1996, options covering an aggregate 1,256,000 of shares of Common
Stock had been granted under the 1988 Plan to 19 current employees (including 5
current officers) and 3 directors at an average exercise price of approximately
$.865 per share. The proposed increase by 100,000 shares would bring the total
number of shares presently available for issuance under the 1988 Plan to an
aggregate of 1,700,000 shares. Failure by stockholders to ratify the proposed
increase of the number of shares reserved for issuance under the 1988 Plan will
have no effect upon any outstanding options under the 1988 Plan.
The Board of Directors recommends a vote for the proposal. Unless
instructed to the contrary on Proxy cards that have been signed and returned,
the persons named on the enclosed Proxy will vote in favor of this proposal. The
affirmative vote of a majority of the Company's issued and outstanding shares of
capital stock having voting power present in person or by proxy at the Annual
Meeting is required for approval of this proposal.
5
<PAGE>
Principal Features of the Plan
The following summary of the Plan is provided herein.
Operation and Administration
- - ----------------------------
The 1988 Stock Option Plan was adopted to attract and retain the best
available directors and salaried employees for positions of substantial
responsibility in the Company. Under the Plan, key employees, officers and
directors and consultants of the Company or its subsidiaries may be granted
options giving such persons the right to purchase the number of shares of Common
Stock of the Company covered by the option at the price per share provided
therein.
The Plan provides that it may be administered by the Board of Directors
of the Company (the "Board"), or a committee of directors or others appointed by
the Board (any such committee appointed by the Board shall be referred to as the
"Committee"). The Plan is currently being administered by the Board, which is
elected annually by the shareholders of the Company. The Board or Committee
generally makes, within the express limits of the Plan, all decisions concerning
the administration, implementation and interpretation of the Plan, including the
number of shares and exercise price for options, the type of options and their
duration and the individuals to whom options will be granted.
The Plan expires on May 31, 1998, provided that the Board has not
earlier terminated the Plan. No option may be granted after termination of the
Plan, but any option outstanding on the date of termination will remain in
effect in accordance with its terms and conditions and those of the Plan.
The Board or Committee has the power to amend the Plan at any time and
may correct any defect or supply any omissions or reconcile any inconsistency in
the Plan or in any option in the manner and to the extent it shall deem
desirable to carry the Plan into effect without further action on the part of
the shareholders of the Company, provided, however, the Board or Committee may
not amend the Plan in any way which would adversely affect any outstanding
option or any unexercised option or any portion thereof. The Board made minor
corrections to the Plan in March of 1989 to correct typographical errors. In
addition, the Board or Committee may not, without the approval of the
stockholders of the Company, adopt amendments to increase the total number of
shares reserved for issuance thereunder (otherwise than pursuant to antidilution
adjustment provisions already included in the Plan), to change the class of
employees eligible to participate, to extend the term of the Plan or the maximum
option period or to decrease the minimum permissible exercise price for shares
optioned thereunder.
Securities to be Offered
- - ------------------------
Two types of stock options may be granted under the Plan: options
intended to qualify as Incentive Stock Options ("Incentive Stock Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); and
other options not specifically authorized or qualified for favorable income tax
treatment by the Code ("Nonqualified Stock Options").
6
<PAGE>
Effective June 11, 1992, the Plan was amended by the stockholders to
permit options to be granted to purchase up to an aggregate of 1,600,000 shares
of the Company's Common Stock. One-half of the authorized shares are reserved
for issuance of Incentive Stock Options, and one-half are reserved for issuance
of Nonqualified Stock Options. The Company is required to reserve and keep
available at all times a sufficient number of shares of its Common Stock to
satisfy the requirements of the options granted under the Plan (which shares may
be authorized but unissued or treasury shares). Proceeds from the sale of shares
pursuant to the Plan will be used for general corporate purposes of the Company.
The market value of the Common Stock, as of May 6, 1996, was $6.75 per share.
Participation in the Plan; Option Terms
- - ---------------------------------------
The Board or Committee is authorized to designate the individuals to be
granted options under the Plan. Persons so designated must be key employees or
officers or directors of the Company or any of its subsidiaries or Consultants.
There are currently approximately fifteen eligible employees as defined by the
Board of Directors, including officers and directors. "Consultant" is defined in
the Plan to mean any person who is engaged by the Company or any of its
subsidiaries as a consultant or advisor; provided that bona fide services shall
be rendered by consultants and advisors and such consultants and advisors are
compensated for these consulting services. Key employees who are not also
directors or officers may receive either Incentive Stock Options or Nonqualified
Stock Options. Directors and officers of the Company who are not also employees
and Consultants may receive only Nonqualified Stock Options. Directors and
officers of the Company and its subsidiaries who are also employees are eligible
to receive either Incentive Stock Options or Nonqualified Stock Options.
Subject to the express terms and conditions of the Plan, the Board or
Committee, in its discretion, determines the individuals to whom and the time or
times at which, options shall be granted, the type of option to be granted (i.e.
Incentive Stock Options or Nonqualified Stock Options), the number of shares to
be subject to each option, the duration of each option, the option price under
each option, and the time or times within which (during the term of the option)
all or portions of each option may be exercised. In making such determinations,
the Board or Committee may take into account the nature of the services rendered
by such individual or classes of individuals, their present and potential
contributions to the Company's success, and such other factors as the Board or
Committee in its discretion shall deem relevant.
The purchase price for the shares subject to an Incentive Stock Option
shall not be less than 100% of the fair market value of the stock on the date
the option is granted; provided, however, that the option price for an Incentive
Stock Option shall not be less than 110% of the fair market value of such stock
on the date the option is granted to an individual then owning more than 10% of
the total combined voting power of all classes of stock of the Company or any
subsidiary or parent corporation. The purchase price for shares subject to a
Nonqualified Stock Option shall be determined by the Board or the Committee in
its discretion. In no event shall the initial exercise price for any option be
less than the par value of stock subject to the option.
No options shall be exercisable after the expiration of the earliest of
(i) in the case of an Incentive Stock Option, ten years from the date the option
is granted or five years from the date the option is granted to an individual
owning at the time such Option was granted more than 10% of the total combined
voting power of all classes of stock of the Company or any subsidiary or parent
7
<PAGE>
corporation, (ii) in the case of a Nonqualified Stock Option, eleven years from
the date the option is granted, (iii) three months after the date the optionee's
employment with the Company or any of its subsidiaries terminates, if such
termination is for any reason other than permanent and total disability, death
or cause, (iv) the date the optionee's employment with the Company or any of its
subsidiaries terminates, if such termination is for cause, as determined by the
Board in its sole discretion, or (v) one year after the date the optionee's
employment with the Company or any of its subsidiaries terminates if such
termination is the result of death or permanent and total disability within the
meaning of Section 22(e)(3) of the Code. However, the option agreement for any
option may provide for shorter periods of exercisability in each of the
foregoing instances, in the Board of Director's discretion.
Certain Federal Income Tax Consequences
- - ---------------------------------------
Under the Internal Revenue Code (the "Code"), NonQualified Options
granted under the Plan will be taxed generally as follows. At the time of the
grant, the employee will not normally be required to recognize income. However,
the employee will recognize ordinary income upon exercise of the option in an
amount equal to the difference between (i) the fair market value of the shares
received at the date of exercise, and (ii) the option exercise price for those
shares. The Company will normally be entitled to a deduction for federal income
tax purposes at the same time that income is recognized by the employee, and in
an equal amount. Upon the optionee's disposition of the shares so acquired, the
optionee will ordinarily recognize long or short term capital gain or loss
(depending upon length of holding period) measured by the difference between the
optionee's (i) sales price and (ii) basis in such shares (generally the fair
market value of the shares on the date acquired by exercise of the option).
The grant of an Incentive Stock Option under the Plan does not cause
gain recognition to the optionee for federal income tax purposes. Furthermore,
in contrast to the Nonqualified Options, the optionee will not recognize gain on
the exercise of such an Incentive Stock Option if such optionee (1) remains
continuously employed by the Company or one of its subsidiary corporations (as
defined in Section 424 of the Code) beginning on the date of such Incentive
Stock Option grant and ending on the date three months before the exercise of
such option, and (2) makes no disposition of the shares so acquired within two
years after the grant nor within one year after the exercise of the option. In
the usual case, upon a sale of shares so acquired by a participant and held for
such periods, any amount realized in excess of the tax basis for the shares
(which is normally the option exercise price) is taxed as long-term capital gain
and any loss sustained is treated as a long-term capital loss. The Company is
not entitled to a federal income tax deduction with respect to either the grant
or the exercise of an Incentive Stock Option under the circumstances set forth
above. Failure to satisfy the statutory requirements with respect to employment,
exercise of the option or disposition of shares acquired will cause the
Incentive Stock Option to be treated generally like a Nonqualified stock option.
In such circumstances, the participant will recognize ordinary income on the
excess of the shares' fair market value at the time of exercise over the option
price, and the Company may normally deduct an amount equal to the ordinary
income recognized by such option holder; the participant's income and the
Company's deduction will be reported for the tax year in which the failure to
meet the Incentive Stock Option requirements occurs. However, if (i) a
participant disposes of such shares in violation of the holding period
requirements described above, (ii) the amount realized is less than the fair
market value at the time of exercise, and (iii) such disposition is a sale or
exchange with respect to which a loss (if sustained) would be recognized, the
amount which is includible in the participant's gross income attributable to the
option's exercise is limited to the excess
8
<PAGE>
(if any) of the amount realized on the sale or exchange over the adjusted basis
of such shares. Any proceeds in excess of the fair market value of the shares on
the date of exercise will generally be taxed to the participant as a capital
gain.
Issuances of Options Under the 1988 Stock Option Plan
- - -----------------------------------------------------
The following table sets forth certain information regarding options
received under the 1988 Stock Option Plan from its inception through January 31,
1996 by (i) the Company's executive officers named in the summary compensation
table below; (ii) all current executive officers as a group; (iii) all current
directors who are not executive officers as a group; (iv) each nominee for
election as a director; (v) each associate of any of such directors, executive
officers or nominees; (vi) each other person who has received 5% or more of such
options; and (vii) all employees as a group.
Name of Individual Aggregate Shares of Common Stock
or Group Subject to Options Granted
Through January 31, 1996
(adjusted for two for one
stock split.)
- - ------------------- --------------------------------
Gregory J. Petras 173,300
John P. Delmatoff -
Terri S. Langhans -
A. Neal Westermeyer 185,000
All Executive Officers as a Group 519,100
Gardiner S. Dutton 29,000
James W. Myers 53,000
Steve D. Wood Ph.D. 53,000
All Current Directors who are not Executive Officers 135,000
as a Group
All Employees as a Group 1,359,500
The amounts that would be receivable by the individuals or groups named in the
table above under the 1988 Stock Option Plan as proposed to be amended are not
determinable at this time.
F. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
---------------------------------------------------------------
The following table sets forth information, as of May 6, 1996,
concerning the equity securities of the Company owned by each director of the
Company, the executive officers of the Company named in the summary compensation
tables below, all directors and executive officers as a group, and by each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding equity securities of the Company:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND PERCENT
TITLE BENEFICIAL OWNER NATURE OF OF
OF BENEFICIAL CLASS
CLASS OWNERSHIP
----- ---------------- --------- -------
<S> <C> <C> <C>
Common Bisgrove Financial Management Limited Partnership(1) 500,000 11.5%
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
TITLE NAME OF AMOUNT AND PERCENT
OF BENEFICIAL OWNER(2) NATURE OF OF
CLASS BENEFICIAL CLASS
OWNERSHIP(3)
----- ------------------- ------------ -------
<S> <C> <C> <C>
Common Edward B. Diethrich, M.D. and 1,276,100 26.2%
Gloria B. Diethrich(4)
Common Gregory J. Petras(5) 755,764 16.8%
Common John P. Delmatoff 195,184 4.5%
Common Terri S. Langhans 195,184 4.5%
Common Gardiner S. Dutton(6) 77,000 1.8%
Common James W. Myers(7) 69,000 1.6%
Common Steven D. Wood, Ph.D.(8) 53,000 1.2%
Common All Directors and Executive Officers 1,699,198 33.3%
as a Group(9)
</TABLE>
1 The address for Bisgrove Financial Management Limited Partnership is US
West Building, 5090 N. 40th Street, Phoenix, Arizona.
2 The address for all executive officers and directors is c/o National
Health Enhancement Systems, Inc., Suite 1700, 3200 North Central Avenue,
Phoenix, Arizona 85012.
3 Includes shares under options exercisable on May 6, 1996, and options
which will become exercisable within 60 days thereafter.
4 The shares beneficially held by Dr. and Mrs. Diethrich are held under a
Revocable Trust Agreement dated May 8, 1974, the trustees of which are Dr. and
Mrs. Diethrich. This trust has sole voting and investment power and also holds
all of Dr. Diethrich's stock in The Arizona Heart Institute. The address for Dr.
and Mrs. Diethrich is Edward B. Diethrich, M.D. and Gloria B. Diethrich, P.O.
Box 10000, Phoenix, Arizona 85064.
5 The shares listed include 135,800 shares of Common Stock which Mr. Petras
has the right to acquire under options exercisable within 60 days.
6 The shares listed include 20,000 shares of Common Stock which Mr. Dutton
has the right to acquire under options exercisable within 60 days.
7 The shares listed include 49,000 shares of Common Stock which Mr. Myers
has the right to acquire under options exercisable with 60 days and 20,000
shares acquired by Myers Craig Vallone Francois, Inc. as a result of providing
services to the Company.
8 The shares listed include 42,000 shares of Common Stock which Dr. Wood
has the right to acquire under options exercisable within 60 days.
9 This group includes the five (5) directors of the Company and three (3)
executive officers who are not also directors, a group totaling eight (8)
persons.
10
<PAGE>
F. EXECUTIVE OFFICERS
------------------
Officers are elected annually by the Board of Directors and serve until
removed by the Board of Directors (with or without cause), resignation,
disqualification or until their successors are elected and qualify.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and any exchange on which the
shares trade. Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during fiscal year 1996,
all filings required by its officers, directors and greater than ten-percent
beneficial owners were timely filed.
1. Identification and Experience
-----------------------------
Information regarding the names, ages, terms, and positions with the
Company and business experience of the current executive officers and
significant employees is set forth as follows:
NAME AGE POSITION
- - ---- --- --------
John P. Delmatoff 49 Senior Vice President - Chief
Executive Officer of First
Strategic Group (a subsidiary
of the Company)
Richard W. Hill 51 Senior Vice President -
Information Systems
Terri S. Langhans 40 President and Chief
Operating Officer of First
Strategic Group (a subsidiary
of the Company)
Gregory J. Petras 46 Chairman, President and Chief
Executive Officer
A. Neal Westermeyer 58 Executive Vice President and
Chief Operating Officer
Jeffrey T. Zywicki 39 Senior Vice President - Finance,
Treasurer and Secretary
John P. Delmatoff. Mr. Delmatoff joined the Company on April 30, 1993, upon
the acquisition of First Strategic Group, Ltd. ("FSG"), serving as Senior Vice
President of the Company and Chief Executive Officer of FSG, now a subsidiary of
the Company. Prior to the merger of FSG, Mr.
11
<PAGE>
Delmatoff was one of two shareholders of that corporation and served as its
President from March 1993 to present. FSG is a strategic consulting agency which
specializes in the development of healthcare marketing and advertising
strategies. Previously, Mr. Delmatoff was a principal of Delmatoff Gerow Morris
Langhans Inc., an advertising agency. Mr. Delmatoff has over 15 years experience
in marketing and advertising, most of it in health care.
Richard W. Hill. Mr. Hill commenced employment with the Company in June
1989 as Senior Vice President of Information Systems. Prior to his employment
with the Company, Mr. Hill was a Senior Manager in the management consulting
division of Arthur Andersen & Co., a position he had held since 1983, where he
was responsible for project management of both large and small software
application systems. Prior to that date, Mr. Hill held various positions since
1973 with Arthur Andersen & Co. as manager, staff consultant, and programmer.
Terri S. Langhans. Ms. Langhans joined the Company as President and Chief
Operating Officer of First Strategic Group, Ltd., a Company subsidiary, on April
30, 1993. Prior to the FSG merger with the Company, Ms. Langhans served as
Senior Vice President and was half-owner of FSG, managing account teams in
developing marketing and advertising strategies. Prior to joining FSG, Ms.
Langhans served as Vice-President, Client Services, and was a principal, of
Delmatoff, Gerow, Morris, Langhans, Inc for four years. Prior to that, Ms.
Langhans directed the marketing and public relations activities of a 350-bed
regional hospital and managed a variety of product-line strategies.
Gregory J. Petras. Mr. Petras has served as the Chairman of the Company
since March 1996 and also served as President and a Director of the Company
since July 1983 and Chief Executive Officer since January 31, 1986. He served as
the Company's Treasurer from December 1984 to December 1986. From April 1982
until December 1985, Mr. Petras was also Executive Vice-President of The Arizona
Heart Institute, Ltd. In such capacity, Mr. Petras was responsible for planning,
marketing, advertising, program development and general operations at the
Institute. Prior to joining the Arizona Heart Institute, Ltd., Mr. Petras was a
manager in the healthcare consulting division of Arthur Andersen & Co., located
in Phoenix, Arizona.
A. Neal Westermeyer. Mr. Westermeyer commenced employment with the Company
in June 1993 and serves as the Company's Chief Operating Officer. Prior to his
employment with the Company, from January 1992 until June 1993, Mr. Westermeyer
served as Senior Vice President of Sales and Marketing for Integrated Health
Services, Inc., a subacute care company which owned, leased or managed long term
care facilities. Prior to joining Integrated Health Services, Mr. Westermeyer
spent six years as Vice President of Marketing at Humana, Inc., a publicly held
integrated healthcare company.
Jeffrey T. Zywicki. Mr. Zywicki commenced employment with the Company in
November 1986 and serves as the Company's Treasurer, Senior Vice President of
Finance, and Secretary. Prior to his employment with the Company, Mr. Zywicki, a
certified public accountant, served as the Controller of Tri-City Properties,
Inc., a position he had held since October 1985, and as Assistant Controller for
Del E. Webb Hotels, a position he had held since July 1984. Both organizations
were affiliated with Del E. Webb Corporation, a real estate and construction
company headquartered in Phoenix, Arizona. Prior to July 1984, Mr. Zywicki was
employed by the public accounting firm of Ernst Young, LLP (formerly Arthur
Young & Company).
12
<PAGE>
a. The Summary Compensation Table
The following table describes all annual compensation paid during the most
recent fiscal year to the executive officers of the Company who receive $100,000
or more in salary and bonus, as well as any long term compensation awarded or
paid out to such individuals during that period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------- -----------------------------
Name and principal position Year Awards Payouts
------------ -----------
Other All other
Salary ($) Bonus ($) Annual Securities LTIP compen-
Compen- Underlying payouts ($) sation($)
sation ($) Options/SARs
(#)
+- (b) (c) (d) (e) (f) (g) (h)
- - ------------------------------ ---- -------- -------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
GREGORY J. PETRAS 1996 $170,000 - - 30,000 - -
CHAIRMAN, PRESIDENT 1995 $169,676 - - 15,000 - -
& CEO 1994 $155,885 - - - - -
A. NEAL 1996 $162,825 - - 25,000 - -
WESTERMEYER 1995 $154,462 - - 20,000 - -
CHIEF OPERATING 1994 $92,019(1) - - 140,000 - -
OFFICER
JOHN DELMATOFF 1996 $143,359 - - - - -
CHIEF EXECUTIVE 1995 $126,538 $6,655 - - - -
OFFICER OF FSG 1994 $82,500(2) $8,000 - - - -
TERRI S. LANGHANS 1996 $148,130 - - - - -
PRESIDENT AND 1995 $126,538 $6,655 - - - -
CHIEF OPERATING 1994 $8,000 - - - -
$80,050(2)
OFFICER OF FSG
</TABLE>
(1) Represents salary from June 1993 through January 31, 1994.
(2) Represents salary from May 1993 to January 31, 1994.
b. The Options/SAR Grants Table
The following table describes the terms of all grants of stock options
to the executive officers named above during the last fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Number of Percent of
Securities Underlying total options/ Exercise or Expiration
Name Options/SARs SARs base price date
Granted (1) granted to ($/Sh)
employees in
fiscal year
(a) (b) (c) (d) (e)
- - ------------------- --------------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
PETRAS 30,000 15% $1.27 8/24/05
WESTERMEYER 25,000 13% $1.16 8/24/05
DELMATOFF - - - -
LANGHANS - - - -
</TABLE>
(1) One Hundred percent (100%) of the options granted vest on 1/31/97 provided
that the individual is employed by the Company on that date.
13
<PAGE>
c. The Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR
Value Table
The following table describes (1) any exercises of options by the chief
executive officer and chief operating officer during the last fiscal year and
(2) the value of outstanding options held by such individuals at January 31,
1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of
unexercised unexercised in-
Shares options/SARs at the-money
Name acquired on Value fiscal year- options/SARs at
exercise (#) Realized ($) end (#) fiscal year-end ($)
---------------- -------------------
Exercisable/ Exercisable/
unexercisable unexercisable
(a) (b) (c) (d) (e)
--------------- ------------- ------------ ---------------- -------------------
<S> <C> <C> <C> <C>
PETRAS N/A N/A 135,800/ $ 826,683/
37,500 $ 228,231
WESTERMEYER N/A N/A 100,000/ $ 552,250/
85,000 $ 469,413
</TABLE>
3. Employment Contracts
--------------------
The Company entered into an Employment Agreement and a Key Executive
Employment and Severance Agreement with Gregory J. Petras on October 15, 1992
(the "Employment Agreements"). Under the terms of the Employment Agreement, Mr.
Petras is to be paid a salary of $150,000 per year, to be reviewed by the Board
of Directors no less than annually, and is entitled to participate in
performance-based bonus plans as and when provided to the Company management
team. Under the terms of the Employment Agreement, Mr. Petras is entitled to
Termination Payments, as defined in the Employment Agreements, if his employment
with the Company is terminated after a change of control of the Company. The
maximum liability of the Company under these Employment Agreements in the event
of a change of control would be the sum of all accrued benefits of Mr. Petras,
continued insurance coverage, out-placement services, relocation expenses,
waiver of rights to repurchase unvested stock options and an amount equal to two
(2) times his annual salary at the time of such termination, be paid in
accordance with the Company's usual payroll schedule over a two year period.
The Employment Agreement also provides for: (1) certain registration
rights of shares of common stock of the Company owned by Mr. Petras upon the
Company's registration of any of its shares of common stock other than a
registration statement filed solely with respect to shares of common stock sold
to employees under any employee stock or stock option plan, and (2) use and
disclosure obligations relating to confidential information of the Company.
The Employment Agreement includes a covenant not to compete by Mr.
Petras. Mr. Petras agrees that upon any termination of his employment with the
Company, he will not act in a similar
14
<PAGE>
capacity for any business which competes to a substantial degree with the
Company in the United States, or engage in any activity involving direct,
material competition in the United States with the Company's then existing
products or services, or those planned for release by the Company within the
following twelve (12) months, for a one (1) year period, or such longer period
during which Mr. Petras accepts severance payments from the Company. Any
violation of this covenant not to compete by Mr. Petras shall automatically
terminate the Company's obligations to make any severance payments to Mr.
Petras.
H. INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
Arthur Andersen LLP ("Auditors") was the principal public accounting
firm utilized by the Company for the fiscal year ended January 31, 1996. It is
anticipated that a representative of the Auditors will attend the Annual Meeting
for the purpose of responding to appropriate questions. At the meeting, a
representative of the Auditors will be afforded an opportunity to make a
statement if the Auditors so desire. The Company intends to engage the Auditors
for the current fiscal year.
I. OTHER MATTERS
-------------
As of the date of this Proxy Statement, management of the Company knows
of no business that will be presented for consideration at the meeting other
than that which has been referred to above. As to other business, if any, that
may properly come before the meeting, it is intended that proxies in the
enclosed form will be voted in respect thereof, in accordance with the judgment
of the persons voting the proxies.
Board of Directors
Phoenix, Arizona
May 28, 1996
15
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
AMENDED 1988 STOCK OPTION PLAN
1. Purpose
-------
The purpose of the 1988 Stock Option Plan (the "Plan") is to attract
and retain the best available directors and salaried employees for positions of
substantial responsibility in National Health Enhancement Systems, Inc., a
Delaware corporation (the "Company"), or any successor or any parent or
subsidiary of the Company which now exists or hereafter is organized or acquired
by or acquires the Company, and to promote the success of the business of the
Company.
2. Incentive and Nonqualified Stock Options
----------------------------------------
Two types of options may be granted under the Plan; options intended to
qualify as incentive stock options ("Incentive Stock Options") under Section 422
of the Internal Revenue Code of 1986 as amended (the "Code"); and other options
not specifically authorized or qualified for favorable income tax treatment by
the Code ("Nonqualified Stock Options").
3. Eligibility and Administration
------------------------------
(a) Except as provided in Section 3(b) hereof, only key
employees of the Company or any of its subsidiaries who are not directors and/or
officers shall be eligible to receive Incentive Stock Options or Nonqualified
Stock Options under the Plan under the terms and conditions set forth in
Paragraph 5. An employee may receive more than one option under the Plan. For
the purposes of the Plan, the term "subsidiary" shall mean any corporation which
the company controls either directly or indirectly through ownership of fifty
percent (50%) or more of the total combined voting power of all classes of stock
of such corporation.
(b) Any (i) director or officer of the Company who is not an
employee of the Company or any of its subsidiaries shall be eligible to receive
only Nonqualified Stock Options, (ii) Consultant shall be eligible to receive
only Nonqualified Stock Options; and (iii) director or officer of the Company
who is a key employee of the Company or any of its subsidiaries shall be
eligible to receive Incentive Stock Options and/or Nonqualified Stock Options,
all pursuant to the Plan under the terms and conditions set forth in Paragraph
6. "Consultant," for purposes of this Plan, shall mean any person who is engaged
by the Company or any of its subsidiaries as a consultant or advisor; provided
that bona fide services shall be rendered by consultants and advisors and such
consultants and advisors are compensated for their consulting services.
<PAGE>
(c) Options granted under the Plan shall be administered by
the Board of Directors or a committee of directors or others (the "Committee")
appointed by the Board of Directors.
4. Shares Subject to Options
-------------------------
The stock available for grant of options under the Plan shall be shares
of Common Stock of the Company not reserved for any other purposes or shares of
Common Stock held in or acquired for the treasury of the Company. The aggregate
number of shares which may be issued pursuant to exercise of Incentive Stock
Options granted under the Plan shall be 350,000 shares. The aggregate number of
shares which may be issued pursuant to exercise of Nonqualified Stock Option
shall be 350,000 shares. If any outstanding option under the plan for any reason
expires or is terminated, the shares of Common Stock allocable to the
unexercised portion of the option shall again be available for options under the
Plan as if no options had been granted with respect to such shares.
5. Terms and Conditions of Options for Optionees Described in
--------------------------------------------------------------
Paragraph 3(a)
--------------
The Board or the Committee shall determine, within the limits of the
express provisions of the Plan, the individuals to whom, and the time or times
at which, options shall be granted, the type of option to be granted (i.e.,
Incentive Stock Options or Nonqualified Stock Options), the number of shares to
be subject to each option, the duration of each option, the option price under
each option, and the time or times within which (during the term of the option)
all or portions of each option may be exercised. In making such determinations,
the Board or the Committee may take into account the nature of the services
rendered by such individual or classes of individuals, their present and
potential contributions to the Company's success, and such other factors as the
Board or the Committee in its discretion shall deem relevant.
Subject to the express provisions of the Plan, the Board or the
Committee may interpret the Plan, prescribe, amend, and rescind rules and
regulations relating to it, determine the terms and provisions of the respective
Option Agreements (defined below and which need not be identical), and make all
other determinations necessary or advisable for the administration of the Plan.
Options granted under the Plan shall be evidenced by agreements in such
form and containing such provisions which are consistent with the Plan as the
Board or Committee shall from time to time approve ("Option Agreements"). Such
agreements may incorporate all or any of the terms hereof by reference and shall
comply with and be subject to the terms and conditions set forth below.
(a) Each employee to whom an option is granted shall enter
into an Option Agreement with the Company setting forth terms and conditions of
the options granted to the
2
<PAGE>
employee. Each such agreement shall contain terms and conditions consistent with
the Plan as the Board or Committee shall approve.
(b) The purchase price for the shares subject to any option
shall not be less than 100% of the fair market value of the stock on the date
the option is granted; provided, however, that the option price for the
Incentive Stock Option shall not be less than 110% of the fair market value of
such stock on the date the option is granted to an individual then owning (after
the application of the family and other attribution rules of Section 425(d) of
the Code), more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiary or parent corporation. For purposes of
the Plan, the "fair market value" of any shares subject to the Plan at the date
the option is granted shall be (i) the reported closing price of such stock on
the New York Stock Exchange or other established stock exchange on such date, or
if no sale of such stock shall have been made on such exchange on that date, on
the preceding date on which there was such a sale, (ii) if such stock is not
then listed on an exchange, the average of the closing bid and asked prices per
share for such stock in the over-the-counter market as quoted on NASDAQ on such
date, or (iii) if such stock is not then listed on an exchange or quoted on
NASDAQ, an amount determined in good faith by the Board or the Committee. In no
event shall the initial exercise price for any option be less than the par value
of the stock subject to the option.
(c) The purchase price for any shares purchased pursuant to
exercise of an option granted under the Plan shall be paid in full upon exercise
of the option in cash, by check or by transferring to the Company shares of such
stock at their fair market value as determined by Paragraph 5(b).
Notwithstanding the foregoing, the Company may extend and maintain, or arrange
for the extension and maintenance of, credit to an optionee to finance the
exercise of the option, on such terms as may be approved by the Board or
Committee, subject to applicable regulations of the Federal Reserve Board,
Sections 483, 1274 and 7872 of the Code and regulations promulgated thereunder,
and any other laws or regulations in effect at the time such credit is extended.
(d) No option shall be exercisable after the expiration of the
earliest of (i) in the case of an Incentive Stock Option, ten years from the
date the option is granted or, five years from the date the option is granted to
an individual owning (after the application of the family and other attribution
rules of Section 425(d) of the Code) at the time such option was granted, more
than 10% of the total combined voting power of all classes of stock of the
Company or any subsidiary or parent corporation, (ii) in the case of a
Nonqualified Stock Option, eleven years from the date the option is granted,
(iii) three months after the date the optionee's employment with the Company or
any of its subsidiaries terminates, if such termination is for any reason other
than permanent and total disability (defined below), death or cause, (iv) the
date the optionee's employment with the Company or any of its subsidiaries
terminates, if such termination is for cause, as determined by the Board or
Committee in its sole discretion, or (v) one year after the date the optionee's
employment with the Company or any of its subsidiaries terminates if such
termination is the result of death or permanent and
3
<PAGE>
total disability within the meaning of Section 22(e)(3) of the Code; provided,
however, that the Option Agreement for any option may provide for shorter
periods of exercisability in each of the foregoing instances.
(e) No option shall be exercisable during the lifetime of an
optionee by any person other than the optionee, his guardian or legal
representative. The Board or the Committee shall have the power to set the time
or times within which each option shall be exercisable and to accelerate the
time or times of exercise. To the extent that an optionee has the right to
exercise an option and purchase shares pursuant thereto, the option may be
exercised from time to time by written notice to the Company stating the number
of shares being purchased and accompanied by payment in full of the purchase
price for such shares. If shares of stock are used in part or full payment for
the shares to be acquired upon exercise of the option, such shares shall be
valued for the purpose of such exchange at their fair market value as of the
date of exercise of the option in accordance with the provisions of Paragraph
5(b). Any certificate for shares of outstanding stock used to pay the purchase
price shall be accompanied by a stock power duly endorsed in blank by the
registered owner of the certificate (with the signature thereon guaranteed). If
the certificate tendered by the optionee in such payment covers more shares than
are required for such payment, the certificate shall also be accompanied by
instructions from the optionee to the Company's transfer agent with respect to
the disposition of the balance of the shares covered thereby.
(f) No option shall be transferable by an optionee otherwise
than by will or the laws of descent and distribution.
(g) The aggregate fair market value (determined as of the time
the option is granted) of the stock with respect to which Incentive Stock
Options are exercisable for the first time by such optionee during any calendar
year (under all such plans of the Company and any subsidiary corporation) shall
not exceed $100,000.
(h) Unless the shares of stock covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of 1933, as amended, each optionee accepting an option shall
represent, warrant, and agree, for himself and his transferees by will or the
laws of descent and distribution, that all shares of stock purchased upon the
exercise of the option will be acquired for investment and not for resale or
distribution. Upon such exercise of any portion of an option, the person
entitled to exercise the same shall, upon request of the Company, furnish
evidence satisfactory to the Company (including a written and signed
representation) to the effect that the shares of stock are being acquired in
good faith for investment and not for resale or distribution. Furthermore, the
Company may if it deems appropriate affix a legend to certificates representing
shares of stock purchased upon exercise of options indicating that such shares
have not been registered with the Securities and Exchange Commission and may so
notify its transfer agent.
4
<PAGE>
(i) An optionee or transferee of an optionee shall have no
rights as a shareholder of the Company with respect to any shares covered by any
option until the date of the issuance of a share certificate for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such share certificate is issued, except as
provided for in Paragraph 5(k). Nothing in the Plan or in any Option Agreement
shall confer upon any employee any right to continue in the employ of the
Company or any of its subsidiaries, or interfere in any way with any right of
the Company or any subsidiary of the Company to terminate the optionee's
employment at any time.
(j) In no event shall the Company be required to issue
fractional shares upon the exercise of an option.
(k) If the outstanding shares of stock of the class then
subject to this Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities, as a result of
one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends or similar transactions, appropriate adjustments shall
be made in the number and/or type of shares or securities for which options may
thereafter be granted under the Plan and for which options then outstanding
under the Plan may thereafter be exercised. In the event of an adjustment to the
number and/or type of shares or securities for which options may thereafter be
granted under the Plan, the exercise price applicable to the unexercised
portions of options under the Plan shall be appropriately adjusted by the Board
or the Committee.
(l) Subject to the terms and conditions and within the
limitations of the Plan, the Board or the Committee may modify, extend or renew
outstanding options granted under the Plan, accept the surrender of outstanding
options (to the extent not theretofore exercised), and authorize the granting of
new options in substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, no modification of an option shall, without the
consent of the optionee, alter or impair any rights of the optionee under the
option.
(m) Each option may contain such other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the Board or
Committee, such as, without limitation, discretionary performance standards,
mandatory purchase of shares on the open market on a pro rata basis or tax
withholding provisions. The Company's obligation to deliver shares of stock
pursuant to Paragraph 5 shall be subject to applicable federal, state and local
tax withholding requirements.
(n) In the event the market value of stock subject to option
under the Plan shall be less than the option price for such stock, the Board or
Committee may, in its discretion and with the consent of the optionee, cancel
such options and grant new options consistent with the terms of the Plan.
5
<PAGE>
6. Terms and Conditions of Options for Optionees Described in
--------------------------------------------------------------
Paragraph 3(b)
--------------
The Board or the Committee shall determine, within the limits of the
express provisions of the Plan, the individuals to whom, and the time or times
at which, options shall be granted, the type of option to be granted (i.e.,
Incentive Stock Options or Nonqualified Stock Options), the number of shares to
be subject to each option, the duration of each option, the option price under
each option, and the time or times within which (during the term of the option)
all or portions of each option may be exercised. In making such determinations,
the Board or the Committee may take into account the nature of the services
rendered by such individual or classes of individuals, their present and
potential contributions to the Company's success, and such other factors as the
Board or the Committee in its discretion shall deem relevant.
Subject to the express provisions of the Plan, the Board or the
Committee may interpret the Plan, prescribe, amend, and rescind rules and
regulations relating to it, determine the terms and provisions of the respective
Option Agreements (which need not be identical), and make all other
determinations necessary or advisable for the administration of the Plan.
Options granted under the Plan shall be evidenced by Option Agreements
in such form and containing such provisions which are consistent with the Plan
as the Board or Committee shall from time to time approve. Such agreements may
incorporate all or any of the terms hereof by reference and shall comply with
and be subject to the following terms and conditions:
(a) Each director or officer to whom an option is granted
shall enter into an Option Agreement with the Company setting forth the terms
and conditions of the options granted to the director or officer. Each such
agreement shall contain terms and conditions consistent with the Plan as the
Board or Committee shall approve.
(b) The purchase price for the shares subject to an Incentive
Stock Option shall not be less than 100% of the fair market value of the stock
on the date the option is granted; provided, however, that the option price for
an Incentive Stock Option shall not be less than 110% of the fair market value
of such stock on the date the option is granted to an individual then owning
(after the application of family and other attribution rules of Section 425(d)
of the Code), more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiary or parent corporation. The purchase price
for the shares subject to a Nonqualified Stock Option shall be determined by the
Board or the Committee in its discretion. For purposes of the Plan, the "fair
market value" of any shares subject to the Plan at any date shall be (i) the
reported closing price of such stock on the New York Stock Exchange or other
established stock exchange on such date, or if no sale of such stock shall have
been made on such exchange on that date, on the preceding date on which there
was such a sale, (ii) if such stock is not then listed on an exchange, the
average of the closing bid and asked prices per share for such stock in the
over-the-counter market as quoted on NASDAQ on such date, or (iii) if such stock
is not then listed on an exchange or quoted on
6
<PAGE>
NASDAQ, an amount determined in good faith by the Board or Committee. In no
event shall the initial exercise price for any option be less than the par value
of stock subject to the option.
(c) The purchase price for any shares purchased pursuant to
exercise of an option granted under the Plan shall be paid in full upon exercise
of the option in cash, by check or by transferring to the Company shares of such
stock at their fair market value as determined by Paragraph 6(b).
Notwithstanding the foregoing, the Company may extend and maintain, or arrange
for the extension and maintenance of, credit to an optionee to finance the
exercise of the option, on such terms which are no more favorable than as may be
approved by the Board or Committee for optionees described in Paragraph 3(a),
subject to applicable regulations of the Federal Reserve Board, Sections 483,
1274 and 7872 of the Code and regulations promulgated thereunder, and any other
laws or regulations in effect at the time such credit is extended.
(d) No option shall be exercisable after the expiration of the
earliest of (i) in the case of an Incentive Stock Option, ten years from the
date the option is granted or, five years from the date the option is granted to
an individual owning (after application of the family and other attribution
rules of Section 425(d) of the Code) at the time such option was granted, more
than 10% of the total combined voting power of all classes of stock of the
Company or any subsidiary or parent corporation, (ii) in the case of a
Nonqualified Stock Option, eleven years from the date the option is granted,
(iii) three months after the date the optionee's employment with the Company or
any of its subsidiaries terminates, if such termination is for any reason other
than permanent and total disability (defined below), death or cause, (iv) three
months after the date the optionee's position as an officer or director of the
Company terminates if such termination is for any reason other than permanent
and total disability (defined below), death or cause, (v) the date the
optionee's employment with the Company or any of its subsidiaries terminates if
such termination is for cause, as determined by the Board or Committee in its
sole discretion, (vi) the date the optionee's position as an officer or director
of the Company terminates if such termination is for cause, as determined by the
Board or Committee in its sole discretion, (vii) one year after the date the
optionee's employment with the Company or any of its subsidiaries terminates, if
such termination is the result of death or permanent and total disability within
the meaning of Section 22(e)(3) of the Code, or (viii) one year after the date
the optionee's position as an officer or director of the Company terminates if
such termination is the result of death or permanent and total disability within
the meaning of Section 22(e)(3) of the Code; provided, however, that the Option
Agreement for any option may provide for shorter periods in each of the
foregoing instances.
(e) No option shall be exercisable during the lifetime of an
optionee by any person other than the optionee, his guardian or legal
representative. The Board or the Committee shall have the power to set the time
or times within which each option shall be exercisable and to accelerate the
time or times of exercise. To the extent that an optionee has the right to
exercise an option and purchase shares pursuant thereto, the option may be
exercised from time to time by written notice to the Company stating the number
of shares
<PAGE>
being purchased and accompanied by payment in full of the purchase price for
such shares. If shares of stock are used in part or full payment for the shares
to be acquired upon exercise of the option, such shares shall be valued for the
purposes of such exchange at their fair market value as of the date of exercise
of the option in accordance with the provisions of Paragraph 6(b). Any
certificates for shares of outstanding stock used to pay the purchase price
shall be accompanied by a stock power duly endorsed in blank by the registered
owner of the certificate (with the signature thereon guaranteed). If the
certificate tendered by the optionee in such payment covers more shares than are
required for such payment, the certificate shall also be accompanied by
instructions from the optionee to the Company's transfer agent with respect to
the disposition of the balance of the shares covered thereby.
(f) No option shall be transferable by an optionee otherwise
than by will or the laws of descent and distribution.
(g) The aggregate fair market value (determined as of the time
the option is granted) of the stock with respect to which Incentive Stock
Options are exercisable for the first time by such optionee during any calendar
year (under all such plans of the Company and any subsidiary corporation) shall
not exceed $100,000.
(h) Unless the shares of stock covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of 1933, as amended, each optionee accepting an option shall
represent, warrant and agree, for himself and his transferees by will or the
laws of descent and distribution, that all shares of stock purchased upon the
exercise of the option will be acquired for investment and not for resale or
distribution. Upon such exercise of any portion of an option, the person
entitled to exercise the same shall, upon request of the Company, furnish
evidence satisfactory to the Company (including a written and signed
representation) to the effect that the shares of stock are being acquired in
good faith for investment and not for resale or distribution. Furthermore, the
Company may if it deems appropriate affix a legend to certificates representing
shares of stock purchased upon exercise of options indicating that such shares
have not been registered with the Securities and Exchange Commission and may so
notify its transfer agent.
(i) An optionee or transferee of an optionee shall have no
rights as a shareholder of the Company with respect to any shares covered by any
option until the date of the issuance of a share certificate for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such share certificate is issued, except as
provided for in Paragraph 6(k). Nothing in the Plan or in any Option Agreement
shall confer upon any optionee any right to continue in the employ of the
Company or any of its subsidiaries or to continue as a director or officer of
the Company or any of its subsidiaries, or to interfere in any way with the
right of the Company or any of its subsidiaries to terminate the optionee's
status as an employee, officer or director at any time.
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<PAGE>
(j) In no event shall the Company be required to issue
fractional shares upon the exercise of an option.
(k) If the outstanding shares of stock of the class then
subject to this Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities, as a result of
one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends or similar transactions, appropriate adjustments shall
be made in the number and/or type of shares or securities for which options may
thereafter be granted under the Plan and for which options then outstanding
under the Plan may thereafter be exercised. In the event of an adjustment to the
number and/or type of shares or securities for which options may thereafter be
granted under the Plan, the exercise price applicable to the unexercised
portions of options under the Plan shall be appropriately adjusted by the Board
or the Committee.
(l) No Nonqualified Stock Options shall vest until at least
one year from the date of grant.
(m) Options may be exercised only during the ten-day period
following the release of quarterly or annual financial information by the
Company.
(n) In the event the market value of stock subject to option
under the Plan shall be less than the price for such stock, the Board or
Committee may, in its discretion and with the consent of the optionee, cancel
such options and grant new options consistent with the terms of the Plan.
(o) The Company's obligation to deliver shares of stock
pursuant to Paragraph 6 shall be subject to applicable federal, state and local
tax withholding requirements.
7. Termination or Amendment of the Plan
------------------------------------
The Board or Committee may at any time terminate the Plan. With respect
to Incentive Stock Options, the Board or Committee may at any time amend the
Plan and may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option in the manner and to the extent it
shall deem desirable to carry the Plan into effect without further action on the
part of the shareholders of the Company; but the Board or the Committee may not,
without the approval of the Company's shareholders, make any alteration or
amendment of the Plan which (i) makes any change in the class of persons
eligible to receive options under the Plan; (ii) increases, other than by
operation of paragraphs 5(k) or 6(k) hereof, the total number of shares of stock
for which options may be granted under the Plan; (iii) extends the term of the
Plan or the maximum option period provided under the Plan; or (iv) decreases the
minimum option price provided under the Plan; and provided further that, without
the consent of the optionee, no amendment may adversely affect any outstanding
option or any unexercised
9
<PAGE>
portion thereof. With respect to Nonqualified Stock Options, the Board or
Committee may at any time amend the Plan and may correct any defect or supply
any omission or reconcile any inconsistency in the Plan or in any option in the
manner and to the extent it shall deem desirable to carry the Plan into effect
without further action on the part of the shareholders of the Company.
Notwithstanding any other provision to the contrary, any provision of this Plan
may be amended by the Board or Committee as required to obtain necessary
approvals of governmental agencies if (i) such change does not materially alter
the rights and interests of shareholders of the Company and (ii) such change
does not result in a failure of options granted to directors or officers to
comply with the provisions of Section 16(b) of the Securities Exchange Act of
1934 and Rule 16b-3 thereunder.
8. Shareholder Approval and Term of the Plan
-----------------------------------------
The Plan shall be effective upon the first day of the month after which
the Board approves the Plan, subject to approval by the shareholders of the
Company. Unless sooner terminated by the Board, the Plan will expire ten years
after the date of adoption of the Plan by the Board in May 1998. Any option
outstanding under the Plan at the time of the Plan's termination shall remain in
effect in accordance with the option's terms and conditions and the terms and
conditions of the Plan.
9. Use of Proceeds
---------------
The proceeds from the sale of Stock pursuant to the Plan will be used
for general corporate purposes.
10. Governing Law
-------------
The Plan shall be governed by and interpreted according to the laws of
the State of Delaware.
