<PAGE> 1
SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant[ X ]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Addition Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
AAON, INC.
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(Name of Registrant as specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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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:
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
3) Filing party:
----------------------------------------------------------------------
4) Date Filed:
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<PAGE> 2
AAON, INC.
2425 South Yukon
Tulsa, Oklahoma 74107
Telephone: (918) 583-2266
Telecopier: (918) 583-6094
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
AAON, Inc. on Tuesday, May 25, 1999, at 10:00 A.M. (Local Time). The meeting
will be held at the Company's offices, 2425 South Yukon, Tulsa, Oklahoma 74107.
Your Board of Directors and management look forward to greeting those
stockholders able to attend in person.
IMPORTANT
As you may be aware, AAON has reported record revenues and earnings for the
past year. This excellent performance is the result of your Board of Directors
and management working together effectively and harmoniously as a team.
Despite this achievement, a dissident stockholder, Bay Harbour Management,
L.C. ("Bay Harbour"), is attempting to elect one nominee to your Company's
Board and replace one of AAON's long-standing directors. BAY HARBOUR HAS
INDICATED THAT IT MAY SEEK TO NOMINATE ADDITIONAL DIRECTORS NEXT YEAR, WHICH
COULD ENABLE IT TO GAIN CONTROL OF YOUR BOARD AND YOUR COMPANY. Bay Harbour is
also attempting to pass certain proposals at the Annual Meeting which we
believe are designed to make it easier for Bay Harbour to gain control of your
Board.
HELP US PROTECT THE FUTURE
OF YOUR INVESTMENT
We urge you to reject Bay Harbour's efforts and to support your current
Board's nominees by signing and returning your Board's WHITE proxy card. DO NOT
RETURN ANY PROXY CARD SENT TO YOU BY BAY HARBOUR. Since only your latest dated
proxy counts, please make certain that the latest dated card you send in is the
Board's WHITE proxy card.
We believe that AAON has really begun to reap the harvest of the seeds
planted over the past few years. Our performance and long-term potential are
now beginning to be reflected in our stock price as well. IN 1998, AAON'S STOCK
PRICE INCREASED 23.14% (FROM $7 9/16 TO $9 5/16) WHILE THE RUSSELL 2000 INDEX,
WHICH IS A BROAD INDEX THAT INCLUDES MANY SMALLER CAPITALIZATION STOCKS,
DECREASED BY 3.45%. IN THE FIRST QUARTER OF 1999, AAON STOCK INCREASED BY
18.12% (FROM $9 5/16 TO $11) WHILE THE RUSSELL 2000 INDEX DECREASED BY 5.77%.
FURTHERMORE, BETWEEN JANUARY 1, 1998 AND MARCH 31, 1999, AAON STOCK HAS
OUTPERFORMED THE S&P 500 INDEX, WHICH CONSISTS OF LARGE CAPITALIZATION STOCKS.
WE CONSIDER THIS A SIGNIFICANT ACHIEVEMENT AT A TIME WHEN MOST SMALL CAP STOCKS
ARE OUT OF FAVOR IN THE MARKETPLACE.
Your Board and management are bullish on the future of AAON. As we continue
to implement the steps necessary to maintain both sales and earnings growth, we
look forward to attracting increased favorable attention from the investment
community, particularly from those who share our view of the long-term
potential of AAON stock.
Your Board of Directors is willing to consider the views of all
stockholders. We do not believe, however, that Bay Harbour's nominee - who has
not indicated any experience in AAON's line of business - will add anything
positive to your Company's Board. In fact, in light of their threat to gain
control of your Board next year, we believe that his presence on the Board of
Directors would be extremely disruptive and would hurt, not help, your
Company's efforts to enhance shareholder value.
We believe it is in your best interests to elect your Board's two nominees
by signing and returning the enclosed WHITE proxy card. On behalf of the Board
of Directors, thank you for your continued support.
Sincerely,
/s/ Norman H. Asbjornson
April 22, 1999 Norman H. Asbjornson
President
<PAGE> 3
AAON, INC.
2425 South Yukon
Tulsa, Oklahoma 74107
Telephone: (918) 583-2266
Telecopier: (918) 583-6094
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 1999
Notice is hereby given that the Annual Meeting of Stockholders of
AAON, Inc. (the "Company"), will be held at the Company's offices, 2425 South
Yukon, Tulsa, Oklahoma 74107, on Tuesday, May 25, 1999, at 10:00 A.M. (Local
Time), for the following purposes:
1. To elect two Class II Directors for terms ending in 2002;
2. To act upon a proposal to amend the Company's Stock Option
Plan (a) to increase the number of shares covered by the Plan
from 1,000,000 to 1,300,000, (b) to authorize consultants, as
well as employees and directors, to receive options under the
Plan and (c) to extend the term of the Plan with regard to
non-qualified options granted thereunder to March 11, 2012;
3. To act upon a proposal to amend the Company's Articles of
Incorporation to limit the personal liability of directors to
the Company and its stockholders in accordance with the
Nevada General Corporation Law; and
4. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
Only holders of the Company's common stock, par value $.004 per share
(the "Common Stock"), of record on March 29, 1999 are entitled to notice of,
and to vote at, the meeting or any adjournment(s) or postponement(s) thereof.
At the record date for determination of stockholders entitled to vote at the
meeting or any adjournment(s) or postponement(s) thereof, 6,225,449 shares of
Common Stock were issued and outstanding.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED
TO FILL OUT, SIGN AND MAIL PROMPTLY THE ENCLOSED WHITE PROXY CARD IN THE
ACCOMPANYING ENVELOPE. POSTAGE IS PRE-PAID IF MAILED IN THE UNITED STATES.
PROXIES FORWARDED BY OR FOR BROKERS OR FIDUCIARIES SHOULD BE RETURNED AS
REQUESTED BY THEM. THE PROMPT RETURN OF PROXIES WILL SAVE THE EXPENSE INVOLVED
IN FURTHER COMMUNICATION.
By Order of the Board of Directors
/s/ John B. Johnson, Jr.
John B. Johnson, Jr.
April 22, 1999 Secretary
<PAGE> 4
AAON, INC.
2425 South Yukon
Tulsa, Oklahoma 74107
Telephone: (918) 583-2266
Telecopier: (918) 583-6094
PROXY STATEMENT
This Proxy Statement is furnished to holders of common stock, par value
$.004 per share (the "Common Stock"), of AAON, Inc., a Nevada corporation (the
"Company"), in connection with the solicitation by the Board of Directors of the
Company of proxies to be used at the Annual Meeting of Stockholders of the
Company to be held on May 25, 1999 (the "Annual Meeting"), at the time and place
set forth in the Notice of Annual Meeting accompanying this Proxy Statement.
This Proxy Statement, the Notice of Annual Meeting and accompanying
white proxy card, as well as the Company's 1998 Annual Report (which includes
the Company's Annual Report on Form 10-K for the year ended December 31, 1998),
are first being mailed to stockholders approximately April 22, 1999.
THE BOARD URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE WHITE PROXY
CARD ENCLOSED IN THE ACCOMPANYING ENVELOPE, WHICH IS POSTAGE-PAID IF MAILED IN
THE UNITED STATES TO 2425 SOUTH YUKON, TULSA, OKLAHOMA 74107, ATTENTION:
CORPORATE SECRETARY.
IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE,
ONLY THEY CAN VOTE YOUR SHARES AND ONLY UPON YOUR SPECIFIC INSTRUCTIONS. PLEASE
CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND INSTRUCT HIM OR HER TO VOTE
THE WHITE PROXY CARD AS SOON AS POSSIBLE.
If you have any questions or need further assistance in voting your
shares, please call:
BEACON HILL PARTNERS, INC.
90 Broad Street
New York, New York 10004
Toll Free Telephone: (800) 755-5001
VOTING MATTERS
Only holders of record of Common Stock (the "Stockholders") at the
close of business on March 29, 1999 (the "Record Date") will be entitled to
notice of, and to vote at, the Annual Meeting. On the Record Date, there were
outstanding 6,225,449 shares of Common Stock. Each share of Common Stock is
entitled to one vote for each director to be elected and upon all other matters
to be brought to a vote by the Stockholders at the Annual Meeting.
Shares of Common Stock represented by each proxy, if properly executed
and returned to the Company prior to the Annual Meeting, will be voted as
directed, but, if not otherwise specified, will be voted for the election of the
two nominees for Director, for the approval of the amendments to the Stock
Option Plan and for the amendment of the Company's Articles of Incorporation,
all as recommended by the Board of Directors.
On March 12, 1999, the Company received written notice that Bay Harbour
Management, L.C. ("Bay Harbour") intends to nominate two persons for election to
the Company's Board of Directors and to propose certain amendments to the Bylaws
of the Company. See "Stockholder Notice of Intent to Present Proposals" below.
Bay Harbour has filed revised proxy materials with the Securities and Exchange
<PAGE> 5
Commission indicating that it will solicit votes for the election of one instead
of two of its nominees to the Board of Directors, for the various Bylaw
amendments, and against the Company's proposal to amend the Company's Articles
of Incorporation. The persons named in the enclosed white proxy will use their
discretionary authority to vote against any proposals properly brought by Bay
Harbour or its affiliates or associates before the Annual Meeting. The Board of
Directors knows of no other business to be presented at the Annual Meeting other
than as described herein. If any other business is properly presented, the
persons named in the enclosed white proxy have authority to vote on such matters
in accordance with such persons' discretion.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked (i) by filing with the Company (at
the address indicated above) at or before the Annual Meeting a written notice of
revocation bearing a later date than the proxy, (ii) by duly executing a
subsequent proxy bearing a later date than the proxy relating to the same shares
of Common Stock or (iii) by attending the Annual Meeting and voting in person
(although attendance at the meeting will not in itself constitute such
revocation).
If the Annual Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Annual Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Annual Meeting (except for proxies which have theretofore effectively been
revoked or withdrawn).
Brokers holding shares of record for customers generally are not
entitled to vote on certain matters unless they receive voting instructions from
their customers. As used herein, "broker non-votes" means the votes that could
have been cast on the matter in question by brokers with respect to uninstructed
shares if the brokers had received their customers' instructions. As used
herein, "uninstructed shares" means shares held by a broker who has not received
instructions from its customers on such matters and the broker has so notified
the Company on a proxy form in accordance with industry practice or has
otherwise advised the Company that it lacks voting authority.
The presence at the Annual Meeting, whether in person or by proxy, of
the holders of at least thirty-three and one-third percent (33 1/3%) of the
outstanding shares of Common Stock entitled to vote thereat constitutes a quorum
for the transaction of business. For purposes of the quorum, in accordance with
Nevada law, Stockholders of record who are present at the meeting in person or
by proxy and who abstain, including broker non-votes, are considered
Stockholders who are present and entitled to vote and they count toward the
quorum. Directors are elected by a plurality vote and the two nominees who
receive the most votes will be elected. Therefore, in the election of Directors,
abstentions and broker non-votes will not affect the outcome of the election.
Approval of the amendments to the Stock Option Plan and approval of the
amendment to the Articles of Incorporation must receive the affirmative vote of
the majority of the shares entitled to vote. In accordance with Nevada law,
uninstructed shares are not entitled to vote on these matters, and therefore
abstentions and broker non-votes have the effect of a negative vote.
The solicitation of proxies in the enclosed form is made on behalf of
the Company's Board of Directors. The Company will bear all costs of this proxy
solicitation. While no precise estimate of the cost can be made at the present
time, the Company currently estimates that it will spend less than $125,000, of
which it is estimated that less than $75,000 has been incurred to date, for its
solicitation of proxies, including fees for attorneys, accountants, public
relations or financial advisers, solicitors, advertising, printing,
transportation, litigation and other costs incidental to the solicitation. In
addition to soliciting proxies by mail, directors of the Company, without
receiving additional compensation, may solicit proxies by telephone, by other
available media or in person. Arrangements will also be made with brokerage
firms and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of shares of the Common Stock, and the
Company will reimburse such brokerage firms and other
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<PAGE> 6
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection with forwarding such materials. The Company has
retained the services of Beacon Hill Partners, Inc., a proxy solicitation firm,
for assistance in connection with the Annual Meeting and other advisory services
at an estimated cost of approximately $32,500 plus reimbursement of reasonable
out-of-pocket expenses. The Company also has agreed to indemnify Beacon Hill
Partners, Inc. against certain liabilities and expenses. The Company estimates
that approximately 20 employees of Beacon Hill Partners, Inc. will be involved
in the solicitation of proxies on behalf of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of March 29, 1999, the aggregate
number of shares of Common Stock of the Company owned by each person or group
known by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock:
<TABLE>
<CAPTION>
Percent
Name and Address Number of Shares of
of Beneficial Owner Owned Class
------------------------------------ ---------------- ----------
<S> <C> <C>
Norman H. Asbjornson 1,125,226(1) 17.9
2425 South Yukon
Tulsa, Oklahoma 74107
Bay Harbour Management, L.C. 907,390(2) 14.6
Tower Investment Group, Inc.
Steven A. Van Dyke
777 South Harbour Island Blvd.
Suite 270
Tampa, Florida 33602
and
Douglas P. Teitelbaum
885 Third Avenue
34th Floor
New York, New York 10022
</TABLE>
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(1) Includes 71,000 shares issuable upon the exercise of stock options
that are exercisable within 60 days. Mr. Asbjornson has sole voting
and investment powers with respect to all shares beneficially owned by
him, except for 4,917 shares held by his IRA account and 1,772 shares
under the Company's 401(k) plan.
(2) The number of shares owned by this "group" [as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended]
is based on disclosure in their Form 4 filed with the Securities and
Exchange Commission on April 8, 1999. Based on the Schedule 13D, as
amended, filed with the Securities and Exchange Commission, the four
members of this group have shared voting and dispositive powers with
respect to all shares beneficially owned by them.
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<PAGE> 7
The following table sets forth as of March 29, 1999, the aggregate
number of shares of Common Stock of the Company owned of record or beneficially
by each director and nominee of the Company for director and each officer whose
1998 salary and bonus exceeded $100,000 ("Executive Officers"), and for all
such officers and directors as a group:
<TABLE>
<CAPTION>
Percent
Name and Address of each Executive Officer Number of Shares of
and Names of Other Directors Owned (1) Class
------------------------------------------------ ---------------- ------
<S> <C> <C>
Norman H. Asbjornson (2) 1,125,226(4) 17.9
2425 South Yukon
Tulsa, Oklahoma 74107
Robert G. Fergus (3) 108,333(5) 1.7
2425 South Yukon
Tulsa, Oklahoma 74107
William A. Bowen 186,910(6)(7) 3.0
John B. Johnson, Jr. 95,000(6)(8) 1.5
Joseph M. Klein 27,500(9) (13)
Thomas E. Naugle 47,690 (13)
Anthony Pantaleoni 230,869(6)(10) 3.7
Charles C. Stephenson, Jr. 233,888(11) 3.7
Executive Officers and all directors
as a group (eight persons) 2,055,416(12) 31.4
</TABLE>
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(1) All shares are held beneficially and of record and the owner has sole
voting and investment power with respect thereto, except as otherwise
noted.
(2) Mr. Asbjornson is a director and Executive Officer.
(3) Mr. Fergus is an Executive Officer of the Company.
(4) Includes 71,000 shares issuable upon the exercise of stock options that
are exercisable within 60 days. Mr. Asbjornson has sole voting and
investment powers with respect to all shares beneficially owned by him,
except for 4,917 shares held by his IRA account and 1,772 shares under
the Company's 401(k) plan.
(5) Includes 27,500 shares issuable upon the exercise of stock options that
are exercisable within 60 days and 1,403 shares under the Company's
401(k) plan.
(6) Includes 55,000 shares issuable upon the exercise of stock options that
are exercisable within 60 days.
(7) Includes 10,525 shares held by Mr. Bowen's IRA account and 761 shares
under the Company's 401(k) plan.
(8) Includes 40,000 shares held for the account of Mr. Johnson under a
broker-administered retirement plan.
(9) These shares are issuable upon the exercise of stock options that are
exercisable within 60 days
(10) Includes a total of 40,136 shares held by two trusts for the benefit of
children of Mr. Pantaleoni, of which his wife is the trustee.
(11) Includes 27,500 shares issuable upon the exercise of stock options that
are exercisable within 60 days.
(12) Includes 318,500 shares issuable upon the exercise of stock options
that are exercisable within 60 days by all Executive Officers and
directors.
(13) Less than 1%.
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<PAGE> 8
PROPOSAL ONE - ELECTION OF DIRECTORS
GENERAL
The Board of Directors of the Company currently has seven members. The
Company's Bylaws, as amended (the "Bylaws"), divide the Board of Directors into
three classes having staggered terms of three years each, with Classes II, III
and I having terms expiring at the Annual Meeting of Stockholders in 1999, 2000
and 2001, respectively. The Company's Bylaws, as amended, provides that a
stockholder may nominate a director for election at an annual meeting if
written notice is given to the Company not less than 60 and not more than 90
days in advance of the anniversary date of the immediately preceding annual
meeting.
It is intended that the names of the nominees listed below will be
placed in nomination and that the persons named in the proxy will vote for
their election. Each nominee has consented to being named in this Proxy
Statement and to serve if elected. If any nominee becomes unavailable for any
reason, the shares represented by the proxies will be voted for such person, if
any, as may be designated by the Board of Directors. However, management has no
reason to believe that any nominee will be unavailable.
NOMINEES
CLASS II - TERM TO EXPIRE IN 2002
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
William A. Bowen .......................... 69 Vice President-Finance and Director
Anthony Pantaleoni ........................ 59 Director
</TABLE>
DIRECTORS CONTINUING IN OFFICE
CLASS III -- TERM TO EXPIRE IN 2000
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
Norman H. Asbjornson ..................... 63 President, Treasurer and Director
John B. Johnson, Jr. ...................... 65 Secretary and Director
Charles C. Stephenson, Jr. ................ 62 Director
</TABLE>
CLASS I -- TERM TO EXPIRE IN 2001
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
Joseph M. Klein ........................... 67 Director
Thomas E. Naugle .......................... 60 Director
</TABLE>
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<PAGE> 9
BIOGRAPHICAL INFORMATION
Set forth below is a description of the background of each of the
Executive Officers and directors and the Company's nominees for directors.
Norman H. Asbjornson has served as President and Treasurer of the
Company since June 16, 1989. He has served as a director of the Company since
1989 and currently serves in the class of directors whose terms expire at the
2000 annual meeting of stockholders. Mr. Asbjornson also serves as the President
and Treasurer of AAON, Inc., an Oklahoma corporation and wholly-owned subsidiary
of the Company ("AAON-Oklahoma"), and AAON-Coil Products, Inc., a wholly-owned
subsidiary of the Company ("ACP").
William A. Bowen has served as Vice President-Finance of the Company
since July 27, 1989. He has served as a director of the Company since 1989 and
currently serves in the class of directors whose terms expire at the 1999 annual
meeting of stockholders. Mr. Bowen also serves as the Vice President-Finance of
AAON-Oklahoma. From 1987 to 1998, Mr. Bowen also was engaged in financial
consulting in Tulsa, Oklahoma.
Robert G. Fergus has served as Vice President of the Company since June
16, 1989. Mr. Fergus also serves as Vice President of AAON-Oklahoma.
John B. Johnson, Jr. has served as Secretary of the Company since June
16, 1989. He has served as a director of the Company since 1989 and currently
serves in the class of directors whose terms expire at the 2000 annual meeting
of stockholders. Mr. Johnson also serves as the Secretary of AAON-Oklahoma and
ACP. Mr. Johnson has been engaged in the private practice of law in Tulsa,
Oklahoma since 1961 and is a member of the firm of Johnson, Allen, Jones &
Dornblaser, which serves as General Counsel to the Company.
Joseph M. Klein has served as a director of the Company since 1996 and
currently serves in the class of directors whose terms expire at the 2001 annual
meeting of stockholders. Since 1974, Mr. Klein has served as President of CCI
Corporation, the business of which is truck parts sales and service and original
equipment manufacture of heavy duty trucks.
Thomas E. Naugle has served as a director of the Company since 1998 and
currently serves in the class of directors whose terms expire at the 2001 annual
meeting of stockholders. Since 1984, Mr. Naugle has served as Chairman of the
Board of Directors of Barrett Trailers, Inc., a manufacturer of trailers. From
1985 to present, he has served as Chairman of the Board of Directors and/or
President of Naugle & Co., a company engaged in the business of investments.
From 1986 to 1996, Mr. Naugle was Chairman of the Board of Directors of Tulsa
Winch, Inc., a manufacturer of winches. From 1992 to 1996, he served as
President of Hanner, Inc., an equipment leasing company.
Anthony Pantaleoni has served as a director of the Company since 1989
and currently serves in the class of directors whose terms expire at the 1999
annual meeting of stockholders. Since 1970, Mr. Pantaleoni has been a partner of
Fulbright & Jaworski L.L.P. or a predecessor firm in New York, New York. He also
serves as a member of the Board of Directors of Universal Health Services, Inc.,
a publicly held hospital chain, and Westwood Corporation, a publicly held
defense contractor.
Charles C. Stephenson, Jr. has served as a director of the Company
since 1996 and currently serves in the class of directors whose terms expire at
the 2000 annual meeting of stockholders. Since 1987, Mr. Stephenson has served
as Chairman of the Board of Directors of Vintage Petroleum, Inc., a publicly
held company engaged in oil and gas production and exploration.
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<PAGE> 10
The affirmative vote of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting is required to
elect the nominees for director named above.
The Board of Directors recommends that Stockholders vote FOR each of
the Company's nominees for Directors.
PROPOSAL TWO - APPROVAL OF AMENDMENTS
OF THE COMPANY'S STOCK OPTION PLAN
In 1992, the Company adopted a Stock Option Plan (the "Plan") for
certain of its directors, officers and employees, and the Plan has since been
amended several times. On February 18, 1999, the Company's Board of Directors
approved, subject to approval by the Stockholders, further amendments to the
Plan, which amendments would, if adopted: (i) increase the number of shares of
Common Stock subject to the Plan from 1,000,000 to 1,300,000; (ii) authorize
consultants, as well as employees and directors, to receive options under the
Plan; and (iii) extend the term of the Plan with regard to non-qualified options
granted thereunder to March 11, 2012.
As of March 29, 1999, outstanding options under the Plan were held by
75 persons, eight of whom are directors and/or officers, 67 of whom are
employees only and one of whom is a non-employee consultant (granted on January
11, 1999, for 20,000 shares at $9.875 per share, subject to Stockholder approval
of the Plan amendment authorizing grants to consultants), for a total of 735,875
total shares, leaving 110,250 shares (410,250 shares if the 300,000 share
increase is approved) for options to be granted in the future (153,875 shares
having been issued upon exercise of options).
As of March 29, 1999, eight directors and/or officers and less than 100
other employees were eligible to participate in the Plan. In addition, if the
proposed amendments to the Plan are approved by the Stockholders, then one
consultant will be eligible to participate in the Plan.
The affirmative vote of the holders of a majority of the shares of
Common Stock entitled to vote on the matter is required for approval of the
proposed amendments of the Plan.
The Board of Directors recommends that Stockholders vote FOR approval
of the proposed Plan amendments.
A summary of the material provisions of the Plan, as amended, is set
forth below. The statements herein concerning the terms and provisions of the
proposed amendments are summaries only and are qualified in their entirety by
reference to the full text of the amendments, a copy of which is attached hereto
as Appendix A.
Purpose and Eligibility. The purpose of the Plan is to enable the
Company and the Stockholders to secure the benefits of common stock ownership,
or increased ownership, by key personnel of the Company and its subsidiaries.
The Board believes that the granting of options under the Plan has fostered and
will continue to enhance the Company's ability to attract, retain and motivate
those individuals who will be largely responsible for the ongoing profitability
and long-term future growth of the Company.
Key employees of the Company or its subsidiary corporations (including
officers or directors who are employees), directors (including non-employee
directors) and consultants are eligible to receive grants under the Plan at the
discretion of the Committee (defined below).
Term of the Plan. The Plan became effective as of March 11, 1992, the
date on which it was originally adopted by the Board. The Plan will terminate on
March 11, 2002, with regard to any Incentive
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<PAGE> 11
Stock Options (defined below) granted thereunder, and on March 11, 2012 with
regard to non-qualified options granted thereunder, unless sooner terminated by
the Board. The rights of optionees under the options outstanding at the time of
the termination of the Plan will not be affected solely by reason of the
termination and will continue in accordance with the terms of the option as then
in effect or thereafter amended.
Grants of Options. Subject to the provisions of the Plan, the Committee
may grant options under the Plan, determine the number of shares covered by each
such option and establish the terms and conditions thereof, including, without
limitation, exercise price and restrictions on exercisability of the option or
on the shares of Common Stock issued upon exercise thereof and whether or not
the option is to be treated as an incentive stock option (an "Incentive Stock
Option") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
It is not possible to state the individuals who will receive grants of
stock options under the Plan in the future, nor the amount of options which will
be granted thereunder (except for the grant of the option to a consultant of the
Company for 20,000 shares at $9.875 per share, subject to Stockholder approval).
The following table provides information with respect to options granted under
the Plan through March 29, 1999.
<TABLE>
<CAPTION>
Name and Position Number of Options Granted
- ------------------------------------------------------------- -------------------------
<S> <C>
Norman H. Asbjornson, President, Treasurer and Director 155,000
Robert G. Fergus, Vice President 27,500
William A. Bowen, Vice President-Finance and Director 55,000
John B. Johnson, Jr., Secretary and Director 55,000
Joseph M. Klein, Director 27,500
Thomas E. Naugle, Director 27,500
Anthony Pantaleoni, Director 55,000
Charles C. Stephenson, Jr., Director 27,500
All officers as a group (four persons) 292,500
All directors who are not officers as a group (four persons) 137,500
All other employees as a group (67 persons) 285,875
</TABLE>
Administration. The Plan is administered by a committee of at least two
members of the Board of Directors appointed by the Board (the "Committee"). The
current Committee members are John B. Johnson, Jr., Joseph M. Klein and Anthony
Pantaleoni, none of whom is an employee of the Company.
Option Agreements. Each option granted under the Plan is required to
be evidenced by a written agreement in a form approved by the Committee. Each
such option is subject to the terms and conditions set forth in the option
agreement and the Plan.
Option Price. In the case of an option that is not an Incentive Stock
Option, the exercise price must be not less than 85% of the fair market value
(determined under the Plan) of a share of Common Stock on
-8-
<PAGE> 12
the date of grant. In the case of an Incentive Stock Option, the exercise price
must be not less than 100% (110% for a "ten percent shareholder") of the fair
market value of a share of Common Stock on the date of grant. On March 29, 1999,
the closing price of the Company's Common Stock on the Nasdaq National Market
was $11.00.
Exercises of Options. The period during which an option may be
exercised is fixed by the Committee and may not exceed 10 years from the date of
grant (five years in the case of an Incentive Stock Option granted to a "ten
percent shareholder"). No option is exercisable unless the person to whom the
option was granted remains in the continuous employment or service of the
Company or a subsidiary for at least one year from the date the option is
granted. Subject to earlier termination of the option as provided therein,
unless the Committee determines otherwise, the option becomes exercisable in
accordance with the following schedule based upon the number of full years of
the optionee's continuous employment or service with the Company or a subsidiary
following the date of grant:
<TABLE>
<CAPTION>
Full Years of Continuous
Employment/Service Following Incremental Percentage of Cumulative Percentage
Date of Grant Option Exercisable of Option Exercisable
---------------------------- ------------------------- ---------------------
<S> <C> <C>
Less than 1 0% 0%
1 20% 20%
2 20% 40%
3 20% 60%
4 20% 80%
5 or more 20% 100%
</TABLE>
All options granted to directors and the option granted to a consultant
on January 11, 1999, become fully exercisable after a one-year waiting period.
An option may be exercised by transmitting to the Company: (i) a
written notice specifying the number of shares to be purchased; and (ii) payment
in full of the purchase price, together with the amount, if any, deemed
necessary by the Committee to enable the Company to satisfy its income tax
withholding obligations with respect to such exercise. The purchase price of
shares of Common Stock acquired pursuant to the exercise of an option granted
under the Plan is payable in cash and/or such other form of payment as may be
permitted under the option agreement, including, without limitation,
previously-owned shares of Common Stock. The Committee may permit the payment of
all or a portion of the purchase price in installments (together with interest)
over a period of not more than five years.
Transferability of Options. No option granted under the Plan is
assignable or transferable except by will and/or by the laws of descent and
distribution and each such option is exercisable during the optionee's lifetime
only by him or her.
Termination of Employment or Other Service. If an employee ceases to be
employed by the Company for any reason other than death or disability (as
defined in the Plan), then each outstanding option granted to him or her under
the Plan will terminate no later than the date that is three months after the
date of termination of employment. Options granted to directors or consultants
will terminate on the first anniversary of the date on which the director or
consultant, as the case may be, ceases to perform services for the Company. If
an optionee's employment or service is terminated by reason of the optionee's
death or disability (or if the optionee's employment or service is terminated by
reason of his or her disability and the optionee dies within one year after such
termination of employment or service), then each outstanding
-9-
<PAGE> 13
option granted to the optionee under the Plan will terminate no later than the
date that is one year after the death of the disabled optionee.
Adjustments. The Plan provides that the maximum number of shares
issuable under the Plan as a whole and to each participant individually, the
number of shares issuable upon exercise of outstanding stock options, and the
exercise prices of such options are subject to such adjustments as are
appropriate to reflect any stock dividend, stock split, share combination, sale
of assets, merger, consolidation, reorganization or recapitalization. Upon the
dissolution or liquidation of the Company, or upon a reorganization, merger or
consolidation of the Company as a result of which the outstanding securities of
the class then subject to options thereunder are changed into or exchanged for
cash or property or securities not of the Company's issue, the Plan will
terminate and all options theretofore granted thereunder will terminate, unless
provision is made for the assumption of such options or the substitution for
such options with options covering the stock of a successor employer
corporation, with appropriate adjustments as to the number and kind of shares
and prices. If the unexercised options will terminate pursuant to the foregoing
sentence, all persons entitled to exercise any unexercised portions of options
then outstanding will have the right, within a reasonable period of time prior
to the consummation of the transaction causing such termination, to exercise
(or, in the sole discretion of the Board of Directors, to receive other
consideration for) the unexercised portions of their options, including, if the
Board so determines, the portions thereof which would, but for this paragraph,
not yet be exercisable.
Amendment and Termination of the Plan. The Board of Directors may amend
or terminate the Plan. Except as otherwise provided in the Plan with respect to
equity changes, any amendment which would increase the aggregate number of
shares of Common Stock as to which options may be granted under the Plan,
materially increase the benefits under the Plan, or modify the class of persons
eligible to receive options under the Plan is subject to the approval of the
holders of a majority of the Common Stock issued and outstanding. No amendment
or termination may adversely affect any outstanding option without the written
consent of the optionee.
Certain Federal Tax Consequences.
Withholding. Withholding of federal taxes at applicable rates
will be required in connection with any ordinary income realized by optionees by
reason of the exercise of options granted pursuant to the Plan. Optionees must
pay such taxes to the Company in cash or Common Stock prior to the receipt of
any Common Stock certificate.
Non-qualified Stock Options. The granting of a non-qualified
stock option will not result in federal income tax consequences to either the
Company or the optionee. Upon exercise of a non-qualified stock option, the
optionee will recognize ordinary income in an amount equal to the difference
between the fair market value of the shares on the date of exercise and the
exercise price, and the Company will be entitled to a corresponding deduction.
Any appreciation (or depreciation) after the date of exercise will be treated as
either short-term or long-term capital gain or loss, depending upon the length
of time that the optionee has held the shares.
Incentive Stock Options. In general, no income will be
recognized by an optionee and no deduction will be allowed to the Company at the
time of the grant or exercise of an incentive stock option granted under the
Plan. When the stock received on exercise of the option is sold, provided that
the stock is held for more than two years from the date of grant of the option
and more than one year from the date of exercise, the optionee will recognize
long-term capital gain or loss equal to the difference between the amount
realized and the exercise price of the option related to such stock. If these
holding period requirements under the Code are not satisfied, the sale of stock
received upon exercise of an incentive stock
-10-
<PAGE> 14
option is treated as a "disqualifying disposition", and the optionee must notify
the Company in writing of the date and terms of the disqualifying disposition.
In general, the optionee will recognize at the time of a disqualifying
disposition ordinary income in an amount equal to the amount by which the lesser
of (i) the fair market value of the Common Stock on the date the incentive stock
option is exercised or (ii) the amount realized on such disqualifying
disposition, exceeds the exercise price. The optionee will also recognize
capital gain to the extent of any excess of the amount realized on such
disqualifying disposition over the fair market value of the Common Stock on the
date the incentive stock option is exercised (or capital loss to the extent of
any excess of the exercise price over the amount realized on disposition). Any
capital gain or loss recognized by the optionee will be long-term or short-term
depending upon the holding period for the stock sold. The Company may claim a
deduction at the time of the disqualifying disposition equal to the amount of
the ordinary income recognized by the optionee.
Although an optionee will not realize ordinary income upon the exercise
of an incentive stock option, the excess of the fair market value of the shares
acquired at the time of exercise over the option price is included in
"alternative minimum taxable income" for purposes of calculating the optionee's
alternative minimum tax, if any, pursuant to Section 55 of the Code.
Other Tax Matters. If unmatured installments of options are
accelerated as a result of a change of control (see "Adjustments" above), any
amounts received from the exercise of a stock option may be included in
determining whether or not an optionee has received an "excess parachute
payment" under Section 280G of the Code, which could result in (i) the
imposition of a 20% Federal excise tax (in addition to Federal income tax)
payable by the optionee on the cash resulting from such exercise and (ii) the
loss by the Company of a compensation deduction.
PROPOSAL THREE - APPROVAL OF AMENDMENT TO
THE ARTICLES OF INCORPORATION
On February 18, 1999, the Board of Directors unanimously approved,
subject to the approval of the Stockholders, a proposed amendment to the
Company's Articles of Incorporation (the "Proposed Amendment"), and recommended
that the Proposed Amendment be submitted to the Stockholders for their approval
at the Annual Meeting. The Proposed Amendment would limit the personal liability
of the Company's directors to the fullest extent permitted by the Nevada General
Corporation Law (the "NGCL").
The Proposed Amendment is consistent with the NGCL which the Company
believes, among other things, encourages qualified individuals to serve as
directors of Nevada corporations by permitting such corporations to include in
their articles of incorporation a provision limiting or eliminating directors'
personal liability for damages for breach of certain duties as a director or an
officer. An amendment to the articles of incorporation approved by stockholders
is required in order for a corporation to effectuate this limitation of
liability. The affirmative vote of a majority of the Company's outstanding
shares entitled to vote will be required for adoption of the Proposed Amendment.
The text of the Proposed Amendment is attached hereto as Appendix B. If approved
by the Stockholders, the Amendment will be filed with the Secretary of State of
the State of Nevada.
In performing their duties, directors of a corporation are obligated to
exercise their business judgment and to act in good faith and with the degree of
care which an ordinarily prudent person in a like position would apply under
similar circumstances. Decisions by directors made on an informed basis, in good
faith and in the belief that the action taken is in the best interest of the
corporation and its stockholders are generally protected by the so-called
"business judgment rule," which is to the effect that courts should
-11-
<PAGE> 15
not question the propriety of such decisions. However, because of the expense of
defending lawsuits, the frequency with which unwarranted litigation is brought
against directors and officers and the inevitable uncertainties as to the
application of the business judgment rule to particular facts and circumstances,
directors and officers of a corporation, as a practical matter, rely on
indemnity from, and insurance procured by, the corporation they serve for the
payment of any such expenses or unforeseen liability. Moreover, a number of
other Nevada corporations have included the limitation of director liability in
their articles of incorporation in accordance with the NGCL.
The NGCL permits Nevada corporations, with stockholder approval, to
amend their articles of incorporation in order to eliminate or limit the
personal liability of directors to a corporation and stockholders for damages
arising for breaches of the director's duty as a director or an officer.
However, the NGCL does not permit elimination or limitation of the liability of
any director for (i) acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law or (ii) the payment of distributions in
violation of the NGCL.
The Proposed Amendment to the Company's Articles of Incorporation does
not reduce the fiduciary duty of a director; it eliminates monetary damage
awards to the Company and the Stockholders arising from certain breaches of that
duty. It does not affect the availability of equitable remedies, such as the
right to enjoin or rescind a transaction based upon a director's breach of
fiduciary duty. Adoption of the amendment would not affect a director's
liabilities for acts or failures to act prior to the time when the Proposed
Amendment becomes effective.
The Company's present directors are personally interested in, and will
personally benefit from, adoption of the Proposed Amendment, and such interest
may conflict with the interest of Stockholders. However, the Company's Board of
Directors believes that, by reducing the potential risks of personal liability
to directors, the Proposed Amendment will enhance the Company's ability to
continue to attract and retain highly qualified directors. The Board of
Directors believes that the diligence and care exercised by directors stems
primarily from their desire to act in the best interest of the Company and not
from a fear of damage awards. Therefore, the Board of Directors believes that
the level of care and diligence exercised by the directors will not be lessened
by adoption of the Proposed Amendment.
If, after approval by the Stockholders of the Proposed Amendment, the
NGCL is amended to authorize corporate action further limiting the personal
liability of directors, then the liability of a director of the Company would be
eliminated or limited to the fullest extent permitted by the NGCL, as so
amended, without further amendment of the Proposed Amendment.
The Board of Directors recommends that Stockholders vote FOR approval
of the Proposed Amendment.
-12-
<PAGE> 16
MEETINGS OF DIRECTORS AND AUDIT COMMITTEE
The business of the Company is managed under the direction of the Board
of Directors. The Board meets to review significant developments affecting the
Company and to act on matters requiring Board approval. It also holds special
meetings when an important matter requires Board action between scheduled
meetings. The Board of Directors met four times during 1998, and each Director
participated in at least 75% of all Board and applicable committee meetings held
during the period, except for Mr. Stephenson.
The Board of Directors has established an audit committee to devote
attention to specific subjects and to assist it in the discharge of its
responsibilities. The functions of the audit committee, its current members and
the number of meetings held during 1998 are described below. The Board of
Directors does not have a standing nominating or compensation committee;
however, the Board of Directors does have a committee that administers the
Company's Stock Option Plan. See "Proposal Two - Approval of Amendments of the
Company's Stock Option Plan."
The Audit Committee provides the opportunity for direct communications
between the independent public accountants and the Board of Directors. The Audit
Committee meets with the certified public accountants to review their
effectiveness during the annual audit program and to discuss the Company's
internal control policies and procedures. The members of the Audit Committee are
currently Messrs. Johnson, Klein and Pantaleoni. The Audit Committee met once
during fiscal year 1998.
EXECUTIVE COMPENSATION
Compensation. The following table sets forth information as to the
compensation of the Executive Officers of the Company whose annual salary and
bonus has exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------- ------------
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options/SARs Compensation
------------------- ---- -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Norman H. Asbjornson 1998 $132,000 $100 $1,729(1) 70,000(2) $ 30,518(3)
President
1997 $132,000 -0- $1,413(1) -0- $ 25,564(3)
1996 $132,000 -0- $739(1) -0- $ 18,788(3)
Robert G. Fergus 1998 $104,898 $100 $1,729(1) -0- $ 4,254(4)
Vice President
1997 $103,500 -0- $1,413(1) -0- $ 3,182(4)
1996 $100,292 -0- $739(1) -0- $ 1,882(4)
</TABLE>
- ------------------
(1) A per capita share, the same as all other eligible employees, of 10% of
the pre-tax profit of AAON-Oklahoma.
(2) Granted under the Company's Stock Option Plan.
(3) Includes (i) contribution to the Company's 401(k) plan by the Company
in the amounts of $5,067, $4,002 and $1,993 for the years 1998, 1997
and 1996, respectively, and (ii) the estimated dollar value of the
benefit to the executive officer from premiums paid by the Company on a
reverse split dollar insurance policy on the life of the executive in
the amounts of $25,451, $21,562 and $16,795 for the years 1998, 1997
and 1996, respectively.
(4) Contribution to the Company's 401(k) plan by the Company.
-13-
<PAGE> 17
Stock Options. The following table sets forth information concerning
stock options granted during 1998 by the Company to the Executive Officers. No
stock options were exercised by any Executive Officer, nor were any options held
by Executive Officers "repriced" during the past year.
OPTIONS/SARs GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Grant Date
Name Granted Fiscal Year per Share Expiration Date Present Value(3)
- -------------------- ------------ ------------- --------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Norman H. Asbjornson 20,000 6.86 $7.625 (1) $ 93,200
Norman H. Asbjornson 50,000 17.15 $ 9.00 (2) $175,000
</TABLE>
- -----------------
(1) Exercisable at the rate of 20%, cumulative, per year after January 16,
1999 (and until January 16, 2008).
(2) Exercisable at the rate of 20%, cumulative, per year after December 28,
1999 (and until December 28, 2008).
(3) This amount was calculated using the Black-Scholes option pricing
model, a complex mathematical formula that uses a number of factors to
estimate the present value of stock options. The assumptions used in
the valuation of the options to purchase 20,000 shares at an exercise
price of $7.625 were: stock price volatility - 47.39%, expected life -
eight years, interest rate - 5.83% and dividend yield - 0%. The
assumptions used in the valuation of the options to purchase 50,000
shares at an exercise price of $9.00 were: stock price volatility -
42.46%, expected life - eight years, interest rate - 4.38% and dividend
yield - 0%. The Black-Scholes model generates an estimate of the value
of the right to purchase a share of stock at a fixed price over a fixed
period. The actual value, if any, an executive realizes will depend on
whether the stock price at exercise is greater than the grant price, as
well as the executive's continued employment through the vesting period
and the option term.
The following table provides information on the value of each
Executive Officer's unexercised in-the-money options to acquire Common Stock at
December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options/ Options/SARs at
SARs at FY-End (#) FY-End ($)
Shares Acquired On Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable (1)
-------------------- ------------------ ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Norman H. Asbjornson - - 71,000 / 84,000 $338,717 / $115,792
Robert G. Fergus - - 27,500/- $223,383/-
</TABLE>
- ---------------------
(1) Calculated based on the difference between the Nasdaq National Market
closing price of Common Stock on December 31, 1998 of $9.313 and the
exercise price of the option.
Compensation of Directors. Directors of the Company are paid a fee of
$1,500 per board meeting attended and they are reimbursed for out-of-pocket
expenses incurred for attendance at such meetings. In addition, the Company has
granted persons who are newly elected Directors of the Company an option to
purchase 27,500 shares of the Company's Common Stock which options fully vest
on the first anniversary of the date of grant.
-14-
<PAGE> 18
REPORT ON EXECUTIVE COMPENSATION
General. The entire Board of Directors is responsible for (i) oversight
and administration of executive compensation, (ii) review of the Company's
overall compensation program and (iii) administering the Company's Stock Option
Plan. However, Messrs. Asbjornson and Bowen abstain from voting on their
compensation.
Compensation Process and Philosophy. There are two major components to
the Company's executive officer compensation: (i) base salary and (ii) option
grants. The process used by the Board of Directors in determining executive
compensation levels for these components has been based upon the Board of
Directors' subjective judgment of qualitative and quantitative factors. No
specific weights have been previously assigned to the qualitative and
quantitative factors in determining the compensation levels for these
components, and grants of options are not issued each year. The Board of
Directors considers the recommendation of the Company's President with respect
to the compensation level of the Company's executive officers, including the
President. The Board of Directors ultimately determines the level of
compensation for each of the Company's executive officers. The Board of
Directors believes that compensation for the Company's employees, including the
executive officers, must be in amounts sufficient to attract, retain and
motivate key employees, while at the same time maintaining a close relationship
to the Company's financial performance. The Board of Directors believes
compensation decisions should be tied to individual performance and designed to
encourage and reward employees for creating stockholder value. In addition,
executive officers should have a significant portion of their total compensation
opportunity at risk, i.e., stock options. The Company's compensation philosophy
is based on the following general principles: (i) employee compensation should
reflect the financial success of the overall Company and individual performance
and (ii) encourage all employees to invest in the Company's common stock to
align their interests with the stockholders' interests in maximizing value.
Salary. Effective October 1, 1992, Mr. Asbjornson's salary was set (and
remains) at an annual rate of $132,000, and the Board entered into a $1,000,000
"reverse split dollar" life insurance arrangement with him, pursuant to which
the Company pays the portion of the premium attributable to the term insurance
cost (determined by Internal Revenue Service "P.S. 58" rates), and is the
beneficiary of the full face amount of the policy, and Mr. Asbjornson pays the
amount of premium in excess of such insurance cost and is the owner-beneficiary
of the greater of the cash value thereof or the amount of all premiums paid by
him. Performance factors considered in setting Mr. Asbjornson's current base
compensation include having responsibility for establishing overall corporate
philosophy and goals, organizing and staffing Company personnel, overseeing
implementation of Board directives, financial budgets, marketing strategies,
engineering projects and manufacturing methods. His compensation is measured
both by progress toward long-term goals and current financial results.
Mr. Fergus' annual rate of salary was increased from $103,500 to
$106,605 effective December 1, 1998. The salary increase was predicated on Mr.
Fergus' efforts in reducing direct labor by implementation of improved
manufacturing methods and his overall job performance.
Mr. Bowen's annual rate of salary has been $38,564 since December 1,
1997. Additionally, the Company made 401(k) plan contributions to Mr. Bowen's
account totaling $2,264 in 1998.
Messrs. Asbjornson, Fergus and Bowen also participate in the Company's
"profit sharing" plan ($1,729 each in 1998 contributed by the Company, a per
capita share, the same as all other eligible employees, of 10% of the pre-tax
profit of AAON-Oklahoma), and Messrs. Asbjornson and Bowen received directors'
fees in 1998.
Board of Directors: Norman H. Asbjornson, William A. Bowen, John B. Johnson,
Jr., Joseph M. Klein, Thomas E. Naugle, Anthony Pantaleoni
and Charles C. Stephenson, Jr.
-15-
<PAGE> 19
BOARD OF DIRECTORS INTERLOCKS AND INSIDER
PARTICIPATION IN COMPENSATION DECISIONS
There were no reportable business relationships between the Company (or
any other corporation that requires specific disclosure under this heading) and
the members of the Board of Directors in 1998.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG AAON, INC., NASDAQ U.S., AND PEER GROUP*
[GRAPH]
*TOTAL RETURN BASED ON $100 TOTAL INVESTMENT & REINVESTMENT OF DIVIDENDS
- -------------------------------------------------------------------------------
* AAON, INC. X PEER GROUP O NASDAQ
- -------------------------------------------------------------------------------
ASSUMES $100 INVESTED ON JANUARY 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1998
* The peer group consists of American Standard Companies, Fedders Corp.,
International Comfort Products Corporation (former, Inter-City Products
Corporation), Mestek, Inc., Nortek, Inc., and York International Corp., all of
which are in the business of manufacturing air conditioning and heat exchange
equipment.
-16-
<PAGE> 20
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 4 furnished to the Company during its
most recent fiscal year, the Company knows of no director, officer or
beneficial owner of more than ten percent of the Company's Common Stock who has
failed to file on a timely basis reports of beneficial ownership of the
Company's Common Stock as required by Section 16(a) of the Securities Exchange
Act of 1934, as amended, except for a 1,000 share purchase by Norman H.
Asbjornson on December 30, 1998, which was reported on a Form 4 mailed for
filing on January 26, 1999.
RELATIONSHIP WITH AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1999.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement if they so desire and to be
available to respond to appropriate questions.
STOCKHOLDER NOTICE OF INTENT TO PRESENT PROPOSALS
Bay Harbour, a stockholder of the Company, delivered notice to the Company
on March 12, 1999 (the "Notice") of its intention to nominate two nominees for
election to the Board of Directors at the Annual Meeting and to propose the
following amendments to the Company's Bylaws, as amended (the "Bylaws") and
made the following statements in support of such proposed amendments.
"1. To assure that shareholders have an opportunity to elect a new board
majority at the 1999 and 2000 Annual Meetings, and to prevent the board from
unduly delaying the 2000 annual meeting, the undersigned intends to propose a
bylaw amendment that will require that the Company must hold the 2000 annual
meeting by May 30, 2000 and must set a meeting date for the 2000 annual meeting
by January 31, 2000. Specifically, the undersigned intends to propose that the
period be removed from the end of the first sentence of Article II, Section II
of the Bylaws and that the following language be inserted immediately after
such first sentence:
'; provided that the annual meeting of stockholders for 2000 shall be held
not later than May 30, 2000 and the Board of Directors shall set the date
for the 2000 annual meeting and shall give public notice of such date, in
each case, on or before January 31, 2000.'
2. To assure that shareholders have an opportunity to elect a new board
majority at the 1999 and 2000 Annual Meetings, the undersigned intends to
propose a bylaw amendment to ensure that at least one third of the directors
will be elected at the 2000 annual meeting. Specifically, the undersigned
intends to propose that the following language be inserted at the end of the
existing Article III, Section IA of the Bylaws:
'If the Board of Directors changes the total number of directors, the
Board of Directors shall classify the directors in accordance with the
first sentence of this Section 1A; provided that not less than one-third
of the number of the whole Board of Directors shall be elected at the
annual meeting for the year 2000.'
3. To allow shareholders more flexibility in exercising their powers in
corporate governance matters, the undersigned intends to propose a bylaw
amendment to reinstate shareholders' ability to act by written consent.
Specifically, the undersigned intends to propose that Article II, Section 10 of
the Bylaws be replaced in its entirety with the following language:
'Any action required or permitted to be taken at a meeting of stockholders
of the Corporation may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in
-17-
<PAGE> 21
writing, setting forth the action so taken, shall be signed by stockholders
holding the voting power required by law.'
4. To prevent the Board from interfering with the implementation of the
proposals being voted upon by the shareholders at the Annual Meeting, the
undersigned plans to introduce a proposal to repeal any bylaws adopted by the
Board since March 12, 1999 and a proposal to prevent the Board from making
amendments to the bylaws amended by the shareholders by passage of the
proposals described in this notice. Specifically, the undersigned intends to
propose that a new Section 2 be added to Article VIII of the Bylaws, which
would read as follows:
'Section 2. Any bylaws adopted by the Board of Directors between March 12,
1999 and the date of the adoption of this Section 2 are repealed and are of
no force and effect as of the date of the adoption of this Section 2.'
In addition, the undersigned intends to propose that Article VIII, Section
1 of the Bylaws be amended by removing the period at the end thereof and
inserting the following language at the end thereof:
'; provided, however, that without the approval of stockholders no
amendment shall be made to these Bylaws that would have the effect of
altering, amending or repealing any of the following sections of these
Bylaws: Article II, Section 2; Article III, Section 1A; Article II,
Section 10; Article VIII, Section 1; and
Article VIII, Section 2.'"
In accordance with Rule 14a-4(c)(2), the persons named in the enclosed
proxy will use their discretionary authority to vote against these proposals if
properly presented at the Annual Meeting.
Bay Harbour has filed revised proxy materials with the Securities and
Exchange Commission indicating that it will solicit votes for the election of
one instead of two of its nominees to the Board of Directors, for the various
Bylaw amendments, and against the Company's proposal to amend the Company's
Articles of Incorporation.
It is the Company's belief that the Notice is part of a plan of Bay
Harbour to facilitate its efforts to gain control. The proposals for which Bay
Harbour has indicated it will solicit proxies at the Annual Meeting would, if
approved by the requisite stockholder votes, result in Bay Harbour having one
nominee on the Company's Board of Directors and would result in various Bylaw
amendments. In addition, Bay Harbour has stated in its proxy materials filed
with the Securities and Exchange Commission that if Bay Harbour is not
satisfied with the Company's "progress," Bay Harbour may propose candidates for
the three directorships to be filled at the 2000 annual meeting. If Bay Harbour
is successful in placing its nominees on the Company's Board of Directors, then
by the time of the 2000 annual meeting, Bay Harbour will control the Company.
Moreover, Bay Harbour, by proposing various amendments to the Company's Bylaws,
is currently seeking changes to the corporate governance of the Company to
assist Bay Harbour's ability to gain control of the Company within a relatively
short time frame.
The Board of Directors does not believe that Bay Harbour's attempt to
obtain control of the Company is in the best interests of the Stockholders at
this time. First, the Board of Directors believes that it has been managing the
affairs of the Company in a prudent manner and that the Company is in good
financial condition. Second, Bay Harbour has stated in its Schedule 13D, as
amended, that it believes that it would be desirable for the Company to explore
the possibility of pursuing strategic transactions to enhance stockholder
value, and that "such transactions could involve . . . the sale of all or a
material part of AAON's assets." The Board of Directors currently does not
believe that a sale of the Company's assets is in the best interests of the
stockholders. The bottom line is that Bay Harbour has not provided the Company
with any specific plans with respect to how Bay Harbour could operate the
Company more profitably or otherwise maximize Stockholder value. Bay Harbour
has not provided the Company with
-18-
<PAGE> 22
any information that demonstrates that Bay Harbour's nominee has experience in
the Company's industry, whereas the Board of Directors' two nominees have more
than a decade of experience in managing the Company. Therefore, the Board of
Directors has no information to indicate that Bay Harbour or its nominee could
contribute to the value of the Company in any meaningful way.
Moreover, although the proposed amendment set forth in paragraph 4 above
would not cause the repeal of any Bylaws of the Company existing at this time,
the effect of this proposed bylaw would be to prevent the Company from amending
the Bylaws in any way prior to the Annual Meeting, irrespective of whether such
change might be desirable. The Board believes that this limitation on its
discretion would be unwise and potentially damaging to your interest as a
Stockholder. If the proposed Bylaw is approved, the existing directors, if
still in office, will consider taking appropriate action to determine the
validity of the proposal.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING 2000
Stockholder proposals intended to be presented at the 2000 Annual Meeting
and to be included in the Company's Proxy Statement must be received at the
Company's executive offices, 2425 South Yukon, Tulsa, Oklahoma 74107, no later
than December 23, 1999.
However, a stockholder who otherwise intends to present business at the
2000 Annual Meeting of stockholders, including nominations of persons to the
Company's Board of Directors, must also comply with the requirements set forth
in the Company's Bylaws. The Bylaws state, among other things, that to bring
business before an annual meeting or to nominate a person for the Company's
Board of Directors, a stockholder must give written notice that complies with
the Bylaws to the Secretary of the Company not less than 60 days nor more than
90 days in advance of the anniversary date of the immediately preceding Annual
Meeting. Thus, a notice of a stockholder proposal or nomination for the 2000
annual meeting of stockholders, submitted other than pursuant to Rule 14a-8,
will be untimely if given before February 25, 2000 or after March 26, 2000. As
to any such proposals, the proxies named in management's proxy for that meeting
will be entitled to exercise their discretionary authority on that proposal
unless the Company receives notice of the matter to be proposed between February
25, 2000 and March 26, 2000. Even if proper notice is received on a timely
basis, the proxies named in management's proxy for that meeting may nevertheless
exercise their discretionary authority with respect to such matter by advising
stockholders of such proposal and how they intend to exercise their discretion
to vote on such matter to the extent permitted under Rule 14a-4(c)(2) of the
Securities Exchange Act of 1934, as amended.
CERTAIN INFORMATION REGARDING PARTICIPANTS
The Company and its directors may be deemed to be "participants" as such
term is defined by regulations promulgated by the Securities and Exchange
Commission. Certain additional information with respect to the Company and its
directors is set forth in Appendix C to this Proxy Statement.
By Order of the Board of Directors
/s/ Norman H. Asbjornson
Norman H. Asbjornson
April 22, 1999 President
-19-
<PAGE> 23
APPENDIX A
AMENDMENT TO THE
AAON, INC.
1992 STOCK OPTION PLAN
I. Paragraph 2 of the AAON, Inc. 1992 Stock Option Plan (the "Plan") is hereby
amended to read as follows:
"2. SHARES SUBJECT TO THE PLAN.
The Company may issue and sell a total of 1,300,000 shares of
its Common Stock pursuant to the Plan. Such shares may be either
authorized and unissued or held by the Company in its treasury. New
options may be granted under the Plan with respect to shares of Common
Stock which are covered by the unexercised portion of an option which
has terminated or expired."
II. Paragraph 3 of the Plan is hereby amended to read as follows:
"3. GRANT OF OPTIONS.
Options may be granted under the Plan to present or future key
employees of the Company or a subsidiary of the Company (a
"Subsidiary") within the meaning of Section 425(f) of the Internal
Revenue Code of 1986, as amended (the "Code"), to directors, including
non-employee directors of the Company, and to consultants to the
Company. Subject to the provisions of the Plan, the Committee (defined
in paragraph 4 below) shall from time to time select the key personnel
of the Company and its Subsidiaries to whom options under the Plan will
be granted, and shall fix the number of shares covered by each such
option and establish the terms and conditions thereof (including,
without limitation, exercise price and restrictions on exercisability
of the option or on the shares of Common Stock issued upon exercise
thereof and whether or not the option is to be treated as an incentive
stock option within the meaning of Section 422 of the Code (an
"Incentive Stock Option")."
III. Paragraph 9 of the Plan is hereby amended to read as follows:
"9. TERM OF PLAN.
The Plan shall be effective as of March 11, 1992, the date on
which it was originally adopted by the Board. The Plan will terminate
on March 11, 2002, as to Incentive Stock Options granted thereunder and
on March 11, 2012, as to non-qualified stock options granted
thereunder, unless sooner terminated by the Board. The rights of
Optionees under the Options outstanding at the time of the termination
of the Plan shall not be affected solely by reason of the termination
and shall continue in accordance with the terms of the option as then
in effect or after amended."
<PAGE> 24
APPENDIX B
AMENDMENT TO
ARTICLES OF INCORPORATION
PROPOSED ADDITION OF A NEW ARTICLE XIV TO THE COMPANY'S ARTICLES OF
INCORPORATION.
ARTICLE XIV
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director or
officer, except for liability (i) for acts or omissions that involve intentional
misconduct, fraud or a knowing violation of law or (ii) for the payment of
distributions in violation of Section 78.300 of the Nevada General Corporation
Law. If the Nevada General Corporation Law hereafter is amended to authorize the
further elimination or limitation of the liability of directors or officers,
then the liability of a director or officer of the Corporation, in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Nevada General Corporation Law. Any
repeal or modification of this Section by the stockholders of the Corporation
shall be prospective only and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation existing at the
time of such repeal or modification.
<PAGE> 25
APPENDIX C
ADDITIONAL INFORMATION CONCERNING
PARTICIPANTS IN THE PROXY SOLICITATION
Set forth below are the name and business address of each of the
participants (except the Company) in the solicitation made pursuant to this
Proxy Statement.
Norman H. Asbjornson
AAON, Inc.
2425 South Yukon
Tulsa, Oklahoma 74107
William A. Bowen
1484 Wallace Pate Drive
Georgetown, South Carolina 29440
John B. Johnson, Jr.
Johnson, Allen, Jones & Dornblaser
900 Petroleum Club Building
601 South Boulder
Tulsa, Oklahoma 74119
Joseph M. Klein
CCI Corporation
P.O. Box 582800
Tulsa, Oklahoma 74158
Thomas E. Naugle
2739 East 69th Place
Tulsa, Oklahoma 74136
Anthony Pantaleoni
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Charles C. Stephenson, Jr.
Vintage Petroleum, Inc.
4200 One William Center
Tulsa, Oklahoma 74172
Except as set forth in this Proxy Statement or in the Appendices hereto, to
the best knowledge of the Company, none of the persons participating in this
solicitation on behalf of the Company nor any associates of the Company (i) owns
beneficially, directly or indirectly, or has the right to acquire, any
securities of the Company or any parent or subsidiary of the Company, (ii) owns
any securities of the Company of record but not beneficially, (iii) has
purchased or sold any securities of the Company within the past two years, (iv)
has incurred indebtedness for the purpose of acquiring or holding securities of
the Company, (v) is or has been a party to any contract, arrangement of
understanding with respect to any securities of the Company within the past
year, (vi) has been indebted to the Company or any of its subsidiaries since the
beginning of the Company's last fiscal year or (vii) has any arrangement or
understanding with respect to future employment by the Company or with respect
to any future transactions to which the Company or any of its affiliates will or
may be a party. In addition, except as set forth in this Proxy Statement or in
the Appendices hereto, to the best knowledge of the Company, none of the persons
participating in this
<PAGE> 26
solicitation on behalf of the Company, management's nominees, nor any associate
or immediate family member of any of the foregoing persons has had or is to have
a direct or indirect material interest in any transaction with the Company since
the beginning of the Company's last fiscal year, or any proposed transaction, to
which the Company or any of its affiliates was or is a party.
TRANSACTIONS IN SHARES OF AAON, INC.
The following table sets forth information with respect to all
purchases and sales of shares of Common Stock of the Company by the participants
during the past two years. No part of the purchase price of any of the shares
purchased by the participants as reflected below was represented by borrowed
funds or otherwise obtained for the purpose of acquiring or holding such
securities.
I. Transactions in shares of Common Stock by Norman H. Asbjornson.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
DATE COMMON STOCK PURCHASED
---- ----------------------
<S> <C> <C>
December 30, 1998 1,000
January 11, 1999 3,000
</TABLE>
In addition, on July 8, 1998, he disposed of 5,000 shares by gift.
II. Transactions in shares of Common Stock by John B. Johnson, Jr.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF COMMON
DATE COMMON STOCK PURCHASED STOCK SOLD
---- ---------------------- --------------------------
<S> <C> <C>
September 2, 1997 19,800
October 27, 1997 5,610
(purchased through
profit sharing plan)
October 31, 1997 4,390
(purchased through
profit sharing plan)
December 9, 1997 5,000
(purchased through
profit sharing plan)
December 10, 1997 5,100
(purchased through
profit sharing plan)
</TABLE>
III. Transactions in shares of Common Stock by William A. Bowen
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF COMMON
DATE COMMON STOCK PURCHASED STOCK SOLD
---- ---------------------- --------------------------
<S> <C> <C>
March 24, 1999 3,000 (through the 3,000
exercise of an option)
</TABLE>
IV. Transactions in shares of Common Stock by Thomas E. Naugle.
On October 17, 1997, Mr. Naugle disposed of 1,300 shares by gift.
<PAGE> 27
APPENDIX D
FORM OF PROXY
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
AAON, INC.
2425 South Yukon
Tulsa, Oklahoma 74107
The undersigned stockholder of AAON, Inc., a Nevada corporation (the
"Company"), hereby constitutes and appoints John B. Johnson, Jr., and
Joseph M. Klein, and each of them, with full power of substitution, as
attorneys and proxies to appear and vote all shares of stock of the
Company standing in the name of the undersigned, at the Annual Meeting
of Stockholders of the Company (the "Annual Meeting") to be held at
2425 South Yukon Avenue, Tulsa, Oklahoma, on Tuesday, May 25, 1999, at
10:00 a.m. (Local Time), and at any adjournment or postponement
thereof, with all powers that the undersigned would possess if
personally present, hereby revoking all previous proxies.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 3
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS:
FOR both nominees listed below WITHHOLD AUTHORITY
(except as shown to the contrary below)[ ] to vote for both nominees listed below[ ]
William A. Bowen and Anthony Pantaleoni for terms ending in 2002
(INSTRUCTION: To withhold authority to vote for either nominee, write that
nominee's name on the space provided below.)
- -------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE AMENDMENTS TO STOCK OPTION PLAN [ ]FOR [ ]AGAINST [ ]ABSTAIN
3. PROPOSAL TO APPROVE AMENDMENT OF ARTICLES OF INCORPORATION [ ]FOR [ ]AGAINST [ ]ABSTAIN
4. THE PROXIES APPOINTED HEREIN WILL USE THEIR DISCRETIONARY AUTHORITY (i) TO
VOTE AGAINST THE PROPOSALS OF BAY HARBOUR MANAGEMENT, L.C., IF PROPERLY
PRESENTED AT THE ANNUAL MEETING, AND (ii) TO VOTE IN THEIR BEST JUDGMENT
UPON ANY OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF.
</TABLE>
(Please sign and date on the reverse side)
<PAGE> 28
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR BOTH OF THE COMPANY'S NOMINEES FOR DIRECTOR, FOR PROPOSALS 2 AND 3 AND, IN
THE DISCRETION OF THE PROXIES NAMED HEREIN, AGAINST THE PROPOSALS OF BAY HARBOUR
MANAGEMENT, L.C., IF PROPERLY PRESENTED AT THE ANNUAL MEETING, AND IN THEIR BEST
JUDGMENT UPON ANY OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF .
The undersigned hereby acknowledge(s) receipt of the Notice of the
aforesaid Annual Meeting and the Proxy Statement accompanying the same, both
dated April 22, 1999.
Dated:____________, 1999 Signature(s):
-------------------------------
-------------------------------
Printed Name:
-----------------------------
Title:
------------------------------------
(Please sign exactly as your name appears
at left. When shares are held in the names
of two or more persons, all should sign
individually. Executors, administrators,
trustees, etc., should so indicate when
signing. When shares are held in the name
of a corporation, the name of the
corporation should be written first and
then an authorized officer should sign on
behalf of the corporation, showing the
office held.)
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
<PAGE> 29
APPENDIX E
STOCK OPTION PLAN
AAON, INC.
1992 STOCK OPTION PLAN
(as amended through March 6, 1997)
PREAMBLE
A. AAON, Inc., a Nevada corporation (the "Company"), originally adopted
the 1992 Stock Option Plan (the "Plan") allowing the Company to issue and sell a
total of 1,100,000 shares of its $.001 par value common stock. In September,
1993, the Company declared a 1-for-4 reverse stock split, thereby resulting in
275,000 shares of the Company's $.004 par value common stock (the "Common
Stock") being covered by the Plan. In May, 1994, the Plan was amended to
increase to 550,000 shares the number of shares authorized under the Plan. In
March, 1995, the Company declared a 10% stock dividend, thereby resulting in the
current 605,000 shares of the Company's $.004 par value stock being subject to
the Plan.
B. On March 6, 1997, the Board of Directors of the Company (the
"Board") approved further amendments to the Plan, which amendments (i) increase
the number of shares of Common Stock subject to the Plan from 605,000 to
1,000,000; and (ii) make the Plan consistent with recently adopted amendments to
Rule 16b-3 issued by the Securities and Exchange Commission under the Securities
Exchange Act, resulting in the deletion of any references in the Plan to
distinctions between options granted exclusively to directors (the so-called
"Plan A Options") and all other options (the so-called "Plan B Options"), which
amendments are subject to approval of the shareholders at their annual meeting
on May 29, 1997.
C. As amended, the terms of the Plan are as set forth below.
1. PURPOSE.
The purpose of this Plan is to enable the Company and its
stockholders to secure the benefits of common stock ownership, or increased
ownership, by key personnel of the Company and its subsidiaries. The Board
believes that the granting of options under the Plan will foster the Company's
ability to attract, retain and motivate those individuals who will be largely
responsible for the continued profitability and long-term future growth of the
Company.
2. SHARES SUBJECT TO THE PLAN.
The Company may issue and sell a total of 1,000,000 shares of
its Common Stock pursuant to the Plan. Such shares may be either authorized and
unissued or held by the Company in its treasury. New options may be granted
under the Plan with respect to shares of Common Stock which are covered by the
unexercised portion of an option which has terminated or expired.
3. GRANT OF OPTIONS.
Options may be granted under the Plan to present or future
key employees of the Company or a subsidiary of the Company (a "Subsidiary")
within the meaning of Section 425(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), and to directors, including non-employee directors of the
Company. Subject to the provisions of the Plan, the Committee (defined in
paragraph 4 below) shall from time to time select the key personnel of the
Company and its Subsidiaries to whom options under the Plan will be granted,
and shall fix the number of shares covered by each such option and establish
the terms and conditions thereof (including, without limitation, exercise price
and restrictions on exercisability of the option or on the shares of Common
Stock issued upon exercise thereof and whether or not the option is to be
treated as an incentive stock option within the meaning of Section 422 of the
Code (an "Incentive Stock Option").
<PAGE> 30
4. ADMINISTRATION.
The Plan will be administered by a committee (the
"Committee") consisting of at least two directors appointed by and serving at
the pleasure of the Board. The Committee members appointed effective March 6,
1997, are Richard E. Minshall, Anthony Pantaleoni and John B. Johnson, Jr.,
none of whom is an employee of the Company.
Subject to the provisions of the Plan, the Committee, acting
in its sole and absolute discretion, shall have full power and authority to
grant options under the Plan, to interpret the provisions of the Plan and
option agreements made under the Plan, to supervise the administration of the
Plan, and to take such other action as may be necessary or desirable in order
to carry out the provisions of the Plan. A majority of the members of the
Committee shall constitute a quorum. The Committee may act by the vote of a
majority of its members present at a meeting at which there is a quorum or by
unanimous written consent. The decision of the Committee as to any disputed
question, including questions of construction, interpretation and
administration, shall be final and conclusive on all persons. The Committee
shall keep a record of its proceedings and acts and shall keep or cause to be
kept such books and records as may be necessary in connection with the proper
administration of the Plan.
No member of the Committee shall be personally liable by
reason of any contract or other instrument executed by him or on his behalf in
his capacity as a member of the Committee or for any mistake of judgment made
in good faith, and the Company shall indemnify and hold harmless each member of
the Committee and each other officer, employee or director of the Company to
whom any duty or power relating to the administration or interpretation of the
Plan has been delegated, against any cost or expense (including reasonable
counsel fees) or liability (including any sum paid in settlement of a claim
with the approval of the Committee) arising out of any act or failure to act in
connection with the Plan, unless arising out of such person's own fraud or bad
faith.
The Committee may seek and rely on the advice of accountants,
legal counsel and other professionals as it deems necessary or advisable for
the operation and administration of the Plan. The fees of any such
professionals shall be borne by the Company.
Notwithstanding the authority delegated above to the
Committee, any action which may be taken by the Committee with respect to the
administration of the Plan, including the granting of any option thereunder,
may also be taken by the Board of Directors, and each reference to actions
taken or authority exercised by the Committee hereunder shall be deemed to
include actions which may be taken or authority which may be exercised by the
Board.
5. TERMS AND CONDITIONS OF OPTIONS.
Each option granted under the Plan shall be evidenced by a
written agreement in a form approved by the Committee. Each such option shall
be subject to the terms and conditions set forth in this paragraph and such
additional terms and conditions not inconsistent with the Plan (and, in the
case of an Incentive Stock Option, not inconsistent with the provisions of the
Code applicable thereto) as the Committee deems appropriate.
1. Option Price. In the case of an option which is not
treated as an Incentive Stock Option, the purchase
price per share shall not be less than 85% of the
fair market value of a share of Common Stock on the
date the option is granted; and, in the case of an
Incentive Stock Option, the purchase price per share
shall not be less than 100% of the fair market value
of a share of Common Stock on the date the option is
granted [110% in the case of an optionee who, at the
time the option is granted, owns stock possessing
more than 10% of the total combined voting power of
all classes of stock of the Company or a Subsidiary
(a "ten percent shareholder")]. For purposes hereof,
the fair market value of a share of Common Stock on
any date shall be equal to the closing sale price per
share as published by a national securities exchange
on which shares of the Common Stock are traded on
such date or, if there is no sale of Common Stock on
such date, the average of the bid and asked prices on
such exchange at the closing of trading on such date
or, if shares of the Common Stock are not listed on a
national securities exchange on such date, the
average of the bid and asked prices in the over the
counter market at the close of trading on such date,
or, if the Common Stock is not traded on a national
securities exchange or the over the counter market,
the
<PAGE> 31
fair market value of a share of the Common Stock on
such date as determined in good faith by the
Committee.
2. Option Period. The period during which an option may
be exercised shall be fixed by the Committee and
shall not exceed ten years from the date the option
is granted (five years in the case of an Incentive
Stock Option granted to a "ten percent shareholder").
3. Exercise of Options. No option shall be exercisable
unless the person to whom the option was granted
remains in the continuous employ or service of the
Company or a Subsidiary for at least one year from
the date the option is granted. Subject to earlier
termination of the option as provided herein, unless
the Committee determines otherwise, the option will
become exercisable in accordance with the following
schedule based upon the number of full years of the
optionee's continuous employment or service with the
Company or a Subsidiary following the date of grant:
<TABLE>
<CAPTION>
Full Incremental Cumulative
Years of Continuous Percentage of Percentage of
Employment Option Option
Service Exercisable Exercisable
----------- ----------- -----------
<S> <C> <C>
Less than 1 0% 0%
1 20% 20%
2 20% 40%
3 20% 60%
4 20% 80%
5 or more 20% 100%
</TABLE>
All or part of the exercisable portion of an option
may be exercised at any time during the option
period, except that, without the consent of the
Committee, no partial exercise of an option shall be
for less than 100 shares. An option may be exercised
by transmitting to the Company: (1) a written notice
specifying the number of shares to be purchased; and
(2) payment in full of the purchase price (or, if
applicable, delivery of a secured obligation
therefor), together with the amount, if any, deemed
necessary by the Committee to enable the Company to
satisfy its income tax withholding obligations with
respect to such exercise (unless other arrangements
acceptable to the Committee are made with respect to
the satisfaction of such withholding obligations).
4. Payment of Option Price. The purchase price of shares
of Common Stock acquired pursuant to the exercise of
an option granted under the Plan shall be payable in
cash and/or such other form of payment as may be
permitted under the option agreement, including,
without limitation, previously-owned shares of Common
Stock. The Committee may permit the payment of all or
a portion of the purchase price in installments
(together with interest) over a period of not more
than five years.
5. Rights as a Stockholder. No shares of Common Stock
shall be issued in respect of the exercise of an
option granted under the Plan until full payment
therefor has been made (and/or provided for where all
or a portion of the purchase price is being paid in
installments). Upon receipt of full payment, the
Company shall notify its Transfer Agent and the
Transfer Agent shall, on behalf of the Company,
prepare a certificate or certificates representing
such shares acquired pursuant to exercise of the
option, shall register the holder of the option as
the owner of such shares on the books of the Company
and shall cause the fully executed certificate(s)
representing such shares to be delivered to the
holder as soon as practicable after payment of the
option price in full. The holder of an option shall
have no rights as a stockholder with respect to any
shares covered by an option until the date a stock
certificate for such shares is issued to him or her.
Except as otherwise
<PAGE> 32
provided herein, no adjustments shall be made for
dividends or distributions of other rights for which
the record date is prior to the date such stock
certificate is issued.
6. Transferability of Options. No option granted under
the Plan shall be assignable or transferable except
by will and/or by the laws of descent and
distribution; and each such option shall be
exercisable during the optionee's lifetime only by
him or her.
7. Termination of Employment or Other Service. If an
optionee ceases to be employed by or to perform
services for the Company or any Subsidiary for any
reason other than death or disability (defined
below), then each outstanding option granted to him
or her under the Plan shall terminate on the date
three months after the date of such termination of
service (or, if earlier, the date specified in the
option agreement). If an optionee's employment or
service is terminated by reason of the optionee's
death or disability (or if the optionee's employment
or service is terminated by reason of his or her
disability and the optionee dies within one year
after such termination of employment or service),
then each outstanding option granted to the optionee
under the Plan shall terminate on the date one year
after the date of such termination of employment or
service (or one year after the later death of a
disabled optionee) or, if earlier, the date specified
in the option agreement. For purposes hereof, the
term "disability" shall mean the inability of an
optionee to perform the customary duties of his or
her employment or other service for the Company or a
Subsidiary by reason of a physical or mental
incapacity which is expected to result in death or be
of indefinite duration.
8. Incentive Stock Options. In the case of an Incentive
Stock Option granted under the Plan, at the time the
option is granted, the aggregate fair market value
(determined at the time of grant) of the shares of
Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by the
optionee during any calendar year shall not exceed
$100,000.
9. Changes in Capital Stock. In the event of a stock
dividend or in the event that the outstanding shares
of the Common Stock shall be changed into or
exchanged for a different number or kind of shares of
stock or other securities of the Company or of
another corporation, whether through reorganization,
recapitalization, stock split-up, combination of
shares, sale of assets, merger or consolidation in
which the Company is the surviving corporation, then
appropriate adjustments will be made to the number,
nature and/or purchase price of the shares which may
be issued under the Plan or purchased under an
outstanding option. Upon the dissolution or
liquidation of the Company, or upon a reorganization,
merger or consolidation of the Company as a result of
which the outstanding securities of the class then
subject to options hereunder are changed into or
exchanged for cash or property or securities not of
the Company's issue, the Plan shall terminate and all
options theretofore granted hereunder shall
terminate, unless provision is made for the
assumption of such options or the substitution for
such options with options covering the stock of a
successor employer corporation, or a parent or a
subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices. If the
unexercised options shall terminate pursuant to the
foregoing sentence, all persons entitled to exercise
any unexercised portions of options then outstanding
shall have the right, within a reasonable period of
time prior to the consummation of the transaction
causing such termination, to exercise (or, in the
sole discretion of the Board, to receive other
consideration for) the unexercised portions of their
options, including, if the Board so determines, the
portions thereof which would, but for this paragraph,
not yet be exercisable.
10. Other Provisions. The Board may impose such other
conditions with respect to the exercise of options,
including, without limitation, any condition relating
to the application of federal or state securities
laws, as it may deem necessary or advisable.
11. Legend on Certificates. The certificates representing
shares acquired upon exercise of options shall carry
such appropriate legend, and such written
instructions shall be given to the Company's
<PAGE> 33
Transfer Agent, as may be deemed necessary or
advisable by counsel to the Company in order to
comply with the federal or any state securities laws.
6. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may amend or terminate the Plan. Except as
otherwise provided in the Plan with respect to equity changes, any amendment
which would increase the aggregate number of shares of Common Stock as to which
options may be granted under the Plan, materially increase the benefits under
the Plan, or modify the class of persons eligible to receive options under the
Plan shall be subject to the approval of the holders of a majority of the
Common Stock issued and outstanding. No amendment or termination may adversely
affect any outstanding option without the written consent of the optionee.
7. NO RIGHTS CONFERRED.
Nothing contained herein will be deemed to give any
individual any right to receive an option under the Plan or to be retained in
the employ or service of the Company or any Subsidiary.
8. GOVERNING LAW.
The Plan and each option agreement shall be governed by the
laws of the State of Nevada.
9. TERM OF THE PLAN.
The Plan shall be effective as of March 11, 1992, the date on
which it was originally adopted by the Board. The Plan will terminate on March
11, 2002, unless sooner terminated by the Board. The rights of optionees under
the options outstanding at the time of the termination of the Plan shall not be
affected solely by reason of the termination and shall continue in accordance
with the terms of the option as then in effect or thereafter amended.
