REXHALL INDUSTRIES, INC.
25655 Springbrook Avenue
Saugus, California 91350
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of Rexhall Industries, Inc.
("Company") will be held at the Hampton Inn, 25259 The Old Road,
Newhall, California, 91321, on Tuesday, May 26, 1994, at 2:00 p.m.,
California time for the following purposes:
1. To elect its Board of Directors to serve for the ensuing year;
2. To ratify the selection of Deloitte & Touche as the independent
public accountants of the Company for the year ending December 31,
1994;
3. To consider and act upon a proposal to amend the Company's 1989
Incentive and Non-statutory Stock Option Plan.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The stock transfer books of the Company will not be closed, but
only holders of common stock of record at the close of business on
April 18, 1994 will be entitled to vote at the meeting.
Your proxy is enclosed. You are cordially invited to attend the
meeting, but if you do not expect to attend, or if you plan to
attend, but desire the proxy holders to vote your shares, please
date and sign your proxy and return it in the enclosed postage paid
envelope. The giving of this proxy will not affect your right to
vote in person in the event you find it convenient to attend.
Cheryl L. Rex
Secretary
DATED: April 18,1994
<PAGE>
REXHALL INDUSTRIES, INC.
25655 Springbrook Avenue
Saugus, California 91350
PROXY STATEMENT FOR ANNUAL MEETING TO BE HELD
MAY 26,1994,2:00 P.M.
Your proxy is solicited on behalf of the Board of Directors of
Rexhall Industries, Inc. ("Company") for use at the annual meeting
of shareholders to be held at the above date at the Hampton Inn,
25259 The Old Road, Newhall, California, 91321. If a proxy in the
accompanying form is duly executed and returned, the shares
represented by the proxy will be voted as directed. If no
direction is given, the shares will be voted for the election of
the five (5) nominees for director named herein, for approval of
the amendments of the Company's 1989 Incentive and Non-statutory
Stock Option Plan, and for the approval of Deloitte & Touche as the
Company's independent accountants for the year ending December 31,
1994. A proxy given by a shareholder may be revoked at any time
before it is exercised by notifying the Secretary of the Company in
writing of such revocation, by giving another proxy bearing a later
date or by voting in person at the meeting.
The cost of this solicitation of proxies will be borne by the
Company. Solicitations will be made by mail. In addition the
officers and regularly engaged employees of the Company may, in a
limited number of instances, solicit proxies personally or by
telephone. The Company will reimburse banks, brokerage firms,
other custodians, nominees and fiduciaries for reasonable expenses
incurred in sending proxy materials to beneficial owners of common
stock of the Company.
The Company's annual report, including financial statements for its
fiscal year ended December 31, 1993, is being mailed to all
shareholders concurrently herewith. The annual report is not part
of the proxy materials.
The Company's annual report on Form 10-K SB for the year ended
December 31, 1993, as filed with the Securities and Exchange
Commission, is available without charge upon written request from
the Secretary of the Company at the address set forth above.
Holders of common stock of record at the close of business on April
18, 1994 will be entitled to vote at the meeting. There were
2,389,000 shares of common stock outstanding at that date. Each
share is entitled to one vote and a majority of the shares of
common stock outstanding is necessary to constitute a quorum for
the meeting. The shareholders have cumulative voting rights in the
election of directors. Under the cumulative voting method, a
shareholder may multiply the number of shares owned by the number
of directors to be elected and cast this total number of votes for
any one candidate or distribute the total number of votes in any
proportion among as many candidates as the shareholder desires. A
shareholder may not cumulate his votes for a candidate unless such
candidate's name has been placed in nomination prior to the voting
and unless a shareholder has given notice at the meeting prior to
the voting of his intention to cumulate his votes. If any
shareholder gives such notice, all shareholders may then cumulate
their votes.
<PAGE>
ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the
next annual meeting of shareholders and until their successors are
elected and qualified. The number of directors presently
authorized by the By-laws of the Company is five (5).
Unless otherwise directed by shareholders, the proxy holders will
vote all shares represented by proxies held by them for the
election of the maximum number of the following nominees, all of
whom are now members of and constitutes the Company's Board of
Directors. The Company is advised that all of the nominees have
indicated their availability and willingness to serve if elected.
In the event that any nominee becomes unavailable or unable to
serve as a director of the Company prior to voting, the proxy
holders will vote for a substitute nominee in the exercise of their
best judgment.
Information Concerning Nominees
Information concerning the nominees based on data furnished by them
is set forth below:
WILLIAM J. REX, age 43, a founder of the Company, has served as the
Company's chief executive from its inception as a general
partnership in July 1986. In January 1987, when the Company began
operations in corporate form, Mr. Rex became the Company's
President and Chairman of the Board, offices which he continues to
hold. From March 1983 until founding the Company, Mr. Rex served
in various executive capacities for Establishment Industries, Inc.,
a manufacturer of Class A and Class C motorhomes which was acquired
in June 1985 by Thor Industries, Inc., a large manufacturer of
recreational vehicles. His last position with Establishment
Industries, Inc. was President. From 1970 until March 1983, Mr.
Rex was employed in various production capacities by Dolphin
Trailer Company, a manufacturer of a wide range of recreational
vehicle products. At the time he left Dolphin Trailer Company
(which changed its name to National R.V., Inc. in 1985), Mr. Rex
was Plant Manager in charge of all production and research and
development.
W. MICHAEL HILL, age 48, joined the Company as Executive Vice
President in November, 1990 and became a member of the Board of
Directors in March, 1991. From October 1982 until joining the
Company, Mr. Hill served as President of Executive Industries, Inc.
where he served as Chief Operating Officer and later as Chief
Executive Officer. Executive Industries was a manufacturer of
Recreational Vehicles.
AL J. THEIS, age 76, became a director in August 1987. Mr. Theis
is a consultant to the recreational vehicle industry and consults
with the Company relating to financial matters and in development
of global sales. From August 1987 to February 1991, Mr. Theis was
employed by the Company as Chief Financial Officer. From February
1982 until June 1984, he was employed by Establishment Industries,
Inc., as Chief Financial Officer and Corporate Planner.
<PAGE>
DONALD C. HANNAY, age 66, joined the Company in December 1987 and
is responsible for product sales and marketing. He became a
director in May 1989. From April 1982 until August 1987, he was
employed by Establishment Industries, Inc. as Vice President, Sales
and Marketing where he built the Establishment's dealer network and
was responsible for dealer sales. From August 1987 until joining
the Company, he was employed as General Sales Manager by Komfort
Industries of California, Inc., a recreational vehicle,
manufacturer located in Riverside, California.
ROBERT A. LOPEZ, age 54, is President of Nickerson Lumber and
Plywood. Robert started his employment with Nickerson as an
outside salesman in 1969 and in 1980 he became a partner and
purchased Nickerson Lumber stock. He was elected as President of
Nickerson in 1981. His background in marketing products primarily
to residential builders, manufactured housing and recreational
vehicle assemblers will be a great asset in further developments of
marketing Rexhall products in both the domestic and global markets.
In his spare time, if any, Bob is captain of San Fernando Rangers,
a nonprofit organization working to use horses as therapeutic
conditioning for mentally and physically disabled children.
Information Concerning Directors and Committees
During 1992, there were four meetings of the Board of Directors.
Outside directors receive $350 per meeting for serving the Company
as members of the Board. Directors may also be reimbursed for
reasonable expenses relating to attendance at meetings of the Board
or a Committee of the Board. Each Director attended all of the
Board meetings held during his tenure as a director in 1993.
There are the following Committees of the Board of Directors:
Audit Committee. The Audit Committee consists of William J. Rex,
Al J. Theis and Robert A. Lopez. The Audit Committee is to meet
with representatives of the Company's independent auditors and with
representatives of senior management. The committee recommends the
engagement or discharge of the Company's independent auditors,
consults with the auditors as to the adequacy of internal
accounting procedures and reviews and approves financial statements
and reports. The Audit Committee met one time in 1993.
Compensation Committee. The Compensation Committee consists of
William J. Rex, Al J. Theis and W. Michael Hill. The Compensation
Committee is responsible for reviewing and reporting to the Board
on the recommended annual compensation for officers including
salary, bonuses, and other forms of compensation and remuneration
and also administers the Company's Stock Option Plan. The
Compensation Committee met three times in 1993.
The Company has no standing nominating or similar committee whose
function is to consider or recommend nominees to the Board of
Directors.
Securities Ownership
The following table sets forth information as of April 18, 1994
concerning the ownership of the Company's Common Stock (the only
class of securities outstanding) by all persons known by the
Company to be beneficial owners of more than five percent (5%), by
all directors and nominees for directors owning Common Stock, and
by all directors and officers as a group:
<PAGE>
Number of Percent of
Shares Outstanding
Name of Beneficial Owner Beneficially Shares at
or Identity of Group Owned (1) April 17,1993
William J. Rex (1) 1,231,000 51.5%
c/o Rexhall industries, Inc.
25655 Springbrook Avenue
Saugus, CA 91350
All Directors and Officers as a Group
(5 persons) 1,231,000 51.5%
(1) The person named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as
beneficially owned by him, subject to applicable community property
law.
Executive Compensation
The following table sets forth certain information as to each of
the five highest paid of the Company' s executive officers whose
cash compensation exceeds $100,000 for the year ended December 31,
1993:
SUMMARY COMPENSATION TABLE
Other Annual
Name and Compensation
Principal Position Year Salary($) Bonus $(1)
William J. Rex 93 250,000 54,000 ---
President & CEO 92 250,000 51,000 ---
91 250,000 70,000 ---
William M. Hill 93 72,000 84,000 ---
Executive V.P./CFO 92 68,000 --- ---
91 63,000 50,000 ---
Donald C. Hannay, SR. 93 42,000 73,000 ---
V.P. of Sales & Marketing 92 22,000(2) --- ---
91 50,000 59,000 ---
N/A 93
92
91
N/A 93
92
91
(1) The unreimbursed incremental cost to the company of providing
perquisites and other personal benefits
<PAGE>
during 1993 did not exceed as to any named officer the lesser of
$50,000 or 10% of the total 1993 salary and bonus paid to such named
officer and, accordingly, is omitted from the table. These benefits
included (i) reimbursement for medical expenses and(ii) amounts allocated
for personal use of company owned automobile provided to Mr. Rex.
(2) Mr. Hannay left the Company for seven months during 1992.
Compensation Committee Report
In 1992 the Company extended for 2 years an employment agreement
with William Rex. The employment agreement provides for an annual
salary of $250,000 plus a bonus determined monthly in the amount of
10% before bonus and taxes. Other Executive Officers are
compensated based on the following factors:(1) the financial
results of the Company during the prior year, (2) compensation paid
to executive officers in prior years, (3) extraordinary performance
during the year and (4) compensation of executive officers employed
by competitors.
Directors who are not Executive Officers are paid $350 per Board
Meeting and there are four Board Meetings per year.
The Company also has an incentive program under which it pays
supervisory employees involved in sales and production a cash bonus
based on specific performance criteria. Committee members: William
J. Rex, William M. Hill and Al J. Theis.
Stock Option Plan
In May 1989, the Company adopted the 1989 Incentive and
Nonstatutory Stock Option Plan (the "Option Plan"), which provides
for the granting of (i) incentive stock options pursuant to Section
422A of the Internal Revenue Code of 1986, as amended, to key
employees, and (ii) nonstatutory stock options to key employees and
directors and consultants to the Company designated by the Board as
eligible under the Option Plan. Under the Option Plan, options for
up to 225,000 shares may be granted. Approval of an amendment of
the Option Plan that will increase by 225,000 the number of shares
authorized for issuance under the Option Plan (from an original
225,000 shares to 450,000 shares as amended) is being sought at the
annual meeting. See "Proposed Amendments to 1989 Incentive and
Non-statutory Stock Plan" for a description of the Option Plan.
The following table sets forth information as to all options to
purchase Common Stock which were granted to Executive Officers
specified in the table under "Cash Compensation" above who received
options during the year ended December 31,1993:
<PAGE>
Option/SAR Grants in 1993
# of Securities % of Total
Underlying Options/SARs Exercise
Options/SARs Granted to Employees or Base Expiration
Name Granted (#) in Fiscal Year Price($/Sh) Date
William J. Rex 112,000 51% $3.12 1998
William M. Hill 30,000 14% 3.25 1998
Donald C. Hannay 22,000 10% 3.25 1998
In 1993, certain options previously granted under the Company's
Stock Option Plan were canceled and re-granted at exercise prices
which took into account the declining market price of the Company's
Common Stock. The vesting schedules of the re-granted options were
also revised.
Option/SAR Grants Canceled
# of Securities
Underlying % of Total Option Base
Options/SARs Grants canceled Price Expiration
Name Year Grants Canceled(1) to employees ($/SH) Date
William J. Rex 1993 65,000 72% $5.36 1995
1992
1991
William M. Hill 1993
1992
1991
Donald C. Hannay 1993 10,000 11% 4.875 1995
1992
1991
(1) Options that were granted in 1990, that were canceled in 1993.
There were no grants canceled prior to 1993.
No director who was not an Executive Officer was granted any stock
options during the year ended December 31, 1993. There were
220,000 shares of stock options granted in 1993. No stock option
was exercised during the year ended December 31, 1993.
Effective May 1, 1991, the Securities and Exchange Commission
adopted new rules (the "New Rule(s)") regarding reporting of
beneficial ownership of securities by directors, officers and
persons who own more than ten percent of the Company's Common Stock
("Reporting Persons"). Under the rules which existed prior to May
1, 1991 (the "Old Rule(s)"), employee stock options granted under
a plan which complied with Old Rule 16b-3 were exempt from
reporting under Old Rule 16a-6(c). Under the transition provisions
applicable to the New Rules, Reporting Persons are required to
report derivative securities acquired under the Old Rules on the
first form otherwise required to be filed after May 1, 1991.
William J. Rex, the Company's Chairman of the Board , President,
Chief Executive Officer and principal shareholder, timely filed a
Form 4 in May 1993 in which he reported the grant of employee stock
<PAGE>
options under the Company's 1989 Incentive and Nonstatutory Stock
Option Plan. In such Form 4, and pursuant to the transition
provisions applicable to the New Rules discussed above, Mr. Rex
also reported the grant of options to him before May 1, 1991 that
were exempt from earlier reporting but did not report in that Form
4 that such previously granted options had been canceled in
exchange for the grant of additional options that were subject to
material contingencies and therefore not reportable under the New
Rules until the contingencies were satisfied. Such cancellation
was reported in an amended Form 4 filed later in May 1993.
Aggregated Option/SAR Exercises 1993 and RY-End Option/SAR Values
#of Securities Value of
Underlying unexercised
Unexercised In-The-Money
Shares Options/Sars at Options/Sars FY-End
Acquired on Value FY-End Exercisable Exercisable
Name Exercised(#) Realized($) Unexercisable(2) Unexercisable (1)
William J. Rex --- --- 0/112,000 $ 0/407,000
William M. Hill --- --- 0/30,000 $ 0/98,000
Donald C. Hannay --- --- 0/22,000 $ 0/72,000
(1)12/31/93 close price $6 1/4 vs. option price.
(2)Options Become exercisable on April 21, 1994.
PROPOSED AMENDMENTS TO 1989 INCENTIVE AND
NON-STATUTORY STOCK PLAN
In June 1989, the Company adopted an incentive and non-statutory
stock option (the "Option Plan") covering 225,000 shares of Common
Stock. In March 1994, the Board of Directors amended the Option
Plan, subject to shareholder approval (which is being sought at the
meeting), to increase both the total number of shares covered by
the Option Plan, and the number of shares of Common Stock that may
be optioned under the Option Plan to directors or non-director
officers, from 225,000 to 450,000.
The Board of Directors believes that the selective use of stock
options is an effective means of attracting, motivating and
retaining employees and that the availability of the shares covered
by the Option Plan, as amended is essential to the success of the
Company. The Board of Directors recommends that the shareholders
approve the proposed amendments. The affirmative vote of a
majority of all shares of the Company present at the meeting in
person or by proxy is required to approve the amendments.
The summary of the provisions of the Option Plan which follows is
not intended to be complete. A copy of the Option Plan, as amended
by the Board, will be furnished without cost to shareholders on
request to William M. Hill, Executive Vice President and Chief
Financial officer, Rexhall Industries, Inc., 25655 Springbrook
Avenue, Saugus, California, 91350.
Summary of the Provisions of the Option Plan As Amended
The Company's Option Plan provides for the granting of (i)
incentive stock options to key employees and (ii)non-statutory
stock options to key employees and non-employee director of the
Company and any person who performs consulting or advisory services
for the Company and who is by the Board of Directors, the Stock
Option Committee or income tax distinctions of incentive and non-statutory
stock options, see "Federal Income Tax Consequences of
Incentive Stock Options and Non-statutory Stock Options," below.
<PAGE>
The maximum number of shares of the Company's Common Stock that may
be issued pursuant to the exercise of options granted under the
Option Plan, as amended, is 450,000 shares (subject to adjustment
in the event of stock dividends, splits, reverse splits,
recapitalization, mergers or other similar changes in the Company's
capital structure). No more than 450,000 shares may be optioned
and sold to directors or nondirector officers under the Option Plan
as amended. All options must be granted, if at all, not later than
May 31, 1999. The aggregate fair market value (determined as of
the date the option is granted) of the shares of Common Stock to
which incentive stock options granted under the Option Plan are
exercisable for the first time by any employee of the Company
during any calendar year may not exceed $100,000. This limitation
shall not apply with respect to non-statutory stock options.
The Option Plan is administered by the Compensation Committee of
the Board of Directors, consisting of Mr. Rex, Mr. Theis and Mr.
Hill, which determines the terms of options granted, including the
exercise price, the number of shares subject to the option and the
terms and conditions of exercise. No option granted under the
Option Plan is transferable by the optionee other than by will or
the laws of descent and distribution and each option is exercisable
during the lifetime of the optionee only by such optionee.
Incentive stock options and nonstatutory stock options may be
granted for exercise for periods up to five and ten years,
respectively, from the date granted.
Options granted under the Option Plan are evidenced by written
agreements specifying the number of shares covered thereby and the
option price, the exercise period and all other terms, restrictions
and conditions of the option. The exercise price of all stock
options granted under the Option Plan must be at least equal to the
fair market value of such shares on the date of grant. With
respect to any optionee who owns stock possessing more than 10% of
the voting rights of the Company's outstanding capital stock, the
exercise price of any stock option must be less than 110% of the
fair market value on the date of grant.
Options must be exercised only by written notice from the optionee
(or his estate or other legal representative) to the Company
accompanied by payment of the option price in full. The option
price may be paid in cash, cash equivalents (certified of cashier's
check), or with shares of Common Stock of the Company.
No options have been granted under the Option Plan in 1994. The
following table sets forth information from inception of Option
Plan through December 31, 1993 concerning the net number of options
under the Option Plan that has been received by (i) each of the
Company's current executive officers, (ii) each nominee for
election as director, (iii) all current executive officers as a
group, (iv) all current directors who are not executive officers as
a group, and (v) all employees who are not executive officers:
No. of shares
covered by
Name of Person or Group Position with the Company Options
William J. Rex Chairman of the Board, President and 112,000
Chief Executive Officer; and Nominated Director
William M. Hill Executive Vice President and Chief 30,000
Financial Officer; and Nominated Director
Donald C. Hannay, Sr. Vice President of Sales and Marketing; 22,000
and Nominated Director
Al J. Theis Nominated Director 5,000
All current executive officers as a group 164,000
All current directors who are not executive officers as a group 5,000
All employees who are not executive officers as a group 56,000
<page
Federal Income Tax Consequences of Incentive Stock Options and Non-statutory
Stock Options
THE FOLLOWING DESCRIPTION OF FEDERAL INCOME TAX CONSEQUENCES IS
BASED UPON EXISTING STATUTES, REGULATIONS AND INTERPRETATIONS AS OF
THE DATE OF THIS PROXY STATEMENT. BECAUSE THE CURRENTLY APPLICABLE
RULES ARE COMPLEX AND THE TAX LAWS MAY CHANGE AND BECAUSE INCOME
TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH PARTICIPANT, EACH PARTICIPANT SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR CONCERNING FEDERAL (AND ANY STATE AND
LOCAL) INCOME TAX CONSEQUENCES. THE FOLLOWING DISCUSSION DOES NOT
PURPORT TO DESCRIBE STATE OR LOCAL INCOME TAX CONSEQUENCES.
Options so designed under the Option Plan are intended to qualify
as "incentive stock options" ("ISOs") within the meaning of Section
422 of the Internal Revenue Code of 1986 (the "code"). All options
that are not designated as ISOs are intended to be "non-statutory
stock options" ("NSOs").
Tax Treatment of the Optionee
Incentive Stock Options. The optionees will recognize no income
upon the grant of an ISO and incur no tax on its exercise (unless
the optionee is subject to the alternative minimum tax described
below). If the optionee holds the stock acquired upon exercise of
an ISO (the "ISO Shares") for more than one year after the date the
option was exercised and for more than two years after the date the
option was granted, the optionee generally will realize long-term
capital gain or loss (rather than ordinary income or loss) upon
disposition of the ISO Shares. This gain or loss will be equal to
the difference between the amount realized upon such disposition
and the amount paid for the shares.
If the optionee disposes of ISO shares prior to the expiration or
either required holding period (a "disqualifying disposition"),
then gain realized upon such disposition, up to the difference
between the fair market value of the shares on the date of exercise
(or, if less, the amount realized on a sale of such shares) and the
option exercise price, will be treated as ordinary income. Any
additional gain will be long-term or short-term capital gain,
depending upon the amount of time the ISO Shares were held by the
optionee. Special rules apply to officers and directors of the
Company. See "Special Considerations for Officers and Directors,"
below.
Alterative Minimum Tax. The difference between the fair market
value of stock purchased by exercised of an ISO measured as of the
date of exercise (or, in the case of exercise for stock for stock
subject to a substantial risk of forfeiture, at the time such
forfeiture restriction lapses) and the amount paid for that stock
upon exercise of the ISO is an adjustment to income for purposes of
computation of the alternative minimum tax.
For tax years beginning in 1993 or thereafter, the alternative
minimum tax (imposed to the extent it exceeds the taxpayer's
regular tax) is 26% of so much of the taxable excess as does not
exceed $175,000, plus 28% of so much of the taxable excess as
exceeds $175,000 of an individual taxpayer's alternative minimum
taxable income. Alternative minimum taxable income is determined
by adjusting regular taxable income. Alternative minimum taxable
income is determined by adjusting regular taxable income for
certain items, increasing that income by certain tax preference
items and reducing this amount by the applicable exemption amount
($45,000 in the case of a joint return, subject to reduction under
certain circumstances). An alternative minimum tax adjustment
<PAGE>
applies unless a disqualifying disposition of the ISO Shares occurs
in the same calendar year as exercise of the ISO (or lapse of the
forfeiture restrictions on the ISO Shares). Special rules apply to
officers and directors of the Company. See "Special Considerations
for Officers and Directors," below.
Non-statutory Stock Options. An optionee will not recognize any
taxable income at the time an NSO is granted. However, upon
exercise of an NSO, the optionee will include in income, is
compensation an amount equal to the difference between the fair
market value of the shares on the date of exercise (or, in the case
of exercise for stock subject to a substantial risk of forfeiture,
at the time such forfeiture restriction lapses) and the amount paid
for the optionee makes an 83(b) election, the included amount will
be based on the difference between the fair market value on the
date of exercise and the option exercise price. The included
amount will be treated as ordinary income by the optionee and will
be subject to income tax withholding by the Company (either by
payment in cash by the optionee or withholding out of the
optionee's salary). Upon sale of the shares by the optionee, any
appreciation or depreciation in the value of the shares will be
treated as capital gain or loss (either long or short term-depending
upon the time the optionee holds the shares after exercising the NSO).
Special rules apply to officers and directors of the Company. See
"Special Considerations for Officers and Directors," below.
Special Considerations for Officers and Directors. If optionee is
an officer or director of the Company who is potentially subject to
short-swing profits liability under Section 16(b) of the Securities
Exchange Act of 1934, ISO Shares purchased by the Optionee within
six months from the date of grant of an option for such ISO Shares
will be treated as subject to a substantial risk of forfeiture for
the six-month period immediately following the date of grant.
Thus, in the case of a disqualifying disposition the optionee will
recognize ordinary income equal to the difference between the fair
market value of the ISO Shares on the date six months after the
date of grant (or, if less, the amount realized on the sale of the
ISO shares) and the option exercise price unless the optionee makes
an 83(b) election. Any remaining amount of gain on the
disqualifying disposition will be long or short term capital gain
depending on the amount of time the ISO Shares have been held. If
the optionee makes an 83(b) election the ordinary income would be
equal to the difference between the fair market value on the date
of exercise (or, if less, the amount realized on the sale of the
ISO Shares) and the option exercise price (assuming an 83(b)
election is effective for regular tax purposes for an ISO).
Moreover, for alternative minimum tax calculation purposes, unless
the optionee makes an 83(b) election, the adjustment to income will
be based on the difference between the fair market value of the
shares on the date six months after the date of Grant.
In the event of the exercise of an NSO within six months after the
date of the NSO, the optionee will include in income as
compensation an amount equal to the difference between the option
exercise price and the fair market value of the shares on the date
six months after the date of grant unless the optionee makes an
83(b) election. If the optionee makes an 83(b) election, the
optionee will include in income as compensation an amount equal to
the difference between the option exercise price and the fair
market value on the date of exercise.
Officers and directors should consult their tax advisors regarding
these issues and the advisability of filing 83(b) elections.
Tax Treatment of the Company. The Company will be entitled to a
deduction in connection with the exercise of an NSO by a domestic
employee or director to the extent that the optionee recognizes
ordinary income and the Company withholds tax. The Company will be
entitled to a deduction in connection with the disposition of ISO
Shares only to the extent that the optionee recognizes ordinary
income on a disqualifying disposition of the ISO Shares.
<PAGE>
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche as
independent accountants of the Company for the year ending December
31, 1994 and further directed that the Company submit the selection
of independent accountants for ratification by shareholders at the
Company's annual meeting. Deloitte & Touche acted for the Company
in such capacity for the year ended December 31, 1993.
Representatives of Deloitte & Touche are expected to be present at
the annual meeting and will have the opportunity to make a
statement if they desire to do so. They will also be available to
respond to appropriate questions.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 1995 Annual
Meeting must be received at the Company's principal office no later
than December 28, 1994 in order to be considered for inclusion in
the proxy statement and form of proxy related to that meeting.
OTHER BUSINESS
The Board of Directors knows of no other matter to be acted upon at
the meeting. However, if any other matter shall properly come
before the meeting, the proxy holders named in the proxy
accompanying this statement will have discretionary authority to
vote all proxies in accordance with their best judgment.
By order of the Board of Directors
Cheryl L. Rex
Secretary
DATED: April 18,1994
Saugus, California
