SAFECARD SERVICES, INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on March 7, 1994
To the Shareholders:
The Annual Meeting of Shareholders of SafeCard Services,
Incorporated (the "Company") will be held at The Pierre, Fifth
Avenue at 61st Street, New York, New York 10021, on Monday, March
7, 1994 at 10:00 a.m., for the following purposes:
* to elect three Directors;
* to approve the Company's 1994 Long Term Stock-Based Incentive
Plan, which has been adopted by the Board of Directors
subject to shareholder approval;
* to ratify the appointment of Price Waterhouse as independent
auditors for the current fiscal year; and
* to transact such other business as may properly be brought
before the meeting or any adjournment thereof.
Only holders of common stock of the Company, par value $.01 per
share, as of the close of business on January 25, 1994 are
entitled to notice of and to vote at the meeting.
It is important that your shares be represented and voted at
the meeting. Whether or not you plan to attend, please sign,
date and promptly mail your proxy. Your cooperation is
appreciated.
By Order of the Board of Directors
AGNETA K. BRESLIN
Agneta K. Breslin
Executive Vice President and Assistant Secretary
February 4, 1994
YOUR VOTE IS IMPORTANT
Please sign, date and promptly mail your proxy card
SAFECARD SERVICES, INCORPORATED
3001 E. Pershing Boulevard
Cheyenne, Wyoming 82001
307/771-2700
February 4 , 1994
PROXY STATEMENT
Vote by Proxy
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of SafeCard
Services, Incorporated (the "Company") for the Annual Meeting of
Shareholders to be held on Monday, March 7, 1994, and any
adjournment thereof. A copy of the notice of the meeting is
attached. This proxy statement and the accompanying form of proxy
are first being mailed to shareholders on or about February 4,
1994.
You are cordially invited to attend the meeting, but whether or
not you expect to attend in person, you are urged to sign, date
and promptly mail the enclosed proxy in the prepaid envelope
provided for your convenience. Shareholders have the right to
revoke their proxies at any time prior to the time their shares
are actually voted. If a shareholder attends the meeting and
desires to vote in person, his or her proxy will not be used.
GENERAL
Unless contrary instructions are indicated on the proxy, all
shares represented by valid proxies received pursuant to this
solicitation (and not revoked before they are voted) will be
voted as follows:
FOR the election of all nominees for director named herein;
FOR the approval of the 1994 Long Term Stock-Based Incentive
Plan (as more fully described under the caption "Proposal
II: 1994 Long Term Stock-Based Incentive Plan," the "1994
Plan"); and
FOR ratification of the appointment of Price Waterhouse as
independent auditors for fiscal 1994.
In the event a shareholder specifies a different choice on the
proxy, his or her shares will be voted in accordance with the
specification so made. Signed, unmarked proxy cards are voted in
accordance with the Board of Directors' recommendations. Your
executed proxy will be voted at the meeting, unless you revoke
it at any time before the vote by filing with the Assistant
Secretary of the Company an instrument revoking it, duly
executing a proxy card bearing a later date, or appearing at the
meeting and voting in person.
The Company's Annual Report to Shareholders, which contains
financial statements for the fiscal year ended October 31, 1993,
accompanies this proxy statement. A copy of the Company's Annual
Report on Form 10-K filed with the Securities and Exchange
Commission (the "SEC"), exclusive of certain exhibits, may be
obtained without charge by writing to the Chief Operating
Officer, SafeCard Services, Inc., 3001 E. Pershing Boulevard,
Cheyenne, Wyoming 82001.
Unless otherwise indicated, all references to years herein
shall be deemed to refer to the Company's fiscal years, and all
references to the Company herein shall be deemed to include its
subsidiaries.
COST OF PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company.
Proxies may be solicited on behalf of the Company by directors,
officers or employees of the Company in person or by telephone,
mail, facsimile transmission or telegram. The Company has
engaged the firm of D. F. King & Co., Inc. to assist the Company
in the solicitation of proxies. The Company has agreed to pay
D.F. King & Co., Inc. a fee of $12,500 plus expenses for these
services.
The Company will also reimburse brokerage houses and other
custodians, nominees and fiduciaries for their expenses, in
accordance with the regulations of the SEC, the New York Stock
Exchange and other exchanges, for sending proxies and proxy
material to the beneficial owners of common shares.
SHARES VOTING
Only shareholders of record at the close of business on January
25, 1994, the record date, will be entitled to notice of and to
vote at the Annual Meeting of Shareholders. As of January 25,
1994, there were 24,182,815 shares of common stock, par value
$.01 per share, outstanding. Each share is entitled to one vote.
VOTING PROCEDURES
With regard to the election of directors, votes may be cast in
favor of or withheld from each nominee; votes that are withheld
will be excluded entirely from the vote and will have no effect.
Directors will be elected by a plurality of the shares present in
person or by proxy and entitled to vote on the election of
directors.
Abstentions may be specified on all proposals (except the
election of directors) and will be counted as present for
purposes of determining the existence of a quorum (constituting,
under the Company's By-Laws, fifty one percent of the common
shares entitled to vote) regarding the item on which the
abstention is noted. Since the approval of the 1994 Plan and the
ratification of the independent auditors require the affirmative
vote of a majority of the shares present in person or by proxy
and entitled to vote on the subject matter, abstentions will
have the effect of a negative vote on these matters.
Under the rules of the New York Stock Exchange, brokers that
hold shares in street name have the authority to vote on certain
items when they have not received instructions from beneficial
owners. Brokers that do not receive instructions are entitled to
vote on the election of directors and the ratification of the
independent auditors. With respect to the approval of the 1994
Plan, brokers may not vote shares held for customers without
specific instructions from such customers. Under applicable
Delaware law, a broker non-vote will have the same effect as a
vote against the ratification of the independent auditors and
will have no effect on the outcome of the election of directors
or the approval of the 1994 Plan.
BENEFICIAL SECURITY OWNERSHIP
Directors, Nominees and Executive Officers. The following
table sets forth, as of January 25, 1994, beneficial ownership of
common shares of the Company by each current director and
nominee for director, the named executive officers of the
Company, including its former chief executive officer, and all of
the foregoing, together with all other executive officers, as a
group. Except as described below, each of the persons and group
listed below has sole voting and investment power with respect to
the shares shown.
<TABLE>
<CAPTION>
Number of
Common
Shares Which
Names of Directors, May Be
Nominees and Executive Acquired Percent of
Officers (including Former Number of Common Within 60 Class
Chief Executive Officer) Shares Owned(1)(2)(3) Days(3)(4) (%)
- -------------------------- --------------------- ---------- ----------
<S> <C> <C> <C>
William T. Bacon, Jr............ 100,300 0 *
Paul G. Kahn.................... 5,100 0 *
Marshall L. Burman.............. 2,000 0 *
Eugene Miller................... 500 100,000 *
Robert L. Dilenschneider........ 100 100,000 *
W.M. Stalcup, Jr................ 69,332 290,000 1.5
Gerald R. Cahill................ 25,000 165,000 *
John Bochak..................... 84,683 240,000 1.3
Joanne Seehousen................ 31,179 90,000 *
David Gallimore................. 0 17,000 *
Lynn Torrent.................... 0 16,666 *
Steven J. Halmos(5)............. 50,000 3,900,000 14.1
All Directors, Nominees and
Executive Officers (including
Former Chief Executive Officer)
as a group...................... 449,365 5,028,666 18.8
- -----------
<FN>
* Less than one percent.
1 The common shares shown do not include 47,662 shares owned
by the wife and adult children of William T. Bacon, Jr., as
to which Mr. Bacon disclaims beneficial ownership.
2 The common shares shown include 5,000 shares of restricted
stock, as to which Paul G. Kahn possesses sole voting power,
but no investment power, during the restricted period.
Restrictions on the sale or transfer of such restricted
stock lapse over a period of years ending in December of
1996.
3 The common shares owned and which may be acquired within
sixty days include 3,950,000 shares which are subject to a
standstill, voting and right of first refusal agreement
between the Company and Steven J. Halmos that obligates Mr.
Halmos to vote such shares in favor of proposals recommended
by the Board of Directors and limits his ability to transfer
such shares without first offering them to the Company.
See, "Employment Contracts and Termination of Employment
Arrangements-Consulting Agreement-Steven J. Halmos."
4 The common shares shown consist of common shares subject to
stock options exercisable within sixty days. Not shown are
1,000,000 shares subject to options granted to Paul G. Kahn,
subject to shareholder approval (see, "Proposal II: 1994
Long Term Stock-Based Incentive Plan"), 100,000 shares
subject to an option granted to Marshall L. Burman, 8,334
shares subject to an option granted to Lynn Torrent and
5,000 shares subject to an option granted to David Gallimore,
which options are not exercisable within sixty days.
5 Chief executive officer until December 19, 1992 and
currently consultant to the Company.
</TABLE>
PRINCIPAL HOLDERS. The following table sets forth, as of
January 25, 1994, beneficial ownership of common shares by
persons known by the Company to be the beneficial owner of more
than 5% of the Company's common stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial Holder of Beneficial Ownership Percent of Class
- ----------------------- ----------------------- ----------------
<S> <C> <C>
FMR Corp...................... 3,380,300(1) 14.0
82 Devonshire Street
Boston, MA 02109
Sound Shore Management, Inc... 1,270,300(2) 5.3
8 Sound Shore Drive
Greenwich, CT 06836
Steven J. Halmos.............. 3,950,000(3) 14.1
3001 E. Pershing Blvd.
Cheyenne, WY 82001
- --------------
<FN>
1 According to a Schedule 13F-E filed with the SEC
as of November 16, 1993 by FMR Corp. ("FMR"), FMR
beneficially owned 3,380,300 of the Company's common shares
as of September 30, 1993. FMR claimed sole voting power with
respect to 5,000 of such shares and shared voting power with
respect to none and claimed shared investment power (as defined
in instruction (v) of Schedule 13F) with respect to all of
the shares. According to a Schedule 13G filed with the SEC
on February 16, 1993 by FMR, FMR beneficially owned
2,706,100 of the Company's common shares as of December 31,
1992. FMR claimed sole and shared voting power with respect
to 112,400 and 27,000 of the shares, respectively, and sole and
shared investment power with respect to 2,671,100 and 27,000 of
the shares, respectively. FMR also reported that on December
31, 1992 the interests of one person, Fidelity Magellan
Fund, amounted to 1,530,900 shares or 5.8% and 6.2% of the
common shares outstanding on December 31, 1992 and January
25, 1994, respectively.
2 According to a Schedule 13-F filed with the SEC on January
21, 1994, Sound Shore Management, Inc. claimed sole
investment and voting power with respect to 1,270,300 of the
Company's common shares.
3 The common shares shown include 3,900,000 shares subject
to stock options exercisable within sixty days. The common
shares shown are subject to a standstill, voting and right
of first refusal agreement between the Board of Directors
and Steven J. Halmos that obligates Mr. Halmos to vote such
shares in favor of proposals recommended by the Board of
Directors and limits his ability to transfer such shares
without first offering them to the Company. See,
"Employment Contracts and Termination of Employment
Arrangements-Consulting Agreement-Steven J. Halmos."
</TABLE>
GOVERNANCE OF THE COMPANY
BOARD OF DIRECTORS
In accordance with applicable Delaware law, the business of the
Company is managed under the direction of its Board of
Directors. During 1993, the Board has been substantially
expanded and has sought to establish a system of internal
governance intended to facilitate the Company's transition from a
founder-led organization and the refocusing of its business
strategies.
At the beginning of fiscal 1993, the Board consisted of three
directors, Robert L. Dilenschneider, William T. Bacon, Jr. and
Steven J. Halmos. This number was reduced to two when Steven J.
Halmos, one of the Company's co-founders, resigned as director
and chief executive officer in December of 1992.
Five directors were appointed in calendar 1993, resulting in a
seven person Board of Directors, the majority of whom are non-
employee directors. Three of the five new directors-Paul G.
Kahn, Eugene Miller and Marshall L. Burman-had no previous
affiliation with the Company while two-W.M. Stalcup, Jr. and
Gerald R. Cahill-were the Company's President and Chief
Operating Officer, respectively. In December of 1993, upon the
recommendation of a Chief Executive Officer Search Committee
consisting of the nonemployee directors working with an
executive search firm, Mr. Kahn became the Company's Chief
Executive Officer and was appointed Chairman of the Board. In
December 1993, Eugene Miller became Vice Chairman of the Board.
During 1993, the Board of Directors met fifty two times in
person or by telephone. The number of meetings held in 1993
reflects, among other things, the unusual requirements of a
period involving protracted efforts to settle disputes with one
of the Company's co-founders, ensuing complex litigation and the
lack, during most of the period, of a chief executive officer.
Many meetings were telephonic and called on short notice. The
Board has sought to streamline the meeting process and
anticipates substantially fewer meetings in 1994.
During 1993, each of the directors attended more than 75
percent of the meetings of the Board and of the Board committees
on which the director served in 1993 (in each case during the
periods he served).
COMMITTEES
Audit Committee. The current members of the Audit Committee are
William T. Bacon, Jr., Marshall L. Burman, Robert L.
Dilenschneider and Eugene Miller, all non-employee directors.
The Audit Committee represents the Board in discharging its
responsibilities relating to the accounting, reporting and
financial control practices of the Company and its subsidiaries.
The Committee has general responsibility for reviewing with
management the financial controls, accounting, audit and
reporting activities of the Company and its subsidiaries. The
Committee annually reviews the qualifications and objectivity of
the Company's independent auditors, makes recommendations to the
Board as to their selection, evaluates the scope, fees and
results of their audit, reviews their non-audit services and
related fees and examines their management comment letters. In
addition, the Committee reviews the scope of the internal
auditors' plans each year and the results of their audits. The
Audit Committee met twice during 1993.
Compensation Committee. The current members of the Compensation
Committee are William T. Bacon, Jr. and Marshall L. Burman, both
of whom are non-employee directors. The members of the
Compensation Committee exercising responsibility for
compensation matters relating to calendar 1993 were William T.
Bacon, Marshall L. Burman, Robert L. Dilenschneider and Eugene
Miller, all non-employee directors.
The Compensation Committee oversees executive compensation
plans for officers and key employees, approves standards for
setting compensation levels for Company executives and, working
with the 1994 Plan Committee as appropriate, grants the specific
awards made under the Company's executive incentive compensation
plans. The Compensation Committee also approves the compensation
of certain employees above specified levels and makes
recommendations to the Board for approval as required. The
Compensation Committee is authorized to, and did, retain and
consult with an independent compensation advisor. The
Compensation Committee met twice in 1993.
1994 Plan Committee. The current members of the 1994 Plan
Committee are William T. Bacon, Jr. and Robert L.
Dilenschneider, both of whom are non-employee directors.
The 1994 Plan Committee was formed to administer the 1994 Plan
that was adopted by the Board of Directors in December 1993,
subject to shareholder approval. The members of the 1994
Committee are "disinterested directors" as such term is defined
in Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Nominating Committee. The Company does not have a nominating
committee, the functions of which are handled by the entire
Board.
DIRECTORS' FEES AND OTHER COMPENSATION
Fees. Directors who are not employees of the Company receive a
retainer of $50,000 per year. No separate retainer is paid for
membership on committees. Directors receive separate fees for
attendance at meetings of the Board and committees (other than
the Audit Committee) at rates depending upon whether the meeting
is in person ($1,500), in person and requiring an overnight stay
($2,500) or telephonic ($500 after April 30, 1993, $750 before
that date). Fees are paid for only one meeting on any one date,
regardless of how many meetings may be held on that date.
Directors are reimbursed for their customary and usual expenses
incurred in attending Board, committee and shareholder meetings,
including those for travel, food and lodging. Directors who are
employees of the Company receive no fees for service on the
Board or committees or for attendance at meetings. In 1993 Mr.
Dilenschneider was paid a one time fee of $35,000 for his
efforts in overseeing negotiations to resolve the Company's
disputes with Peter Halmos. In December of 1993, Mr. Miller
became Vice Chairman of the Board of Directors and will receive
an additional $15,000 retainer for his service in this capacity
during 1994.
Directors' Retirement Plan. The Company maintains an unfunded
retirement plan, adopted in 1991, for non-employee directors.
This plan provides annual retirement benefits to non-employee
directors who have served on the Board of Directors for five or
more years, are at least sixty-five years of age and were not
employees of the Company. A director who is not at least sixty-
five years of age upon retirement but who is otherwise eligible
is entitled to receive the retirement benefits upon reaching
sixty-five years of age. The retirement benefit is in the form
of an annuity for life equal to the annual retainer paid to non-
employee directors at the time of retirement, or as subsequently
modified, whichever is higher, subject to a vesting schedule
related to the years of service as a director of the Company.
Directors become fifty percent vested in their retirement
benefit after five years of service to the Company and vest an
additional ten percent for each additional year of service. If
upon death a director who is eligible to receive the retirement
benefit is survived by a spouse, the spouse will be entitled to
receive an annuity for his or her life equal to fifty percent of
the annuity that would be payable to the deceased director if he
or she were still living. Based upon the present annual retainer
paid to directors, a director who has served on the Board of
Directors for at least ten years and who has reached the age of
sixty-five would be entitled to an annual annuity of $50,000
upon retirement.
Public Relations and Investor Relations Consulting. On October
1, 1991, the Company and The Dilenschneider Group, Inc. ("DGI")
entered into a consulting agreement, which was renewed in
October 1992 and October 1993, to provide public relations
counsel and advice to the Company for an annual retainer of
$180,000. Robert L. Dilenschneider is the majority owner and
chief executive officer of DGI.
In January of 1993, for an additional annual retainer of
$150,000, the arrangements with DGI were expanded to include
consulting on and assistance with investor relations. In
addition, Eugene Miller provided investor relations consulting
services to the Company during 1993 for an annual retainer of
$50,000. The contractual arrangements pursuant to which the
investor relations services were provided expired at the end of
calendar year 1993. Mr. Miller and Mr. Dilenschneider have agreed
to continue to provide investor relations services on a month-to-
month basis, pro rating their respective annual fees.
PROPOSAL I:
ELECTION OF DIRECTORS
The Board of Directors consists of seven members, the majority
of whom are non-employee directors. The Board of Directors is
divided into three classes, as nearly equal in number as
possible, with the members of each class elected for a term of
three years. Three directors are to be elected at the meeting, to
hold office for three year terms until the 1997 Annual Meeting of
Shareholders and until their successors are elected and
qualified.
Unless authority to vote is withheld, the persons specified in
the enclosed proxy intend to vote for the following nominees,
all of whom have consented to being named in this proxy
statement and to serving if elected. Although management knows
of no reason why any nominee would be unable to serve, the
persons designated as proxies reserve full discretion to vote for
another person in the event any nominee is unable to serve.
The following information is provided with respect to the
nominees for directorships for terms expiring at the 1997 Annual
Meeting. Italicized wording indicates principal occupation.
PAUL G. KAHN Director since 1993 Age 49
[PHOTO]
Chief Executive Officer and Chairman of Board of Directors of the
Company, December 1993 to present; owner and chief executive
officer, Coleridge Financial Corp., May, 1993 to December, 1993;
president and chief executive officer, AT&T Universal Card
Services Corporation, 1989 to May, 1993; Senior Vice President,
First National Bank of Chicago, 1988-1989; Director, Wright
Express Corporation, a privately held provider of information
processing, financial and information management services and
private label and co-branded credit cards to car, van and truck
fleets.
MARSHALL L. BURMAN Director since 1993 Age 64
[PHOTO]
Of counsel, Wildman, Harrold, Allen & Dixon, a Chicago, Illinois
law firm, 1992 to present; Chairman, Illinois State Board of
Investment, a co-mingled investment fund whose beneficiaries are
Illinois state employees (Chairman since 1985, Board member
since 1979); prior to 1992, partner, Avery, Hodes Costello &
Burman, a Chicago law firm; Director, Helene Curtis Industries,
Inc., a manufacturer and marketer of personal care products and
CFI Industries, Inc., a manufacturer of thermo plastic
packaging.
WILLIAM T. BACON, JR. Director since 1978 Age 71
[PHOTO]
Associate, Bacon, Whipple, a division of Stifel, Nicolaus & Co.,
Inc., an investment banking firm, 1983 to present; prior to
1983, managing director of Bacon, Whipple; Director, Walbro
Corporation, a manufacturer of carburetors and fuel systems.
The following information is provided with respect to directors
who are not nominees:
Terms expiring at 1995 Annual Meeting:
ROBERT L. DILENSCHNEIDER Director since 1991 Age 50
[PHOTO]
Chief Executive Officer and majority owner of The Dilenschneider
Group, Inc., a public relations firm, since 1991; Hill &
Knowlton, an international public relations firm, from 1967 to
1991 (chief executive officer, 1986 to 1991); Director, Cross
Country Healthcare Personnel, a privately held health care
organization.
W.M. STALCUP, JR. Director since 1993 Age 46
[PHOTO]
President of the Company, 1988 to present; prior positions with
the Company were Senior Vice President, Marketing, 1986 to 1988
and Senior Vice President, Operations, 1981 to 1986.
Terms Expiring 1996 Annual Meeting:
GERALD R. CAHILL Director since 1993 Age 42
[PHOTO]
Chief Operating Officer of the Company, 1992 to present; prior
position with the Company was Chief Financial Officer, 1988 to
1992; Director of Financial Reporting and Tax, Resorts
International, Inc., 1979 to 1988.
EUGENE MILLER Director since 1993 Age 68
[PHOTO]
Business Consultant and Educator, 1991 to present; Vice Chairman
and Chief Financial Officer, USG Corporation (formerly known as
United States Gypsum Company) 1987 to 1991; Director, Midwesco
Filter Resources, Inc., a manufacturer of filter bags, and
several private corporations.
COMPENSATION COMMITTEE REPORT
The Compensation Committee presents the following report on
compensation for the Company's executive officers. Actual
compensation during 1993 for the named executives is shown in the
Summary Compensation Table and other tables following this
report.
As more fully described below, compensation programs for the
Company's executive officers are administered by the
Compensation Committee of the Company's Board of Directors that
was formed in 1993 as part of the Board of Directors' efforts to
enhance the Company's corporate governance mechanisms. The
specific mandate of the Compensation Committee was to develop and
implement a set of compensation policies and procedures designed
to provide incentives for optimal employee performance and
achievement of corporate business goals.
During 1993, the Compensation Committee and key executive
officers worked with a compensation consultant familiar with
compensation policies at major corporations (the "Compensation
Consultant") to evaluate and, where deemed appropriate,
restructure the Company's executive compensation policies and
programs. In early 1994, the Compensation Committee, with the
assistance of the Compensation Consultant, adopted a set of
executive compensation policies and programs that will be
implemented in 1994 (the "1994 Programs"). See, "1994 Programs."
As the 1994 Programs were being developed, executive compensation
decisions for 1993 (the "1993 Programs") were generally made, as
in the past, upon recommendation of the most senior officers of
the Company as described below. See, "1993 Programs."
1993 PROGRAMS
The 1993 Programs consisted of base salary and bonuses. During
1993, executive compensation decisions (other than with respect
to the Chief Executive Officer, President and Chief Operating
Officer) continued to be made based largely upon the
recommendation of senior management. Because the Company did not
have a Chief Executive Officer during most of the period, the
officers making the recommendations were the President and the
Chief Operating Officer. The basis for these recommendations was
largely subjective, based upon such criteria as the executive's
knowledge of and importance to the Company's business,
willingness and ability to accomplish the tasks for which he or
she was responsible, professional growth and potential, the
Company's operating earnings and the President's and Chief
Operating Officer's evaluation of individual performance. No
particular weighting was applied to these factors. Compensation
paid to executive officers in prior years was also taken into
account. Many individual executive officers received less
compensation in 1993 than in 1992 as a result of the special
relocation bonuses generally paid in 1992.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In December of 1992 one of the Company's co-founders, Steven J.
Halmos, resigned from his office as chief executive officer.
Pursuant to a Memorandum of Understanding (as amended and
restated as of April 1, 1993, the "Steven J. Halmos Agreement"),
Steven J. Halmos agreed to continue to provide his services to
the Company as a consultant, to refrain from competing or
interfering with the Company and to enter into a standstill,
voting and right of first refusal agreement. Until a new chief
executive officer was found, the Company's President, W.M.
Stalcup, Jr., and its Chief Operating Officer, Gerald R. Cahill,
were the Company's two most senior executive officers. In
December of 1993, the Company retained a new Chief Executive
Officer, Paul G. Kahn. See, "Employment Contracts and Termination
of Employment Arrangements."
Steven J. Halmos. The annual rate of compensation of Steven J.
Halmos as of the beginning of 1993-$2.650 million-had been
approved in 1989 by the Company's then directors who were not
related to him.
After Steven J. Halmos' resignation as Chief Executive Officer
in December of 1992, the Compensation Committee (which was, at
the time, identical in membership with the Board of Directors)
reviewed the Company's compensatory arrangements with him. In
restructuring these arrangements, the Committee took into
account, among other things, the fact that Steven J. Halmos was
no longer expected to function in an executive capacity, the
nature of his anticipated contributions to the marketing and
creative aspects of the Company's business, the nature of his
relationship with the Company's clients and employees, and the
Company's desire to have meaningful long-term non-competition
protection from him. Evaluating and quantifying these factors,
which are essentially subjective, was made both more difficult
and more important in light of public and private threats by
Peter Halmos, Steven J. Halmos' brother, to recruit Steven J.
Halmos into an effort to compete with the Company. After
negotiations, the Company and Steven J. Halmos entered into the
Steven J. Halmos Agreement which provides, among other things,
$750,000 annual compensation for services for a five year period
(ending in 1998) and $1,250,000 annual compensation paid over a
five year period (ending in 1998) for non-competition protection
for a period of seven years (ending in 2000) and for a
standstill, voting and right of first refusal agreement. Neither
the Company nor Steven J. Halmos gave releases of claims, if any,
against the other.
President and Chief Operating Officer. Pending recruitment of a
new Chief Executive Officer, a number of functions that would
normally be associated with that position were assumed in
January of 1993 by Messrs. Stalcup and Cahill. Those
responsibilities included development of a business plan,
including a plan to develop new products and services, and
improvement of the Company's relations with its shareholders and
the investment community.
The Compensation Committee believed that each of the President
and the Chief Operating Officer admirably fulfilled their
responsibilities. In light of this conclusion, the Compensation
Committee determined to retain their base salaries at the end of
1992 level and award each of the President and the Chief
Operating Officer a $150,000 bonus to reflect, among other
things, their special contributions in 1993.
POLICIES RELATING TO SECTION 162 OF THE INTERNAL REVENUE CODE
In 1993, the Internal Revenue Code was amended to limit the
deductibility for federal income tax purposes of annual
compensation of the chief executive officer of publicly held
corporations and the four highest compensated officers in
addition to the chief executive officer (collectively, "Covered
Officers") in excess of $1,000,000 unless certain conditions are
met. The Compensation Committee intends to consider this
limitation, among other factors, in reaching compensation
decisions. The Compensation Committee also intends to consider
seeking shareholder approval where such approval would eliminate
the limitation on deductibility.
If the shareholders approve the 1994 Plan, the $1,000,000
limitation on deductibility should not apply to compensation
deemed paid by reason of the exercise of options and stock
appreciation rights granted to Covered Officers under the 1994
Plan.
1994 PROGRAMS
The 1994 Programs consist of a set of executive compensation
purposes, general principles and program design criteria that
will guide the Compensation Committee's evaluation and
determination of executive compensation programs and decisions.
The Compensation Committee, with the advice of the Compensation
Consultant, developed the 1994 Programs based on its overall
philosophy that the Company's executive compensation structure
should:
* Provide competitive pay systems that support the
Company's business strategies and help to attract,
retain and motivate the people necessary to achieve
these goals;
* Emphasize variable pay, thereby increasing focus on
planning, accountability and pay for performance; and
* Align management and shareholder interests through
incentive design and awards of common shares.
The three components of individual executive officer
compensation under the 1994 Programs are base salary, an annual
performance-based incentive bonus and long term stock-based
incentive compensation.
Base salary guidelines are assigned to positions based on job
responsibilities, sustained performance and a periodic review of
base salary practices for comparable positions at other
corporations with similar levels of profitability. Although the
1993 base salaries of the Company's executive officers generally
fall above average base salaries at such other corporations, the
Compensation Committee anticipates that over time, as the Company
increases its emphasis on variable pay, this may change. The
Compensation Committee has the discretion to negotiate base
salaries that are outside the base salary guidelines.
Annual performance-based incentive bonuses will be awarded
based on achievement of corporate objectives and individual
goals (relating, for example, to an individual's job
description) established early in each fiscal year. The
corporate objectives, which are weighted more heavily the more
senior the executive's position, consist of targeted subscription
revenues, net earnings (in the case of executive vice presidents
and higher) and operating earnings (in the case of management
below the executive vice president level). These targets are
objective, with a minimum level which must be achieved before any
payout may occur, along with a target award and maximum award.
Targets are based on estimates of the Company's ability to reach
the specified levels during the fiscal year. Before any payout
will occur, the Compensation Committee must certify that
performance goals were satisfied. The Compensation Committee has
not yet set 1994 targets.
Annual performance-based incentive bonuses will be paid out of
a target pool initially calculated as the sum of individual
target awards. The target pool is based solely on the achievement
of the corporate objectives and can be adjusted from 0% to 200%
of the target awards based on achievement of these objectives.
Individual target awards range from 15% to 60% of base salary,
depending on the executive's level, and actual awards may range
from 0% to 200% of the target award based on individual and
corporate performance.
When Company performance is below the minimum threshhold, a
discretionary award pool will be established equal to 15% of the
target pool, subject to adjustment by the Compensation
Committee. The Compensation Committee intends to allocate amounts
in the discretionary award pool to employees (other than Covered
Officers) who performed exceptionally well despite poor Company-
wide performance or to prevent unforeseeable events which
affected Company performance from eliminating bonuses to
employees (other than Covered Officers) in an inequitable
fashion.
The long term stock-based incentive compensation component of
the 1994 Programs, embodied in the 1994 Plan, is designed to
link executive compensation to the Company's share price over a
multi-year performance period, to align management and
shareholder interest, and to enable the Company to attract,
motivate and retain experienced and highly qualified personnel.
The 1994 Plan is subject to shareholder approval. See, "Proposal
II: 1994 Long Term Stock-Based Incentive Plan."
January 25, 1994
William T. Bacon, Jr.
Marshall L. Burman
Robert L. Dilenschneider
Eugene Miller
EXECUTIVE COMPENSATION
The executive compensation disclosure in the following section
of this proxy statement reflects compensation for the named
executives. In December of 1992, Steven J. Halmos resigned from
his positions with the Company as director and chief executive
officer, and agreed to continue to serve as a consultant to the
Company. Paul G. Kahn was named as the Company's Chief Executive
Officer and Chairman of its Board of Directors in December of
1993 and does not appear on the Summary Compensation Table below.
The following table shows, for the years ending October 31,
1993, 1992 and 1991, the cash and other compensation paid or
accrued and certain long-term awards made to the named
executives for all services in all capacities:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Awards
------------
Name and Salary and Options/ All Other
Principal Position Year Commission($) Bonus($) SARs (#) Compensation($)(1)
- -------------------------------- ---- -------------- --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
W.M. Stalcup, Jr................ 1993 250,000 190,000 10,538(2)
President 1992 254,946 115,000 150,342(2)
1991 220,192 75,000
Gerald R. Cahill................ 1993 250,000 190,000 15,410(3)
Chief Operating Officer 1992 234,273 120,000 102,051(3)
1991 195,192 75,000
John Bochak..................... 1993 208,270 52,500 14,278(4)
Senior Vice President 1992 203,023 100,000 132,052(4)
1991 170,192 65,000
Lynn Torrent.................... 1993 133,846 80,000 3,412(5)
Chief Financial Officer 1992 71,004 45,500 40,128(5)
1991 57,808 12,000 25,000
David Gallimore................. 1993 169,330 47,500 10,136(6)
Executive Vice Pres. 1992 73,917 22,000 45,107(6)
1991 53,209 10,000 15,000
Joanne Seehousen................ 1993 238,676 10,755(7)
Executive Vice Pres. 1992 261,331
1991 245,635
Steven J. Halmos................ 1993 350,205(8) 1,731,183(9)
(Former Chief Executive Officer) 1992 2,650,000(8)
1991 2,650,000(8)
<FN>
1 In 1992, the Company relocated its headquarters and
operational facility from Ft. Lauderdale, Florida to
Cheyenne, Wyoming. In order to retain the strength of its
management team and minimize any business disruption
associated with the relocation, the Company adopted a relocation
plan (the "Relocation Plan") to offer relocation incentives
and to reimburse employees for reasonable and necessary
moving expenses. Except as specified in footnotes (7) and
(9) below, amounts shown constitute compensation under the
Relocation Plan.
2 Consists of (a) in 1992, $131,000 relocation bonus and
$19,342 relocation cost reimbursement and (b) in 1993,
$1,848 relocation cost reimbursement and $8,690 to defray
certain federal income tax consequences of relocation cost
reimbursement.
3 Consists of (a) in 1992, $87,616 relocation bonus and
$14,435 relocation cost reimbursement and (b) in 1993,
$8,925 relocation cost reimbursement and $6,485 to defray
certain federal income tax consequences of relocation cost
reimbursement.
4 Consists of (a) in 1992, $106,000 relocation bonus and
$26,052 relocation cost reimbursement and (b) in 1993,
$2,574 relocation cost reimbursement and $11,704 to defray
certain federal income tax consequences of relocation cost
reimbursement.
5 Consists of (a) in 1992, $29,910 relocation bonus and
$10,218 relocation cost reimbursement and (b) in 1993,
$3,412 to defray certain federal income tax consequences of
relocation cost reimbursement.
6 Consists of (a) in 1992, $35,000 relocation bonus and
$10,107 relocation cost reimbursement and (b) in 1993,
$5,595 relocation cost reimbursement and $4,541 to defray
certain federal income tax consequences of relocation cost
reimbursement.
7 Consists of a one-time incentive bonus to maintain
employment with the Company in Florida through the
relocation period.
8 Compensation paid to an entity partially owned by Steven J.
Halmos as compensation for his services as Chief Executive
Officer through December 19, 1992.
9 Fees for consulting services after December 19, 1992 and
consideration for covenant not to compete and standstill,
voting and right of first refusal agreement. See,
"Employment Contracts and Termination of Employment
Arrangements-Consulting Agreement-Steven J. Halmos."
</TABLE>
OPTIONS
Option Grants in 1993. No options or other stock-based long
term incentive awards were granted by the Company to the named
executive officers during 1993. In 1994 the Board of Directors
adopted the 1994 Plan and made a stock option grant thereunder,
subject to shareholder approval. See, "Proposal II: 1994 Long
Term Stock-Based Incentive Plan."
Option Exercises in 1993. The following table sets forth
information for the named executives (including the former Chief
Executive Officer) regarding the exercise of stock options during
1993 and unexercised options held as of October 31, 1993:
Aggregated Option Exercises in 1993 and Year-End 1993 Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at October 31, 1993 at October 31, 1993(2)
------------------------------ ----------------------
Shares
Acquired on Value Exercisable Unexercisable Exercisable Unexercisable
Name Exercise (#) Realized ($)(1) (#) (#) ($) ($)
- --------------------- ------------- --------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
W.M. Stalcup, Jr..... 85,260 618,522 290,000 2,248,750
Gerald R. Cahill..... 25,000 182,818 165,000 1,242,500
John Bochak.......... 85,260 433,272 240,000 1,855,000
Joanne Seehousen..... 85,260 425,286 170,000 1,303,750
Lynn Torrent......... 10,000 69,167 16,666 8,334 66,664 33,336
David Gallimore...... 8,000 61,000 17,000 5,000 89,000 20,000
Steven J. Halmos(3).. 50,000 345,833 3,900,000 29,981,250
- ------------
<FN>
1 Amounts reflect the market value of the underlying common
shares at the date of exercise less the exercise price.
2 Amounts reflect the market value of the underlying common
shares at the end of fiscal 1993 less the exercise price.
3 Chief executive officer until December 19, 1992 and
currently consultant to the Company.
</TABLE>
PERFORMANCE GRAPH
The graph below compares the cumulative annual return for the
past five fiscal years on an investment of $100 in the Company's
common shares with the cumulative annual return over the same
period on an investment of $100 in each of the Standard & Poor's
500 Stock Index and the Business Services & Supply Peer Group
Index ("BS & S Index"), assuming reinvestment of all dividends.
The BS & S Index is an index of 69 companies, including the
Company, CUC International and SPS Transaction Systems,
originally constructed by Bridge Information Services. For
periods after 1992, this information was no longer available
from Bridge Information Services and therefore the Company
retained a consultant to recreate the index for fiscal 1993.
The Performance Graph below shall not be deemed incorporated by
reference as a result of any general statement incorporating by
reference this proxy statement into any filing under the
Securities Act of 1933, as amended (the "Securities Act") or
under the Exchange Act except to the extent that the Company
specifically incorporates this information by reference, and
shall not otherwise be deemed filed under the Securities Act or
the Exchange Act.
The closing price of the Company's common shares on October 29,
1993 (the last trading day in the Company's fiscal year) and
January 25, 1994, as reported on the New York Stock Exchange
Composite Transactions Tape, was $13.00 and $18.25 per share,
respectively. Past performance is not necessarily indicative of
future performance or trends.
FIVE YEAR TOTAL RETURN CHART
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
SafeCard Services.. 100 81 86 135 116 195
S&P 500 Index...... 100 126 117 156 172 197
BS & S Index....... 100 127 96 131 156 285
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Employment Agreement-Paul G. Kahn. In December of 1993 the
Company named Paul G. Kahn as its Chief Executive Officer and
Chairman of its Board of Directors. Under the Company's
employment agreement with Mr. Kahn (the "Paul G. Kahn
Agreement"), Mr. Kahn will receive an annual base salary of at
least $750,000 and will be entitled to participate in the annual
performance-based incentive bonus plan of the Company. See,
"Compensation Committee Report-1994 Programs." Mr. Kahn was also
granted a $250,000 bonus upon execution of the Paul G. Kahn
Agreement and 5,000 restricted shares of the Company's common
stock with restrictions lapsing on each of the first three
anniversary dates of his employment. Mr. Kahn was also granted
options to acquire 1,000,000 of the Company's common shares under
the 1994 Plan, subject to shareholder approval. See, "Proposal
II: 1994 Long Term Stock-Based Incentive Plan."
The initial term of the Paul G. Kahn Agreement expires on
December 31, 1996 and automatically renews thereafter for
additional one-year terms unless either party notifies the other
within 180 days prior to any such renewal date that the Agreement
will not be extended. The Paul G. Kahn Agreement provides that if
Mr. Kahn terminates his employment during the employment term for
"good reason" (as defined in the Paul G. Kahn Agreement) or is
terminated by the Company during the employment term other than
for "cause" (as defined in the Paul G. Kahn Agreement), death or
disability (as defined in the Paul G. Kahn Agreement), he will
generally be entitled to severance pay in an amount equal to 150%
of the sum of his then current base salary plus the highest
amount of his incentive compensation for any bonus period during
the employment term, provided, that if the termination occurs
within three years following a "change of control" (as defined in
the Paul G. Kahn Agreement), 300% will be substituted for 150%.
In addition, all of his options will immediately vest.
The Paul G. Kahn Agreement also provides for certain executive
benefits, including individual life and long-term disability
insurance policies, an annual executive allowance for automobile
and certain professional services, and for a supplemental
retirement benefit consisting of a grantor trust to be funded by
annual contributions by the Company equal to 6.7% of Mr. Kahn's
annual base salary. Mr. Kahn is also entitled to certain of the
relocation benefits (but not the relocation bonus) provided to
the other Company employees who relocated from Florida, with
certain adjustments.
Mr. Kahn has agreed not to compete with, solicit any key
employees of, or make any public statements critical of, the
Company during the term of his employment or for a period of
twelve months thereafter.
Severance Agreements. The Company has severance agreements with
Mr. Stalcup, Jr., Mr. Cahill, Mr. Bochak, Ms. Seehousen, Ms.
Torrent, Mr. Gallimore and certain other officers. The severance
agreements provide that if, following a "change of control" of
the Company (as defined in the severance agreements), an
officer's employment is terminated by the Company other than for
cause, or retirement or disability (as those terms are defined in
the severance agreements) or death or by the officer for good
reason (as defined in the severance agreements), including
resignation of the officer following a reduction in compensation,
a significant change in the officer's authority or
responsibility, or a substantial relocation of the officer, the
officer will be entitled to receive (1) his or her full base
salary plus any bonuses or benefits earned through the date of
termination (as defined in the severance agreements) and (2) a
lump sum cash payment equal to three times the officer's "base
amount" (as defined in Section 280G of the Internal Revenue
Code). The base amount is approximately equal to the officer's
average annual compensation during the most recent five-year
period. In addition, the officer shall be entitled to continued
life insurance and medical benefits for three years following the
date of termination.
Supplemental Relocation Agreements. In addition to the
Relocation Plan (see, Summary Compensation Table), the Company
has supplemental relocation agreements with four executive
officers named in the Summary Compensation Table: W.M. Stalcup,
Jr., President, Gerald R. Cahill, Chief Operating Officer, Lynn
Torrent, Chief Financial Officer, and David Gallimore, Executive
Vice President.
Mr. Stalcup, Jr.'s agreement with the Company provides as
follows: (1) The Company's standard relocation policy has been
amended in terms of commitment for employment from two to four
years; and (2) if (a) within seven years after the Company's
relocation to Cheyenne there is a "change in control" (as defined
in the agreement) and (b) if Mr. Stalcup, Jr.'s employment with
the Company terminates for any reason (other than for cause)
within one year after the date upon which the "change of control"
occurs, then Mr. Stalcup, Jr. will (i) continue to receive his
salary and benefits for 12 months after such termination and (ii)
will be released from any non-compete restriction. Clause
(2)(b)(i) will not apply if Mr. Stalcup, Jr. becomes entitled to
payment under his severance agreement.
Mr. Cahill's agreement with the Company provides as follows:
(1) If (a) at any time within five years after his relocation
either (i) the Company ceases to file periodic reports with the
SEC or (ii) there is a "change of control" (as defined in the
agreement) and (b) for any reason Mr. Cahill gives written
notice of termination of employment within one year after the
date upon which the first periodic report not filed with the SEC
would otherwise have been due or the "change of control" occurs,
then (i) Mr. Cahill will continue to receive his then existing
base salary and insurance benefits for twelve months after
termination, (ii) the Company will purchase his home in Cheyenne
for the price paid, and (iii) the Company will pay reasonable
costs of Mr. Cahill's move back to Ft. Lauderdale, if applicable,
and (iv) Mr. Cahill will be relieved of any remaining obligation
to the Company contained in the Relocation Plan; and (2) if for
any reason Mr. Cahill gives written notice of termination of
employment not less than 24 months but not more than 36 months
after his relocation, then the provisions of clauses (1)(b)(ii)
and (iii) above will apply and Mr. Cahill will continue to
receive his then existing base monthly salary and insurance
benefits for 6 months after termination. This agreement will not
apply if Mr. Cahill becomes entitled to payment under his
severance agreement.
Ms. Torrent's agreement with the Company provides as follows:
Ms. Torrent was entitled to a secured loan on favorable terms of
up to $30,000 toward the purchase price of a home in Cheyenne.
She has since repaid this loan. In addition, if for any reason
Ms. Torrent gives written notice of termination of employment not
less than 24 months but not more than 36 months after her
relocation, the Company will repurchase her home in Cheyenne for
the price paid.
Mr. Gallimore's agreement with the Company provides as follows:
If for any reason Mr. Gallimore gives written notice of
termination of employment not less than 24 months but not more
than 27 months after purchasing a home in Cheyenne, the Company
will repurchase the home for the price paid.
Consulting Agreement-Steven J. Halmos. Pursuant to the Steven
J. Halmos Agreement, the Company retained the full-time
consulting services of Steven J. Halmos for a period ending
March 31, 1998. The consulting services covered include
marketing, product development, creative efforts and operational
advice. If Mr. Halmos voluntarily terminates the consultancy "for
cause" (as defined in the Steven J. Halmos Agreement) or if the
Company terminates the consultancy "without cause" (as defined in
the Steven J. Halmos Agreement), the Company is obligated to
continue to pay the annual $750,000 consulting fee for the
balance of the consulting period. In the event that Mr. Halmos
dies or becomes "disabled" (as defined in the Steven J. Halmos
Agreement), the obligation of the Company to pay the consulting
fee will cease effective as of the last day of the month of his
death or the date of his disability determination (as defined in
the Steven J. Halmos Agreement).
In addition, the Steven J. Halmos Agreement contains covenants
not to compete with the Company and not to interfere with the
Company's relationships with its clients or employees for a
period ending March 31, 2000 and encompasses a standstill, voting
and right of first refusal agreement. The Company is obligated to
pay $1,250,000 a year for five years (ending in 1998) for these
covenants and agreements, regardless of whether the consultancy
is terminated, but the obligation will cease immediately if
Steven J. Halmos materially breaches the covenants or agreements
or, in the event that he dies or becomes "disabled" (as defined
in the Steven J. Halmos Agreement), on the earlier of March 31,
1998 or the first anniversary of the date of death or Disability
Determination (as defined in the Steven J. Halmos Agreement). The
obligations of Steven J. Halmos under the standstill, voting and
right of first refusal agreement-which, among other things
prohibits him from acquiring securities of the Company other than
through exercise of incentive stock options already held by him,
obligates him to vote such shares in favor of proposals
recommended by the Board of Directors, and limits his right to
transfer such shares without first offering them to the Company-
will terminate on the earlier of March 31, 2003 or the date that
is five years after the date that all of the incentive stock
options held by him are exercised or are terminated. See also
"Certain Transactions and Other Matters-Other 1993 Transactions
Involving Steven J. Halmos."
CERTAIN TRANSACTIONS AND OTHER MATTERS
Ft. Lauderdale Lease. During 1993, 1992 and 1991, respectively,
the Company made payments of $.7 million, $1.2 million and $1.2
million to Halmos Trading & Investment, a partnership owned and
controlled by its co-founders, pursuant to a contested lease (the
"Ft. Lauderdale Lease") of the Company's former headquarters.
The Ft. Lauderdale Lease is subject to a suit filed against the
Company and one of its officers by Peter Halmos and, purportedly,
by Halmos Trading & Investment on February 19, 1993 in Circuit
Court Broward County, Florida, and the Company is no longer
paying rent. As amended, the complaint asserts a variety of
claims related to such matters as the Company's alleged failure
to meet alleged obligations to pay Florida sales taxes, rents,
and other amounts. The Company has filed counterclaims, naming
Steven J. Halmos as a nominal defendant and challenging the legal
existence, validity and enforceability of the Ft. Lauderdale
Lease and asserting usurpation of corporate opportunity, breach
of fiduciary duty and other claims. Peter Halmos has also filed a
counterclaim alleging intentional infliction of mental distress
and other matters. Because of his interest in Halmos Trading &
Investment, Steven J. Halmos has an indirect interest in the
outcome of this litigation that is adverse to that of the
Company.
CreditLine Agreement. The Company markets certain credit
products and services pursuant to an agreement (as amended, the
"CreditLine Agreement") with CreditLine Corporation ("CLC"), a
corporation owned by the Company's co-founders and their
families. The CreditLine Agreement is subject to a suit filed by
the Company against Peter Halmos and certain related entities,
including CLC, on August 11, 1993 in Laramie County Circuit Court
in Wyoming, alleging such matters as usurpation of corporate
opportunity and breach of fiduciary duty with respect to the
CreditLine Agreement and other matters. In addition, Peter
Halmos and CLC filed a lawsuit against the Company and one of
its directors in Cook County Circuit Court in Illinois on May 26,
1993, challenging, among other things, an amendment to the
CreditLine Agreement providing for certain future marketing of
CreditLine by the Company after the CreditLine Agreement is
otherwise terminated (as it was, effective November 1, 1993). As
a result of his and his family's interest in CLC, Steven J.
Halmos has an indirect interest in the litigation involving the
CreditLine Agreement that is adverse to that of the Company.
Other 1993 Transactions Involving Steven J. Halmos. During
1993, the Company repurchased from Steven J. Halmos 1,645,760
common shares of the Company. The shares were repurchased under
the Company's stock repurchase plan at $11.50 per share, a price
equal to the averaging trading price of the Company's common
shares over a period of three days following public disclosure of
the repurchase. See, also "Employment Contracts and Termination
of Employment Arrangements-Consulting Agreement-Steven J.
Halmos."
Public Relations and Investor Relations. The
Dilenschneider Group, Inc., a company owned by one of the
Company's directors, and Eugene Miller, another of the Company's
directors, provide certain consulting services to the Company.
See, "Governance of the Company-Directors' Fees and Other
Compensation."
PROPOSAL II:
1994 LONG TERM
STOCK-BASED INCENTIVE PLAN
The Company seeks shareholder approval of a 1994 Long Term
Stock-Based Incentive Plan (the "1994 Plan"). The 2,400,000
shares covered by the 1994 Plan represent approximately 9.9% of
the Company's outstanding common shares at January 25, 1994. The
long term incentive awards provided by the 1994 Plan are designed
to align executive and shareholder long term interests and to
enable the Company to attract, motivate and retain experienced
and highly qualified personnel. To date, options to acquire
1,472,000 shares have been granted under the 1994 Plan, subject
to shareholder approval of the 1994 Plan, and 7,950 shares of
restricted stock have been awarded. See "Proposal II: 1994 Long
Term Stock-Based Incentive Plan-1994 Awards."
The following is a summary of the material features of the 1994
Plan. The full text of the 1994 Plan is attached as Exhibit A,
and the following summary is qualified in its entirety by
reference to it.
The 1994 Plan is administered by the 1994 Plan Committee, which
is comprised exclusively of non-employee directors. The 1994 Plan
provides for the granting of stock options, stock appreciation
rights ("SARs") and restricted stock (collectively or
individually, "Awards") to officers and employees of the Company
(the "Participants"). The 1994 Plan Committee has discretion to
select the Participants to whom Awards will be granted and to
determine the type, size and terms of each Award, and to make all
other determinations which it deems necessary or desirable in the
interpretation and administration of the 1994 Plan, except that
(1) with the exception of 1,000,000 shares which were reserved
for issuance pursuant to stock options granted in connection with
recruiting a new Chief Executive Officer and 5,000 shares of
restricted stock reserved and granted in the same context, the
maximum number of shares that may be made subject to Awards to
any Participant during any fiscal year is 400,000, (2) the 1994
Plan Committee may not grant Awards of restricted stock
aggregating more than 10% of the common shares covered by the
1994 Plan, and (3) the 1994 Plan Committee may not grant awards
of restricted stock with restriction periods of less than three
years aggregating more than 3% of the common shares covered by
the 1994 Plan. The 1994 Plan Committee has the authority to
administer, construe and interpret the 1994 Plan, and its
decisions are final, binding and conclusive.
Common shares issued under the 1994 Plan may be either newly
issued shares, treasury shares, reacquired shares or any
combination thereof. Unless prohibited by Rule 16b-3 under
Section 16 of the Exchange Act, if any common shares subject to
repurchase or forfeiture rights are reacquired by the Company or
if any Award is cancelled, terminates or expires unexercised, the
common shares which were issued or would otherwise have been
issuable pursuant thereto will become available for new Awards.
AWARDS UNDER THE 1994 PLAN
Stock Options. A stock option ("Option"), which may be a non-
qualified or an incentive stock option for federal income tax
purposes, is the right to purchase a specified number of common
shares at a price ("Option Price") fixed by the 1994 Plan
Committee. The Option Price may be no less than the fair market
value of the underlying common shares on the date of grant. As a
consequence, Options benefit the Participant only when a rising
stock price benefits all common shareholders and thus aligns
shareholder and executive long term interests.
Options are not transferable during the Participant's lifetime
and will generally expire not later than ten years after the
date on which they are granted. Options become exercisable at
such times and in such installments as the 1994 Plan Committee
shall determine. Payment of the Option Price must be made in
full at the time of exercise in cash or by other means that the
1994 Plan Committee deems appropriate.
No Option may be exercised unless the holder has been, at all
times during the period from the date of grant through the date
of exercise, employed by or performing services for the Company,
provided that the 1994 Plan Committee may determine that such
exercise may be made for certain periods following the date on
which a Participant ceases to be employed by or performing
services for the Company or one of its affiliates by reason of
retirement, disability or death.
Stock Appreciation Rights. An SAR may be granted alone or in
tandem with Options or other Awards and may not be exercised for
at least six months after the date of grant. Upon exercise of an
SAR, the holder must surrender the SAR and surrender unexercised
any related Option or other Award, and the holder will receive,
at the election of the Committee, cash or common shares or other
consideration equal in value to (or, in the discretion of the
Committee, less than) the difference between the exercise price
or Option Price per share and the fair market value per share on
the date preceding the date of exercise, multiplied by the number
of shares subject to the SAR or Option or other Award. A
Participant to whom an Award of an Option or SAR is made has no
rights as a shareholder with respect to any common shares
issuable pursuant to any such Option or SAR until the date of
issuance of the stock certificate for such shares upon payment of
the Option Price or settlement of the SAR.
Restricted Stock. Restricted stock is common stock which is
subject to restrictions against transfer and such other
restrictions as the 1994 Plan Committee may determine for a
restricted period specified by the 1994 Plan Committee. Unless
the Committee determines otherwise, prior to the expiration of
the restricted period, a Participant who has received restricted
stock has the right to vote and to receive dividends on the
shares subject to the Award.
ADDITIONAL INFORMATION
If there is any change in the outstanding common shares by
reason of a classification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, issuance of
warrants or rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, change
in corporate structure or otherwise, the 1994 Plan Committee has
the authority to determine conclusively the appropriate
adjustments, if any, to the maximum number of shares with respect
to which Awards or Options may be granted under the 1994 Plan and
to the number of shares which are subject to outstanding Options
or Awards and the purchase price therefor, if applicable.
Generally, a Participant's rights under the 1994 Plan may not
be assigned or transferred (except in the event of death). The
Company may permit a Participant to pay taxes required to be
withheld with respect to an Award in any appropriate manner
(including, without limitation, by the surrender to the Company
of common shares owned by such person or common shares that would
otherwise be distributed, or have been distributed, as the case
may be, pursuant to such Award).
All outstanding Awards will become immediately and fully vested
and exercisable upon a "change in control" (as defined under the
1994 Plan.) Unless approved by a majority of the directors then
in office who were also directors immediately after the adoption
of the 1994 Plan, the following events are defined as a change in
control: (i) the acquisition by any person of direct or indirect
beneficial ownership of 25% of the combined voting power of the
Company's then outstanding securities; (ii) an exchange or tender
offer for the Company's common stock, (iii) a merger or
consolidation of the Company unless the Company is the surviving
corporation and no capital reorganization or reclassification or
other change in the Company's then-outstanding shares of common
stock occurs, a sale or disposition of all or substantially all
of the Company's assets, or liquidation or dissolution of the
Company; or (iv) turnover of more than one third of the directors
in a two-year period, unless the nomination or election of each
new director was approved by at least two thirds of the directors
then still in office who were directors at the beginning of the
two-year period.
The expenses of the 1994 Plan are borne by the Company.
Although all of the Company's approximately 425 employees are
eligible to receive Awards under the 1994 Plan, it is anticipated
that most Awards will be made to managers and above.
Approximately forty-five persons are currently in that category.
Unless earlier terminated by the Board of Directors, the 1994
Plan will terminate on December 5, 2003. The Board of Directors
may amend the 1994 Plan, but no such amendment shall be effective
unless and until the same is approved by shareholders of the
Company where the absence of shareholder approval would adversely
affect the compliance of the 1994 Plan with Rule 16b-3
promulgated under the Exchange Act, or other applicable law or
regulation. Rule 16b-3 currently requires shareholder approval if
the amendment would, among other things, materially increase the
benefits accruing to Participants under the 1994 Plan.
1994 AWARDS
In December of 1993, the Company retained Paul G. Kahn as its
new Chief Executive Officer and, in connection therewith,
granted him Options under the 1994 Plan to acquire 1,000,000
common shares at an Option Price of $12.625 per share, the fair
market value of the shares on the date of grant, subject to
shareholder approval of the 1994 Plan, and awarded him 5,000
shares of restricted stock. Of the Options, 968,320 are non-
qualified, and 31,680 are incentive options, for federal income
tax purposes. See, "Proposal II: 1994 Long Term Stock-Based
Incentive Plan-Certain Federal Income Tax Consequences of
Options." Subject to acceleration in certain circumstances,
600,000 of the Options vest in four equal annual installments,
and 400,000 of the Options are "hurdle" options that vest in
three equal installments if and when the Company's common shares
trade for 20 consecutive trading days (exclusive of days when
the Company is purchasing such shares in the public market) at a
per share price of at least $18, $21 and $24, respectively,
provided, however, that in no event will the "hurdle" Options
vest prior to the first anniversary of the grant date and,
provided further, that in all events the "hurdle" Options will
fully vest on the ninth anniversary of the grant date. The Paul
G. Kahn Agreement contemplates that he will not receive
additional Options during the initial three year term of his
employment.
In January of 1994 the 1994 Plan Committee granted Options to
acquire an aggregate of 424,000 common shares and awarded an
aggregate of 2,950 shares of restricted stock to eight
individuals the Company is recruiting in connection with
implementing its new business strategies. The Option Price is
$18.94 per share, the fair market value of the shares on the date
of grant. Of these Options, 60% vest over time and 40% are
"hurdle" Options, similar to Mr. Kahn's, except that the "hurdle"
prices are $21, $24, and $27.
In January of 1994 the 1994 Plan Committee also granted Options
to acquire an aggregate of 48,000 shares to 21 members of the
Company's existing management team below the level of vice
president. These Options, also having an Option Price of $18.94
per share, vest over time and are not "hurdle" Options.
The Options described above will become null and void if the
shareholders do not approve the 1994 Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS
Tax counsel for the Company has advised that under current law
certain of the federal income tax consequences to Participants
and their employers of Options granted under the 1994 Plan should
generally be as set forth in the following summary.
An employee to whom an incentive Option which qualifies under
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), is granted will not recognize income at the time of
grant of exercise of such Option. No federal income tax deduction
will be allowable to the optionee's employer under the grant or
exercise of such Option. However, upon the exercise of an
incentive Option, special alternative minimum tax rules apply for
the optionee. When the optionee sells such shares more than one
year after the date of transfer of such shares and more than two
years after the date of grant of such Option, the optionee will
normally recognize a long-term capital gain or loss equal to the
difference, if any, between the sales price of such shares and
the Option exercise price. If the optionee does not hold such
shares for this period, when the optionee sells such shares, the
optionee will recognize ordinary compensation income and possibly
capital gain or loss in such amounts as are prescribed by the
Code and regulations thereunder. Subject to applicable provisions
of the Code and regulations thereunder, the optionee's employer
will generally be entitled to a federal income tax deduction in
the amount of such ordinary compensation income.
An individual to whom a non-qualified Option (which is treated
as an option for federal income tax purposes) is granted will
not recognize income at the time of grant of such Option. When
such optionee exercises such non-qualified Option, the optionee
will recognize ordinary compensation income equal to the
difference, if any, between the Option Price paid and the fair
market value, as of the date of Option exercise, of the shares
the optionee receives. Any compensation includable in the gross
income of an employee in respect of a non-qualified Option will
be subject to appropriate federal income and employment taxes.
The tax basis of such shares to such optionee will be equal to
the Option Price paid plus the amount includable in the
optionee's gross income, and the optionee's holding period for
such shares will commence on the day on which the optionee
recognized taxable income in respect of such shares. Subject to
applicable provisions of the Code and regulations thereunder, the
employer of such optionee will generally be entitled to a federal
income tax deduction in respect of non-qualified Options in an
amount equal to the ordinary compensation income recognized by
the optionee.
If the shareholders approve the 1994 Plan, the $1,000,000
limitation on deductibility of compensation to Covered Officers
should not apply to compensation deemed paid upon the exercise
of non-qualified Options by Covered Officers.
The discussion set forth above does not purport to be a
complete analysis of all potential tax consequences relevant to
recipients of Options or their employers or to describe tax
consequences based on particular circumstances and does not
address Awards other than Options. It is based on federal income
tax law and interpretational authorities as of the date of this
proxy statement, which are subject to change at any time.
VOTE REQUIRED FOR APPROVAL
Approval by the affirmative vote of the holders of a majority
of the common shares of the Company present in person or
represented by proxy at the meeting and entitled to vote on the
subject matter is required for approval of the 1994 Plan.
The Board of Directors believes that it is in the best
interests of the Company and its shareholders to be able to
provide Awards that align executive and shareholder long-term
interest and that enable the Company to attract, motivate and
retain experienced and highly qualified personnel. The Board
believes that this is particularly true in a period during which
the Company is seeking to augment its management capacities in
order to implement the Company's new business strategies.
Accordingly, your Board of Directors recommends a vote FOR the
following resolution:
Resolved, that the Company's 1994 Long Term Stock-Based
Incentive Plan be, and hereby is, approved.
PROPOSAL III:
SELECTION OF AUDITORS
The Board of Directors recommends to the shareholders their
ratification of its selection of Price Waterhouse, independent
auditors, to audit the accounts of the Company and its
subsidiaries for 1994. The following resolution will be offered
at the shareholders' meeting:
Resolved, that the appointment by the Board of
Directors of Price Waterhouse, independent auditors, to
audit the accounts of the Company and its subsidiaries
for 1994 be, and hereby is, ratified and approved.
In the event the shareholders fail to ratify the appointment,
the Board of Directors will consider it a direction to select
other auditors for the subsequent year. Even if the selection is
ratified, the Board of Directors, in its discretion, may direct
the appointment of a new independent accounting firm at any time
during the year, if the Board feels that such a change would be
in the best interests of the Company and its shareholders.
Price Waterhouse has been serving as the Company's independent
auditors since 1988. Partners and non-partner personnel are
rotated on a periodic basis.
A representative of Price Waterhouse will be present at the
shareholders' meeting with the opportunity to make a statement
if he or she desires to do so and will be available to respond to
appropriate questions.
OTHER MATTERS
Management does not know of any business to be transacted at
the meeting other than as indicated herein. However, certain
shareholders may present topics for discussion from the floor.
Should any matter other than as indicated herein properly come
before the meeting for a vote, the persons designated as proxies
will vote thereon in accordance with their best judgment.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Exchange Act requires executive officer
and directors, and persons who beneficially own more than ten
percent of the Company's stock, to file initial reports of their
beneficial ownership and reports of changes in such ownership
with the SEC; copies of such reports also are required to be
filed with the Company. Based solely on a review of the copies of
such reports furnished to the Company and written representations
from the executive officers and directors, that no Form 5 reports
were required, the following exceptions with regard to compliance
were noted: David Gallimore filed one late Form 3 relating to his
ownership of common shares as of the date of his appointment as
an executive vice president.
1995 SHAREHOLDER PROPOSALS
If a shareholder wishes to have a proposal considered for
inclusion in the Company's proxy solicitation materials in
connection with the 1995 annual meeting of shareholders, which
it is presently contemplated will be held on or about March 15,
1995, the proposal must comply with the SEC's proxy rules, be
stated in writing and be submitted on or before October 27, 1994,
to the Company at its principal executive offices at 3001 E.
Pershing Boulevard, Cheyenne, Wyoming 82001, Attention: Agneta K.
Breslin, Assistant Secretary. All such proposals should be sent
by certified mail, return receipt requested.
Excluding shareholder proposals filed in accordance with the
proxy rules, a shareholder is required to comply with the
Company's By-Laws with respect to any proposal to be presented
for action at an annual meeting of shareholders. The Company's
By-laws require each proposal to be (i) written, (ii) delivered
to, or mailed and received by the Company's Assistant Secretary
at the principal executive office of the Company not less than 60
days nor more than 90 days prior to the date of the annual
meeting and (iii) accompanied by (A) a brief description of the
proposal and the reasons therefor, (B) the name and address of
the shareholder making the proposal and any other shareholders
known by such shareholder to support such proposal, (C) the class
and number of shares of Company capital stock beneficially owned
by all such shareholders and (D) any financial interest of such
shareholder in the proposal. If notice or public disclosure of
the date of the annual meeting occurs less than 70 days prior to
the date of the annual meeting, shareholders must deliver to the
Company, or mail and have received at the Company, the proposal
and the required attendant information not later than the close
of business on the tenth day following the earlier of (i) the day
on which such notice of the date of the annual meeting was mailed
or (ii) the day on which such public disclosure was made.
If a shareholder wishes to nominate a candidate for election as
director at the annual meeting of shareholders to be held in
1995, the shareholder must comply with the Company's By-laws
with respect to director nominations. Written notice of the
shareholder's intent to make such nomination must be given to the
Assistant Secretary of the Company, Agneta K. Breslin, at the
principal executive offices of the Company, not less than 60 days
nor more than 90 days prior to the date of the annual meeting. If
notice or public disclosure of the date of the annual meeting
occurs less than 70 days prior to the date of the annual meeting,
shareholders must deliver to the Company, or mail and have
received at the Company, notice of the shareholder's intent to
make such nomination not later than the close of business on the
tenth day following the earlier of (i) the day on which such
notice of the date of the annual meeting was mailed or (ii) the
day on which such public disclosure was made. The written notice
shall set forth (A) the name and address of the shareholder and
each person whom the shareholder proposes to nominate as a
director, (B) a representation that the shareholder is a holder
of record of stock of the Company entitled to vote at such
meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice, (C) a description of all arrangements or understandings
between the shareholder and each nominee and any other person or
persons (naming such person persons) pursuant to which the
nomination or nominations are to be made by the shareholder, (D)
such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission as then in effect and (E) the consent of each
nominee to serve as a director of the Company if so elected. The
presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the
foregoing procedure.
The preceding two paragraphs are intended to summarize the
applicable By-laws of the Company. These summaries are qualified
in their entirety by reference to those By-laws.
* * * * *
You are urged to sign, date and promptly mail the enclosed
proxy in the prepaid envelope provided for such purpose. Prompt
return of your proxy may save your Company additional
solicitation expense.
We encourage all shareholders to attend the Annual Meeting of
Shareholders on March 7, 1994. If you will need special
assistance at the meeting because of a disability, please contact
the Assistant Secretary of the Company at the address above.
EXHIBIT A
SAFECARD SERVICES, INCORPORATED
1994 LONG TERM STOCK-BASED INCENTIVE PLAN
Approved by the Compensation Committee
and Adopted by the Board of Directors:
December 5, 1993
Amended and Restated:
January 24, 1994
SAFECARD SERVICES, INCORPORATED
1994 LONG TERM STOCK-BASED INCENTIVE PLAN
1. PURPOSE.
The purpose of this Plan is to strengthen SafeCard Services,
Incorporated (the "Company") by providing an incentive to its
officers, employees and directors and thereby encouraging them
to devote their abilities and industry to the success of the
Company's business enterprise. It is intended that this purpose
be achieved by extending to officers, employees and directors of
the Company and its subsidiaries an added long-term incentive
for high levels of performance and unusual efforts through the
grant of Incentive Stock Options, Nonqualified Stock Options,
Stock Appreciation Rights and Restricted Stock (as each term is
hereinafter defined).
2. DEFINITIONS.
For purposes of the Plan:
2.1 "Agreement" means the written agreement between the Company
and an Optionee or Grantee evidencing the grant of an Option or
Award and setting forth the terms and conditions thereof.
2.2 "Award" means a grant of Restricted Stock or a Stock
Appreciation Right, or any or all of them.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause" means the commission of an act of fraud or
intentional misrepresentation or an act of embezzlement,
misappropriation or conversion of assets or opportunities of the
Company or any Subsidiary.
2.5 "Change in Capitalization" means any increase or reduction
in the number of Shares, or any change (including, but not
limited to, a change in value) in the Shares or exchange of
Shares for a different number or kind of shares or other
securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-
off, split-up, issuance of warrants or rights or debentures,
stock dividend, stock split or reverse stock split, cash
dividend, property dividend, combination or exchange of shares,
repurchase of shares, change in corporate structure or otherwise.
2.6 A "Change in Control" shall mean the occurrence during the
term of the Plan of any of the following:
(i) when the Company acquires actual knowledge that any
person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act), other than an employee benefit plan
established or maintained by the Company or any of its
affiliates, is or becomes the beneficial owner (as defined in
Rule 13d-3 of the Exchange Act) directly or indirectly, of
securities of the Company representing 25% or more of the
combined voting power of the Company's then-outstanding
securities, (ii) upon the first purchase of the Company's
common stock pursuant to a tender or exchange offer (other
than a tender or exchange offer made by the Company or an
employee benefit plan established or maintained by the
company or any of its affiliates), (iii) upon the approval by
the Company's stockholders of (A) a merger or consolidation
of the Company with or into another corporation (other than
a merger or consolidation in which the Company is the
surviving corporation and which does not result in any capital
reorganization or reclassification or other change in the
Company's then-outstanding shares of common stock), (B) a sale
or disposition of all or substantially all of the Company's
assets or (C) a plan of liquidation or dissolution of the
Company, or (iv) if during any period of two (2) consecutive
years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at
least two-thirds thereof, unless the election or nomination
for the election by the Company's stockholders of each new
director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of the period; provided, however, that
notwithstanding the above, no "Change in Control" shall be
deemed to occur if the events in this Section 2.6 are approved
by a vote of at least a majority of the directors then still
in office who were directors on the date immediately after the
date hereof.
2.7 "Code" means the Internal Revenue Code of 1986, as
amended.
2.8 "Committee" means a committee consisting of at least two
(2) Disinterested Directors appointed by the Board to administer
the Plan and to perform the functions set forth herein.
2.9 "Company" means SafeCard Services, Incorporated.
2.10 "Disability" means a physical or mental infirmity which
impairs the Optionee's ability to perform substantially his or
her duties for a period of one hundred eighty (180) consecutive
days.
2.11 "Disinterested Director" means a director of the Company
who is "disinterested" within the meaning of Rule 16b-3 under the
Exchange Act.
2.12 "Eligible Individual" means any officer, employee or
director of the Company or a Subsidiary designated by the
Committee as eligible to receive Options or Awards subject to the
conditions set forth herein.
2.13 "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
2.14 "Fair Market Value" on any date means the average of the
high and low sales prices of the Shares on such date on the
principal national securities exchange on which such Shares are
listed or admitted to trading, or if such Shares are not so
listed or admitted to trading, the arithmetic mean of the per
Share closing bid price and per Share closing asked price on such
date as quoted on the National Association of Securities Dealers
Automated Quotation System or such other market in which such
prices are regularly quoted, or, if there have been no published
bid or asked quotations with respect to Shares on such date, the
Fair Market Value shall be the value established by the Board in
good faith and, in the case of an Incentive Stock Option, in
accordance with Section 422 of the Code.
2.15 "Grantee" means a person to whom an Award has been granted
under the Plan.
2.16 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the
Committee as an Incentive Stock Option.
2.17 "Nonqualified Stock Option" means an Option which is not
an Incentive Stock Option.
2.18 "Option" means an Option granted pursuant to Section 5.
2.19 "Optionee" means a person to whom an Option has been
granted under the Plan.
2.20 "Parent" means any corporation which is a parent
corporation (within the meaning of Section 424(e) of the Code)
with respect to the Company.
2.21 "Restricted Stock" means Shares issued or transferred to
an Eligible Individual pursuant to Section 7.
2.22 "Plan" means the SafeCard Services, Incorporated 1994 Long
Term Stock-Based Incentive Plan.
2.23 "Shares" means the common stock, par value $.01 per share,
of the Company.
2.24 "Stock Appreciation Right" means a right to receive all or
some portion of the increase in the value of the Shares as
provided in Section 6 hereof.
2.25 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code)
with respect to the Company.
2.26 "Ten-Percent Stockholder" means an Eligible Individual,
who, at the time an Incentive Stock Option is to be granted to
him or her, owns (within the meaning of Section 422(b)(6) of the
Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, or
of a Parent or a Subsidiary.
3. ADMINISTRATION.
3.1 The Plan shall be administered by the Committee which shall
hold meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of
its meetings. A quorum shall consist of not less than two
members of the Committee and a majority of a quorum may authorize
any action. Any decision or determination reduced to writing and
signed by a majority of all of the members shall be as fully
effective as if made by a majority vote at a meeting duly called
and held. Each member of the Committee shall be a Disinterested
Director. No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in
good faith with respect to this Plan or any transaction
hereunder, except for liability arising from his or her own
willful misfeasance, gross negligence or reckless disregard of
his or her duties. The Company hereby agrees to indemnify each
member of the Committee for all costs and expenses and, to the
extent permitted by applicable law, any liability incurred in
connection with defending against, responding to, negotiation
for the settlement of or otherwise dealing with any claim, cause
of action or dispute of any kind arising in connection with any
actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder.
3.2 Subject to the express terms and conditions set forth
herein, the Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Options
shall be granted under the Plan and the number of Incentive
Stock Options and/or Nonqualified Stock Options to be granted
to each Eligible Individual and to prescribe the terms and
conditions (which need not be identical) of each Option,
including the purchase price per Share subject to each
Option, and make any amendment or modification to any
Agreement consistent with the terms of the Plan; and
(b) select those Eligible Individuals to whom Awards shall
be granted under the Plan and to determine the number of
Stock Appreciation Rights or Shares of Restricted Stock to be
granted pursuant to each Award, the terms and conditions
(which need not be identical) of each Award, including the
restrictions or performance criteria relating to such Shares
and make any amendment or modification to any Agreement
consistent with the terms of the Plan.
3.3 Subject to the express terms and conditions set forth
herein, the Committee shall have the power from time to time:
(a) to construe and interpret the Plan and the Options and
Awards granted thereunder and to establish, amend and revoke
rules and regulations for the administration of the Plan,
including, but not limited to, correcting any defect or
supplying any omission, or reconciling any inconsistency in
the Plan or in any Agreement, in the manner and to the extent
it shall deem necessary or advisable to make the Plan fully
effective, and all decisions and determinations by the
Committee in the exercise of this power shall be final,
binding and conclusive upon the Company, its Subsidiaries, the
Optionees and Grantees and all other persons having any
interest therein;
(b) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee or Grantee on an
individual basis without constituting a termination of
employment or service for purposes of the Plan;
(c) to exercise its discretion with respect to the powers
and rights granted to it as set forth in the Plan; and
(d) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the
best interests of the Company with respect to the Plan.
4. STOCK SUBJECT TO THE PLAN.
4.1 The maximum number of Shares that may be made the subject
of Options and Awards granted under the Plan is 2,400,000. The
maximum number of Shares that may be made the subject of Awards
of Restricted Stock is 10% of the number of Shares that may be
made the subject of Options and Awards granted under the Plan,
and the maximum number of Shares that may be made the subject of
Awards of Restricted Stock with restriction periods of less than
three years is 3% of the Shares that may be made subject to
Awards and Options granted under the Plan. The maximum number of
Shares that may be subject of Options or Awards to an Eligible
Individual may not exceed 400,000 Shares during any fiscal year,
provided, however that the Committee may reserve and grant
Options to acquire up to 1,000,000 Shares and may reserve and
grant an Award of up to 5,000 Shares of Restricted Stock for the
purposes of recruiting a new chief executive officer. Upon a
Change in Capitalization the maximum number of Shares shall be
adjusted in number and kind pursuant to Section 9. The Company
shall reserve for the purposes of the Plan, out of its
authorized but unissued Shares or out of Shares held in the
Company's treasury, or partly out of each, such number of Shares
as shall be determined by the Board.
4.2 Upon the granting of an Option or an Award, the number of
Shares available under Section 4.1 for the granting of further
Options and Awards shall be reduced by the number of Shares in
respect of which the Option or Award is granted or denominated.
4.3 Whenever any outstanding Option or Award or portion
thereof expires, is cancelled or is otherwise terminated for any
reason without having been exercised or payment having been made
in respect of the entire Option or Award, the Shares allocable
to the expired, cancelled or otherwise terminated portion of the
Option or Award may again be the subject of Options or Awards
granted hereunder.
4.4 Notwithstanding anything contained in this Section 4, the
number of Shares available for Options and Awards at any time
under the Plan shall be reduced to such lesser amount as may be
required pursuant to the methods of calculation necessary so
that the exemptions provided pursuant to Rule 16b-3 under the
Exchange Act will continue to be available for transactions
involving all current and future Options and Awards. In
addition, during the period that any Options and Awards remain
outstanding under the Plan, the Committee may make good faith
adjustments with respect to the number of Shares attributable to
such Options and Awards for purposes of calculating the maximum
number of Shares available for the granting of future Options
and Awards under the Plan, provided that following such
adjustments the exemptions provided pursuant to Rule 16b-3 under
the Exchange Act will continue to be available for transactions
involving all current and future Options and Awards.
5. OPTION GRANTS FOR ELIGIBLE INDIVIDUALS.
5.1 Authority of Committee. Subject to the provisions of the
Plan and to Section 4.1 above, the Committee shall have full and
final authority to select those Eligible Individuals who will
receive Options, the terms and conditions of which shall be set
forth in an Agreement; provided, however, that no person shall
receive any Incentive Stock Options unless he or she is an
employee of the Company, a Parent or a Subsidiary at the time
the Incentive Stock Option is granted.
5.2 Purchase Price. The purchase price or the manner in which
the purchase price is to be determined for Shares under each
Option shall be determined by the Committee and set forth in the
Agreement; provided, however, that the purchase price per Share
under each Option shall not be less than 100% of the Fair Market
Value of a Share on the date the Option is granted (110% in the
case of an Incentive Stock Option granted to a Ten-Percent
Stockholder).
5.3 Maximum Duration. Options granted hereunder shall be for
such term as the Committee shall determine, provided that an
Incentive Stock Option shall not be exercisable after the
expiration of ten (10) years from the date it is granted (five
(5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder) and a Nonqualified Stock Option shall
not be exercisable after the expiration of ten (10) years from
the date it is granted. The Committee may, subsequent to the
granting of any Option, extend the term thereof but in no event
shall the term as so extended exceed the maximum term provided
for in the preceding sentence.
5.4 Vesting. Subject to Section 5.9 hereof, each Option shall
become exercisable in such installments (which need not be
equal) and at such times as may be designated by the Committee
and set forth in the Agreement. To the extent not exercised,
installments shall accumulate and be exercisable, in whole or in
part, at any time after becoming exercisable, but not later than
the date the Option expires. The Committee may accelerate the
exercisability of any Option or portion thereof at any time.
5.5 Method of Exercise. The exercise of an Option shall be made
only by a written notice delivered in person or by mail to the
Secretary of the Company at the Company's principal executive
office, specifying the number of Shares to be purchased and
accompanied by payment of the full purchase price for the Shares
in respect of which the Option is being exercised, in cash or
certified check and otherwise in accordance with the Agreement
pursuant to which the Option was granted. Notwithstanding the
foregoing, the Committee shall have discretion to determine at
the time of grant of each Option or at any later date (up to and
including the date of exercise) the form of payment acceptable
in respect of the exercise of such Option.
5.6 Modification or Substitution. The Committee may, in its
discretion, modify outstanding Options or accept the surrender
of outstanding Options (to the extent not exercised) and grant
new Options in substitution for them. Notwithstanding the
foregoing, no modification of an Option shall adversely alter or
impair any rights or obligations under the Option without the
Optionee's consent.
5.7 Non-transferability. No Option granted hereunder shall be
transferable by the Optionee to whom granted otherwise than by
will or the laws of descent and distribution, and an Option may
be exercised during the lifetime of such Optionee only by the
Optionee or his or her guardian or legal representative. The
terms of such Option shall be final, binding and conclusive upon
the beneficiaries, executors, administrators, heirs and
successors of the Optionee.
5.8 Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option
unless and until (i) the Option shall have been exercised
pursuant to the terms thereof, (ii) the Company shall have
issued and delivered the Shares to the Optionee and (iii) the
Optionee's name shall have been entered as a stockholder of
record on the books of the Company. Thereupon, the Optionee
shall have full voting, dividend and other ownership rights with
respect to such Shares.
5.9 Effect of Change in Control. Notwithstanding anything
contained in the Plan or an Agreement to the contrary, in the
event of a Change in Control, all Options outstanding on the
date of such Change in Control shall become immediately and
fully exercisable.
6. STOCK APPRECIATION RIGHTS.
Subject to the provisions of the Plan and Section 4.1 above,
the Committee may, in its discretion, either alone or in
connection with the grant of an Option, grant to Eligible
Individuals Stock Appreciation Rights the terms and conditions
of which shall be set forth in an Agreement. If granted in
connection with an Option, a Stock Appreciation Right shall cover
the same Shares covered by the Option (or such lesser number of
Shares as the Committee may determine) and shall, except as
provided in this Section 6, be subject to the same terms and
conditions as the related Option.
6.1 Time of Grant. A Stock Appreciation Right may be granted
(i) at any time if unrelated to an Option, or (ii) if related to
an Option, either at the time of grant, or at any time
thereafter during the term of the Option.
6.2 Stock Appreciation Right Related to an Option.
(a) Exercise. Subject to Section 6.6, a Stock Appreciation
Right granted in connection with an Option shall be
exercisable at such time or times and only to the extent
that the related Option is exercisable, and will not be
transferable except to the extent the related Option may be
transferable. A Stock Appreciation Right granted in
connection with an Incentive Stock Option shall be
exercisable only if the Fair Market Value of a Share on the
date of exercise exceeds the purchase price specified in the
related Incentive Stock Option Agreement.
(b) Amount Payable. Upon the exercise of a Stock
Appreciation Right related to an Option, the Grantee shall
be entitled to receive an amount determined by multiplying
(A) the excess of the Fair Market Value of a Share on the
date preceding the date of exercise of such Stock
Appreciation Right over the per Share purchase price under
the related Option, by (B) the number of Shares as to which
such Stock Appreciation Right is being exercised.
Notwithstanding the foregoing, the Committee may limit in
any manner the amount payable with respect to any Stock
Appreciation Right by including such a limit in the
Agreement evidencing the Stock Appreciation Right at the time
it is granted.
(c) Treatment of Related Options and Stock Appreciation
Rights Upon Exercise. Upon the exercise of a Stock
Appreciation Right granted in connection with an Option,
the Option shall be cancelled to the extent of the number of
Shares as to which the Stock Appreciation Right is exercised,
and upon the exercise of an Option granted in connection
with a Stock Appreciation Right, the Stock Appreciation
Right shall be cancelled to the extent of the number of
Shares as to which the Option is exercised or surrendered.
6.3 Stock Appreciation Right Unrelated to an Option. The
Committee may grant to Eligible Individuals Stock Appreciation
Rights unrelated to Options. Stock Appreciation Rights unrelated
to Options shall contain such terms and conditions as to
exercisability (subject to Section 6.6), vesting and duration as
the Committee shall determine, but in no event shall they have a
term of greater than ten (10) years. Upon exercise of a Stock
Appreciation Right unrelated to an Option, the Grantee shall be
entitled to receive an amount determined by multiplying (A) the
excess of the Fair Market Value of a Share on the date preceding
the date of exercise of such Stock Appreciation Right over the
Fair Market Value of a Share on the date the Stock Appreciation
Right was granted, by (B) the number of Shares as to which the
Stock Appreciation Right is being exercised. Notwithstanding the
foregoing, the Committee may limit in any manner the amount
payable with respect to any Stock Appreciation Right by
including such a limit in the Agreement evidencing the Stock
Appreciation Right at the time it is granted.
6.4 Method of Exercise. Stock Appreciation Rights shall be
exercised by a Grantee only by a written notice delivered in
person or by mail to the Secretary of the Company at the
Company's principal executive office, specifying the number of
Shares with respect to which the Stock Appreciation Right is
being exercised. If requested by the Committee, the Grantee shall
deliver the Agreement evidencing the Stock Appreciation Right
being exercised and the Agreement evidencing any related Option
to the Secretary of the Company who shall endorse thereon a
notation of such exercise and return such Agreement to the
Grantee.
6.5 Form of Payment. Payment of the amount determined under
Sections 6.2(b) or 6.3 may be made in the discretion of the
Committee, solely in whole Shares in a number determined at
their Fair Market Value on the date preceding the date of
exercise of the Stock Appreciation Right, or solely in cash, or
in a combination of cash and Shares. If the Committee decides to
make full payment in Shares and the amount payable results in a
fractional Share, payment for the fractional Share will be made
in cash. Notwithstanding the foregoing, no payment in the form
of cash may be made upon the exercise of a Stock Appreciation
Right pursuant to Sections 6.2(b) or 6.3 to an officer of the
Company or a Subsidiary who is subject to liability under Section
16(b) of the Exchange Act, unless the exercise of such Stock
Appreciation Right is made either (i) during the period
beginning on the third business day and ending on the twelfth
business day following the date of release for publication of the
Company's quarterly or annual statements of earnings or (ii)
pursuant to an irrevocable election to receive cash made at
least six months prior to the exercise of such Stock
Appreciation Right.
6.6 Restrictions. No Stock Appreciation Right may be exercised
before the date six (6) months after the date it is granted.
6.7 Modification or Substitution. Subject to the terms of the
Plan, the Committee may modify outstanding Awards of Stock
Appreciation Rights or accept the surrender of outstanding
Awards of Stock Appreciation Rights (to the extent not
exercised) and grant new Awards in substitution for them.
Notwithstanding the foregoing, no modification of an Award shall
adversely alter or impair any rights or obligations under the
Agreement without the Grantee's consent.
6.8 Effect of Change in Control. Notwithstanding anything
contained in this Plan to the contrary, in the event of a Change
in Control, subject to Section 6.6, all Stock Appreciation
Rights shall become immediately and fully exercisable.
7. RESTRICTED STOCK.
7.1 Grant. Subject to the provisions of the Plan and Section
4.1 above, the Committee may grant to Eligible Individuals
Awards of Restricted Stock which shall be evidenced by an
Agreement between the Company and the Grantee. Each Agreement
shall contain such restrictions, terms and conditions as the
Committee may, in its discretion, determine, and (without
limiting the generality of the foregoing) such Agreements may
require that an appropriate legend be placed on Share
certificates. Awards of Restricted Stock shall be subject to the
terms and provisions set forth below in this Section 7.
7.2 Rights of Grantee. Shares of Restricted Stock granted
pursuant to an Award hereunder shall be issued in the name of
the Grantee as soon as reasonably practicable after the Award is
granted provided that the Grantee has executed an Agreement
evidencing the Award, the appropriate blank stock powers and, in
the discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition
to the issuance of such Shares. If a Grantee shall fail to
execute the Agreement evidencing a Restricted Stock Award, the
appropriate blank stock powers and, in the discretion of the
Committee, an escrow agreement and any other documents which the
Committee may require within the time period prescribed by the
Committee at the time the Award is granted, the Award shall be
null and void. At the discretion of the Committee, Shares issued
in connection with a Restricted Stock Award shall be deposited
together with the stock powers with an escrow agent (which may
be the Company) designated by the Committee. Unless the
Committee determines otherwise and as set forth in the Agreement,
upon delivery of the Shares to the escrow agent, the Grantee
shall have all of the rights of a stockholder with respect to
such Shares, including the right to vote the Shares and to
receive all dividends or other distributions paid or made with
respect to the Shares.
7.3 Non-transferability. Until any restrictions upon the Shares
of Restricted Stock awarded to a Grantee shall have lapsed in
the manner set forth in Section 7.4, such Shares shall not be
sold, transferred or otherwise disposed of and shall not be
pledged or otherwise hypothecated, nor shall they be delivered to
the Grantee.
7.4 Lapse of Restrictions.
(a) Generally. Restrictions upon Shares of Restricted Stock
awarded hereunder shall lapse at such time or times and on
such terms and conditions as the Committee may determine,
which restrictions shall be set forth in the Agreement
evidencing the Award.
(b) Effect of Change in Control. Notwithstanding anything
contained in the Plan, unless the Agreement evidencing the
Award provides to the contrary, in the event of a Change in
Control, all restrictions upon any Shares of Restricted Stock
shall lapse immediately and all such Shares shall become fully
vested in the Grantee.
7.5 Modification or Substitution. Subject to the terms of the
Plan, the Committee may modify outstanding Awards of Restricted
Stock or accept the surrender of outstanding Shares of
Restricted Stock (to the extent the restrictions on such Shares
have not yet lapsed) and grant new Awards in substitution for
them. Notwithstanding the foregoing, no modification of an
Award shall adversely alter or impair any rights or obligations
under the Agreement without the Grantee's consent.
7.6 Treatment of Dividends. At the time the Award of Shares of
Restricted Stock is granted, the Committee may, in its
discretion, determine that the payment to the Grantee of
dividends, or a specified portion thereof, declared or paid on
such Shares by the Company shall be (i) deferred until the
lapsing of the restrictions imposed upon such Shares and (ii)
held by the Company for the account of the Grantee until such
time. In the event that dividends are to be deferred, the
Committee shall determine whether such dividends are to be
reinvested in shares of Stock (which shall be held as additional
Shares of Restricted Stock) or held in cash. If deferred
dividends are to be held in cash, there may be credited at the
end of each year (or portion thereof) interest on the amount of
the account at the beginning of the year at a rate per annum as
the Committee, in its discretion, may determine. Payment of
deferred dividends in respect of Shares of Restricted Stock
(whether held in cash or as additional Shares of Restricted
Stock), together with interest accrued thereon, if any, shall be
made upon the lapsing of restrictions imposed on the Shares in
respect of which the deferred dividends were paid, and any
dividends deferred (together with any interest accrued thereon)
in respect of any Shares of Restricted Stock shall be forfeited
upon the forfeiture of such Shares.
7.7 Delivery of Shares. Upon the lapse of the restrictions on
Shares of Restricted Stock, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such
Shares, free of all restrictions hereunder.
8. EFFECT OF A TERMINATION OF EMPLOYMENT.
The Agreement evidencing the grant of each Option and each
Award shall set forth the terms and conditions applicable to
such Option or Award upon a termination or change in the status
of the employment of the Optionee or Grantee by the Company or a
Subsidiary, as the Committee may, in its discretion, determine
at the time the Option or Award is granted or thereafter.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of a Change in Capitalization, the
Committee shall conclusively determine the appropriate
adjustments, if any, to the (i) maximum number and class of
Shares or other stock or securities with respect to which
Options or Awards may be granted under the Plan, and (ii) the
number and class of Shares or other stock or securities which
are subject to outstanding Options or Awards granted under the
Plan, and the purchase price therefor, if applicable.
(b) Any such adjustment in the Shares or other stock or
securities subject to outstanding Incentive Stock Options
(including any adjustments in the purchase price) shall be
made in such manner as not to constitute a modification as
defined by Section 424(h)(3) of the Code and only to the extent
otherwise permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, a Grantee
of an Award shall be entitled to, or an Optionee shall be
entitled to exercise an Option with respect to, new,
additional or different shares of stock or securities, such
new additional or different shares shall thereupon be subject
to all of the conditions, restrictions and performance criteria
which were applicable to the Shares subject to the Award or
Option, as the case may be, prior to such Change in
Capitalization.
10. EFFECT OF CERTAIN TRANSACTIONS.
Subject to Sections 5.9, 6.8 and 7.4(b), in the event of (i)
the liquidation or dissolution of the Company or (ii) a merger
or consolidation of the Company (a "Transaction"), the Plan and
the Options and Awards issued hereunder shall continue in effect
in accordance with their respective terms and each Optionee and
Grantee shall be entitled to receive in respect of each Share
subject to any outstanding Options or Awards, as the case may
be, upon exercise of any Option or payment or transfer in
respect of any Award, the same number and kind of stock,
securities, cash, property, or other consideration that each
holder of a Share was entitled to receive in the Transaction in
respect of a Share.
11. TERMINATION AND AMENDMENT OF THE PLAN.
The Plan shall terminate on the day preceding the tenth
anniversary of the date of its adoption by the Board and no
Option or Award may be granted thereafter. The Board may sooner
terminate the Plan and the Board may at any time and from time
to time amend, modify or suspend the Plan; provided, however,
that:
(a) No such amendment, modification, suspension or
termination shall impair or adversely alter any Options or
Awards theretofore granted under the Plan, except with the
consent of the Optionee or Grantee, nor shall any amendment,
modification, suspension or termination deprive any Optionee
or Grantee of any Shares which he or she may have acquired
through or as a result of the Plan; and
(b) To the extent necessary under Section 16(b) of the
Exchange Act and the rules and regulations promulgated
thereunder or other applicable law, no amendment shall be
effective unless approved by the stockholders of the Company in
accordance with applicable law and regulations.
12. NON-EXCLUSIVITY OF THE PLAN.
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved
incentive arrangement or as creating any limitations on the
power of the Board to adopt such other incentive arrangements as
it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in
specific cases.
13. LIMITATION OF LIABILITY.
As illustrative of the limitations of liability of the Company,
but not intended to be exhaustive thereof, nothing in the Plan
shall be construed to:
(i) give any person any right to be granted an Option or
Award other than at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to
terminate the employment of any person at any time; or
(iv) be evidence of any agreement or understanding,
expressed or implied, that the Company will employ any
person at any particular rate of compensation or for any
particular period of time.
14. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
14.1 Except as to matters of federal law, this Plan and the
rights of all persons claiming hereunder shall be construed and
determined in accordance with the laws of the State of Delaware
without giving effect to conflicts of law principles.
14.2 The obligation of the Company to sell or deliver Shares
with respect to Options and Awards granted under the Plan shall
be subject to all applicable laws, rules and regulations,
including all applicable federal and state securities laws, and
the obtaining of all such approvals by governmental agencies as
may be deemed necessary or appropriate by the Committee.
14.3 The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act and the Committee shall interpret and
administer the provisions of the Plan or any Agreement in a
manner consistent therewith. Any provisions inconsistent with
such Rule shall be inoperative and shall not affect the validity
of the Plan.
14.4 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any
government authority, or to obtain for Eligible Individuals
granted Incentive Stock Options the tax benefits under the
applicable provisions of the Code and regulations promulgated
thereunder.
14.5 Each Option and Award is subject to the requirement that,
if at any time the Committee determines, in its discretion, that
the listing, registration or qualification of Shares issuable
pursuant to the Plan is required by any securities exchange or
under any state or federal law, or the consent or approval of
any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or
Award or the issuance of Shares, no Options or Awards shall be
granted or payment made or Shares issued, in whole or in part,
unless listing, registration, qualification, consent or approval
has been effected or obtained free of any conditions as
acceptable to the Committee.
14.6 Notwithstanding anything contained in the Plan or any
Agreement to the contrary, in the event that the disposition of
Shares acquired pursuant to the Plan is not covered by a then
current registration statement under the Securities Act of 1933,
as amended, and is not otherwise exempt from such registration,
such Shares shall be restricted against transfer to the extent
required by the Securities Act of 1933, as amended, and Rule 144
or other regulations thereunder. The Committee may require any
individual receiving Shares pursuant to an Option or Award
granted under the Plan, as a condition precedent to receipt of
such Shares, to represent and warrant to the Company in writing
that the Shares acquired by such individual are acquired without
a view to any distribution thereof and will not be sold or
transferred other than pursuant to an effective registration
thereof under said Act or pursuant to an exemption applicable
under the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder. The certificates evidencing
any of such Shares shall be appropriately amended to reflect
their status as restricted securities as aforesaid.
15. MISCELLANEOUS.
15.1 Multiple Agreements. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at
the same time, or at some other time. The Committee may also
grant more than one Option or Award to a given Eligible
Individual during the term of the Plan, either in addition to, or
in substitution for, one or more Options or Awards previously
granted to that Eligible Individual.
15.2 Withholding of Taxes. (a) The Company shall have the right
to deduct from any distribution of cash to any Optionee or
Grantee, an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld
(the "Withholding Taxes") with respect to any Option or Award.
If an Optionee or Grantee is to experience a taxable event in
connection with the receipt of Shares pursuant to an Option
exercise or payment of an Award (a "Taxable Event"), the
Optionee or Grantee shall pay the Withholding Taxes to the
Company prior to the issuance, or release from escrow, of such
Shares. In satisfaction of the obligation to pay Withholding
Taxes to the Company, the Optionee or Grantee may make a written
election (the "Tax Election"), which may be accepted or rejected
in the discretion of the Committee, to have withheld a portion
of the Shares then issuable to him or her having an aggregate
Fair Market Value, on the date preceding the date of such
issuance, equal to the Withholding Taxes, provided that in
respect of an Optionee or Grantee who may be subject to liability
under Section 16(b) of the Exchange Act either: (i) in the case
of a Taxable Event involving an Option or an Award (A) the Tax
Election is made at least six (6) months prior to the date of
the Taxable Event and (B) the Tax Election is irrevocable with
respect to all Taxable Events of a similar nature occurring prior
to the expiration of six (6) months following a revocation of
the Tax Election; or (ii) in the case of the exercise of an
Option (A) the Optionee makes the Tax Election at least six (6)
months after the date the Option was granted, (B) the Option is
exercised during the ten (10) day period beginning on the third
business day and ending on the twelfth business day following
the release for publication of the Company's quarterly or annual
statement of sales and earnings (a "Window Period") and (C) the
Tax Election is made during the Window Period in which the
related Option is exercised or prior to such Window Period and
subsequent to the immediately preceding Window Period; or (iii)
in the case of a Taxable Event relating to the payment of an
Award (A) the Grantee makes the Tax Election at least six (6)
months after the date the Award was granted and (B) the Tax
Election is made (x) in the case of a Taxable Event occurring
within a Window Period, during the Window Period in which the
Taxable Event occurs, or (y) in the case of a Taxable Event not
occurring within a Window Period, during the Window Period
immediately preceding the Taxable Event relating to the Award.
Notwithstanding the foregoing, the Committee may, by the adoption
of rules or otherwise, (i) modify the provisions of this Section
15.2 or impose such other restrictions or limitations on Tax
Elections as may be necessary to ensure that the Tax Elections
will be exempt transactions under Section 16(b) of the Exchange
Act, and (ii) permit Tax Elections to be made at such other
times and subject to such other conditions as the Committee
determines will constitute exempt transactions under Section
16(b) of the Exchange Act.
(b) If an Optionee makes a disposition, within the meaning
of Section 424(c) of the Code and regulations promulgated
thereunder, of any Share or Shares issued to such Optionee
pursuant to the exercise of an Incentive Stock Option within
the two-year period commencing on the day after the date of
the grant or within the one-year period commencing on the day
after the date of transfer of such Share or Shares to the
Optionee pursuant to such exercise, the Optionee shall,
within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its
principal executive office.
(c) The Committee shall have the authority, at the time of
grant of an Option or Award under the Plan or at any time
thereafter, to award tax bonuses to designated Optionees or
Grantees, to be paid upon their exercise of Options or
payment in respect of Awards granted hereunder. The amount of
any such payments shall be determined by the Committee. The
Committee shall have full authority in its absolute
discretion to determine the amount of any such tax bonus and
the terms and conditions affecting the vesting and payment
thereof.
16. EFFECTIVE DATE.
The effective date of the Plan shall be the date of its
initial adoption by the Board, subject only to the approval by
the affirmative vote of the holders of a majority of the
securities of the Company present or represented, and entitled
to vote at a meeting of stockholders duly held in accordance
with the applicable laws of the State of Delaware within twelve
(12) months of such adoption.
