<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PHARMCHEM LABORATORIES, INC.
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:........
(2) Aggregate number of securities to which transaction applies:...........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was
determined):...........................................................
(4) Proposed maximum aggregate value of transaction:.......................
(5) Total fee paid:........................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:________________________________________________
2) Form, Schedule or Registration Statement No.:__________________________
3) Filing Party:__________________________________________________________
4) Date Filed:____________________________________________________________
<PAGE> 2
PHARMCHEM LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 1999
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of PharmChem
Laboratories, Inc., a California corporation (the "Company"), will be held on
May 18, 1999, at 10:00 a.m., local time, at the Sheraton Hotel, 1100 North
Mathilda Avenue, Sunnyvale, California 94089 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To ratify the appointment of KPMG LLP as independent public
accountants for the Company for the 1999 fiscal year.
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 1, 1999, are
entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. Any shareholder
attending the Annual Meeting may vote in person even if such shareholder has
returned a proxy.
David A. Lattanzio
Secretary
Menlo Park, California
April 27, 1999
IMPORTANT:Whether or not you plan to attend the Annual Meeting, you are
requested to complete and promptly return the enclosed proxy in
the envelope provided.
<PAGE> 3
PHARMCHEM LOGO
1505-A O'BRIEN DRIVE
MENLO PARK, CALIFORNIA 94025
------------------------
PROXY STATEMENT FOR 1999
ANNUAL MEETING OF SHAREHOLDERS
------------------------
The enclosed proxy is solicited by the Board of Directors of PharmChem
Laboratories, Inc. (the "Company") for use at the Annual Meeting of Shareholders
(the "Annual Meeting") to be held on Tuesday, May 18, 1999, at 10:00 a.m., local
time, and at any adjournment thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting
will be held at the Sheraton Hotel, 1100 North Mathilda Avenue, Sunnyvale,
California 94089. The Company's principal executive offices are located at
1505-A O'Brien Drive, Menlo Park, California 94025 and the Company's telephone
number is (650) 328-6200.
The proxy solicitation materials were mailed on or about April 27, 1999, to
all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION; QUORUM
With respect to the election of directors, shareholders have cumulative
voting rights, which means that each shareholder has that number of votes equal
to the number of shares held multiplied by the number of directors to be
elected. Each shareholder may give all such votes to one candidate or distribute
such shareholder's votes among the candidates as the shareholder chooses.
However, the right to cumulate votes may not be exercised until the candidate or
candidates have been nominated and a shareholder has given notice at the Annual
Meeting of the shareholder's intention to vote cumulatively. If any shareholder
present at the Annual Meeting gives such notice, all shareholders may cumulate
their votes. The candidates receiving the highest number of votes of shares
entitled to vote for them, up to the number of directors to be elected, will be
elected. Votes withheld will be counted for the purposes of determining the
presence or absence of a quorum for the transaction of business at the Annual
Meeting, but will have no other legal effect upon the election of directors
under California law. The Company seeks discretionary authority to cumulate
votes in the event that additional persons are nominated at the Annual Meeting
for the election of directors. In the event that cumulative voting is invoked,
the proxy holders intend to cast the votes covered by the proxies received by
them in such a manner under cumulative voting as they believe will ensure the
election of as many of the Company's nominees as possible. While there is no
definitive statutory or case law authority in California as to the proper
treatment of abstentions and broker non-votes, the Company believes that both
abstentions and broker non-votes should be counted for purposes of determining
whether a quorum is present at the Annual Meeting. Abstentions and broker
non-votes will not be counted for the purposes of determining the outcome of
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the vote on the election of directors or the proposal to ratify the appointment
of the Company's independent public accountants.
An automated system administered by the Company's transfer agent tabulates
the proxies received prior to the date of the Annual Meeting. Proxies received
on the date of the Annual Meeting at or prior to the time of voting are
tabulated manually by a representative of the transfer agent.
A majority of the shares outstanding on the record date constitutes the
quorum required to transact business at the Annual Meeting.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or facsimile. The Company may also
retain a professional solicitor to assist in the solicitation of proxies, at a
cost estimated not to exceed $4,000 plus out-of-pocket expenses.
RECORD DATE
Shareholders of record at the close of business on April 1, 1999, are
entitled to notice of the Annual Meeting and to vote at the Annual Meeting. At
the record date, 5,781,706 shares of the Company's Common Stock were issued and
outstanding.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 2000 Annual Meeting of Shareholders must
be received by the Company no later than December 29, 1999 in order to be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting. On October 21, 1998, the Board of Directors approved an amendment
to the Company's Bylaws establishing an advance notice provision. The Bylaws now
provide that, to be timely, a shareholder's notice of a proposal (whether or not
for inclusion in the proxy statement and form of proxy) or director nomination
to be presented at an annual meeting must be delivered to and received by the
Secretary of the Company at least ninety days in advance of the anniversary date
of the preceding year's annual meeting. Such advance notice must be delivered to
and received by the Secretary of the Company no later than February 18, 2000 in
order to be timely for the 2000 Annual Meeting of Shareholders. The Bylaws of
the Company further require that such a proposal, among other things, include a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting and the age, address and
principal occupation or employment of a nominee for director.
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<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of January 31, 1999, by all persons known to the Company to be
the beneficial owners of more than 5% of the Company's Common Stock, by each
director, by the Chief Executive Officer, by each of the four most highly
compensated executive officers other than the Chief Executive Officer, and by
all directors and executive officers as a group. Such figures are based upon
information furnished by the persons named.
<TABLE>
<CAPTION>
NUMBER PERCENT OF
NAME OF SHARES TOTAL
---- --------- ----------
<S> <C> <C>
Palo Alto Investors(1)...................................... 946,400 16.4%
470 University Avenue
Palo Alto, CA 94301
Richard D. Irwin(2)......................................... 657,877 11.4%
c/o Grumman Hill Associates, Inc.
191 Elm Street
New Canaan, CT 06840
Grumman Hill Investments, L.P.(3)........................... 535,545 9.3%
c/o Grumman Hill Associates, Inc.
191 Elm Street
New Canaan, CT 06840
Prism Partners I, L.P.(4)................................... 568,200 9.8%
909 Montgomery Street, No. 400
San Francisco, CA 94133
Banner Partners(5).......................................... 456,183 7.9%
c/o Palo Alto Investors
470 University Avenue
Palo Alto, CA 94301
Botti Brown Asset Management, LLC(6)........................ 377,050 6.5%
655 Montgomery Street, Suite 600
San Francisco, CA 94111
Dimensional Fund Advisors Inc.(7)........................... 333,300 5.8%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Willow Creek Capital Management(8).......................... 296,500 5.1%
17 East Sir Francis Drake Boulevard, Suite 100
Larkspur, CA 94939
Joseph W. Halligan(9)....................................... 99,620 1.7%
Neil A. Fortner(10)......................................... 54,583 *
David A. Lattanzio(11)...................................... 40,500 *
Elizabeth M. Lison(12)...................................... 10,500 *
Joseph L. Kurta (13)........................................ 5,000 *
Donald R. Stroben(14)....................................... 1,250 *
All executive officers and directors as a group (7
persons)(15).............................................. 869,330 15.0%
</TABLE>
- ---------------
* Less than 1.0%
(1) William L. Edwards, the president and controlling shareholder of Palo Alto
Investors, may be deemed to be a beneficial owner of the shares of which
Palo Alto Investors is deemed to be a beneficial owner. Palo Alto Investors
is deemed a beneficial owner by virtue of its voting and dispositive power
with respect to such shares, as an investment adviser managing
discretionary accounts for the benefit of third persons or as a general
partner of partnerships holding such shares. Palo Alto Investors and Mr.
Edwards have shared voting and dispositive power with respect to all of
such shares. These shares include 13,000 shares held by Mr. Edwards
individually. Of these shares, 319,100 shares are held and managed for the
benefit of Banner Partners and have also been included in the number of
shares beneficially owned by Banner Partners. See footnote 5 below.
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<PAGE> 6
(2) The number of shares shown for Mr. Irwin is based in part on his beneficial
ownership interest in the shares of the Company held by Grumman Hill
Investments, L.P. (see footnote 4 below) and also includes 4,000 shares
owned directly by Mr. Irwin, 30,000 shares held by a partnership of which
Mr. Irwin is the general partner, 50,000 shares held in the Virginia Irwin
Charitable Remainder Unitrust of which Mr. Irwin is the trustee, and 38,332
shares purchasable by Mr. Irwin within 60 days of January 31, 1999,
pursuant to outstanding options. Mr. Irwin is a director of the Company.
Mr. Irwin has shared voting and dispositive power with respect to 565,545
of these shares (i.e., the shares held by Grumman Hill Investments, L.P.
and such partnership) and sole voting and dispositive power with respect to
the balance of such shares.
(3) Weintraub Capital Management, an investment adviser to and general partner
of Prism Partners I, and Jerald M. Weintraub, managing general partner of
Weintraub Capital Management, may be deemed to be beneficial owners of the
shares held by Prism Partners I, L.P. Prism Partners I, L.P., Jerald M.
Weintraub and Weintraub Capital Management have shared voting and
dispositive power with respect to all of such shares.
(4) Mr. Irwin, as the manager of Grumman Hill Company, L.L.C., the general
partner of Grumman Hill Investments, L.P., may be deemed to be a beneficial
owner of the shares held by Grumman Hill Investments, L.P. Mr. Irwin is a
director of the Company. See footnote 2 above. Grumman Hill Investments,
L.P. has shared voting and dispositive power with respect to such shares.
(5) Of these shares, 319,100 shares are held and managed for the benefit of
Banner Partners by Palo Alto Investors. Banner Partners has shared voting
and dispositive power with respect to such shares. Such shares have also
been included in the number of shares beneficially owned by Palo Alto
Investors. See footnote 1 above. Independently of Palo Alto Investors,
Banner Partners owns an additional 137,083 shares of the Company. Banner
Partners has sole voting and dispositive power with respect to such shares.
As general partners of Banner Partners, William C. Edwards and Alan R.
Brudos may be deemed to be beneficial owners of shares beneficially owned
by Banner Partners.
(6) John D. Botti and Donald S. Brown, the controlling members of Botti Brown
Asset Management, LLC, may be deemed to be beneficial owners of the shares
held by Botti Brown Asset Management, LLC, a registered investment advisor.
John D. Botti, Donald S. Brown and Botti Brown Asset Management, LLC have
shared voting and dispositive power with respect to all of such shares.
(7) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, furnishes investment advice to four registered investment
companies, and serves as investment manager to certain other investment
vehicles, including commingled group trusts. Dimensional has sole voting
and dispositive power with respect to all of such shares and is deemed to
have beneficial ownership of all of such shares. Dimensional disclaims such
beneficial ownership.
(8) Aaron Hugh Braun, the sole shareholder of Willow Creek Capital Management,
may be deemed to be a beneficial owner of the shares held by Willow Creek
Capital Management, an investment advisor. Willow Creek Capital Management
and Aaron Hugh Braun have shared voting and dispositive power with respect
to all of such shares.
(9) These shares include 5,000 owned directly by Mr. Halligan and 94,620 which
are purchasable by Mr. Halligan within 60 days of January 31, 1999,
pursuant to outstanding options. Mr. Halligan is a director and chief
executive officer of the Company.
(10) These shares are purchasable by Mr. Fortner within 60 days of January 31,
1999, pursuant to outstanding options. Mr. Fortner is an executive officer
of the Company.
(11) These shares include 3,000 owned directly by Mr. Lattanzio and 37,500 which
are purchasable by Mr. Lattanzio within 60 days of January 31, 1999,
pursuant to outstanding options. Mr. Lattanzio is an executive officer of
the Company.
(12) These shares are purchasable by Ms. Lison within 60 days of January 31,
1999, pursuant to outstanding options. Ms. Lison is an executive officer of
the Company.
(13) These shares are purchasable by Mr. Kurta within 60 days of January 31,
1999, pursuant to outstanding options. Mr. Kurta is an executive officer of
the Company.
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<PAGE> 7
(14) These shares are purchasable by Mr. Stroben within 60 days of January 31,
1999, pursuant to outstanding options. Mr. Stroben is a director of the
Company.
(15) Includes 241,785 shares purchasable within 60 days of January 31, 1999,
pursuant to outstanding options. Also includes 535,545 shares held by
Grumman Hill Investments, L.P. as noted in footnotes (2) and (4).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and the holders of 10% or more of
the Company's Common Stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of equity
securities of the Company. Based upon a review of Forms 3 and 4, and written
representations of the Company's directors, executive officers and 10%
shareholders that Forms 5 were not required to be filed by them, the Company
believes that all reports required pursuant to Section 16(a) with respect to the
1998 fiscal year were timely filed.
REPORT OF THE OFFICERS COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Officers Compensation Committee of the Board of Directors reviews and
approves salaries, bonuses and other benefits payable to the Company's executive
officers and administers the Company's 1988 Incentive Stock Plan (which expired
on November 18, 1998), the 1997 Equity Incentive Plan and the 1992 Director
Option Plan with respect to officers and directors. The Officers Compensation
Committee is composed of two non-employee directors.
The philosophy used by the Officers Compensation Committee in establishing
compensation for executive officers, including the Chief Executive Officer, is
to attract and retain key personnel through the payment of competitive base
salaries, annual bonuses and housing allowances and the granting of stock
options. Where appropriate, relocation benefits are paid to attract key
individuals.
Salaries of executive officers have been negotiated between the Company and
each executive officer, and were influenced by such factors as salaries paid by
similar companies for similar positions, the skills, training and experience of
the individual executive officer, the availability of persons with similar
abilities and the geographic location of the Company's offices. The companies
that the Officers Compensation Committee considers to be similar to the Company
for purposes of making such determination are principally those companies
against which the Company competes for executive personnel, namely, other
companies (two of which comprise the peer group index on page 12) in the
business of providing drug testing, clinical testing and related services. The
Officers Compensation Committee also reviews salaries of executive officers of
companies outside the industry located in the Silicon Valley of Northern
California and companies whose size approximates that of the Company. The
Officers Compensation Committee believes that it has an adequate knowledge of
the compensation levels of such other companies as a result of information
gathered through information available to the public, recruitment efforts and
compensation negotiations directed at candidates employed by such other
companies, as well as data gathered from time to time by independent consultants
(including a study by a national compensation group of compensation paid in 1998
in related industries) and as a result of interactions between the Company's
personnel and the personnel of such other companies. Based on the information it
has been able to gather with respect to companies in the business of providing
drug testing, clinical testing and related services, the Officers Compensation
Committee believes that the salaries of the Company's executive officers are
slightly below the mean of the executive salary levels of such other companies.
However, when bonuses are added to the Company's executive officers' salaries,
such total compensation approximates the mean of salaries at companies with
which the Company competes for executive personnel. The Company's headquarters
and main laboratory are located in the Silicon Valley of Northern California.
This area's unemployment rate ranks below that of the nation as well as that of
the entire State of California. Furthermore, the cost of living is one of the
highest in the United States. Accordingly, the recruitment and retention of key
employees (including executive officers) is subject to intense competition
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<PAGE> 8
which often makes it quite difficult to locate, hire and/or retain qualified
personnel. The Officers Compensation Committee, therefore, also takes these
factors into consideration when evaluating salary increases and bonus awards.
In its annual review and adjustment of executive officers' salaries, the
Officers Compensation Committee takes into account primarily the performance of
the individual executive officer during the prior year, increases in the cost of
living, and the executive officer's participation in strategic projects of
long-term benefit to the Company such as improvement of laboratory process-flow
programs, turn around time, results reporting, cost reduction programs,
increases in average selling prices, product sales as a percentage of total
sales and profitability. In determining the Company's ability to increase
salaries paid to its executive officers, the Officers Compensation Committee
also takes into account the operating results and overall operations of the
Company as a whole. In determining the salary increase and bonus of any
particular executive officer, the Officers Compensation Committee takes into
account those elements of the Company's operations within the scope of authority
of the particular executive. The emphasis placed on any particular element of
the Company's operations depends on the nature of the executive officer's
responsibilities. For example, revenues, product sales and average selling
prices are scrutinized more closely in setting the compensation level of an
officer in charge of sales or customer service functions than an officer in
charge of laboratory operations or scientific matters. The consideration of
additional factors and the weight given to any particular factor are within the
discretion of the Officers Compensation Committee.
The Officers Compensation Committee believes that, because the Chief
Executive Officer is responsible for the overall operations of the Company, his
personal performance should be judged based on the performance of the Company as
a whole, determined primarily by reference to the Company's operating results
and net income, and his contributions to the long-term success of the Company.
Adjustments to the Chief Executive Officer's salary are influenced accordingly.
The Officers Compensation Committee has traditionally taken a conservative
approach to salary increases, choosing to provide incentives to executive
officers primarily through the Company's bonus plan, the 1988 Incentive Stock
Plan and the 1997 Equity Incentive Plan. Total annualized compensation to
executive officers in 1998, based on the "Salary," "Bonus," "Other Annual
Compensation" and "All Other Compensation" captions in the Summary Compensation
Table which follows, increased 11.3% from the prior year (which included total
compensation to individuals who occupied similar positions with the Company in
1997 but who are no longer employed). The total compensation paid to Mr.
Halligan in 1998 represented a 16.9% increase in 1998 with respect to the
compensation paid to Mr. Halligan in 1997. When Mr. Halligan was hired in
November 1995, his 1996 salary and a minimum bonus commitment for 1996 of
$50,000 were negotiated with the Officers Compensation Committee. The salaries
of Messrs. Halligan and Lattanzio were increased for the first time (due to
competitive market conditions) in May 1998 since they were hired in November
1995 and April 1996, respectively.
Under the Company's bonus plan, employees, including executive officers,
are eligible to receive an annual bonus at the end of each year if financial
targets relating to average selling prices, gross profit margin, operating
income, cash flow and return on invested capital and other non-financial targets
set annually by the Officers Compensation Committee are achieved. In the past,
the Officers Compensation Committee has authorized the payment of bonuses even
when these targets were not fully met and may decide to do so again in the
future, particularly when such payments are deemed appropriate to retain key
personnel as described above. Since these targets for 1998 were achieved,
bonuses were paid at an increased level over 1996 and 1997 as determined by the
Officers Compensation Committee. The portion of the bonus pool set aside for
executive officers, and the allocation of that amount among the executive
officers, is set by the Officers Compensation Committee after considering the
report of the Chief Executive Officer regarding individual performance and
contribution. In 1998, the aggregate amount paid under the bonus plan to
executive officers was 25.7% of the aggregate base salaries paid to executive
officers compared to 16.6% in 1997 and 21.0% in 1996. Bonus payments to
executive officers for 1998 were based upon each individual's performance as
well as the overall results of the Company. The overall results of the Company
include the ongoing installation of a new infrastructure to position the Company
to move forward and seize upon sales opportunities more quickly and efficiently,
the introduction of laboratory improvement/process-flow programs, the automation
of results
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<PAGE> 9
reporting, and increases in average selling prices, gross profit margin, product
sales and operating income. A 1997 bonus was not paid to Mr. Collom, the
Company's former Vice President of Sales and Marketing, due to the termination
of his employment from the Company prior to the payment of bonuses. Based upon
the information available to the Company with respect to companies in the
business of providing drug testing, clinical testing and related services, the
Officers Compensation Committee believes that the total compensation (including
salaries and bonuses) of the Company's executive officers is below the mean of
total compensation levels of such other companies.
Options were granted under the Company's 1988 Incentive Stock Plan (which
expired in November 1998) and 1997 Equity Incentive Plan (the "Plans") in order
to give employees a stake in the long term success of the Company. Awards to
executive officers are generally made at the time of their employment with the
Company, and from time to time thereafter within the discretion of the Officers
Compensation Committee. The factors considered by the Officers Compensation
Committee in determining the timing of grants under the Plans, and the number of
shares subject thereto, are similar to the factors considered by the Officers
Compensation Committee in adjusting base salary.
Options granted in fiscal 1998 to purchase common shares of the Company
(excluding repriced grants as described more fully later) were as follows:
<TABLE>
<CAPTION>
NAME POSITION NO. OF SHARES
---- -------- -------------
<S> <C> <C>
Joseph W. Halligan President and Chief Executive Officer 100,000
Neil A. Fortner Vice President, Laboratory Operations 30,000
Joseph L. Kurta Vice President, Sales and Marketing 20,000
David A. Lattanzio Vice President, Chief Financial Officer 50,000
and Secretary
Elizabeth M. Lison Vice President, Customer Service 20,000
</TABLE>
Option grants under the Company's 1992 Director Option Plan are automatic
and nondiscretionary.
The Company has in the past provided relocation assistance to certain
executive officers upon their employment with the Company, when necessary to
attract those personnel. In addition, monthly housing allowances have been
approved for certain executive officers, including the Company's Chief Executive
Officer, in recognition of the high cost of living in the area in which the
Company is located.
The Officers Compensation Committee has considered the potential future
effects of Section 162(m) of the Internal Revenue Code of 1986, as amended,
which limits the deductibility by corporations of executive compensation in
excess of $1 million per executive per year. The Officers Compensation Committee
currently does not intend to adopt a policy attempting to qualify any portion of
the compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m). The non-equity based compensation
paid to the Chief Executive Officer and the four highest paid other executive
officers in fiscal year 1998, and expected to be paid in fiscal year 1999, does
not exceed $1 million for any individual.
Richard D. Irwin
Donald R. Stroben
EXECUTIVE OFFICERS AND COMPENSATION
EXECUTIVE OFFICERS OF PHARMCHEM
Information listed under the caption "Executive Officers of PharmChem" at
the end of Part I of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, as filed with the Securities and Exchange
Commission, is incorporated in this Proxy Statement by reference.
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<PAGE> 10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Officers Compensation Committee of the Company's Board of Directors is
composed of two non-employee directors, Richard D. Irwin and Donald R. Stroben.
No interlocking relationship exists between the Company's Board of Directors or
Officers Compensation Committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
CERTAIN TRANSACTIONS
In connection with his relocation at the time of accepting employment with
the Company in July 1991, the Board approved a loan from the Company to Neil A.
Fortner, Vice President, Laboratory Operations, in the amount of $109,000 (the
"Fortner Loan") for the purpose of purchasing a primary residence. In lieu of
interest payments on the Fortner Loan, the Company is entitled to 25% of the net
proceeds upon the sale of such residence. The Fortner Loan is evidenced by a
loan agreement and promissory note, and is secured by a Deed of Trust on the
primary residence. During 1998, the maximum principal amount outstanding under
the Fortner Loan was $109,000, and the amount outstanding as of December 31,
1998, was $109,000. The Board also approved payment of monthly housing
allowances to Mr. Halligan, Mr. Fortner, Mr. Lattanzio and Ms. Lison in
recognition of the high cost of living in the area in which the Company is
located. Such allowances during 1998 totaled $15,708 for Mr. Halligan, $35,237
for Mr. Fortner, $27,600 for Mr. Lattanzio and $7,500 for Ms. Lison.
CASH COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash compensation paid, with respect to
the three most recent fiscal years, to the Chief Executive Officer and the four
most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers at the end of fiscal 1998.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
NUMBER OF
ANNUAL COMPENSATION SHARES OF
-------------------------------------- COMMON STOCK
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS GRANTED COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (14)(#) ($)
--------------------------- ---- ------- ------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph W. Halligan 1998 260,961 80,000 15,708(4) 378,480 2,558(1)
President and Chief 1997 250,000 55,000 0 0 2,386(2)
Executive Officer 1996 250,000 60,000 0 0 492(3)
Neil A. Fortner 1998 107,538 25,000 35,237(4) 30,000 4,345(5)
Vice President, Laboratory 1997 104,845 15,000 35,237(4) 0 4,145(6)
Operations 1996 100,000 14,000 35,237(4) 0 3,920(7)
Joseph L. Kurta 1998 93,289 15,000 4,361(4) 20,000 2,320(8)
Vice President,
Sales and Marketing
David A. Lattanzio 1998 140,114 40,000 27,600(4) 150,000 4,001(9)
Vice President, 1997 135,000 35,000 0 0 3,306(10)
Chief Financial Officer and 1996 107,548 40,000 0 100,000 25,839(11)
Secretary
Elizabeth M. Lison 1998 118,654 25,000 7,500(4) 26,000 3,372(12)
Vice President, Customer 1997 118,654 15,000 15,000(4) 0 2,375(13)
Service
</TABLE>
- ---------------
(1) Includes $1,972, $504, and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively.
(2) Includes $1,800, $504 and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively.
8
<PAGE> 11
(3) Includes $302, $122 and $68 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively.
(4) Housing allowances in the case of Messrs. Halligan, Fortner and Lattanzio
and Ms. Lison and an auto allowance in the case of Mr. Kurta.
(5) Includes $3,446, $366, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $442 for the Company matching contribution to the 401(k) plan.
(6) Includes $3,132, $356 and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $575 for the Company matching contribution to the 401(k) plan.
(7) Includes $3,171, $104 and $81 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $564 for the Company matching contribution to the 401(k) plan.
(8) Includes $2,080, $194, and $46 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively.
(9) Includes $2,891, $479, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $540 for the Company matching contribution to the 401(k) plan.
(10) Includes $2,645, $454 and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $125 for the Company matching contribution to the 401(k) plan.
(11) Includes $1,351, $95 and $41 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $24,352 in consulting fees paid to Mr. Lattanzio for services from
January 31, 1996 through March 31, 1996.
(12) Includes $2,404, $403, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $474 for the Company matching contribution to the 401(k) plan.
(13) Includes $1,805, $386 and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $102 for the Company matching contribution to the 401(k) plan.
(14) Includes shares granted in connection with "repriced" options as more fully
described below.
OPTIONS
The following sets forth, as to the executive officers named in the Summary
Compensation Table, certain information relating to options for the purchase of
Common Stock granted and exercised during fiscal 1998, and held at the end of
fiscal 1998, as well as certain information relating to repriced options.
REPORT OF THE OFFICERS COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON STOCK
OPTION REPRICING
In order to provide incentives to key employees, including executive
officers, to remain in the employ of the Company and to stimulate their efforts
on behalf of the Company, on March 24, 1998, the Officers Compensation Committee
of the Board of Directors recommended to the Board of Directors that the holders
of certain incentive stock options issued under the 1988 Incentive Stock Option
Plan (the "Plan") be provided the opportunity to have such options "repriced."
Such holders were given the right to have options held as of March 24, 1998 with
exercise prices below the closing price of the Company's common stock on March
24, 1998 ($2.375) canceled and new options granted for the same number canceled
at the closing market price on March 24, 1998. The Board approved the
recommendation of the Officers Compensation Committee, the terms of which
included the commencement of a new four-year vesting period beginning March 24,
1998.
Richard D. Irwin
Donald R. Stroben
9
<PAGE> 12
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE TERM
DATE OF UNDERLYING STOCK AT PRICE NEW REMAINING AT
ORIGINAL DATE OF OPTIONS TIME OF AT TIME OF EXERCISE DATE OF
NAME AND POSITION GRANT REPRICING REPRICED REPRICING REPRICING PRICE REPRICING
----------------- -------- --------- ---------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph W. Halligan 11/7/95 3/24/98 278,480 $2.375 $4.125 $2.375 7 Yrs 7 Mos
President and Chief
Executive Officer
David A. Lattanzio 4/5/96 3/24/98 100,000 $2.375 $3.625 $2.375 8 Yrs 0 Mos
Vice President,
Chief Financial Officer
and Secretary
Elizabeth M. Lison 3/1/96 3/24/98 6,000 $2.375 $4.625 $2.375 7 Yrs 11 Mos
Vice President,
Customer Service
Neil A. Fortner 4/28/92 1/01/95 15,000 $2.000 $7.250 $2.000 7 Yrs 4 Mos
Vice President,
Laboratory Operations
Neil A. Fortner 6/20/91 1/01/95 10,000 $2.000 $4.500 $2.000 6 Yrs 6 Mos
Vice President,
Laboratory Operations
Robert Fogerson 4/28/92 1/01/95 15,000 $2.000 $7.250 $2.000 7 Yrs 4 Mos
Former Vice President,
Laboratory Technical Director
Keith Patten 4/28/92 1/01/95 15,000 $2.000 $7.250 $2.000 7 Yrs 4 Mos
Former Vice President,
Managing Director -- Medscreen
Julie Whitney, Ph.D. 4/28/92 1/01/95 30,000 $2.000 $7.250 $2.000 7 Yrs 4 Mos
Former Vice President,
Client Services and Sales
</TABLE>
OPTION GRANTS IN FISCAL 1998
Options for the purchase of Common Stock granted to the executive officers
during fiscal 1998 named in the Summary Compensation Table are presented below.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF SHARES % OF TOTAL PRICE APPRECIATION FOR
OF COMMON STOCK OPTIONS OPTION TERM INCLUDING
UNDERLYING OPTIONS GRANTED TO EXERCISE OR REPRICED OPTIONS(3)
GRANTED(1) EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
(#) FISCAL YEAR(2) ($/SH) DATE 5% ($) 10% ($)
------------------ -------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Joseph W. Halligan....... 378,480 45.4% $2.375 3/23/08 $565,310 $1,432,600
Neil A. Fortner.......... 10,000 1.2% $2.375 3/23/08 $ 18,480 $ 46,824
Neil A. Fortner.......... 20,000 2.4% $2.975 10/20/08 $ 36,950 $ 104,910
Joseph L. Kurta.......... 20,000 2.4% $2.375 3/23/08 $ 29,870 $ 75,700
David A. Lattanzio....... 150,000 18.0% $2.375 3/23/08 $224,040 $ 567,770
Elizabeth M. Lison....... 26,000 3.1% $2.375 3/23/08 $ 38,830 $ 98,410
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
OPTION TERM
EXCLUDING REPRICED
OPTIONS(4)
---------------------
5% ($) 10% ($)
--------- ---------
<S> <C> <C>
Joseph W. Halligan....... $149,360 $378,510
Neil A. Fortner.......... $ 14,940 $ 37,850
Neil A. Fortner.......... $ 36,950 $104,910
Joseph L. Kurta.......... $ 29,870 $ 75,700
David A. Lattanzio....... $ 74,680 $189,260
Elizabeth M. Lison....... $ 29,870 $ 75,700
</TABLE>
- ---------------
(1) Includes option granted in exchange for options repriced and cancelled in
1998 as follows: 278,480 for Mr. Halligan, 100,000 for Mr. Lattanzio and
6,000 for Ms. Lison. All options vest in 48 equal monthly installments
commencing one month following the date of grant.
(2) Total number of shares subject to options granted to employees in fiscal
1998, including options granted in exchange for repriced and cancelled
options as described above, was 833,730, which excludes options granted to
non-employee directors.
(3) The Potential Realizable Value is calculated based on the fair market value
on the date of grant, which is equal to the exercise price of fiscal 1998
granted options, assuming that the stock appreciates in value from the date
of grant until the end of the option term at the annual rate specified (5%
and 10%). Potential Realizable Value is net of the option exercise price.
The assumed rates of appreciation are specified in rules of the Securities
and Exchange Commission and do not represent the Company's
10
<PAGE> 13
estimate or projection of future stock price. Actual gains, if any,
resulting from stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and overall stock
market conditions, as well as the option holder's continued employment
through the vesting period. There can be no assurance that the amounts
reflected in this table will be achieved.
(4) Excludes the effect of options granted in exchange for options repriced and
cancelled in 1998.
OPTION EXERCISES IN FISCAL 1998 AND FISCAL 1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES ACQUIRED OPTIONS AT FY-END (#) AT FY-END ($)
ON EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- -------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Joseph W. Halligan........... 0 0 70,965/307,515 $159,680/$691,945
Neil A. Fortner.............. 0 0 51,666/ 28,334 $134,609/$ 64,141
Joseph L. Kurta.............. 0 0 3,750/ 16,250 $ 8,438/$ 36,563
David A. Lattanzio........... 0 0 28,125/121,875 $ 63,281/$274,219
Elizabeth M. Lison........... 0 0 8,792/ 21,208 $ 21,250/$ 47,750
</TABLE>
11
<PAGE> 14
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the cumulative total returns for
the five years ended December 31, 1998 of a $100 investment on December 31, 1993
in the Company's Common Stock, the Standard & Poors Small Cap 600 Composite
Index and a peer group of companies selected by the Company. The graph assumes
that all dividends, if any, were reinvested. The companies comprising the peer
group are Psychemedics Corporation and Medtox Scientific, Inc., which the
Company believes are the only companies providing substantially comparable
services to those of the Company. The peer group in the Company's Proxy
Statement for the May 19, 1998 annual meeting of shareholders also included
Laboratory Specialists of America, Inc., which has since been acquired by a
company specializing in the manufacturing of armored vehicles and other
intelligence services.
<TABLE>
<CAPTION>
PHARMCHEM LABORATORIES, S&P SMALL CAP 600
INC. PEER GROUP INDEX COMPOSITE INDEX
----------------------- ---------------- -----------------
<S> <C> <C> <C>
'1993' 100.00 100.00 100.00
'1994' 69.57 140.72 95.23
'1995' 156.52 198.22 123.76
'1996' 186.96 177.34 150.14
'1997' 91.30 169.98 188.56
'1998' 160.87 146.90 186.10
</TABLE>
12
<PAGE> 15
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
A board of three (3) directors is to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the Company's three (3) nominees named below. In the event that any
nominee of the Company is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who is
designated by the present Board of Directors to fill the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a director.
The term of office of each person elected as a director will continue until the
next Annual Meeting of Shareholders or until a successor has been elected and
qualified.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE PRINCIPAL OCCUPATION
---- --- -------- --------------------
<S> <C> <C> <C>
Joseph W. Halligan..... 54 1995 President and Chief Executive Officer of the Company
Richard D. Irwin....... 63 1987 President of Grumman Hill Associates, Inc.
Donald R. Stroben...... 68 1998 Managing General Partner of Princeton/Montrose
Partners and Chairman of Stroben & Hahn Inc.
</TABLE>
Mr. Halligan has been President and Chief Executive Officer of the Company
since November 1995. From 1988 to 1995, Mr. Halligan was President and CEO of
E.S.I. Consulting Group, a private consulting practice, specializing in advising
and operating high growth, consumer and service oriented companies. Before
forming his consulting practice, Mr. Halligan served from 1983 to 1987 as
President and CEO of a privately-held company, Laura Scudder's, Inc. From 1969
to 1983, Mr. Halligan served as Senior Vice President of Fotomat Corporation and
President of its subsidiary, Video Services of America.
Mr. Irwin has been Chairman of the Board of Directors of the Company since
November 1995. Mr. Irwin is a co-founder and President of Grumman Hill
Associates, Inc. ("Grumman Hill"), a venture capital firm headquartered in New
Canaan, Connecticut. Prior to founding Grumman Hill in 1985, he served as a
Managing Director of Dillon, Read & Co., Inc. from 1983 to 1985. Mr. Irwin is
also a member of the board of directors of IXC Communications, Inc.
Mr. Stroben has been a Director since May 1998. Mr. Stroben, since 1981,
has been Managing General Partner of Princeton/Montrose Partners, a venture
capital partnership headquartered in Solana Beach, California, and Chairman of
Stroben & Hahn Inc., the management company of Princeton/Montrose Partners. Mr.
Stroben is also a member of the Board of Directors of Etz Lavud Ltd.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five meetings during
the fiscal year ended December 31, 1998. Each director attended all of the
meetings of the Board of Directors held during fiscal year 1998 (or, in the case
of Mr. Stroben, held during the portion of fiscal year 1998 in which he served
as a director of the Company) and all of the meetings held by all committees of
the Board of Directors on which he served during the portion of fiscal year 1998
in which he served as a director of the Company.
The Audit Committee, which consists of Messrs. Stroben and Irwin, met once
during fiscal year 1998. The functions of the Audit Committee are to recommend
selection of independent public accountants to the Board of Directors, to review
the scope and results of the year-end audit with management and the independent
public accountants and to review the Company's accounting principles and its
system of internal accounting controls.
The Officers Compensation Committee, which consists of Messrs. Stroben and
Irwin, met once during fiscal year 1998. The function of the Officers
Compensation Committee is to review and approve salaries, bonuses and other
benefits payable to the Company's executive officers and to administer the
Company's 1988
13
<PAGE> 16
Incentive Stock Plan (under which no further options may be granted), 1997
Equity Incentive Plan and 1992 Director Option Plan. See "Report of the Officers
Compensation Committee of the Board of Directors."
The Company does not have a nominating committee.
COMPENSATION
Each Board member who is not also an employee of the Company has the right
to a fee of $1,000 per meeting attended in consideration of services as a
director. Board members are also reimbursed for their expenses for each meeting
attended. Under the Company's 1992 Director Option Plan each non-employee
director annually receives an option to purchase 5,000 shares of Common Stock.
The exercise price of options granted under the 1992 Director Option Plan is the
fair market value at the date of grant. Except as described above, directors do
not receive additional compensation for their services as directors of the
Company or as members of committees of the Board of Directors.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
With respect to the election of directors, shareholders have cumulative
voting rights, which means that each shareholder has that number of votes equal
to the number of shares held multiplied by the number of directors to be
elected. Each shareholder may give all such votes to one candidate or distribute
such shareholder's votes among the candidates as the shareholder chooses.
However, the right to cumulate votes may not be exercised until the candidate or
candidates have been nominated and a shareholder has given notice at the Annual
Meeting of the shareholder's intention to vote cumulatively. If any shareholder
present at the Annual Meeting gives such notice, all shareholders may cumulate
their votes. The candidates receiving the highest number of votes of shares
entitled to vote for them, up to the number of directors to be elected, will be
elected. Votes withheld will be counted for the purposes of determining the
presence or absence of a quorum for the transaction of business at the Annual
Meeting, but will have no other legal effect upon the election of directors
under California law.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES SET FORTH
HEREIN.
PROPOSAL TWO:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
On April 7, 1997, pursuant to approval by the Board of Directors upon
recommendation by the Audit Committee, the Company selected KPMG LLP,
independent public accountants, to replace Arthur Andersen LLP to audit the
consolidated financial statements of the Company for 1997. The former principal
accountant's report on the Company's financial statements for the two fiscal
years preceding such replacement did not contain an adverse opinion or a
disclaimer of opinion, nor was its opinion qualified or modified as to
uncertainty, audit scope or accounting principles. During the Company's two
fiscal years and the subsequent interim period preceding the Company's
replacement of its principal accountant, there were no disagreements with the
former accountant on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement(s), if
not resolved to the satisfaction of the former accountant, would have caused it
to make a reference to the subject matter of the disagreement in connection with
its reports.
Upon recommendation of the Audit Committee, the Board of Directors has
selected KPMG LLP to audit the consolidated financial statements of the Company
for 1999. Representatives of KPMG LLP are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
THE SELECTION OF KPMG LLP.
14
<PAGE> 17
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent in accordance with the best judgment of such persons.
THE BOARD OF DIRECTORS
Menlo Park, California
April 27, 1999
INFORMATION LISTED UNDER THE CAPTION "EXECUTIVE OFFICERS OF PHARMCHEM" AT
THE END OF PART I OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, IS INCORPORATED IN THIS PROXY STATEMENT BY REFERENCE.
15
<PAGE> 18
PROXY
PHARMCHEM LABORATORIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS MAY 18, 1999
The undersigned shareholder of PharmChem Laboratories, Inc., a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated April 27, 1999, and hereby appoints
Joseph W. Halligan and David A. Lattanzio, and each of them individually, proxy
and attorney-in-fact, with full power of substitution, on behalf and in the name
of the undersigned, to represent the undersigned at the Annual Meeting of
Shareholders of PHARMCHEM LABORATORIES, INC., to be held on May 18, 1999, at
10:00 a.m., local time, at the Sheraton Hotel, 1100 North Mathilda Avenue,
Sunnyvale, California 94089 and at any adjournment(s) thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present on the matters set forth below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED ON THE REVERSE
SIDE AND FOR THE APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS AND
AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE
MEETING.
Either of such attorneys or substitutes shall have and may exercise all of
the powers of said attorneys-in-fact hereunder.
(Continued, and to be marked, dated and signed, on the other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS. WITHHELD
Nominees: Joseph W. Halligan, Richard D. Irwin, FOR FOR ALL
Donald R. Stroben [ ] [ ]
WITHHELD FOR: (Write that nominee's name in the
space provided below.)
- -----------------------------------------------
2. PROPOSAL TO RATIFY THE APPOINTMENT OF FOR AGAINST ABSTAIN
KPMG LLP as independent public accountants [ ] [ ] [ ]
for the company for the 1999 fiscal year.
3. Upon such other matters as may properly come FOR AGAINST ABSTAIN
before the meeting or any adjournments or [ ] [ ] [ ]
postponements thereof.
</TABLE>
Check here if you plan to attend the Annual Meeting. [ ]
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ACCOMPANYING
ENVELOPE.
Signature(s) Date
-------------------------------------------- -------------
NOTE: Please sign exactly as your name appears on this proxy. If signing for an
estate, trust or corporation, your title and capacity should be stated. If
shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
