<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] 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 ss.240.14a-11(c) or ss.240.14a-12
HEALTHCARE IMAGING SERVICES, 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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined.)
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
TO OUR STOCKHOLDERS:
During the past two years, HealthCare Imaging Services, Inc. ("HIS" or the
"Company") has continued to strengthen its position in the diagnostic imaging
healthcare market and has achieved financial stability by substantially
reducing overhead and expenses, divesting unprofitable operations and
refinancing certain equipment leases. In addition, as previously reported to
you, in February 1996, the Company completed a private placement of 600,000
shares of Series C Convertible Preferred Stock, raising an aggregate of
approximately $1,350,000. This private placement provided our Company with the
funds necessary to effectuate its business plan. In fiscal 1994 and the first
half of 1995, reimbursement rates for magnetic resonance imaging ("MRI")
procedures continued to decline. However, fiscal 1996 and 1997 trends indicate
that reimbursement rates for MRI procedures are stabilizing as the proportion
of MRI procedures reimbursed by managed care organizations increases.
Furthermore, the Company believes that these market forces will lead to
corporate consolidations and strategic business combinations within the imaging
industry resulting in substantial economies of scale for the remaining imaging
companies.
FISCAL 1996 REVIEW
As reflected in further detail in the accompanying materials, the improvement
in financial results for the 1996 fiscal year was primarily due to the success
of the Company's efforts to restructure its less profitable operations and
facilities which resulted in a decrease in operating expenses in fiscal 1996
as compared to fiscal 1995 of approximately $287,000 with a corresponding
increase in revenues of approximately $538,000.
During fiscal 1995, the Company sold its mobile lithotripsy unit and ancillary
equipment to an unaffiliated third-party provider of lithotripsy services and
sold one of its four mobile MRI units resulting in a significant decrease in
annual cash expenditures. In fiscal 1996, the Company terminated its mobile MRI
unit sublease arrangement, sold one of its remaining three mobile MRI units to
unaffiliated third-party providers of MRI services and formed a limited
liability company, of which it owns sixty (60%) percent, to provide on-site MRI
services to Meadowlands Hospital Medical Center with its remaining mobile unit.
In November 1997, the Company acquired all of the net assets and business of
M.R. Radiology Imaging of Lower Manhattan, P.C., which is a fixed-site MRI
facility, with ultrasound, located in New York City. The acquisition of this
facility brings the number of imaging facilities in operation in fiscal 1997 to
seven.
Total revenues in fiscal 1996 were $9.8 million as compared to $9.2 million in
fiscal 1995 and $11.4 million in fiscal 1994. There were six imaging facilities
in operation in fiscal 1994 and, as a result of the sale of the lithotripsy
unit and ancillary equipment and related closure of such unprofitable
operations, five by the end of fiscal 1995 and 1996.
The Company had operating income in fiscal 1996, before non-cash compensation
charges, minority interests and income taxes, of $1,049,217 and a net loss of
$861,796 (which included a non-cash compensation charge of $1,445,473 relating
to the issuance of (a) stock options to two of the Company's former directors,
(b) stock options and a restricted stock award to the Company's Chairman of the
Board, President and Chief Executive Officer and (c) stock options to Biltmore
Securities, Inc. pursuant to a consulting agreement) as compared to operating
income, before a one-time loss on the sale of equipment, minority interests and
income taxes, of $224,408 and a net loss of $118,430 (which included a loss of
$191,181 relating to the sale of the lithotripsy unit and ancillary equipment)
in fiscal 1995. The overall operating results in fiscal 1995 and 1996 were
adversely affected by the operating results of the
<PAGE>
Philadelphia, Pennsylvania MRI facility and the Brooklyn, New York lithotripsy
operation. The improvement in the Company's operations during fiscal 1996 is a
result of discontinuing operations which were not, and were not anticipated to
be, profitable, the continued impact of cost containment programs implemented
in fiscal 1994 and 1995 and the Company's growing penetration of the managed
care market.
CORPORATE STRATEGY
HIS responded to the volatility in the diagnostic imaging marketplace by
implementing a broad-based, cost- containment and expense reduction program in
fiscal 1993. The Company continued this program throughout 1994 and 1995 and
has aggressively restructured and rebuilt its operations. As a result, the
Company returned to profitability during fiscal 1996. In addition, during the
first quarter of fiscal 1996, the Company completed the private placement of
the Series C Preferred Stock, which provided the Company with additional
working capital to better enable the Company to compete in the healthcare
environment. To this end, the Company is upgrading and enhancing most of its
MRI equipment with state-of-the-art applications such as breast imaging,
magnetic resonance angiography (MRA), and faster scanning techniques through
the utilization of more powerful hardware and software. These upgrades position
the Company to be competitive with other MRI facilities and attract the managed
care organization membership. During fiscal 1996 and 1997, the Company has been
successful in the managed care market by developing and strengthening
contractual relationships with health maintenance organizations (HMOs),
preferred provider organizations and networks (PPOs and PPNs), third party
administrators (TPAs), labor unions and self-insured corporations. During that
time, the Company has adopted a marketing philosophy emphasizing long-term
relationships with major referral sources such as large multi-specialty groups,
hospitals and corporate diagnostic and therapeutic centers resulting in
significant increases in the Company's managed care business. Finally, the
Company continues to assess the acquisition of other healthcare facilities and
companies and potential strategic combinations with other similar imaging
companies and healthcare service providers to further reduce the Company's
operating costs and continue to strengthen the Company's financial foundation.
In furtherance of these objectives, the Company began providing MRI services at
Meadowlands Hospital Medical Center, entered into a reading agreement with the
Department of Radiology at Temple University Medical Center and acquired the
New York City facility.
Our Company has successfully implemented programs to strengthen its financial
position and its place in the diagnostic imaging marketplace. The management
and directors look to the future with optimism and believe that the Company is
now in a position to take advantage of the opportunities in the healthcare
industry. Our primary goal, as always, is to maximize the value of our Company
to you, our stockholders.
Thank you for your continued support.
ELLIOTT H. VERNON, ESQ.
Chairman of the Board,
President and
Chief Executive Officer
<PAGE>
HEALTHCARE IMAGING SERVICES, INC.
TRI-PARKWAY CORPORATE PARK
200 SCHULZ DRIVE
RED BANK, NEW JERSEY 07701
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS - DECEMBER 18, 1997
To the Stockholders of
Healthcare Imaging Services, Inc.:
The 1997 Annual Meeting of Stockholders (the "Meeting") of Healthcare
Imaging Services, Inc. (the "Company") will be held on Thursday, December 18,
1997, at the offices of the Company, TriParkway Corporate Park, 200 Schulz
Drive, Red Bank, New Jersey, 07701 at 10:00 A.M., local time, to consider and
act upon the following matters:
1. The election of seven (7) directors to hold office until the
next Annual Meeting of Stockholders and until their
successors are elected and qualified;
2. The ratification and approval of a restricted stock award to
an executive officer of the Company (the "Vernon Award");
3. The approval of the Healthcare Imaging Services, Inc. 1997
Omnibus Incentive Plan (the "Omnibus Plan");
4. The approval of the Healthcare Imaging Services, Inc. 1997
Employee Stock Purchase Plan (the "Stock Purchase Plan");
and
5. Such other business as may properly come before the Meeting
or any adjournments or postponements thereof.
The Board of Directors of the Company has fixed the close of business
on Wednesday, November 5, 1997 as the record date for determination of
stockholders entitled to notice of, and to vote at, the Meeting and any
adjournments or postponements thereof. Accordingly, only holders of record of
shares of Common Stock of the Company at the close of business on such date
will be entitled to notice of, and to vote at, the Meeting and any
adjournments or postponements thereof.
By Order of the Board of Directors,
ELLIOTT H. VERNON,
Chairman of the Board, President and
Chief Executive Officer
November 17, 1997
Red Bank, New Jersey
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE
ENCLOSED PROXY IN THE RETURN STAMPED ENVELOPE PROVIDED.
YOUR PROMPT RETURN OF A COMPLETED PROXY WILL HELP
THE COMPANY AVOID THE ADDITIONAL EXPENSE OF
FURTHER SOLICITATION TO ASSURE
A QUORUM AT THE MEETING.
<PAGE>
PROXY STATEMENT
------------
HEALTHCARE IMAGING SERVICES, INC.
TRI-PARKWAY CORPORATE PARK
200 SCHULZ DRIVE
RED BANK, NEW JERSEY 07701
-----------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 18, 1997
GENERAL INFORMATION
This Proxy Statement is furnished to the holders of record (the
"Stockholders") as of the close of business on Wednesday, November 5, 1997 of
shares of common stock, $0.01 par value per share (the "Common Stock"), of
Healthcare Imaging Services, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board") for use at the 1997 Annual Meeting of Stockholders to be
held on December 18, 1997 and at any adjournments or postponements thereof
(the "Meeting"), pursuant to the accompanying Notice of Annual Meeting of
Stockholders (the "Notice"). A form of proxy for use at the Meeting is also
enclosed. This Proxy Statement and the accompanying Notice and form of proxy
are first being mailed to Stockholders on or about November 17, 1997.
A Stockholder may revoke the authority granted by his execution of a
proxy at any time before the effective exercise of such proxy by delivering a
duly executed proxy bearing a later date or by filing a written revocation
thereof with the Assistant Secretary of the Company at its executive offices
located at Tri-Parkway Corporate Park, 200 Schulz Drive, Red Bank, New Jersey
07701. Presence at the Meeting does not of itself revoke the proxy unless the
Stockholder so attending shall, in writing, so notify the Secretary of the
Meeting at any time prior to the voting of the proxy. All shares of Common
Stock represented by executed and unrevoked proxies will be voted in
accordance with the specifications therein. Proxies submitted without
specification will be voted to elect the nominees for director named herein,
to ratify and approve the Vernon Award, to approve the Omnibus Plan and to
approve the Stock Purchase Plan (in each case as such terms are defined in the
accompanying Notice). Management is not aware at the date hereof of any other
matter to be presented at the Meeting but, if any other matter is properly
presented, the persons named in the proxy will vote thereon according to their
judgment.
All costs and expenses of the Meeting and this solicitation,
including the cost of preparing and mailing this Proxy Statement, will be
borne by the Company. The Company has engaged the firm of McCormick & Pryor
Ltd. as proxy solicitors. The fee to such firm for solicitation services is
estimated to be approximately $3,000 plus reimbursement of out-of-pocket
expenses. In addition to solicitation by use of mails, directors, officers and
regular employees of the Company (who will not be specifically compensated for
such services) may solicit proxies personally or by telephone or other means
of communication. Although there is no formal agreement to do so, the Company
will also reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding proxy materials to
their principals.
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As used herein, the terms "fiscal 1994," "fiscal 1995," "fiscal 1996"
and "fiscal 1997" refer to the Company's fiscal years ended December 31, 1994,
1995 and 1996 and its fiscal year ending December 31, 1997, respectively.
VOTING SECURITIES
On November 5, 1996, the record date for the determination of
stockholders entitled to notice of, and to vote at, the Meeting, the number of
outstanding shares of Common Stock was 8,606,474 (excluding the shares subject
to the Vernon Award). The Company has no other voting securities outstanding.
Only stockholders of record on the books of the Company at the close of
business on that date will be entitled to notice of, and to vote at, the
Meeting. Each stockholder of record on that date is entitled to one (1) vote
per share of Common Stock held on all matters submitted to a vote of
Stockholders, including the election of directors. The holders of a majority
of the outstanding shares of Common Stock present in person or by proxy and
entitled to vote at the Meeting will constitute a quorum at the Meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. However,
abstentions and broker non-votes will have no effect on the outcome of the
election of directors, and broker non-votes also will have no effect on the
outcome of the ratification and approval of the Vernon Award, the approval of
the Omnibus Plan and the approval of the Stock Purchase Plan. Abstentions will
have the same effect as votes cast against the ratification and approval of
the Vernon Award, the approval of the Omnibus Plan and the approval of the
Stock Purchase Plan.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the beneficial ownership of the
outstanding shares of Common Stock as of November 5, 1997 of (i) each person
known by the Company to beneficially own 5% or more of the outstanding shares
of Common Stock, (ii) each of the Company's directors and director nominees,
(iii) each of the Company's executive officers named in the Summary
Compensation Table and (iv) all of the Company's directors and executive
officers as a group. An asterisk indicates beneficial ownership of less than
1% of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
AS OF NOVEMBER 5, 1997
----------------------
Number Percent
of Shares (1) of Class
------------- --------
<S> <C> <C>
Elliott H. Vernon (2) 1,080,500 11.8%
c/o Healthcare Imaging Services, Inc.
200 Schulz Drive
Red Bank, New Jersey 07701
George Braff, M.D. 1,000,000 11.6%
43 West 13th Street
New York, New York 10011
Jerold L. Fisher (3) 20,000 *
Shawn A. Friedkin (3) 20,000 *
Mitchell Hymowitz (3) 20,000 *
Munr Kazmir, M.D. -- --
Dominic A. Polimeni (3) 20,000 *
Joseph J. Raymond (4) 90,000 1%
Michael J. Rutkin 65,500 *
(former executive officer)
All directors and 1,206,100 13%
executive officers
as a group (7 persons)
(2)(3)(4)(5)
</TABLE>
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- ------------
(1) In no case was voting and investment power shared with others.
(2) Includes beneficial ownership of (i) an aggregate of 500,000 shares
of Common Stock issuable upon the exercise of certain currently
exercisable stock options and (ii) an aggregate of 80,500 shares of
Common Stock issuable upon conversion of 11,500 shares of Series C
Convertible Preferred Stock of the Company (the "Series C Preferred
Stock"). Does not include beneficial ownership of an aggregate of
250,000 shares of Common Stock issuable pursuant to the Vernon Award.
See "Ratification and Approval of Vernon Award." Does not include an
aggregate of 500,000 shares of Common Stock issuable upon the
exercise of certain stock options which are not exercisable within
sixty (60) days of November 5, 1997. See "Executive Compensation --
Employment Contracts and Termination of Employment and Change in
Control Arrangements."
(3) Such shares represent shares of Common Stock issuable upon exercise
of certain currently exercisable stock options granted pursuant to
the Company's 1996 Stock Option Plan for Non-Employee Directors (the
"1996 Non-Employee Directors Plan").
(4) Such shares include 20,000 shares of Common Stock issuable upon
exercise of certain currently exercisable stock options granted
pursuant to the 1996 Non-Employee Directors Plan.
(5) Includes an aggregate of 80,500 shares of Common Stock issuable upon
conversion of an aggregate of 11,500 shares of Series C Preferred
Stock and an aggregate of 625,600 shares of Common Stock issuable
upon the exercise of stock options exercisable within sixty (60) days
of November 5, 1997. Does not include an aggregate of 550,000 shares
of Common Stock issuable upon the exercise of stock options which are
not exercisable within sixty (60) days of November 5, 1997.
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<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
The By-laws of the Company provide that the number of directors shall
be fixed from time to time by the Board. The Board has fixed the number of
directors at seven (7) and seven (7) directors will be elected at the Meeting,
each director to hold office until the next annual meeting of stockholders or
until his successor is elected and is qualified. The Company intends to hold
the next annual meeting of stockholders in 1998. All of the seven (7) nominees
are presently directors of the Company, except for Dr. Kazmir. Four (4) of the
director nominees of the Company (i.e., Jerold L. Fisher, Shawn A. Friedkin,
Mitchell Hymowitz and Dominic A. Polimeni) were designated in connection with
the 1996 Annual Meeting of Stockholders by the holders of a majority of the
outstanding shares of the Series C Preferred Stock.
Unless otherwise directed, all proxies (unless revoked or suspended)
will be voted for the director nominees named below. If any director nominee
shall be unavailable for election or upon election should be unable to serve,
the proxies will be voted for the election of such other person as shall be
determined by the persons named in the proxy in accordance with their
judgment. The Company is not aware of any reason why any director nominee
should become unavailable for election, or, if elected, should be unable to
serve as a director.
The names of the director nominees, and certain information about
them, are set forth below.
HAS BEEN A DIRECTOR
NAME AGE OF THE COMPANY FROM
---- --- -------------------
Jerold L. Fisher 40 February 1996 - Present
Shawn A. Friedkin 33 May 1996 - Present
Mitchell Hymowitz 35 May 1996 - Present
Munr Kazmir, M.D. 40 --
Dominic A. Polimeni 51 May 1996 - Present
Joseph J. Raymond 62 December 1995 - Present
Elliott H. Vernon 55 July 1991 - Present
Jerold L. Fisher has been the Director of Corporate Finance of
Biltmore Securities, Inc. (a registered broker/dealer based in Fort
Lauderdale, Florida) since June 1995 and has been the President of Fisher Food
Corporation (a manufacturer and distributor of frozen snack foods) since May
1995. From June 1993 until May 1995, Mr. Fisher was the General Manager of
Wrono Enterprise Corp., a Florida based protective shade and shutter
manufacturing company. From May 1992 until May 1993, Mr. Fisher was employed
by NBC Computers, Inc., a Florida based computer company, as controller and
from February 1989 until April 1992, Mr. Fisher was the Chief Financial
Officer of Rolleze, Inc., a California based window and door manufacturing
company. From June 1980 until February 1984, Mr. Fisher was employed by
Seymour Schniedman and Associates, a CPA firm specializing in mergers and
acquisitions. Mr. Fisher
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<PAGE>
graduated from Boston University School of Business Management in 1980 with a
B.S. degree in Business Administration.
Shawn A. Friedkin has been the President of Paramount Funding
Corporation, a Florida based factoring company specializing in commercial
receivable funding, since July 1992. From January 1990 through June 1992, Mr.
Friedkin was the Vice President of Friedkin Industries, a Florida company
engaged in the aluminum extrusion and eyeglass manufacturing businesses. Mr.
Friedkin is a graduate of Syracuse University School of Management.
Mitchell Hymowitz has been the Principal/Chief Financial Officer of
H&W Hardware Company, Inc. (a retail hardware store) and the Vice President of
220 First Avenue Realty Corp. (a real estate investment company) since
September 1990. Since December 1993, Mr. Hymowitz has been a director of
Questron Technology, Inc. (formerly Judicate, Inc.) ("Questron"), a
publicly-traded company based in Boca Raton, Florida. From September 1984
until September 1990, Mr. Hymowitz was a Senior Accountant with Paritz &
Company, P.A. (a public accounting firm based in New Jersey). Mr. Hymowitz
received a B.S. in Business Administration with a degree in Accounting from
the State University of New York at Buffalo in 1984.
Munr Kazmir, M.D. has been the President of Quality Home Care Inc., a
home healthcare and medical staffing company, since he founded it in 1989. Dr.
Kazmir is a N.Y.S. board- certified internist and received a B.S. from
Cambridge College in Manchester, England in 1974 and an M.D. from King Edward
Medical College in Lahore, Pakistan in 1980. Dr. Kazmir held residency
positions at the Mayo Hospital in Lahore, Pakistan and the Westchester County
Medical Center as well as a fellowship position at the Holy Family Hospital in
Rawil Pindi, Pakistan and a research assistant position in oncology at the
White Plains Hospital.
Dominic A. Polimeni has been the President, Chief Operating Officer
and a Director of Questron since March 1995, and Chairman and Chief Executive
Officer of Questron since February 1996. Since September 1997, he has been a
director of Nu Electronics Corp., a publicly-held electronic component
distributor based in Melville, New York. Since March 1996, Mr. Polimeni has
also been a director of TMCI Electronics, Inc., a publicly-held company based
in San Jose, California which provides custom manufacturing and value-added
services to the information technology industry. Mr. Polimeni has been
Managing Director of Gulfstream Financial Group, Inc., a privately-held
financial consulting and investment banking firm, since August 1990. Prior
thereto, he was the Chief Financial Officer of Arrow Electronics, Inc.
("Arrow"), a publicly-held international electronics distribution company, for
four years. Prior thereto, he held several other positions, including general
management positions, with Arrow over an eight-year period. Prior thereto, he
practiced as a certified public accountant for more than twelve years,
including one year as a partner, in the New York office of Arthur Young &
Company (an accounting firm). Mr. Polimeni holds a B.B.A. degree from Hofstra
University.
Joseph J. Raymond has been the President of Transworld Management
Services, Inc. (an investment and strategic planning consultation firm which
Mr. Raymond founded) since April 1996. From July 1992 through August 1996, Mr.
Raymond was the Chairman of the Board, Chief Executive Officer and President
of Transworld Home HealthCare, Inc., a publicly-held regional supplier of a
broad range of alternate site healthcare services and products including
respiratory therapy, drug infusion therapy, nursing and para-professional
services, home medical equipment, radiation and oncology therapy and a
nationwide specialized mail order pharmacy
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<PAGE>
("THH"). Prior thereto, he was the Chairman of the Board and President of
Transworld Nursing, Inc. ("TNI"), a wholly-owned subsidiary (and predecessor)
of THH, from its inception in 1987.
Elliott H. Vernon has been the Chairman of the Board, President and
Chief Executive Officer of the Company since the Company's inception in July
1991. For over ten years, Mr. Vernon has also been the managing partner of MR
General Associates, a New Jersey general partnership ("MR General") which is
the general partner of DMR Associates, L.P., a Delaware limited partnership
("DMR Associates"). See "Certain Relationships and Related Transactions."
Since December 1995, Mr. Vernon has been a director of Pacific
Pharmaceuticals, Inc., a publicly-traded company engaged in the development
and commercialization of medical products with a primary focus on cancer
treatment. Mr. Vernon is also one of the founders of TNI and was, until April
1997, a director THH. Mr. Vernon is also a principal of HealthCare Financial
Corp., LLC, a healthcare financial consulting company engaged primarily in FDA
matters. From January 1990 to December 1994, Mr. Vernon was a director and the
Executive Vice President and General Counsel of the Wall Street firm of Aegis
Holdings Corporation which offered financial services through its investment
management subsidiary and its capital markets consulting subsidiary on an
international basis. Prior to entering the healthcare field on a full-time
basis, Mr. Vernon was in private practice as a trial attorney specializing in
federal white collar criminal and federal regulatory matters. Prior to
founding his own law firm in 1973, Mr. Vernon was commissioned as a Regular
Army infantry officer in the United States Army (1964). He is a former
paratrooper and Vietnam War veteran with service in the 82nd Airborne Division
and 173rd Airborne Brigade. Upon his return from Vietnam in 1970, Mr. Vernon
served as Chief Prosecutor and Director of Legal Services at the United States
Army Communications and Electronics Command until 1973.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast at the Meeting.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ELECTION OF THE ABOVE NOMINEES FOR DIRECTOR.
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<PAGE>
MEETINGS OF THE BOARD; COMMITTEES
During fiscal 1996, the Board held four (4) formal meetings. During
fiscal 1996, no incumbent director attended less than 75% of the aggregate
number of meetings of the Board and committees of the Board on which he served
for such year. The Board currently has three (3) standing committees: the
Audit Committee, the Stock Option Committee and the Compensation Committee.
Audit Committee
The current members of the Audit Committee are Messrs. Friedkin,
Hymowitz and Polimeni. Prior thereto, until December 1996, the members of the
Audit Committee were Messrs. Braff and Fisher. The Audit Committee held two
(2) meetings during fiscal 1996. The general functions of the Audit Committee
include selecting the independent auditors (or recommending such action to the
Board); evaluating the performance of the independent auditors and their fees
for services and considering the effect, if any, of their independence;
reviewing the scope of the annual audit with the independent auditors and the
results thereof with management and the independent auditors; consulting with
management, internal audit personnel, if any, and the independent auditors as
to the Company's systems of internal accounting controls; and reviewing the
non-audit services performed by the independent auditors.
Stock Option Committee
The current members of the Stock Option Committee are Messrs.
Friedkin, Hymowitz and Polimeni. Prior thereto, until December 1996, the
members of the Audit Committee were Messrs. Braff and Raymond. The Stock
Option Committee held two (2) meetings during fiscal 1996. The Stock Option
Committee considers and recommends actions of the Board relating to matters
affecting the Company's stock option plans and is authorized to make grants
under the Company's 1991 Stock Option Plan (the "1991 Plan"), the Omnibus Plan
(subject to stockholder approval thereof) and the Stock Purchase Plan (subject
to stockholder approval thereof). See "Approval of Omnibus Plan" and "Approval
of Stock Purchase Plan."
Compensation Committee
The current members of the Compensation Committee are Messrs.
Friedkin, Hymowitz and Polimeni. Prior thereto, until December 1996, the
members of the Compensation Committee were Messrs. Braff and Raymond. The
Compensation Committee held two (2) meetings during fiscal 1996. The general
functions of the Compensation Committee include approval (or recommendations
to the Board) of the compensation arrangements for senior management,
directors and other key employees; review of benefit plans in which officers
and directors are eligible to participate; and periodic review of the equity
compensation plans of the Company and the grants under such plans.
COMPENSATION OF DIRECTORS
The Company does not pay non-employee directors any fees in connection
with their services as such; however, the Company reimburses them for all
costs and expenses incident to their participation in meetings of the Board
and its committees. In addition, non-employee directors are entitled to
participate in the 1996 Non-Employee Directors Plan. Pursuant to the
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<PAGE>
1996 Non-Employee Directors Plan, stock options exercisable to purchase an
aggregate of twenty-five thousand (25,000) shares of Common Stock
automatically are granted to newly elected or appointed non-employee directors
of the Company. The purchase price of the shares of Common Stock subject to
such stock options is equal the fair market value of such shares on the date
of the grant, as determined in accordance with the 1996 Non-Employee Directors
Plan. Stock options awarded under the 1996 Non-Employee Directors Plan vest in
increments of 40% after the sixth month, 80% after the eighteenth month and
100% after the thirtieth month anniversary of the date of grant. Upon
termination of a non-employee director's service on the Board, any stock
options vested as of the date of termination may be exercised until the sixth
month anniversary of such date (unless such options expire earlier in
accordance with their terms); provided that if such termination is a result of
such directors's removal from the Board other than due to his death or
disability, all stock options will terminate immediately. See "Stock Option
Plans -- 1996 Non-Employee Directors Plan." Directors are also entitled to
receive awards under the Omnibus Plan (subject to stockholder approval
thereof). See "Approval of Omnibus Plan."
No remuneration is paid to executive officers of the Company for
services rendered in their capacities as directors of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than 10% of the outstanding shares of Common Stock, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company (collectively, "Section 16 reports") on a timely
basis. Directors, executive officers and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16 reports. To the Company's knowledge, based solely on a review of the copies
of such reports furnished to the Company and certain written representations
that no other reports were required, during fiscal 1996, all Section 16(a)
filing requirements applicable to its directors, executive officers and
greater than 10% beneficial owners were complied with on a timely basis,
except that Biltmore Securities, Inc. did not file a Form 3 with respect to
its becoming a greater than 10% beneficial owner of the Company and Mr.
Michael F. DeLicce, a former executive vice president and chief operating
officer of the Company, also did not timely file a Form 3 with respect to his
becoming an executive officer of the Company.
EXECUTIVE OFFICERS OF THE COMPANY
The names of the current executive officers of the Company, and
certain information about them, are set forth below.
Name Age Position
---- --- --------
Elliott H. Vernon 55 Chairman of the Board,
President and Chief
Executive Officer
Scott P. McGrory 32 Vice President, Controller
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<PAGE>
See above for information regarding Mr. Vernon.
Scott P. McGrory has been the Vice President, Controller of the
Company (as well as the Assistant Secretary of the Company) since October
1996. As the Vice President, Controller of the Company, Mr. McGrory is the
Principal Financial and Accounting Officer of the Company and is responsible
for overseeing all financial reporting aspects of the Company. Mr. McGrory was
the Company's Controller from August 1995 to October 1996; the Company's
Manager of Accounting from January 1994 to August 1995; and the Company's
Manager of Budgeting from December 1992 to January 1994. From April 1988 to
December 1992, Mr. McGrory was employed as a Senior Accountant by NMR of
America, Inc., a provider of outpatient services in the field of advanced
diagnostic imaging.
-10-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by,
or paid to, the Chief Executive Officer and each other executive officer of
the Company (whose total annual salary and bonus exceed $100,000) for services
rendered in all capacities to the Company and its subsidiaries during fiscal
1996, 1995 and 1994 (the "named executive officers"):
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
----------
ANNUAL COMPENSATION
-----------------------
OTHER
ANNUAL RESTRICTED SECURITIES ALL
NAME AND PRINCIPAL COMPENSATION STOCK UNDERLYING OTHER
POSITION YEAR SALARY ($) BONUS ($) ($)(1) AWARD(S) ($) OPTIONS (#) COMPENSATION
- ------------------------------- ---------- --------- ---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ELLIOTT H.
VERNON................ 1996 $181,923 $111,710 $28,121(2) $468,750 500,000(3) --
(Chairman of the
Board, President 1995 $200,000 -- $29,635(2) -- -- --
and Chief Executive
Officer) 1994 $188,462 -- $25,000(2) -- 145,000(3) $31,904(4)
MICHAEL J.
RUTKIN................. 1996 $108,945(5) -- -- -- -- --
(former Executive
Vice President, 1995 $120,001 -- -- -- -- --
Chief Operating
Officer and 1994 $113,077 -- -- -- 37,000 --
Secretary)
</TABLE>
- -----------
(1) Unless noted, the value of perquisites and other personal benefits,
securities and other property paid to or accrued for the named
executive officers did not exceed $50,000 for each such officer, or
10% of such officer's total reported salary and bonus, and thus are
not included in the table.
(2) Represent payments for personal life and disability insurance made by
the Company on behalf of Mr. Vernon pursuant to Mr. Vernon's
employment agreement.
(3) All of these stock options were terminated effective as of February 1,
1996, pursuant to an amendment to Mr. Vernon's employment agreement
which provided for a new stock option grant (subject to stockholder
ratification and approval of such grant, which ratification and
approval was obtained at the 1996 Annual Meeting of Stockholders) to
purchase an aggregate of 500,000 shares of Common Stock. See
"Employment Contracts and Termination of Employment and Change in
Control Arrangements."
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<PAGE>
(4) Represents non-interest bearing advance made to Mr. Vernon during
fiscal 1994 which was repaid in fiscal 1996 with a portion of his
fiscal 1996 bonus.
(5) Represents compensation (including severance payments) through October
18, 1996, the effective date of the termination of Mr. Rutkin's
employment with the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In October 1991, the Company entered into a five-year employment
agreement with Elliott H. Vernon, pursuant to which Mr. Vernon agreed to serve
as the Chairman of the Board, President and Chief Executive Officer of the
Company at an annual base salary of $200,000. The employment agreement
provides that if a "constructive termination of employment" shall occur, Mr.
Vernon shall be entitled to a continuation of full salary and bonus
compensation for a period equal to the remainder of the term. "Constructive
termination of employment" is defined in the employment agreement to include a
material change in Mr. Vernon's responsibilities, removal of Mr. Vernon from
his position as the Company's Chairman of the Board, President or Chief
Executive Officer (other than for "Cause," as defined in the employment
agreement) or a "Change in Control." A "Change in Control" is defined to
include a change in the majority of the Board which is not approved by the
incumbent directors or an accumulation by any person or group, other than Mr.
Vernon, of in excess of 30% of the outstanding voting securities of the
Company. The employment agreement further provides that a constructive
termination of employment shall not include (i) any sale of the business of
the Company, whether through merger, sale of stock or sale of assets, which is
approved by the vote of two-thirds of the full Board or (ii) a change in Mr.
Vernon's title and/or the person or persons to whom Mr. Vernon reports
resulting from a Change of Control approved by the affirmative vote of
two-thirds of the full Board, so long as it does not result in any other event
constituting a constructive termination of employment.
Mr. Vernon's employment agreement provides for annual profit sharing
with other executive level employees of a bonus pool consisting of 15% of the
Company's consolidated income before taxes, determined in accordance with
generally accepted accounting principles (the "Bonus Pool"). During the first
year of the term, Mr. Vernon was entitled to two-thirds of the first $300,000
of the Bonus Pool and one-third of the next $300,000 of the Bonus Pool, and,
for the remainder of the term, he is entitled to 50% of the Bonus Pool. Mr.
Vernon is entitled to monthly bonus payments, based upon an estimate of his
full years' entitlement, subject to adjustment at the end of each fiscal
quarter and at the end of each fiscal year. The entitlement of the other
officers of the Company to the remainder of the Bonus Pool will be made by Mr.
Vernon as the Chairman of the Board, President and Chief Executive Officer of
the Company.
As of February 1, 1996, the Company amended its employment agreement
with Mr. Vernon. Pursuant to such amendment, the employment agreement's
expiration date of October 22, 1996 was extended to October 22, 1997 and
during such one-year extension Mr. Vernon's annual base compensation was
reduced from $200,000 to $100,000. In addition, upon execution of such
amendment, options (the "Vernon Old Options") that Mr. Vernon held as of such
date exercisable to purchase an aggregate of two hundred and seventy thousand
(270,000) shares (options covering 70,000 of such shares were granted subject
to stockholder approval of a certain amendment to the 1991 Plan) of Common
Stock under the 1991 Plan (at exercise prices ranging from $1.50 to $5.00 per
share) were terminated and the Company granted him options (subject
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<PAGE>
to stockholder ratification and approval of such award and of a certain
amendment to the Company's Certificate of Incorporation (the "Certificate
Amendment"), which ratification and approval was obtained at the Company's
1996 Annual Meeting of Stockholders) exercisable to purchase an aggregate of
five hundred thousand (500,000) shares of Common Stock at a cash exercise
price of $0.75 per share (the "Vernon New Options"). The vesting of the Vernon
New Options were also subject to the consummation by the Company of a
financing (the "Financing") providing gross proceeds to the Company of at
least $900,000 by March 30, 1996 (which condition was satisfied by the sale of
the Series C Preferred Stock on February 9, 1996). Furthermore, as additional
incentive compensation, upon execution of such amendment, Mr. Vernon received
(subject to stockholder ratification and approval of such award and of the
Certificate Amendment, which ratification and approval was obtained at the
Company's 1996 Annual Meeting of Stockholders) from the Company a restricted
stock award of two hundred and fifty thousand (250,000) shares of Common
Stock. According to the amendment, the restrictions thereon lapse upon
consummation by the Company of both (i) the Financing by March 30, 1996 (which
condition was satisfied by the sale of the Series C Preferred Stock on
February 9, 1996) and (ii) an acquisition of, or other business combination
with, a company (or companies) with assets of at least $2,500,000 (the
"Acquisition"). However, according to such amendment, such restricted stock
grant would have been forfeited if the Acquisition was not consummated by
January 31, 1997. In January 1997, the Company (upon the recommendation of the
Compensation Committee) extended the required consummation date of the
Acquisition to January 31, 1998 (subject to stockholder ratification and
approval of such extension) and also extended the expiration date of Mr.
Vernon's employment agreement with the Company to October 22, 1998. In
November 1997, the Company (upon the recommendation of the Compensation
Committee) further extended the required consummation date of the Acquisition
to January 31, 1999 (subject to stockholder ratification and approval of such
extension). See "Ratification and Approval of Vernon Award." Mr. Vernon is
entitled to certain demand and "piggyback" registration rights with respect to
such 250,000 shares and the 500,000 shares of Common Stock issuable upon
exercise of the Vernon New Options. At any time commencing April 16, 1996 and
ending April 16, 2000, Mr. Vernon will have the right to demand that the
Company prepare and file, and use its best efforts to cause to become
effective, a registration statement under the Act to permit the sale of the
Registrable Securities. The Company will be obligated to file one (1) such
registration statement for which all expenses (other than fees of counsel for
such holders and underwriting discounts) will be payable by the Company.
In November 1997, the Board (upon the recommendation of the
Compensation Committee) approved the material terms of a new three-year
employment agreement with Mr. Vernon. Pursuant to such new employment
agreement, Mr. Vernon will agree to continue to serve as the Chairman of the
Board, President and Chief Executive Officer of the Company at an annual base
salary of $100,000, subject to increase to $250,000 upon the Company's
attainment in any fiscal year of consolidated income before taxes of $1.25
million, and to annual cost of living increases. The employment agreement will
be subject to successive one year renewal periods. The employment agreement
will provide that if Mr. Vernon resigns for "Good Reason" (to be defined in
the employment agreement) or if his employment is terminated by the Company
other than for "Cause" (to be defined in the employment agreement), Mr. Vernon
will be entitled to receive a payment of 2.99 times his highest annual salary
and bonus pursuant to the employment agreement.
Mr. Vernon's new employment agreement will also provide for annual
profit sharing with other executive level employees of a bonus pool consisting
of 15% of the Company's
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<PAGE>
consolidated income before taxes (the "Bonus Pool"). Mr. Vernon will be
entitled to 50% of the Bonus Pool. It is expected that the entitlement of the
other officers of the Company to the remainder of the Bonus Pool will be made
by Mr. Vernon as the Chairman of the Board, President and Chief Executive
Officer of the Company. In addition, the employment agreement will provide for
certain insurance and automobile benefits for Mr. Vernon and his participation
in the Company's other benefit plans. In connection with this new employment
agreement, Mr. Vernon was granted options to purchase four hundred seventy one
thousand two hundred (471,200) shares of Common Stock under the 1991 Plan and
twenty eight thousand eight hundred (28,800) shares of Common Stock under the
Omnibus Plan (subject to stockholder approval of the plan) at an exercise
price of $1.0625 per share. See "Approval of Omnibus Plan." Such options vest
in 25% increments upon the Company's attainment of consolidated income before
taxes of $1.25 million, $2.5 million, $3.75 million and $5.0 million,
respectively, subject to immediate vesting upon (x) the occurrence of a Change
in Control (to be defined in the award agreement) and (y) the fifth
anniversary of the date of grant. The Company intends to enter into such new
employment agreement with Mr. Vernon, to be effective as of November 3, 1997,
as soon as practicable.
In February 1993, the Company entered into a three-year employment
agreement with Michael J. Rutkin, pursuant to which Mr. Rutkin agreed to serve
as Executive Vice President and Chief Operating Officer of the Company at an
annual base salary of $120,000. The employment agreement provided that upon
early termination of employment, Mr. Rutkin was entitled to an amount equal to
his base salary through the earlier to occur of (a) the six month anniversary
of such termination and (b) the end of the contract term. At such time, Mr.
Rutkin received options exercisable to purchase 25,000 shares of Common Stock
at an exercise price of $5.00 per share, of which 20% vest each year
commencing one year after employment. Such employment agreement expired in
January 1996 and was not replaced by another employment agreement prior to the
termination of Mr. Rutkin's employment with the Company in October 1996.
OPTION GRANTS IN FISCAL 1996
The following table sets forth each grant of stock options made by the
Company during fiscal 1996 to each of the named executive officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE OR APPRECIATION FOR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM (1)
NAME GRANTED($) FISCAL YEAR ($/SHARE) DATE ---------------
- ---- ---------- ----------- ----------- ---------- 5%($) 10%($)
----- ------
<S> <C> <C> <C> <C> <C> <C>
Elliott H. Vernon 500,000 97.1% $0.75 Feb. 2001 $821,514 $1,134,853
</TABLE>
- ---------
(1) The potential realizable values represent future opportunity and have
not been reduced to present value in 1996 dollars. The dollar amounts
included in these columns are the result of calculations at assumed
rates set by the Securities and Exchange Commission for illustration
purposes, and these rates are not intended to be a forecast of the
Common Stock price and are not necessarily indicative of the values that
may be realized by the named executive officer.
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<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND 1996 FISCAL YEAR END OPTION
VALUES
The following table summarizes for each of the named executive officers
the number of stock options exercised during fiscal 1996, the aggregate dollar
value realized upon exercise, the total number of unexercised stock options
held at December 31, 1996 and the aggregate dollar value of in-the-money,
unexercised options held at December 31, 1996. The value realized upon
exercise is the difference between the fair market value of the underlying
Common Stock on the exercise date and the exercise or base price of the stock
option. The value of unexercised, in-the-money options at fiscal year-end is
the difference between its exercise or base price and the fair market value
(i.e., the closing sale price on such date) of the underlying Common Stock on
December 31, 1996 (the last trading day in fiscal 1996), which was $0.9375 per
share. These values, unlike the amounts set forth in the column headed "Value
Realized," have not been, and may never be, realized. The stock options have
not been, and may never be, exercised; and actual gains, if any, on exercise
will depend on the value of the Common Stock on the date of exercise. There
can be no assurance that these values will be realized.
None of the named executive officers exercised any stock options during
fiscal 1996. The Company does not have any stock appreciation rights ("SARs")
outstanding.
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END
--------------- ---------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ---------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Elliott H. Vernon -0- -0- 500,000/0 $95,000/$0
Michael J. Rutkin (1) -0- -0- 52,000/10,000 $0/$0
</TABLE>
- -------
(1) All stock options held by Mr. Rutkin at December 31, 1996 terminated as
of January 16, 1997 due to the termination of his employment with the
Company effective as of October 18, 1996.
STOCK OPTION PLANS
1991 Plan
Pursuant to the 1991 Plan, stock options exercisable to purchase up to
seven hundred thousand (700,000) shares of Common Stock (subject to
appropriate adjustments in the event of stock splits, stock dividends and
similar dilutive events) may be granted under the 1991 Plan to key employees
(including officers who may also be directors) of the Company and its
subsidiaries, as selected by a committee of the Board appointed by the Board
to administer the Plan and composed of not less than two (2) directors who are
"disinterested persons," within the meaning of Rule 16(b) promulgated under
the Exchange Act. The Stock Option Committee of the Board currently
administers the 1991 Plan. As of November 5, 1997, approximately one hundred
(100) employees of the Company and its subsidiaries were eligible to be
granted stock
-15-
<PAGE>
options under the 1991 Plan (although no additional shares of Common Stock
were available for issuance thereunder at such time). Stock options granted to
employees may be either incentive stock options (as defined in the Internal
Revenue Code of 1986, as amended (the "Code")) or nonqualified stock options.
The purchase price of the shares of Common Stock issuable upon exercise of a
stock option may not be less than the fair market value of the Common Stock on
the date of grant, in the case of incentive stock options, or 85% of such
value, in the case of nonqualified stock options. The terms of each stock
option and the increments in which it is exercisable are determined by the
Stock Option Committee but the term of a nonqualified stock option generally
may not exceed ten (10) years from the date of grant and the term of an
incentive stock option may in no event be more than ten (10) years from the
date of grant (and shall otherwise be consistent with the Code). No stock
options may be granted under the 1991 Plan after November 2001. The stock
options are non-transferable during the life of the option holder except as
otherwise provided in the 1991 Plan.
On February 13, 1996, the Board approved, subject to stockholder
approval (which approval was obtained at the 1996 Annual Meeting of
Stockholders), an amendment to the 1991 Plan increasing the number of shares
of Common Stock that may be subject to options awarded to any participant
pursuant to the 1991 Plan from an aggregate of 200,000 for the term of such
plan to 250,000 shares in any given calender year.
As of November 5, 1997, stock options exercisable to purchase an
aggregate of seven hundred thousand (700,000) shares of Common Stock had been
granted under the 1991 Plan. Five hundred and fifty thousand six hundred
(550,600) of such stock options are held by executive officers of the Company.
Such stock options have expiration dates ranging from December 22, 2003 to
November 3, 2007 and exercises prices ranging from $0.75 to $5.00 per share.
If stockholder approval of the Omnibus Plan is obtained at the Meeting,
no further stock options will be granted under the 1991 Plan after such
approval. See "Approval of Omnibus Plan."
1996 Non-Employee Directors Plan
The 1996 Non-Employee Directors Plan is administered by a committee of
the Board consisting of at least two (2) directors, as appointed by the Board.
Up to an aggregate of two hundred and fifty thousand (250,000) shares of
Common Stock may be issued pursuant to stock options awarded under the 1996
Non-Employee Directors Plan. Shares of Common Stock subject to an award which
are not issued prior to expiration or termination of an award may thereafter
be available for future awards under the 1996 Non-Employee Directors Plan and
will not be deemed to increase the aggregate number of shares of Common Stock
available thereunder. The 1996 Non-Employee Directors Plan provides for
appropriate adjustment of shares of Common Stock available thereunder and of
shares of Common Stock subject to outstanding awards in the event of any
changes in the outstanding Common Stock by reason of any recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction.
Under the 1996 Non-Employee Directors Plan, non-qualified stock options
exercisable to purchase an aggregate of twenty-five thousand (25,000) shares
of Common Stock were granted, subject to stockholder approval of the 1996
Non-Employee Directors Plan (which approval was
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<PAGE>
obtained at the 1996 Annual Meeting of Stockholders), to each of the three (3)
existing non-employee directors of the Company (i.e., Messrs. Braff, Raymond
and Fisher) on the date of the adoption of such plan by the Board (i.e.,
February 13, 1996) at an exercise price of $1.6875 per share, and
non-qualified stock options exercisable to purchase an aggregate of
twenty-five thousand (25,000) shares of Common Stock automatically will be
granted to newly elected or appointed non-employee directors of the Company.
The purchase price of the shares of Common Stock subject to such stock options
will equal the fair market value of such shares on the date of the grant, as
determined in accordance with the 1996 Non-Employee Directors Plan. Stock
options awarded under the 1996 Non-Employee Directors Plan vest in increments
of 40% after the sixth month, 80% after the eighteenth month and 100% after
the thirtieth month anniversary of the date of grant. No stock option may be
granted under the 1996 Non-Employee Directors Plan after ten (10) years from
the effective date of the Non-Employee Directors Plan. The stock options are
non-transferable during the life of the option holder except as otherwise
provided in the 1996 Non-Employee Directors Plan. Upon termination of a
director's service on the Board, any stock options vested as of the date of
termination may be exercised until the sixth month anniversary of such date
(unless such options expire earlier in accordance with their terms); provided
that if such termination is a result of such directors's removal from the
Board other than due to his death or disability, all stock options will
terminate immediately.
The 1996 Non-Employee Directors Plan replaced the Company's 1991
Directors' Stock Option Plan for Non-employee Directors which had provided for
the issuance of options covering up to 60,000 shares of Common Stock to
non-employee directors.
All of the stock options granted to Dr. Braff under the 1996
Non-Employee Directors Plan were terminated (prior to any exercise thereof) in
connection with Dr. Braff's resignation as a director in April 1997.
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<PAGE>
PROPOSAL 2 - RATIFICATION AND APPROVAL OF VERNON AWARD
GENERAL
As of February 1, 1996, the Company amended its employment agreement
with Elliott H. Vernon, the Company's Chairman of the Board, President and
Chief Executive Officer. Pursuant to such amendment, the employment
agreement's expiration date of October 22, 1996 was extended to October 22,
1997 and during such one-year extension Mr. Vernon's annual base compensation
was reduced from $200,000 to $100,000. See "Executive Compensation -Employment
Contracts and Termination of Employment and Change in Control Arrangements."
As incentive compensation, upon execution of such amendment, Mr. Vernon
received from the Company (subject to stockholder ratification and approval of
such award and of the Certificate Amendment, which ratification and approval
was obtained at the Company's 1996 Annual Meeting of Stockholders) a
restricted stock award of two hundred and fifty thousand (250,000) shares (the
"Restricted Shares") of Common Stock. According to the amendment, the
restrictions thereon lapse upon consummation by the Company of both (i) the
Financing by March 30, 1996 (which condition was satisfied by the sale of the
Series C Preferred Stock on February 9, 1996) and (ii) an acquisition of, or
other business combination with, a company (or companies) with assets of at
least $2,500,000 (the "Acquisition"). However, according to such amendment,
such restricted stock grant would have been forfeited if the Acquisition was
not consummated by January 31, 1997. In January 1997, the Company (upon the
recommendation of the Compensation Committee) extended the required
consummation date of an Acquisition to January 31, 1998 (subject to
stockholder ratification and approval of such extension) and also extended the
expiration date of Mr. Vernon's employment agreement with the Company to
October 22, 1998. In November 1997, the Company (upon the recommendation of
the Compensation Committee) further extended the required consummation date of
an Acquisition to January 31, 1999 (subject to stockholder ratification and
approval of such extension).
None of the Restricted Shares shall vest until a committee consisting of
two or more "outside directors" of the Company, within the meaning of Section
162(m) of the Code, shall have certified that the Financing and the
Acquisition have each been consummated. The Compensation Committee has been
designated to act as such committee. Prior to the vesting of such restricted
stock grant, (i) the Restricted Shares will be held in escrow by the Company
and will not be assignable or transferable, except by will or by laws of
descent and distribution, and may not be sold, exchanged, transferred,
pledged, or otherwise disposed of at any time and (ii) Mr. Vernon will not
have the right to vote the Restricted Shares (although he will have all other
rights and privileges of a stockholder with respect to such shares including,
without limitation, the right to receive dividends in cash or other property
or other distributions in respect of the Restricted Shares).
Mr. Vernon will be entitled to certain demand and "piggyback"
registration rights with respect to the Restricted Shares and the five hundred
thousand (500,000) shares of Common Stock issuable upon exercise of the Vernon
New Options. At any time commencing April 16, 1996 and ending April 16, 2000,
Mr. Vernon will have the right to demand that the Company prepare and file,
and use its best efforts to cause to become effective, a registration
statement under the Act to permit the sale of the Registrable Securities. The
Company will be obligated to file one (1) such registration statement for
which all expenses (other than fees of counsel for such holders and
underwriting discounts) will be payable by the Company.
-18-
<PAGE>
On November 5, 1997, the closing sale price of the Common Stock on The
Nasdaq National Market was $1.125 per share.
REASON FOR VERNON AWARD
The Company originally granted the Vernon Award to provide Mr. Vernon
with an increased opportunity to acquire an investment in the Company, thereby
maintaining and strengthening his desire to remain with the Company and
stimulating his efforts on the Company's behalf. In addition, such grant
helped to induce Mr. Vernon to extend the term of his employment agreement
with the Company for an additional year. The Company (upon the recommendation
of the Compensation Committee) extended the expiration date of the Vernon
Award in January 1997 because, in addition to wanting to continue to
incentivize Mr. Vernon and induce him to extend the term of his employment
agreement with the Company, the Company was then in various stages of
negotiations with respect to several potential business acquisitions, which
would, if consummated, constitute an Acquisition (although there were no
binding agreements with respect to any of such acquisitions). The Company
(upon the recommendation of Compensation Committee) further extended the
expiration date of the Vernon Award in November 1997 because the Company was
once again in various stages of negotiations with respect to several potential
business acquisitions, which would, if consummated, constitute an Acquisition.
Although there are no binding agreements with respect to any such potential
acquisition, the Company determined it would be in its best interests to
further extend the expiration date of the Vernon Award in order to continue to
provide this incentive to Mr. Vernon. The issuance of the Restricted Shares
will dilute the percentage ownership of existing stockholders and the book
value of the Common Stock.
VOTE REQUIRED FOR RATIFICATION AND APPROVAL OF VERNON AWARD
Ratification and approval of the Vernon Award requires the affirmative
vote of the holders of a majority of the Common Stock represented and voting
at the Meeting.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR
RATIFICATION AND APPROVAL OF THE VERNON AWARD.
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<PAGE>
PROPOSAL 3 - APPROVAL OF OMNIBUS PLAN
On November 3, 1997, the Board adopted the Omnibus Plan, subject to
stockholder approval thereof, to replace the 1991 Plan. A copy of the Omnibus
Plan is included as Exhibit A to this Proxy Statement. The purposes of the
Omnibus Plan are to encourage selected employees, directors and consultants of
the Company and its affiliates to acquire a proprietary interest in the growth
and performance of the Company, to generate an increased incentive to
contribute to the Company's future success and prosperity, thus enhancing the
value of the Company for the benefit of its stockholders, and to enhance the
ability of the Company and its affiliates to attract and retain qualified
individuals upon whom, in large measure, the sustained progress, growth and
profitability of the Company depend.
The Company currently has another stock option plan, the 1991 Plan (no
shares of Common Stock remain available for issuance under this plan as of
November 5, 1997), in respect of option grants to key employees, as well as
the 1996 Non-Employee Directors Plan (one hundred twenty five thousand
(125,000) shares of Common Stock remain available for issuance under this plan
as of November 5, 1997), in respect of formula option grants to non-employee
directors. The Omnibus Plan was adopted by the Board to increase the number of
shares of Common Stock available for issuance pursuant to awards to key
employees of the Company and its affiliates, as well as to permit the issuance
of awards to directors and consultants of the Company and its affiliates, and
to take advantage of certain recent changes in federal securities regulations
affecting equity compensation plans. The Omnibus Plan has also been structured
so that it can operate in compliance with Section 162(m) of the Code. The
Board believes the Omnibus Plan gives the Company a sufficient number of
shares of Common Stock for the foreseeable future to provide equity incentives
to attract and retain employees, directors and consultants and allows the
Company greater flexibility under current federal securities laws to
accomplish these goals. The Board unanimously recommends a vote FOR the
approval of the Omnibus Plan. If the stockholders approve the adoption of the
Omnibus Plan, the 1991 Plan will be terminated as to the further grant of
awards under such plan. If the stockholders fail to approve the adoption of
the Omnibus Plan, awards will continue to be made under the 1991 Plan until it
expires by its terms (i.e., November 2001).
Subject to stockholder approval of the Omnibus Plan, the Stock Option
Committee has granted options to purchase an aggregate of twenty eight
thousand eight hundred (28,800) shares of Common Stock to Elliott H. Vernon at
an exercise price of $1.0625 per share. These options will terminate if the
Omnibus Plan is not approved by the stockholders. See "Executive Compensation
- -- Employment Contracts and Termination of Employment and Change in Control
Arrangements." On November 5, 1997, the closing sale price of the Common Stock
on The Nasdaq National Market was $1.125 per share.
DESCRIPTION
The following description of the Omnibus Plan is qualified in its
entirety by reference to the full text of the Omnibus Plan which is set forth
in Exhibit A to this Proxy Statement.
The Omnibus Plan provides for compensatory equity-based awards (each an
"Award") to employees, directors and consultants of the Company and its
affiliates. As of November 5, 1997, there were approximately one hundred (100)
employees, six (6) directors and six (6) consultants eligible to be granted
Awards under the Omnibus Plan. There are reserved for issuance pursuant
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to, or by reason of, stock awards and stock-based awards an aggregate number
of shares of Common Stock equal to the lesser of (i) 12.5% of the number of
shares of Common Stock outstanding, from time to time, calculated on a fully
diluted basis (including the maximum number of shares of Common Stock that may
be issued, or subject to awards, under the Omnibus Plan, the Stock Purchase
Plan, the 1991 Plan and the 1996 Non-Employee Directors Plan (collectively,
the "Employee Stock Plans")) less the number of shares of Common Stock that
are issued under the Employee Stock Plans after the effective date of the
Omnibus Plan or are subject to outstanding awards under the Employee Stock
Plans plus the number of shares of Common Stock forfeited under the Employee
Stock Plans or surrendered to the Company in payment of the exercise price of
options issued under any of the Employee Stock Plans and (ii) 5,000,000 shares
of Common Stock. The foregoing amount is referred to herein as the "Employee
Stock Plan Share Amount." Awards may be granted for no consideration and may
consist of stock options, stock awards, SARs, dividend equivalents, other
stock-based awards (such as phantom stock) and performance awards consisting
of any combination of the foregoing. Any Award issued under the Omnibus Plan
which is forfeited, expires or terminates prior to vesting or exercise will
again be available for Award under the Omnibus Plan. No participant may
receive stock awards or stock-based awards to acquire more than 500,000 shares
in any one year.
The Stock Option Committee will administer the Omnibus Plan and have the
full power and authority, subject to the provisions of the Omnibus Plan, to
designate participants, grant Awards and determine the terms of all Awards.
Members of the Stock Option Committee are not eligible to receive Awards under
the Omnibus Plan.
The Omnibus Plan will terminate on November 3, 2007, ten years from the
date of adoption of the Plan by the Board, unless earlier terminated by the
Board. The Board may amend, alter, suspend, discontinue or terminate the
Omnibus Plan, except that any amendment, alteration, suspension,
discontinuation or termination that would impair the rights of any
participant, or any other holder or beneficiary of any Award theretofore
granted to the extent such rights are not then accrued and vested, shall
require the consent of such participant, other holder or beneficiary of an
Award.
Restricted Stock Awards. The Stock Option Committee will have the right
to grant Awards of shares of Common Stock which are subject to such
restrictions (including restrictions on transferability and limitations on the
right to vote or receive dividends with respect to the restricted shares) and
such terms regarding the lapse of restrictions as the Stock Option Committee
deems appropriate. Generally, upon termination of employment for any reason
during the restriction period, restricted shares will be forfeited to the
Company.
SARs. An award may consist of SARs. Upon exercising an SAR, the holder
will be paid by the Company the difference between the fair market value of
the Common Stock on the date of exercise and the fair market value of the
Common Stock on the date of the grant of the SAR, less applicable withholding
of Federal and state taxes. The Stock Option Committee will have the authority
to determine the price, term, methods of exercise, methods of settlement, and
any other terms and conditions of any SAR.
Options. The terms of specific options (including the exercise price,
option term and time and method of exercise) will be determined by the Stock
Option Committee. Generally, it is expected that options will be granted at an
exercise price equal to at least 100% of the fair market value of the Common
Stock on the date of grant. Each option will be exercisable after the period
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or periods specified in the option agreement, which will generally not exceed
10 years from the date of grant. Options may be issued in tandem with SARs
("Tandem Options") as a performance award. Upon the exercise of an option, the
option holder will pay to the Company the exercise price plus the amount of
the required Federal and state withholding taxes, if any. An option may be
either an "incentive stock option" which meets the requirements of Code
Section 422 (an "ISO") or a non-qualified stock option which does meet such
requirements (a "NQSO"). ISOs may only be granted to employees of the Company
or its present or future parent or subsidiary corporations (as defined in Code
Section 422).
Performance Awards Consisting of Options and SARs Issued in Tandem. Upon
exercise of a Tandem Option, the optionee will be entitled to a credit toward
the exercise price equal to the value of the SARs issued in tandem with the
option exercised, but not to exceed the amount of the Federal income tax
deduction allowed to the Company in respect of such SAR. Upon exercise of a
Tandem Option, the related SAR will terminate, the value being limited to the
credit which can be applied only toward the purchase price of Common Stock. In
all cases, full payment of the net purchase price of the shares must be made
in cash or its equivalent at the time the Tandem Option is exercised, together
with the amount of the required Federal and state withholding taxes, if any.
When a SAR issued as part of a Tandem Option is exercised, the option to which
it relates will cease to be exercisable to the extent of the number of shares
with respect to which the SAR was exercised.
Other Performance Awards. The Omnibus Plan authorizes the Stock Option
Committee to grant, to the extent permitted under Rule 16b-3 promulgated by
the SEC under the Exchange Act, and applicable law, other Awards that are
denominated or payable in, valued by reference to, or otherwise based on or
related to shares of Common Stock. Furthermore, the amount or terms of an
Award may be related to the performance of the Company or to such other
criteria or measure of performance as the Stock Option Committee may
determine.
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a description of the federal income tax consequences
under currently applicable provisions of the Code of the grant and exercise of
Awards under the Omnibus Plan. This description does not purport to be a
complete description of the federal income tax aspects of the Omnibus Plan.
The summary does not include any discussion of state, local or foreign income
tax consequences or the effect of gift, estate or inheritance taxes, any of
which may be significant to a particular participant who receives Awards.
There will be no federal income tax consequences to optionees or the
Company on the grant of a NQSO. On the exercise of a NQSO, the optionee
generally will have taxable ordinary income, subject, in the case of an
employee, to withholding, equal to the excess of the fair market value of the
shares of Common Stock received on the exercise date over the exercise price
of the shares. The Company will be entitled to a tax deduction in an amount
equal to the amount of income recognized by the optionee provided the Company
complies with applicable withholding and/or reporting rules. Any ordinary
income realized by an optionee upon exercise of a NQSO will increase his or
her tax basis in the Common Stock thereby acquired. An optionee who transfers
a NQSO in a non-arms'-length transaction will be subject to taxation as
described above at the time that the transferee exercises the NQSO.
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Any gain or loss recognized upon the subsequent disposition of the
acquired Common Stock will be a capital gain or loss if the shares are held as
capital assets, and such capital gain will, in the case of an individual
optionee, be taxable at the maximum rate of 28% if such shares of Common Stock
are held for more than one (1) year and not more than eighteen (18) months,
and 20% if such shares are held for more than eighteen (18) months. Any loss
will be long-term if such shares are held for more than one (1) year.
An optionee who surrenders shares of Common Stock in payment of the
exercise price of a NQSO will not recognize gain or loss on his or her
surrender of such shares, but will recognize ordinary income on the exercise
of the NQSO as described above. Of the shares received in such an exchange,
that number of shares equal to the number of shares surrendered will have the
same tax basis and capital gains holding period as the shares surrendered. The
balance of the shares received will have a tax basis equal to their fair
market value on the date of exercise, and the capital gains holding period
will begin on the date of the exercise.
With respect to ISOs, no compensation income is recognized by an
optionee, and no deduction is available to the Company upon either the grant
or exercise of an ISO. However, the difference between the exercise price of
an ISO and the market price of the Common Stock acquired on the exercise date
will be included in the alternative minimum taxable income of an optionee for
purposes of the "alternative minimum tax." Generally, if an optionee holds the
shares acquired upon exercise of ISOs until the later of (i) two years from
the grant of ISOs or (ii) one year from the date of acquisition of the shares
upon exercise of ISOs, any gain recognized by the optionee on a sale of such
shares will be treated as capital gain. The gain recognized upon the sale is
the difference between the exercise price and the sale price of the Common
Stock. The net federal income tax effects on the holder of ISOs generally is
to defer (except for alternative minimum tax purposes), until the shares are
sold, taxation of any increase in the value of the Common Stock from the time
of grant to the time of exercise, and to treat such gain as capital gain. If
the optionee sells the shares prior to the expiration of the holding period
set forth above (a "disqualified disposition"), the optionee will realize
ordinary compensation income in the amount equal to the difference between the
exercise price and the fair market value on the exercise date. The
compensation income will be added to the optionee's basis for purposes of
determining the gain on the sale of the shares. Such gain will be capital gain
if the shares are held as capital assets. If the application of the
above-described rule would result in a loss to the optionee, the compensation
income required to be recognized thereby would be limited to the excess, if
any, of the amount realized on the sale over the basis of the shares sold. If
an optionee disposes of shares obtained upon exercise of an ISO prior to the
expiration of the holding period described above, the Company generally will
be entitled to a deduction in the amount of the compensation income that the
optionee recognizes as a result of the disposition, subject to the Company
satisfying applicable withholding and/or reporting obligations.
If an optionee is permitted to, and does, make the required payment
of the exercise price by delivering shares of Common Stock, the optionee
generally will not recognize any gain as a result of such delivery, but the
amount of gain, if any, which is not so recognized will be excluded from his
basis in the new shares received. However, the use by an optionee of shares
previously acquired pursuant to an exercise of an ISO to exercise an ISO will
be treated as a taxable disposition if the transferred shares have not been
held by the optionee for the requisite holding period described above.
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With respect to SARs, when a participant exercises a SAR grant under
the Omnibus Plan, the amount of cash received will be ordinary income subject,
in the case of an employee, to withholding, and will be allowed as a deduction
to the Company, subject to the Company satisfying its reporting and/or
withholding obligations.
Since restricted stock and restricted stock units will not be
transferable and will be subject to forfeit by the participant, should the
participant leave the Company's employ during a specified period or certain
other conditions which may be related to the purpose of the grant not be
satisfied, for federal income tax purposes the restricted stock and restricted
stock units will be subject to a "substantial risk of forfeiture" during such
period. Thus, a participant will defer the recognition of income until the end
of that period and recognize compensation income equal to the fair market
value of the restricted stock and restricted stock units at such time unless
the participant elects to recognize compensation income on the date of grant.
Subject to the Company satisfying certain reporting and/or withholding
obligations, the Company will be entitled to a deduction at the time and in an
amount equal to the compensation income recognized by the participant. Any
additional gain or any loss recognized upon the subsequent disposition of the
acquired shares will be a capital gain or loss.
If the Company delivers cash, in lieu of fractional shares, the
employee will recognize ordinary income equal to the cash paid and the fair
market value of any shares issued as of the date of exercise. An amount equal
to any such ordinary income will be deductible by the Company, provided it
complies with applicable withholding requirements.
Section 162(m) of the Code, which generally limits the annual
deduction otherwise available to a publicly-held corporation with respect to
applicable remuneration paid to such corporation's chief executive officer and
to certain other highly compensated employees of such corporation to
$1,000,000, provides that "performance-based" compensation will not be subject
to the $1,000,000 deduction limitation. Generally, since an employer is not
entitled to a deduction upon the grant or exercise of an ISO in any event
(other than in the case of a disqualified disposition), this provision should
not affect the Company's tax treatment with regard to ISOs. NQSOs and SARs
granted under a plan approved by stockholders with an exercise price equal to
the fair market value of the underlying stock as of the date of grant are
considered performance-based compensation, if certain requirements are met.
The Omnibus Plan meets such requirements and, accordingly, any income realized
by employees with respect to NQSOs or SARs granted under the Omnibus Plan with
exercise prices equal to the fair market value of the underlying stock as of
the date of is not subject to the deduction limitation of Section 162(m).
Compensation attributable to Awards of restricted stock and restricted stock
units will not qualify as performance-based compensation. The Committee may
take such additional steps as are necessary to ensure that other Awards under
the Omnibus Plan qualify for exemption from the deduction limitations of Code
Section 162(m).
VOTE REQUIRED FOR APPROVAL OF THE OMNIBUS PLAN
Approval of the Omnibus Plan requires the affirmative vote of the
holders of a majority of the Common Stock represented and voting at the
Meeting.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL OF THE OMNIBUS PLAN.
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PROPOSAL 4 - APPROVAL OF THE STOCK PURCHASE PLAN
On November 3, 1997, the Board adopted the Stock Purchase Plan,
subject to stockholder approval thereof. A copy of the Stock Purchase Plan is
included as Exhibit B to this Proxy Statement. The Stock Purchase Plan is
intended to encourage employees of the Company and its subsidiaries to acquire
or increase their ownership of Common Stock and to foster in participants a
strong incentive to put forth maximum effort for the continued success and
growth of the Company and its subsidiaries, to aid in retaining individuals
who put forth such efforts, and to assist in attracting the best available
individuals to the Company and its subsidiaries in the future. The Stock
Purchase Plan will be administered by the Stock Option Committee. It is the
Company's intention that the Stock Purchase Plan qualify as an "employee stock
purchase plan" under Section 423 of the Code.
On November 5, 1997, the closing sale price of the Common Stock on
The Nasdaq National Market was $1.125 per share.
DESCRIPTION
The following description of the Stock Purchase Plan is qualified in
its entirety by reference to the full text of the Stock Purchase Plan which is
set forth in Exhibit B to this Proxy Statement.
The Stock Purchase Plan authorizes the Stock Option Committee to
grant options to purchase shares of Common Stock to eligible employees
pursuant to one or more offerings to be made under the Stock Purchase Plan.
Generally, eligible employees are employees who have been employed by the
Company or any of its subsidiaries for at least six (6) months and who
customarily work more than twenty (20) hours per week and five (5) months per
calendar year. Except under certain prescribed circumstances, all eligible
employees must be given the right to participate in any offering made under
the Stock Purchase Plan. As of November 5, 1997, there were approximately one
hundred (100) employees eligible to participate in offerings under the Stock
Purchase Plan. The Stock Option Committee has the discretion to determine when
offerings will be made under the Stock Purchase Plan, the number of shares of
Common Stock to be made available in any such offering, the length of the
period pursuant to which employees can elect to participate in any offering
(the "Subscription Period") and the period pursuant to which installment
payments of the option price must be paid (the "Purchase Period"). The
Subscription Period and the Purchase Period of any offering made under the
Stock Purchase Plan may not together exceed twenty-seven (27) months.
There are reserved for issuance upon the exercise of options to be
granted under the Stock Purchase Plan an aggregate number of shares of Common
Stock equal to the lesser of (i) 12.5% of the number of shares of Common Stock
outstanding, from time to time, calculated on a fully diluted basis (including
the maximum number of shares of Common Stock that may be issued, or subject to
awards, under the Employee Stock Plans) less the number of shares of Common
Stock that are issued under the Employee Stock Plans after the effective date
of the Omnibus Plan or are subject to outstanding awards under the Employee
Stock Plans plus the number of shares of Common Stock forfeited under the
Employee Stock Plans or surrendered to the Company in payment of the exercise
price of options issued under any of the Employee Stock Plans and (ii)
5,000,000 shares of Common Stock.
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The Stock Option Committee may exclude employees of any specific
subsidiary from any offering made under the Stock Purchase Plan and may
determine not to include certain highly compensated employees. In addition, no
option may be granted to an employee who, immediately after the option is
granted, owns 5% or more of the value or voting power of all classes of stock
of the Company or its parent, if any, or subsidiary corporations, after taking
into account certain attribution rules, and no employee may be granted an
option which permits his right to purchase Common Stock under the Stock
Purchase Plan to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) of the fair market value of such Common Stock for each calendar year
in which such option is outstanding at any time.
Prior to any offering made under the Stock Purchase Plan, the Company
will grant to each employee eligible to participate in the offering the right
to subscribe for an option to purchase, on the last business day of the
Purchase Period applicable to such offering at a price determined by the Stock
Option Committee, the number of full shares of Common Stock which such
employee's accumulated payroll deductions will purchase as of such last
business day of the Purchase Period. The option price will equal not less than
85% of the fair market value of the Common Stock on the first day of the
Purchase Period as determined by the Stock Option Committee. Employees may
elect to subscribe for options to purchase shares of Common Stock for an
aggregate purchase price up to a specified percentage of their annual
compensation as determined by the Stock Option Committee for a particular
offering (which percentage shall in no event exceed 20%).
On the first day of the Purchase Period, eligible employees who elect
to participate in an offering will receive, subject to a certain limitations
set forth in the Stock Purchase Plan, an option to purchase the number of
shares for which such employee has subscribed. These options will be
automatically exercised as of the last business day of the Purchase Period.
Subject to certain limitations set forth in the Stock Purchase Plan,
an employee is permitted, at any time prior to the end of the Purchase Period
applicable to such offering, to terminate or reduce his or her payroll
deductions, to reduce his or her options to purchase or to withdraw all or
part of the amount in his or her account, without interest. Upon the
termination of the employee's employment with the Company prior to the last
day of the Purchase Period for any reason other than death or retirement, the
employee's only right will be to receive the amount of cash then in such
employee's account, without interest.
Options granted under the Stock Purchase Plan will be subject to
adjustment upon a recapitalization, stock split, stock dividend, merger,
reorganization, liquidation, extraordinary dividend or other similar event
affecting the Common Stock. Options will not be transferable, other than by
will or the laws of descent and the distribution, or, if permitted pursuant to
the Code, and the Regulations thereunder, without affecting the option's or
the Stock Purchase Plan's qualifications under Section 423 of the Code,
pursuant to qualified domestic relations order.
In the case of an unusual corporate event such as liquidation,
merger, reorganization, or other business combination, acquisition or change
in control of the Company through a tender offer or otherwise, the Stock
Option Committee may, in its sole discretion, determine to terminate the
Purchase Period of any offering made under the Stock Purchase Plan as of the
last day of the month during which such unusual corporate event occurs, but,
in the event of any such termination, an option holder will have the right,
commencing at least five days prior to the unusual corporate event, to either
make a lump sum payment equal to the remaining portion of
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the purchase price payable under his or her option or to cancel his or
election to purchase shares pursuant to such option.
The Stock Purchase Plan will terminate ten (10) years from the date
of adoption (i.e., November 3, 2007), and an option shall not be granted under
the Stock Purchase Plan after such date. Any options outstanding at the time
of termination of the Stock Purchase Plan will continue in full force and
effect according to the terms and conditions of the option and the Stock
Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a description of the federal income tax
consequences under currently applicable provisions of the Code to the Company
and participants in the Stock Purchase Plan of the grant and exercise of
options. This description does not purport to be a complete description of the
federal income tax aspects of the Stock Purchase Plan.
An employee will not be required to recognize income at the time an
option is granted under the Stock Purchase Plan or at the time the option is
exercised. If, as currently contemplated by the Stock Purchase Plan, the
option price applicable to any offering made under the Stock Purchase Plan is
less than the fair market value of the Common Stock on the date of grant,
then, provided the holding periods described below are met, upon the
disposition of such Common Stock by the employee (or in the event of the death
of the employee while owning such Common Stock whether or not the holding
period requirements are met), the employee will recognize compensation income
(taxed as ordinary income) in an amount equal to the lesser of (i) the excess
of the fair market value of the Common Stock at the time of such disposition
or death over the option price; or (ii) the excess of the fair market value of
the Common Stock on the date the option is granted over the option price. Any
additional gain or any loss resulting from the disposition will be taxed as
capital gain or loss. The Company will not be entitled to any deduction with
respect to options granted under the Stock Purchase Plan, except in connection
with a disqualifying disposition as discussed below.
In order for an employee to receive the favorable tax treatment
described above, the employee may not sell the Common Stock within two (2)
years from the date the option was granted nor within one (1) year from the
date the option was exercised and the Common Stock was received. If an
employee sells the Common Stock acquired pursuant to the Stock Purchase Plan
before the expiration of these holding period requirements, the employee will
recognize, at the time of the sale, ordinary compensation income in an amount
equal to the excess of the fair market value of the Common Stock on the date
the option was exercised over the option price. The amount recognized as
ordinary compensation income will increase the employee's basis in such
shares. The balance of gain or loss resulting from the sale will be taxed as
capital gain or loss. At the time of the sale, and subject to the $1,000,000
per employee annual deduction limitation under Code Section 162(m) for
compensation paid to certain employees of public companies and the
satisfaction by the Company of any withholding or reporting obligations, the
Company would be allowed a deduction equal to the amount included in the
employee's income as ordinary compensation income.
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VOTE REQUIRED FOR APPROVAL OF THE STOCK PURCHASE PLAN
Approval of the Stock Purchase Plan requires the affirmative vote of
the holders of a majority of the Common Stock represented and voting at the
Meeting.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL OF THE STOCK PURCHASE PLAN.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1996 and September 30, 1997, Elliott H. Vernon owed
the Company $176,049 and $252,364, respectively, in connection with certain
non-interest bearing advances.
The Company previously entered into capital lease transactions
involving total equipment financing of approximately $16.6 million with DVI
Financial Services, Inc., a Delaware corporation ("DFS") which is a
wholly-owned subsidiary of DVI, Inc. ("DVI") and which was a principal
stockholder of the Company until April 1996 owning approximately 17% of the
then outstanding shares of Common Stock. Certain of the foregoing equipment
leases were subsequently sold by DFS to unrelated third parties. As part of
the Company's continuing efforts to reduce costs and improve cash flow, DFS
agreed to repurchase leases previously sold by them to third parties and
refinance the repurchased leases by reducing the interest rate and extending
maturity dates. As of September 30, 1995, the Company refinanced with DFS
equipment leases having an aggregate principal amount of approximately $2.8
million. The new master lease agreement provided for a reduction in aggregate
lease payments of approximately $299,000 for the remainder of fiscal 1995 and
provided for a reduction of approximately $779,000 for fiscal 1996, resulting
in improved cash flow of approximately $1,078,000 over the next fifteen (15)
months. At December 31, 1996 and September 30, 1997, the Company had capital
leases with DFS in the approximate principal amount of $4.7 million and $4.3
million, respectively, inclusive of the previously mentioned refinanced
amounts.
In connection with DFS's investment in the Company prior to the
Company's initial public offering in 1991, DFS agreed that, unless the Company
otherwise agrees, neither DFS nor any of its affiliates would acquire 15% or
more of the capital stock of any entity if (i) such entity is engaged in the
business of operating diagnostic imaging equipment or radiation therapy
equipment; (ii) such entity has its principal place of business in New York or
New Jersey; and (iii) the equity investment in such entity is made by DFS with
the express agreement and understanding that a public offering of the common
stock of such entity will be made within a reasonable period of time following
the making of such investment by DFS. However, DFS was not prohibited from
competing directly with the Company. DFS leases equipment to competitors of
the Company. DFS's receipt from the Company of information concerning the
Company and its competitors and the market in which the Company operates,
together with DFS's financing of certain of the Company's competitors assets,
could adversely affect the Company's interests.
The Company entered into an arrangement, effective September 1, 1994
until July 1996, pursuant to which it operated solely as a sublessor of its
four (4) mobile MRI units rather than as an operator of such equipment. Mark
R. Vernon, the brother of Elliott H. Vernon (the Company's Chairman of the
Board, President and Chief Executive Officer) and the Vice President, Director
of Operations of the Company since April 1997, is the President and a
significant stockholder of such sublessee of the Company's mobile MRI
equipment. The other stockholders of the sublessee include certain former
customers of the Company. The sublease provided for monthly payments to the
Company, which commenced September 1, 1994, in the amount of $50,000 per month
for the first three (3) months and $115,000 per month for the next forty five
(45) months. These monthly payments included maintenance and insurance of
approximately $44,000 per month paid directly by the Company. The total
monthly sublease payments due to the Company were collateralized by the
accounts receivable due to the sublessee by the sublessee's mobile MRI
customers. Effective May 1, 1995, the sublease agreement was amended to
provide for monthly payments to the Company in the amount of $76,373 per month
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for the next forty (40) months excluding maintenance of $38,627 per month
originally paid directly by the Company since the sublessee entered into a
maintenance agreement with an unrelated third party and began paying the
equipment maintenance directly for the subleased mobile MRI units. At December
31, 1994, the sublessee was current with its monthly payment obligations.
However, for fiscal 1995, the Company was entitled to receive from the
sublessee approximately $1,047,000 in rental income of which it received
approximately $685,000 resulting in past due amounts of approximately
$362,000. The Company, due to the sublessee's failure to remain current with
its 1995 monthly payment obligations, notified the sublessee that it was in
default of the sublease agreement. As a result, after assessing the sublease
business arrangement, the Company sold one of its mobile MRI units for
$625,000 in December 1995, which in turn reduced the sublessee's monthly
payment obligation to the Company from $76,373 to $52,582 a month for the
remaining thirty three (33) months of the sublease. As a result of the sale of
the mobile MRI unit, the Company incurred a loss of approximately $31,000
representing the difference between the remaining sublease income attributed
to such mobile MRI unit and the sales proceeds received. In February 1996, the
Company terminated the master agreement with the sublessee and repossessed the
remaining three (3) mobile MRI units from the sublessee as a result of the
failure of the sublessee and its customers to satisfy their obligations
thereunder to the Company. In an attempt to satisfy the past due amounts owed
to the Company, the sublessee and its customers provided the Company with cash
and additional patient receivable claims to partially offset the amounts they
owe to the Company. The additional patient receivable claims were to
supplement the amounts previously submitted to the Company to satisfy prior
past due indebtedness from the sublessee and its customers. The Company soon
after returned the three (3) mobile MRI units to the sublessee. Effective July
27, 1996, the Company again repossessed the three (3) mobile MRI units due to
the sublessee's continuing failure to meet its obligations to the Company. In
August 1996, the Company entered into a lease purchase agreement with respect
to the sale of one of the Company's mobile MRI units. The lease purchase
agreement provided for a $20,000 down payment upon execution of the agreement,
eleven (11) monthly installments of $5,000 each which commenced October 1,
1996 and a final payment of $35,000 due in September 1997. Such amounts have
been paid. The Company has entered into an agreement with certain other
creditors of the sublessee in respect of the collection of the sublessee's
receivables.
As of January 30, 1996, the Company entered into a one year
consulting agreement with Biltmore. Pursuant to the consulting agreement,
Biltmore will act as a consultant to the Company in connection with, among
other things, corporate finance and evaluations of possible business partners
and will seek to find business partners suitable for the Company and assist in
the structuring, negotiating and financing of such transactions. The
consulting agreement provides for the issuance to Biltmore upon execution
thereof of options (the "Biltmore Options") exercisable to purchase 750,000
shares of Common Stock at a cash exercise price of $0.75 per share and for the
additional issuance to Biltmore of 750,000 shares (the "Biltmore Fee Shares")
of Common Stock upon consummation by the Company of an acquisition of a
company (or companies) with assets of at least $2,500,000 during the term of
the consulting agreement. The consulting agreement provided that the Biltmore
Options only will become exercisable upon the consummation by the Company of
the Financing and will be forfeited if the Financing is not consummated by
March 30, 1996. Upon the sale of the Series C Preferred Stock on February 9,
1996, the Biltmore Options became fully vested. The holders of the Biltmore
Options and the Biltmore Fee Shares are also entitled to certain demand and
"piggyback" registration rights with respect to the shares of Common Stock
issuable upon exercise of the Biltmore Options and the Biltmore Fee Shares.
Furthermore, in consideration of Biltmore's placement agent services with
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respect to the offering of the Series C Preferred Stock, contemporaneous with
the sale of the Series C Preferred Stock on February 9, 1996, the Company
issued 60,000 shares of Series C Preferred Stock to Biltmore. Jerold L.
Fisher, a director of the Company (and a director nominee), is the Director of
Corporate Finance of Biltmore. In January 1997, the Company extended the term
of the Consulting Agreement for an additional year, and in November 1997, the
Company further extended the term of the Consulting Agreement for an
additional year.
During fiscal 1996, Dr. George Braff, a director of the Company from
December 1995 until April 1997 and the Company's Medical Director since
October 1997, was the majority shareholder and officer of three of the
Company's Medical Lessees: Edgewater Diagnostic Imaging, P.A. ("Edgewater"),
Monmouth Diagnostic Imaging, P.A. ("MDI") and Kings Medical Diagnostic
Imaging, P.C. ("KMDI"). For fiscal 1996, EDI, MDI and KMDI respectively paid
the Company approximately $300,000, $2.9 million and $1.2 million in fees for
services previously rendered. In addition, revenues generated to the Company
by EDI, MDI and KMDI accounted for 7%, 30% and 18%, respectively, of the
Company's total revenues in fiscal 1996. For fiscal 1996, EDI, MDI and KMDI
paid Dr. Braff approximately $24,000, $339,000 and $300,000 in fees for
professional services rendered by him on their behalf. It is anticipated that
such entities will continue to be Medical Lessees of the Company in fiscal
1997. Dr. Braff sold his interest in EDI in October 1997.
On November 4, 1997, the Company acquired all of the assets and
business of, and assumed certain liabilities relating to, M.R. Radiology
Imaging of Lower Manhattan, P.C., a fixed-site magnetic resonance imaging
facility, with ultrasound, located in Manhattan and owned by Dr. Braff, for an
aggregate consideration (subject to post-closing adjustments) of $900,000 in
cash, a $300,000 short-term promissory note and 1,000,000 shares of Common
Stock. See "Security Ownership of Certain Beneficial Owners and Management."
In connection with such acquisition, the Company also entered into a
professional services agreement with Dr. Braff to continue to provide all
medical services at the facility.
The Company leases its Brooklyn, New York fixed-site MRI facility
from DMR Associates, L.P., a limited partnership ("DMR"), and the MRI
equipment at such facility from DFS. DMR is owned by MR General Associates,
L.P., as the general partner ("MR Associates"), and DFS, as a limited partner.
MR Associates is in turn owned by Elliott H. Vernon, the Company's Chairman of
the Board, President and Chief Executive Officer, and Joseph J. Raymond,
another director of the Company. For fiscal 1996, the Company paid DMR an
aggregate of $432,000 in lease payments for the Brooklyn facility. The
Company's lease payments to DMR are structured to fully satisfy DMR's costs
and expenses related to the facility, including mortgage payments, taxes and
other related costs. Effective December 1996, the Company agreed to guarantee
an approximately $250,000 loan from DFS to DMR in connection with DMR's
refinancing of an equipment lease related to this Brooklyn facility. This loan
bears interest at 12% per annum and is repayable over thirty-four (34) months
commencing February 15, 1997.
During fiscal 1996, the Company entered into an Excess Capacity
License Agreement with Corehealth, Inc., a corporation wholly-owned by Mark R.
Vernon (the "Licensee"), whereby the Company licensed its office space,
equipment and employees at its Brooklyn, New York MRI facility to the Licensee
during times such space, equipment and employees were not being utilized by
the Company. The Licensee in turn licensed such "excess" space, equipment and
employees to physicians and medical practices ("sublicensees") for the
provision of MRI scans.
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The Company received a fee for every MRI scan performed by the Licensee and/or
sublicensees at the facility and also furnished related billing and collection
services for an additional fee. For fiscal 1996, the Licensee paid the Company
approximately $120,000 in fees under this arrangement. This arrangement was
terminated in March 1997.
In May 1997, the Company entered into a consulting agreement with Dr.
Kazmir, a director nominee, for a one-year term commencing June 1, 1997.
Pursuant to such agreement, Dr. Kazmir will provide such consultation and
advice as the Company may reasonably request, including advice in respect of
new developments in the diagnostic imaging market and the Company's
relationships with current and potential referral sources, and assistance in
the development of Company newsletters and the preparation and arrangement of
seminars, luncheons and other training and education vehicles for current and
potential referral sources. Dr. Kazmir will be entitled to an annual
consulting fee of $60,000.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's financial statements for fiscal 1996 have been examined
by the firm of Deloitte & Touche LLP, independent certified public
accountants. The engagement of Deloitte & Touche LLP is not being presented
for approval of the Stockholders at the Meeting. Representatives of Deloitte &
Touche LLP are expected to be present at the Meeting and to be available to
respond to appropriate questions and will be given the opportunity to make a
statement if they so desire.
The Board intends to review the appointment of its independent
certified public accountants at a meeting subsequent to the Meeting.
STOCKHOLDER PROPOSALS
Stockholder proposals for presentation at the Company's next annual
meeting of stockholders to be held in 1998 must be received by the Company at
its principal executive offices for inclusion in its proxy statement and form
of proxy relating to that meeting no later than August 1, 1998. Such proposals
must also meet the other requirements of the rules of the Securities and
Exchange Commission relating to stockholders' proposals.
OTHER MATTERS
It is not expected that any other matters will be brought before the
Meeting. However, if any other matters are presented, it is the intention of
the persons named in the proxy to vote the proxy in accordance with their
judgment.
ANNUAL REPORTS AND FINANCIAL STATEMENTS
The Company's Form 10-K, as amended, for fiscal 1996 and the
Company's Form 10-Q for the quarterly period ended September 30, 1997 are
being furnished simultaneously herewith, however, they are not to be
considered a part of this Proxy Statement.
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The Company will also furnish to any Stockholder a copy of any
exhibit to this Form 10-K or 10-Q as listed thereon, upon request and upon
payment of the Company's reasonable expenses of furnishing such exhibit.
Requests should be directed to Healthcare Imaging Services, Inc., Tri-Parkway
Corporate Park, 200 Schulz Drive, Red Bank, New Jersey 07701, Attention:
Assistant Secretary.
ALL STOCKHOLDERS ARE URGED TO MARK, SIGN AND SEND IN
THEIR PROXIES WITHOUT DELAY IN THE ENCLOSED
ENVELOPE. PROMPT RESPONSE IS HELPFUL
AND YOUR COOPERATION WILL BE
APPRECIATED.
By Order of The Board of Directors,
ELLIOTT H. VERNON,
Chairman of the Board, President and
Chief Executive Officer
November 17, 1997
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EXHIBIT A
HEALTHCARE IMAGING SERVICES, INC.
1997 OMNIBUS INCENTIVE PLAN
SECTION 1. PURPOSE
The purposes of this Healthcare Imaging Services, Inc. 1997
Omnibus Incentive Plan (the "Plan") are to encourage selected employees,
directors or consultants of Healthcare Imaging Services, Inc. (together with
any successor thereto, the "Company") and its Affiliates (as defined below) to
acquire a proprietary interest in the growth and performance of the Company,
to generate an increased incentive to contribute to the Company's future
success and prosperity, thus enhancing the value of the Company for the
benefit of its stockholders, and to enhance the ability of the Company and its
Affiliates to attract and retain qualified individuals upon whom, in large
measure, the sustained progress, growth and profitability of the Company
depend.
SECTION 2. DEFINITIONS
As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Affiliate" shall mean any entity that, directly or
through one or more intermediaries, is controlled by, controls, or is under
common control with, the Company.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, Dividend
Equivalent, or other Stock Award or Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean a written agreement,
contract, or other instrument or document evidencing an Award granted under
the Plan.
(d) "Board" shall mean the Board of Directors of the
Company.
(e) "Cause" shall mean (i) the Participant's willful
misconduct, gross negligence or dishonesty in the performance of his or her
duties on behalf of the Company, (ii) the neglect, failure or refusal of the
Participant to carry out any reasonable request of the Board or other officer
or supervisor having supervisory authority over the Participant, (iii) the
material breach of any provision of any employment, consulting or other
services contract between the Participant and the Company, (iv) the entering
of a plea of guilty or nolo contendere to, or the Participant's conviction of,
a felony or other crime involving moral turpitude, dishonesty, theft or
unethical business conduct.
(f) "Change in Control" of the Company shall mean (i) the
acquisition of beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, by any "person" (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act), other than the Company, of
securities of the Company representing a majority or more of the combined
voting power of the Company's then outstanding securities, (ii) the failure,
for any reason, of the individuals who presently constitute the Board (the
"Incumbent Board") to constitute at least a majority thereof, provided that
any director whose election has been approved in advance by directors
representing at least two-thirds (2/3) of the directors comprising the
Incumbent Board
<PAGE>
shall be considered, for these purposes, as though such director were a member
of the Incumbent Board, (iii) the Stockholders approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least a majority of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, and such merger or
consolidation occurs; (iv) the Stockholders approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or (v) there is a
corporate separation or division, including, but not limited to, a split-up,
spin-off or extraordinary distribution of cash, securities or other property.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(h) "Committee" shall mean a committee of the Board
designated by the Board to administer the Plan and composed of not less than
two directors.
(i) "Covered Employee" shall mean an employee of the Company
if either (i) as of the close of the fiscal year, such employee is the chief
executive officer of the Company or is an individual acting in such capacity,
or (ii) the total compensation of such employee for the fiscal year is
required to be reported to Stockholders under the Exchange Act by reason of
such employee being among the four highest compensated officers for the
taxable year (other than the chief executive officer).
(j) "Dividend Equivalent" shall mean any right granted under
Section 6(d) of the Plan.
(k) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(l) "Fair Market Value" means, with respect to the Shares,
(A) if the Shares are listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or The Nasdaq
SmallCap Market, the last reported sales price as reported on such exchange;
(B) if the Shares are not listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or The Nasdaq
SmallCap Market, the average of the last reported closing bid and asked
quotation for the Shares as reported on the Automated Quotation System of
NASDAQ or a similar service if NASDAQ is not reporting such information; (C)
if the Shares are not listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or The Nasdaq
SmallCap Market or quoted by NASDAQ or a similar service, the average of the
last reported bid and asked quotation for the Shares as quoted by a market
maker in the Shares (or if there is more than one market maker, the bid and
asked quotation shall be obtained from two market makers and the average of
the lowest bid and highest asked quotation shall be the "Fair Market Value");
or (D) if the Shares are not listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or The Nasdaq
SmallCap Market or quoted by NASDAQ and there is no market maker in the
Shares, the fair market value of the Shares as determined by the Committee in
good faith.
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(m) "Incentive Stock Option" shall mean an option granted
under Section 6(a) of the Plan that meets the requirements of Code Section 422
or any successor provision thereto.
(n) "Key Employee" shall mean any employee who is a regular
employee of the Company or any of its present or future Affiliates.
(o) "Non-Qualified Stock Option" shall mean an option
granted under Section 6(a) of the Plan that is not an Incentive Stock Option.
(p) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
(q) "Participant" shall mean a Key Employee, director or
consultant who has been granted an Award under the Plan.
(r) "Performance Award" shall mean any right granted under
Section 6(f) of the Plan.
(s) "Person" shall mean any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated
organization, or government or political subdivision thereof.
(t) "Released Securities" shall mean securities that were
Restricted Securities with respect to which all applicable restrictions have
expired, lapsed, or been waived.
(u) "Restricted Securities" shall mean Restricted Stock or
any other Award under which issued and outstanding Shares are held subject to
restrictions imposed by the terms of the Award.
(v) "Restricted Stock" shall mean any Share granted under
Section 6(c) of the Plan.
(w) "Restricted Stock Unit" shall mean any right granted
under Section 6(c) of the Plan that is denominated in Shares.
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act, or any successor
rule or regulation thereto.
(y) "Shares" shall mean the common stock of the Company,
$.01 par value per share, and such other securities or property as may become
the subject of Awards pursuant to an adjustment made under Section 4(b) of the
Plan.
(z) "Stock Appreciation Right" shall mean any right granted
under Section 6(b) of the Plan.
(aa) "Stock Award" shall mean an Award of an Option,
Restricted Stock, or other right or security consisting of or convertible into
Shares.
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(bb) "Stock-Based Award" shall mean an Award of a Stock
Appreciation Right, Dividend Equivalent, Restricted Stock Unit or other right,
the value of which is determined by reference to Shares.
(cc) "Stockholder" shall mean a stockholder of the Company.
(dd) "Tandem Option" shall mean a Non-Qualified Option
issued in tandem with a Stock Appreciation Right.
SECTION 3. ADMINISTRATION
(a) Generally. The Plan shall be administered by the
Committee. Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee,
may be made at any time, and shall be final, conclusive and binding upon all
Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, any Stockholder and any employee of the Company or
of any Affiliate.
(b) Powers. Subject to the terms of the Plan and applicable
law, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to each
Participant under the Plan; (iii) determine the number of Shares to be covered
by (or with respect to which payments, rights or other matters are to be
calculated in connection with) Awards; (iv) determine the terms and conditions
of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
Awards, or other property, or canceled, forfeited, or suspended, and the
method or methods by which Awards may be settled, exercised, canceled,
forfeited, or suspended; (vi) determine whether, to what extent, and under
what circumstances cash, Shares, other Awards, other property, and other
amounts payable with respect to an Award under the Plan shall be deferred;
(vii) interpret and administer the Plan and any instruments or agreements
relating to, or Awards made under, the Plan; (viii) establish, amend, suspend,
or waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and (ix) make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan.
(c) Reliance, Indemnification. The Committee may employ
attorneys, consultants, accountants or other persons and the Committee, the
Company and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. No member of the Committee
shall be personally liable for any action, determination or interpretation
taken or made in good faith with respect to the Plan, or Awards made
thereunder, and all members of the Committee shall be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
SECTION 4. SHARES AVAILABLE FOR AWARDS
(a) Shares Available. Subject to adjustment as provided in
Section 4(b):
(i) Limitation on Number of Shares. Awards issuable
under the Plan are limited such that the maximum aggregate number of
Shares which may issued pursuant to, or by reason of, Stock Awards
and Stock-Based Awards is 500,000 per
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Participant in any fiscal year, and is an aggregate maximum for all
Participants in all years of 12.5% of the number of Shares
outstanding from time to time, calculated on a fully diluted basis
(including the maximum number of Shares that may be issued, or
subject to awards, under this Plan, the Company's Employee Stock
Purchase Plan, the Company's 1991 Stock Option Plan, as amended, and
the Company's 1996 Stock Option Plan for Non-Employee Directors
(collectively, the "Employee Stock Plans")), less that number of
Shares that are issued under the Employee Stock Plans after the
effective date of this Plan or are subject to outstanding awards
under the Employee Stock Plans, plus (A) any Shares that are
forfeited under the Employee Stock Plans and (B) any Shares
surrendered to the Company in payment of the exercise price of
options issued under any of the Employee Stock Plans; provided,
however, that no Awards may be granted that would bring the total of
all outstanding Awards under this Plan to more than 5,000,000 Shares.
The number of Shares reserved for issuance hereunder shall not be
reduced in the event of the redemption, repurchase or other
acquisition by the Company of outstanding Shares. All or any number
of such Shares may be the subject of Incentive Stock Options, in the
sole discretion of the Committee. To the extent that an Award ceases
to remain outstanding by reason of termination of rights granted
thereunder, forfeiture or otherwise, the Shares subject to such Award
shall again become available for Award under the Plan; provided,
however, that in the case of an Option or Stock Appreciation Right
which is terminated or otherwise cancelled in the same fiscal year in
which it is granted (or, for purposes of determining the aggregate
maximum number of Shares which may be subject to Awards granted to
any Participant during the term of the Plan, in the case of an Option
or Stock Appreciation Right which is terminated or otherwise
cancelled at any time), both the new Option or Stock Appreciation
Right and the terminated Option or Stock Appreciation Right shall be
counted for purposes of determining whether the Participant has
received the maximum number of Awards permitted under this Plan.
(ii) Accounting for Awards. For purposes of this
Section 4, for any Award which is denominated in, or with respect to,
Shares, the number of Shares covered by such Award, or to which such
Award relates, shall be counted on the date of grant of such Award
against the aggregate number of Shares available for granting Awards
under the Plan; provided, however, that Awards that operate in tandem
with (whether granted simultaneously with or at a different time
from), or that are substituted for, other Awards may be counted or
not counted under procedures adopted by the Committee in order to
avoid double counting. Any Shares that are delivered by the Company
pursuant to any Award, and any Awards that are granted by, or become
obligations of, the Company, through the assumption by the Company or
an Affiliate of, or in substitution for, outstanding awards
previously granted by an acquired company shall be counted against
the Shares available for granting Awards under the Plan.
(iii) Sources of Shares Deliverable Under Awards.
Any Shares delivered pursuant to an Award may consist, in whole or in
part, of authorized and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall
determine that any (i) subdivision or consolidation of Shares, (ii) dividend
or other distribution (in the form of Shares), (iii) recapitalization or other
capital adjustment of the Company or (iv) merger, consolidation or other
reorganization of the Company or other rights to purchase Shares or other
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securities of the Company, or other similar corporate transaction or event
described in Treasury Regulation Section 1.162-27(e)(2)(iii)(C), affects the
Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(A) the number and type of Shares (or other securities or property) which
thereafter may be made the subject of Awards, (B) the number and type of
Shares (or other securities or property) subject to outstanding Awards, and
(C) the grant, purchase, or exercise price with respect to any Award or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award; provided, however, in each case, that no such adjustment
shall be authorized to the extent that such adjustment would (1) with respect
to Awards of Incentive Stock Options, cause the Plan to violate Code Section
422 or (2) would constitute a termination and reissuance of an Option or Stock
Appreciation Right as described in Treasury Regulation Section
1.162-27(e)(2)(vi)(B); and provided further, however, that the number of
Shares subject to any Award denominated in Shares shall always be a whole
number.
SECTION 5. ELIGIBILITY
Awards may be granted only to Key Employees, directors or
consultants. In determining the employees, directors and consultants to whom
Awards shall be granted and the number of shares or units to be covered by
each Award, the Committee shall take into account the nature of such persons'
duties to the Company, their present and potential contributions to the
success of the Company and such other factors as it shall deem relevant in
connection with accomplishing the purposes of the Plan. A Key Employee,
director or consultant who has been granted an Award or Awards under the Plan
may be granted an additional Award or Awards, subject to such limitations as
may be imposed by the Code on the grant of Incentive Stock Options. No member
of the Committee shall be eligible to receive an Award under the Plan.
Notwithstanding anything to the contrary herein, Incentive Stock Options may
be granted only to employees of this Company, or its present or future parent
or subsidiary corporations (as defined in Code Section 424).
SECTION 6. AWARDS
(a) Options. The Committee is hereby authorized to grant
Options to Participants with the following terms and conditions and with such
additional terms and conditions, in either case not inconsistent with the
provisions of the Plan, as the Committee shall determine:
(i) Exercise Price. The purchase price per Share
purchasable under an Option shall be determined by the Committee;
provided however, that the purchase price per Share purchasable under
an Incentive Stock Option shall not be less than 100% of the Fair
Market Value of a Share on the date of grant (110% in the case of an
Incentive Stock Option granted to 10-percent shareholder within the
meaning of Code Section 422(c)(5)).
(ii) Option Term. The term of each Non-Qualified
Stock Option shall be fixed by the Committee but generally shall not
exceed 10 years from the date of grant. The term of each Incentive
Stock Option shall in no event be more than 10
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years from the date of grant (5 years in the case of a 10-percent
shareholder within the meaning of Code Section 422(c)(5)).
(iii) Time and Method of Exercise. The Committee
shall determine the time or times at which an Option may be exercised
in whole or in part, and the method or methods by which, and the form
or forms (including, without limitation, cash, Shares, outstanding
Awards or other consideration, or any combination thereof, having a
Fair Market Value on the exercise date equal to the relevant option
price) in which, payment of the option price with respect thereto may
be made or deemed to have been made.
(iv) Early Termination. Unless otherwise determined
by the Committee and set forth in, and subject to the terms of, any
applicable Award Agreement, the unexercised portion of any Option
granted under the Plan will generally be terminated (A) on the
termination date of the Option if the Participant's employment or
other retention is terminated for any reason other than (1) Cause,
(2) mental or physical disability (as defined in Code Section
22(e)(3)), or (3) death; (B) immediately upon the termination of the
Participant's employment or other retention for Cause; (C) 12 months
after the date on which the Participant's employment or other
retention is terminated by reason of mental or physical disability;
or (D)(1) 24 months after the date on which the Participant's
employment or other retention is terminated by reason of the death of
the Participant, or (2) 12 months after the date on which the
Participant shall die if such death shall occur during the 12-month
period following the termination of the Participant's employment or
other retention by reason of mental or physical disability.
Notwithstanding the foregoing, in no event may the unexercised
portion of any Incentive Stock Option granted under the Plan be
exercisable for more than (A) 3 months after the termination of any
Participant's employment or other retention other than for (1) mental
or physical disability (as defined in Code Section 22(e)(3)), or (2)
death; or (B) 12 months after the date on which the Participant's
employment or other retention is terminated by reason of mental or
physical disability (as defined in Code Section 22(e)(3)). In no
event may an Option be exercised after the termination date.
(v) Change of Control. Upon the occurrence of a
Change of Control of the Company, the Participant shall have the
right, exercisable during the 30 day period preceding the occurrence
of such Change of Control, and, in addition, with respect to a Change
of Control described in clauses (i) and (ii) of the definition
thereof, within 30 days after the occurrence of such Change of
Control, to exercise in whole or in part his or her Options without
regard to the vesting provisions thereof. The Company will mail or
cause to be mailed to each Participant a notice specifying the date
that is to be fixed as of which all holders of record shall be
entitled to exchange their Shares for securities, cash or other
property issuable or deliverable pursuant to a Change of Control
described in clauses (iii) or (iv) of the definition thereof. In the
event any Option is not exercised in its entirety on or prior to the
date specified therein, any and all remaining rights under such
Options shall terminate as of said date.
(vi) Incentive Stock Options. All terms of any
Incentive Stock Option granted under the Plan shall comply in all
respects with the provisions of Code Section 422, or any successor
provision thereto, and any regulations promulgated thereunder. The
Fair Market Value of Shares subject to Incentive Stock Options
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(determined as of the date such Incentive Stock Options are granted)
exercisable for the first time by any individual during any calendar
year shall in no event exceed $100,000.
(b) Stock Appreciation Rights. The Committee is authorized
to grant Stock Appreciation Rights to Participants. Subject to the terms of
the Plan and any applicable Award Agreement, a Stock Appreciation Right
granted under the Plan shall confer upon the holder thereof a right to
receive, upon exercise thereof, an amount in cash equal of the excess of (i)
the Fair Market Value of one Share on the date of exercise over (ii) the Fair
Market Value of one Share on the date of grant of the Stock Appreciation
Right. Subject to the terms of the Plan and any applicable Award Agreement,
the grant price, term, methods of exercise, methods of settlement, and any
other terms and conditions of any Stock Appreciation Right shall be as
determined by the Committee. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it may deem
appropriate, including, but not limited to, the following: (A) no aggregate
payment by the Company during any fiscal year upon the exercise of Stock
Appreciation Rights may exceed $100,000 without Committee approval ratified by
the Board, and (B) a Participant may not exercise a Stock Appreciation Right
if the aggregate amount to be received as a result of his or her exercise of
Stock Appreciation Rights in the preceding 12 month period exceeds such
Participant's current base salary.
(c) Restricted Stock and Restricted Stock Units. The
Committee is hereby authorized to grant Awards of Restricted Stock and
Restricted Stock Units to Participants upon such conditions and subject to
such restrictions as the Committee may impose (including, without limitation,
any limitation on the right to vote a Share of Restricted Stock or the right
to receive any dividend or other right or property), which restrictions may
lapse separately or in combination at such time or times, in such installments
or otherwise, as the Committee may deem appropriate but not inconsistent with
the provisions of the Plan:
(i) Registration. Any Restricted Stock granted
under the Plan may be evidenced in such manner as the Committee may
deem appropriate, including, without limitation, book-entry
registration or issuance of a stock certificate or certificates. In
the event any stock certificate is issued in respect of shares of
Restricted Stock granted under the Plan, such certificate shall be
registered in the name of the Participant and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock.
(ii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of employment or other retention (as
determined under criteria established by the Committee) for any
reason during the applicable restriction period, all shares of
Restricted Stock and all Restricted Stock Units still, in either
case, subject to restriction shall be forfeited to and reacquired by
the Company; provided, however, that the Committee may, when it finds
that a waiver would be in the best interests of the Company, waive in
whole, or in part, any or all remaining restrictions with respect to
shares of Restricted Stock or Restricted Stock Units.
(iii) Lapse of Restrictions. Unrestricted Shares,
evidenced in such manner as the Committee shall deem appropriate,
shall be delivered to the holder of Restricted Stock promptly after
such Restricted Stock shall become Released Securities.
A-8
<PAGE>
(d) Dividend Equivalents. The Committee is hereby authorized
to grant Awards to Participants under which the holders thereof shall be
entitled to receive payments equivalent to dividends with respect to a number
of Shares and payable on such date or dates as determined by the Committee,
and the Committee may provide that such amounts (if any) shall be deemed to
have been reinvested in additional Shares or otherwise reinvested. Subject to
the terms of the Plan and any applicable Award Agreement, such Awards may have
such terms and conditions as the Committee shall determine.
(e) Other Awards. The Committee is hereby authorized, to the
extent permitted under Rule 16b-3 and applicable law, to grant to Participants
such other Awards that are denominated or payable in, valued in whole or in
part by reference to, or otherwise based on or related to, Shares (including,
without limitation, securities convertible into Shares), as are deemed by the
Committee to be consistent with the purposes of the Plan. Subject to the terms
of the Plan and any applicable Award Agreement, the Committee shall determine
the terms and conditions of such Awards. Shares or other securities delivered
to a Participant pursuant to a purchase right granted under this Section 6(e)
shall be purchased for such consideration, which may be paid by such method or
methods and in such form or forms, including, without limitation, cash,
Shares, outstanding Awards, or other consideration, or any combination
thereof, as the Committee shall determine.
(f) Performance Awards. The Committee is hereby authorized
to grant Performance Awards to Participants. Subject to the terms of the Plan
and any applicable Award Agreement, a Performance Award granted under the Plan
(i) may be denominated as a Stock Award or a Stock-Based Award and payable in
cash, Shares, other securities or other property and (ii) shall confer on the
holder thereof rights valued as determined by the Committee and payable to, or
exercisable by, the holder of the Performance Award, in whole or in part, upon
the achievement of such performance goals and during such performance periods
as the Committee shall establish. Subject to the terms of the Plan and any
applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, and the amount of
any payment or transfer to be made pursuant to any Performance Award shall be
determined by the Committee. Prior to granting any Performance Award, the
Committee shall, if it intends for such Awards to be exempt from the
limitations of Code Section 162(m), take such action as is necessary to
qualify such Awards as performance-based compensation, within the meaning of
Code Section 162(m). For example, the material terms of the performance goals
must be disclosed to and approved by the public stockholders of the Company
prior to any payments with respect to such an Award.
(g) General.
(i) No Cash Consideration for Awards. Awards shall
be granted for no cash consideration or such minimal cash
consideration as may be required by applicable law.
(ii) Awards May Be Granted Separately or Together.
Awards may, in the discretion of the Committee, be granted either
alone or in addition to, in tandem with, or in substitution for, any
other Award or any award granted under any other plan of the Company
or any Affiliate. Awards granted in addition to or in tandem with
other Awards, or in addition to or in tandem with awards granted
under any other plan of the Company or any Affiliate, may be granted
either at the same time as or at a different
A-9
<PAGE>
time from the grant of such other Awards or awards; provided, that
any Tandem Option shall be subject to the following provisions: upon
exercise of an Option issued as part of a Tandem Option, the
Participant shall be entitled to a credit toward the option exercise
price equal to the value of the Stock Appreciation Rights issued in
tandem with the Option exercised, but not in an amount that would
exceed the amount of the federal income tax deduction allowed to the
Company in respect of such Stock Appreciation Rights. Upon such
exercise of a Tandem Option, the related Stock Appreciation Right
shall terminate and the value of such Stock Appreciation Right shall
be limited to such credit. Upon the exercise of a Stock Appreciation
Right issued as part of a Tandem Option, the Option to which such
Stock Appreciation Right relates shall cease to be exercisable to the
extent of the number of Shares with respect to which the Stock
Appreciation Right was exercised.
(iii) Forms of Payment Under Awards. Subject to the
terms of the Plan and of any applicable Award Agreement, payment or
transfers to be made by the Company or an Affiliate upon the grant or
exercise of an Award may be made in such form or forms as the
Committee shall determine, including, without limitation, cash,
Shares, other securities, other Awards, or other property, or any
combination thereof, and may be made in a single payment or transfer,
in installments, or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. Such rules
and procedures may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or
deferred payments or the grant or crediting of Dividend Equivalents
in respect of installment or deferred payments denominated in Shares
or other securities.
(iv) Limits on Transfer of Awards. No Award (other
than Released Securities), and no right under any such Award, shall
be assignable, alienable, saleable, or transferable by a Participant
otherwise than (A) by will or by the laws of descent and
distribution, (B) in the case of an Award of Restricted Securities,
to the Company, or (C) in the case of an Award other than an
Incentive Stock Option, (1) to the spouse or any lineal ancestor or
descendant of the Participant, (2) to a trust, the sole beneficiaries
of which are any are or all of such Participant or the spouse or any
lineal ancestor or descendant of such Participant, or (3) with the
consent of, or in accordance with rules and procedures established
by, the Committee. Each Award, and each right under any Award, shall
be exercisable, during the Participant's lifetime, only by the
Participant or, if permissible under the Code and applicable law with
respect to any Award, by the Participant's guardian or legal
representative and, if an Award or any right under such Award has
been transferred in accordance with the provisions hereof, by the
transferee of such Award, or the right therein, or such other person
as may be entitled to exercise such Award or right on behalf of such
transferee. No Award (other than Released Securities), and no right
under any such Award, may be pledged, alienated, attached, or
otherwise encumbered, and any purported pledge, alienation,
attachment, or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
(v) Term of Awards. Except as set forth in Section
6(a)(ii), the term of each Award shall be for such period as may be
determined by the Committee.
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<PAGE>
(vi) Share Certificates. All certificates for
Shares or other securities of the Company or any Affiliate delivered
under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules,
regulations, and other restrictions of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other
securities are then listed, and any applicable federal or state
securities laws, and the Committee may cause a legend or legends to
be put on any such certificates to make appropriate reference to such
restrictions.
SECTION 7. AMENDMENT AND TERMINATION
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend, alter,
suspend, discontinue or terminate the Plan, except that any amendment,
alteration, suspension, discontinuation or termination that would impair the
rights of any Participant, or any other holder or beneficiary of any Award
theretofore granted to the extent such rights are not then accrued and vested,
shall require the consent of such Participant, other holder or beneficiary of
an Award. Notwithstanding the foregoing, the Board may condition any amendment
on the approval of the Stockholders if such approval is necessary or advisable
with respect to tax (including Code Sections 162(m) and 422), securities or
other applicable laws and rules and regulations to which the Company, this
Plan, Participants or other applicable Persons are subject.
(b) Correction of Defects, Omissions, and Inconsistencies.
The Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
SECTION 8. GENERAL PROVISIONS
(a) No Rights to Awards. No Participant shall have any claim
to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Participants, or holders or beneficiaries of Awards
under the Plan. The terms and conditions of Awards need not be the same with
respect to each Participant.
(b) Withholding. The Company or any Affiliate shall be
authorized to withhold from any Award granted or any payment due or transfer
made under any Award or under the Plan the amount (in cash, Shares, other
securities, or other property) of withholding taxes due in respect of an
Award, its exercise, or any payment or transfer under such Awards or under the
Plan and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes. In case of
Awards paid in Shares, the Participant or other person receiving such Shares
may be required to pay the Company or its Affiliate, as appropriate, the
amount of any such withholding taxes which is required to be withheld with
respect to such Shares.
(c) No Limit on Other Plans. Nothing contained in the Plan
shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements and such arrangements may
be either generally applicable or applicable only in specific cases.
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<PAGE>
(d) No Right to Employment. The grant of an Award shall not
be construed as giving a Participant the right to be retained in the employ or
other service of the Company or any Affiliate. Further, the Company or an
Affiliate may at any time dismiss a Participant from employment or other
service, free from any liability, or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan shall be
determined in accordance with the laws of the State of Delaware and applicable
federal law.
(f) Severability. If any provision of the Plan or any Award
is or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or would disqualify the Plan or any Award under any law, rule or
regulation deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, such provision shall be deemed
null and void and shall be stricken, and the remainder of the Plan and any
such Award shall remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or
a fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Award, such right shall be no greater than the right of any unsecured general
creditor of the Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be
issued or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional Shares
or any rights thereto shall be canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision hereof.
SECTION 9. TERM OF THE PLAN
The Plan shall continue until the earliest of (a) the date
on which all Stock Awards and Stock-Based Awards issuable hereunder have been
issued, (b) the termination of the Plan by the Board or (c) November 3, 2007,
ten years from the date of adoption of the Plan by the Board. However, unless
otherwise expressly provided in the Plan or in an applicable Award Agreement,
any Award theretofore granted may extend beyond such date and the authority of
the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under any such Award, and the
authority of the Board to amend the Plan, shall extend beyond such date.
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<PAGE>
SECTION 12. EFFECTIVENESS OF THE PLAN
The Plan shall become effective when approved by the Board
provided, however, that this Plan, and all Awards granted hereunder, shall be
null and void and of no force and effect if, and no Options granted under this
Plan may be exercised until, the Plan is not approved by the affirmative votes
of the holders of Shares having a majority of the voting power of the Shares
represented at a meeting duly held in accordance with the Delaware General
Corporation Law within twelve (12) months after being approved by the Board.
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<PAGE>
EXHIBIT B
HEALTHCARE IMAGING SERVICES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE OF THE PLAN. This Employee Stock Purchase Plan of
Healthcare Imaging Services, Inc. adopted on this 3rd day of November, 1997,
is intended to encourage eligible employees of the Company and its current
and/or future Subsidiaries, who are designated by the Committee, as defined
herein, to acquire or increase their ownership of common stock of the Company
on reasonable terms. The opportunity so provided is intended to foster in
participants a strong incentive to put forth maximum effort for the continued
success and growth of the Company and its Subsidiaries, to aid in retaining
individuals who put forth such efforts, and to assist in attracting the best
available individuals to the Company and its Subsidiaries in the future. It is
the Company's intention that this Employee Stock Purchase Plan qualify as an
"employee stock purchase plan" under Section 423 of the Code. Accordingly, the
provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. DEFINITIONS. When used herein, the following terms shall have the
meanings set forth below:
2.1 "Account" means the account maintained for an Employee
who elects to participate in any offering of Shares made under the
Plan for the purpose of recording the amounts withheld from his
Annual Compensation pursuant to Section 9 of the Plan.
2.2 "Annual Compensation" means an amount equal to the sum
of (i) the annual base rate of pay of an Employee as determined from
the payroll records of the Company on the first day of the
Subscription Period of an offering of Shares made pursuant to the
Plan, and (ii) the amount paid to the Employee by the Company or any
of its Subsidiaries under any incentive compensation plan or bonus
plan during the twelve (12) month period immediately preceding the
first day of the Subscription Period of an offering of Shares made
pursuant to the Plan.
2.3 "Board" means the Board of Directors of Healthcare
Imaging Services, Inc.
2.4 "Code" means the Internal Revenue Code of 1986, as in
effect at the time of reference, or any successor revenue code which
may hereafter be adopted in lieu thereof, and reference to any
specific provisions of the Code shall refer to the corresponding
provisions of the Code as it may hereafter be amended or replaced.
2.5 "Committee" means the Compensation Committee of the
Board or any other committee appointed by the Board which is invested
by the Board with the responsibility for the administration of the
Plan and whose members meet the requirements for eligibility to serve
as set forth in Rule 16b-3 and in the Plan.
2.6 "Company" means Healthcare Imaging Services, Inc.
2.7 "Employees" means persons employed by the Company or any
of its current or future Subsidiaries designated by the Committee on
the first day of the Subscription Period of any offering of Shares
made pursuant to the Plan; provided,
<PAGE>
however, that no person shall be considered an Employee unless he (i)
is normally employed by the Company or any of its Subsidiaries for
more than twenty (20) hours per week and more than five (5) months in
a calendar year and (ii) has been employed by the Company or any of
its Subsidiaries for at least six (6) months as of the first day of
the Subscription Period of any such offering.
2.8 "Fair Market Value means, with respect to the Shares,
(i) if the Shares are listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or The
Nasdaq SmallCap Market, the last reported sales price as reported on
such exchange; (ii) if the Shares are not listed or admitted for
trading on any national securities exchange or included in The Nasdaq
National Market or The Nasdaq SmallCap Market, the average of the
last reported closing bid and asked quotation for the Shares as
reported on the Automated Quotation System of NASDAQ or a similar
service if NASDAQ is not reporting such information; (iii) if the
Shares are not listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or The
Nasdaq SmallCap Market or quoted by NASDAQ or a similar service, the
average of the last reported bid and asked quotation for the Shares
as quoted by a market maker in the Shares (or if there is more than
one market maker, the bid and asked quotation shall be obtained from
two market makers and the average of the lowest bid and highest asked
quotation shall be the "Fair Market Value"); or (iv) if the Shares
are not listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or The Nasdaq
SmallCap Market or quoted by NASDAQ and there is no market maker in
the Shares, the fair market value of the Shares as determined by the
Committee in good faith.
2.9 "Option" means the right granted to an Employee to
purchase Shares pursuant to an offering made under the Plan and
pursuant to such Employee's election to purchase Shares in such
offering, at a price, and subject to such limitations and
restrictions, as the Plan and the Committee may impose.
2.10 "Parent" means any corporation, other than the employer
corporation, in an unbroken chain of corporations ending with the
employer corporation if each of the corporations other than the
employer corporation owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
2.11 "Plan" means the Company's Employee Stock Purchase
Plan.
2.12 "Purchase Period" means the number of calendar months
during which installment payments for Shares purchased pursuant to
options granted under the Plan shall be made.
2.13 "Rule 16b-3" means Rule 16b-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as in effect at
the time of reference, or any successor rules or regulations which
may hereafter be adopted in lieu thereof, and any reference to any
specific provisions of Rule 16b-3 shall refer to the corresponding
provisions of Rule 16b-3 as it may hereafter be amended or replaced.
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<PAGE>
2.14 "Shares" means shares of the Company's common stock,
$0.01 par value per share, or, if by reason of the adjustment
provisions contained herein, any rights under the Plan pertain to any
other security, such other security.
2.15 "Subscription Period" means that period of time
prescribed in any offering of Shares made pursuant to the Plan
beginning on the first day Employees may elect to participate in such
offering and ending on the last day such elections to participate are
authorized to be received and accepted.
2.16 "Subsidiary" or "Subsidiaries" means any corporation or
corporations other than the employer corporation in an unbroken chain
of corporations beginning with the employer corporation if each of
the corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
2.17 "Successor" means the legal representative of the
estate of a deceased Employee or the person or persons who shall
acquire the right to exercise or receive an Option by bequest or
inheritance or by reason of the death of the Employee.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for issuance,
upon the exercise of Options to be granted from time to time pursuant to
offerings made under the Plan, an aggregate number of Shares equal to 12.5% of
the number of Shares outstanding from time to time, calculated on a fully
diluted basis (including the maximum number of Shares that may be issued, or
subject to awards, under this Plan, the Company's 1997 Omnibus Incentive Plan,
the Company's 1991 Stock Option Plan, as amended, and the Company's 1996 Stock
Option Plan for Non-Employee Directors (collectively, the "Employee Stock
Plans")), less that number of Shares which are issued under the Employee Stock
Plans after the effective date of the Plan or are subject to outstanding
awards under the Employee Stock Plans, plus (i) any Shares that are forfeited
under the Employee Stock Plans, and (ii) any Shares surrendered to the Company
in payment of the exercise price of options issued under any of the Employee
Stock Plans; provided, however, that no Option may be issued that would bring
the total of all outstanding awards under this Plan to more than 5,000,000
Shares. The number of Shares reserved for issuance hereunder shall not be
reduced in the event of the redemption, repurchase or other acquisition by the
Company of outstanding Shares. The Shares subject to Options may be, in whole
or in part, as the Committee shall from time to time determine, authorized but
unissued Shares, or issued Shares which shall have been reacquired by the
Company. The number of Shares reserved under the Plan may be issued pursuant
to the exercise of Options granted pursuant to one or more offerings made
under the Plan. Any Shares subject to issuance upon exercise of Options but
which are not issued because of a surrender, lapse, expiration or termination
of any such Option prior to issuance of the Shares shall once again be
available for issuance in satisfaction of Options.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of not less than two (2) "Non-Employee Directors" as
defined in Rule 16b-3. Subject to the provisions of the Plan, the Committee
shall have full authority, in its discretion, to determine when offerings
shall be made under the Plan, the number of Shares to be made available in any
such offering, the length of the Subscription Period and Purchase Period of
any such offering (provided, however, that in no event shall the Subscription
Period and the Purchase Period of any offering together exceed twenty-seven
(27) months) and such
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<PAGE>
other terms and conditions not inconsistent with the Plan as may be necessary
or appropriate; to interpret the Plan; and to prescribe, amend and rescind
rules and regulations relating to the Plan; and generally to interpret and
determine any and all matters whatsoever relating to the administration of the
Plan. The Board may from time to time appoint members to the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall constitute
a quorum. Any action of the Committee may be taken by a written instrument
signed by all of the members, and any action so taken shall be fully as
effective as if it had been taken by a vote of a majority of the members at a
meeting duly called and held. The Committee shall make such rules and
regulations for the conduct of its business as it shall deem advisable and
shall appoint a Secretary who shall keep minutes of its meetings and records
of any action taken in writing. No member of the Committee shall be liable, in
the absence of bad faith, for any act or omission with respect to his service
on the Committee.
5. ELIGIBILITY TO PARTICIPATE IN OFFERINGS. All Employees shall
be eligible to participate in, and shall receive timely notice of, any
offering of Shares made under the Plan; provided, however, that the Committee
may exclude all, but not less than all, of the Employees of any specified
Subsidiary from any offering made under the Plan; and provided further,
however, that the Committee may determine that any offering of Shares made
under the Plan will not be extended to highly compensated Employees (within
the meaning of Section 414(q) of the Code). Notice of any offering of Shares
pursuant to the Plan shall specify the Subscription Period and the Purchase
Period of such offering and shall be accompanied by a written form on which an
Employee may elect to participate in such offering. In order to participate in
any offering of Shares made pursuant to the Plan, an Employee must sign an
election to participate in such offering on the form provided by the Company
for such purpose stating the Employee's desire to purchase Shares under the
Plan and showing the amount which the Employee elects to have withheld from
his pay for each payroll period during the Purchase Period. The election to
participate in any such offering must be delivered on or before the last day
of the Subscription Period to the Chief Financial Officer of the Company.
6. GRANT OF OPTIONS. Subject to the limitations set forth in Section
7 of the Plan, each Employee who elects during the Subscription Period of any
offering made under the Plan to purchase Shares in such offering shall
automatically be granted an Option to purchase a fixed maximum number of
Shares determined by the following procedure:
Step 1 -- Determine the aggregate amount which will be
withheld (based on the Employee's election form) from the Employees
pay during the Purchase Period;
Step 2 -- Divide the amount determined in Step 1 by the
exercise price of the Option and round down the quotient to the
nearest whole number. This figure shall be the fixed maximum number
of Shares for which the Employee may be granted an Option to
purchase.
The date on which the Option is granted to each participating
Employee shall be the first day of the Purchase Period of such offering.
Notice that an Option has been granted shall be given to each participating
Employee and shall show the maximum number of Shares subject to the Option and
the amount to be withheld from his pay for each payroll period during the
Purchase Period of such offering.
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<PAGE>
In the event the total maximum number of Shares resulting from all
elections to purchase under any offering of Shares made under the Plan exceeds
the number of Shares offered, the Company reserves the right to reduce the
maximum number of Shares which Employees may purchase pursuant to their
elections to purchase, to allot the Shares available in such manner as it
shall determine, but generally pro rata to subscriptions received, and to
grant Options to purchase only for such reduced number of Shares.
In the event an Employee's election to purchase Shares pursuant to an
offering made under the Plan is canceled, in whole or in part, pursuant to the
provisions of the Plan, a proportionate portion of the Option granted to such
Employee shall automatically terminate.
7. LIMITATIONS OF NUMBER OF SHARES WHICH MAY BE
PURCHASED. The following limitations shall apply with respect to the number of
Shares which may be purchased by each Employee who elects to participate in an
offering made under the Plan:
(a) No Employee may purchase, or elect to purchase, Shares
during any one offering pursuant to the Plan for an aggregate
purchase price in excess of the lesser of (i) the percentage of the
Annual Compensation applicable to such offering as determined by the
Committee, or (ii) twenty percent (20%) of his Annual Compensation
(in each event, which amount shall be prorated in the event the
Purchase Period is less, or more, than twelve (12) months).
(b) No Employee shall be granted an Option to purchase
Shares under the Plan if such Employee, immediately after such Option
is granted, owns stock, within the meaning of Section 424(d) of the
Code, and including stock subject to purchase under any outstanding
options, possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or, if
applicable, any Subsidiary or, if applicable, a Parent.
(c) No Employee shall be granted an Option to purchase
Shares which permits his right to purchase stock under the Plan and
all other employee stock purchase plans of the Company and, if
applicable, a Subsidiary, and, if applicable, a Parent, to accrue (as
determined under Section 423(b)(8) of the Code) at a rate which
exceeds twenty-five thousand dollars ($25,000) of the Fair Market
Value of such stock (determined on the date the option to purchase is
granted) for each calendar year in which such Option is outstanding
at any time.
An Employee may elect to purchase less than the number of Shares
which he is entitled to elect to purchase.
8. EXERCISE PRICE. The per Share exercise price for Shares subject to
purchase under Options granted pursuant to an offering made under the Plan
shall be eighty-five percent (85%) of the Fair Market Value of the Shares on
the first day of the Purchase Period of such offering, unless the Committee,
in its discretion, determines that the per Share exercise price applicable to
such offering will be greater than eighty-five percent (85%), but not more
than one hundred percent (100%), of the Fair Market Value of the Shares on the
first day of the Purchase Period of such offering.
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<PAGE>
9. METHOD OF PAYMENT. Payment of the exercise price of any Option
granted pursuant to the Plan shall be made in installments through payroll
deductions, with no right of prepayment. Each Employee electing to participate
in an offering of Shares made under the Plan shall authorize the Company to
withhold a designated amount from his regular weekly, biweekly, semimonthly or
monthly pay for each payroll period during the Purchase Period. All such
payroll deductions made for an Employee shall be credited to his Account. No
interest shall accrue on the amounts credited to an Employee's Account
pursuant to this Section 9.
10. EXERCISE OF OPTIONS. As of the close of business on the last
business day of the Purchase Period of any offering of Shares made under the
Plan, each outstanding Option shall automatically be exercised. Upon the
exercise of an Option, the aggregate amount of the payroll deductions credited
to the Account of each Employee as of that date will automatically be applied
to the exercise price for the purchase of that number of Shares, rounded to
the nearest whole share, equal to the Account balance divided by the exercise
price, not to exceed the maximum number of Shares issuable under the Option. A
certificate representing the Shares so purchased shall be delivered to the
Employee or the Employee's Successor as soon as reasonably practicable after
the exercise of the Option. The remainder of the Account balance not applied
to purchase Shares shall be paid in cash to the Employee or the Employee's
Successor as soon as reasonably practicable after the exercise of the Option.
11. RIGHTS AS STOCKHOLDER. An Employee will become a stockholder of
the Company with respect to Shares for which payment has been completed at the
close of business on the last business day of the Purchase Period. An Employee
will have no rights as a stockholder with respect to Shares under an election
to purchase Shares until he has become a stockholder as provided above.
12. CANCELLATION OF ELECTION TO PURCHASE. An Employee who has elected
to purchase Shares during the Subscription Period of any offering made under
the Plan may cancel his election in its entirety or may partially cancel his
election by reducing the amount which he has authorized the Company to
withhold from his pay for each payroll period during the Purchase Period. Any
such full or partial cancellation shall be effective upon the delivery by the
Employee of written notice of cancellation to the Chief Financial Officer of
the Company. Such notice of cancellation must be so delivered before the close
of business on the last business day of the Purchase Period. If an Employee
partially cancels his original election by reducing the amount authorized to
be withheld from his pay, he shall continue to make installment payments at
the reduced rate for the remainder of the Purchase Period. Only one partial
cancellation may be made during a Purchase Period.
An Employee's rights upon the full or partial cancellation of his election to
purchase Shares shall be limited to the following:
(i) He may receive in cash, as soon as practicable after
delivery of the notice of cancellation, the amount then credited to
his Account, except that, in the case of a partial cancellation, he
must retain in his Account an amount equal to the amount of his new
payroll deduction times the number of payroll periods in the Purchase
Period through the date of cancellation, or
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(ii) He may have the amount credited to his Account at the
time the cancellation becomes effective applied to the purchase of
the number of Shares such amount will then purchase.
If option (ii) is elected, installment payments must be continued for the
month in which the notice of cancellation is given. The cancellation and
purchase of Shares will become effective at the close of business on the last
business day of the Purchase Period.
13. LEAVE OF ABSENCE OR LAYOFF. An Employee purchasing Shares under
the Plan who is granted a leave of absence (including a military leave) or is
laid off during the Purchase Period may at that time (on a form provided by
the Company) elect one of the following:
(i) He may suspend payments during the leave of absence, or,
in the case of a layoff, he may suspend payments for not more than
ninety (90) days, but not in either case beyond the last month of the
Purchase Period, or
(ii) He may make his installment payments in cash but not,
in case of a leave of absence, for longer than his leave nor more
than ninety (90) days in case of a layoff, and in any event no later
than the end of the Purchase Period.
If option (i) is elected, the Employee at the end of the suspension period
must make up the deficiency in his Account either by immediate lump sum
payment or with increased installment payments so that payment for the maximum
number of Shares covered by his Option will be completed in the last month of
the Purchase Period. If the Employee elects to make increased installment
payments, he may, nevertheless, at any time before the end of the Purchase
Period make up his remaining deficiency by a lump sum payment.
If an Employee who has elected either of option (i) or (ii) does not return to
active service upon the expiration of his leave of absence or within ninety
(90) days from the date of his layoff, his election to purchase shall be
deemed to have been canceled at that time, and the Employee's only right will
be to receive in cash the amount credited to his Account.
14. EFFECT OF FAILURE TO MAKE PAYMENTS WHEN DUE. If in any
payroll period for any reason not set forth in Section 13, an Employee who has
filed an election to purchase Shares under the Plan has no pay, or his pay is
insufficient (after other authorized deductions) in any payroll period to
permit deduction of his installment payment, such payment may be made in cash
at the time. If not so made, the Company shall have the right, as set forth
below, to treat such failure as a cancellation of the Employee's election to
purchase Shares. If the Company does not treat such failure as a cancellation
of the Employee's election to purchase Shares, the Employee, when his pay is
again sufficient to permit the resumption of installment payments, must pay in
cash the amount of the deficiency in his Account or arrange for uniformly
increased installment payments so that payment for the maximum number of
Shares covered by his Option will be completed in the last month of the
Purchase Period. If the Employee elects to make increased installment
payments, he may, nevertheless, at any time prior to the end of the Purchase
Period make up the remaining deficiency by a lump sum payment.
Subject to the above and other provisions of the Plan permitting postponement,
the Company may treat the failure by an Employee to make any payment as a
cancellation of his election to
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purchase Shares. Such cancellation will be affected by mailing notice to him
at his last known business or home address. Upon such mailing, the Employee's
only right will be to receive in cash the amount credited to his Account.
15. RETIREMENT. If an Employee who retires in a manner entitling him
to early, normal or late retirement benefits under the provisions of any
retirement plan of the Company or a Subsidiary in which the Employee
participates (or if no such plan then exists, at or after age sixty-five (65))
has an election to purchase Shares in effect at the time of his retirement, he
may, within three (3) months after the date of his retirement (but in no event
later than the end of the Purchase Period), by delivering written notice to
the Chief Financial Officer of the Company, elect to:
(i) Complete the remaining installment payments in cash,
(ii) Make a lump sum payment in the amount of any deficiency
for the remaining portion of the Purchase Period, or
(iii) Cancel his election to purchase Shares in accordance
with the provisions of Section 12.
If no such notice is given within such period, the election will be deemed
canceled as of the date of retirement and the only right of the Employee will
be to receive in cash the amount credited to his Account.
16. DEATH. If an Employee, including a retired Employee, dies and has
an election to purchase Shares in effect at the time of his death, the
Employee's Successor may, within three (3) months from the date of death (but
in no event later than the end of the Purchase Period), by delivering written
notice to the Chief Financial Officer of the Company, elect to:
(i) Complete the remaining installment payments in cash,
(ii) Make a lump sum payment in the amount of any deficiency
for the remaining portion of the Purchase Period, or
(iii) Cancel the election to purchase Shares in accordance
with the provisions of Section 12.
If no such notice is given within such period, the election will be deemed
canceled as of the date of death, and the only right of such Successor will be
to receive in cash the amount credited to the Employee's Account.
17. TERMINATION OF EMPLOYMENT OTHER THAN FOR RETIREMENT OR DEATH. If
an Employee's employment is terminated for any reason other than retirement or
death prior to the end of the Purchase Period, his election to purchase shall
thereupon be deemed canceled as of the date on which his employment
terminated. In such an event, no further payments under such election will be
permitted, and the Employee's only right will be to receive in cash the amount
credited to his Account.
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<PAGE>
18. NONTRANSFERABILITY OF OPTIONS. An Option, or an Employee's right
to any amounts held for his Account under the Plan, shall not be transferable,
other than (i) by will or the laws of descent and distribution, and an Option
may be exercised, during the lifetime of the holder of the Option, only by the
holder or, in the event of death, the holder's Successor or (ii) if permitted
pursuant to the Code and the Regulations thereunder without affecting the
Option's or the Plan's qualification under Section 423 of the Code, pursuant
to a qualified domestic relations order.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of
changes in all of the outstanding Shares by reason of stock dividends, stock
splits, recapitalizations, mergers, consolidations, combinations, or exchanges
of shares, separations, reorganizations or liquidations, or similar events, or
in the event of extraordinary cash or non-cash dividends being declared with
respect to the Shares, or similar transactions or events, the number and class
of Shares available under the Plan in the aggregate, the number and class of
Shares subject to Options theretofore granted, applicable purchase prices and
all other applicable provisions, shall, subject to the provisions of the Plan,
be equitably adjusted by the Committee to prevent expansion or dilution of
such Options. The foregoing adjustment and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional Share which might otherwise become subject to an Option.
20. UNUSUAL CORPORATE EVENT. Notwithstanding anything to the
contrary, in the case of an unusual corporate event such as a liquidation,
merger, reorganization (other than a reorganization defined in Code Section
368(a)(1)(F)), or other business combination, acquisition or change in control
of the Company through a tender offer or otherwise, the Committee may, in its
sole discretion, elect to terminate the Purchase Period of any offering then
in effect as of the last day of the month during which the unusual corporate
event occurs. In the event of any such termination, an Option holder shall
have the right, commencing at least five (5) days prior to such unusual
corporate event, to either make a lump sum payment in the amount equal to the
remaining installment payments to be made pursuant to his election to purchase
Shares, or to cancel his election to purchase Shares in the manner set forth
in Section 12.
21. TAXES. The Employee, or his Successor, shall promptly notify the
Company of any disposition of Shares acquired pursuant to the exercise of an
Option under the Plan and the Company shall have the right to deduct any taxes
required by Law to be withheld as a result of such disposition from any
amounts otherwise payable then or at any time thereafter to the Employee. The
Company shall also have the right to require an Employee, or a Successor,
entitled to receive Shares pursuant to the exercise of an Option to pay the
Company the amount of any taxes which the Company is or will be required to
withhold with respect to the Shares before the certificate for such Shares is
delivered pursuant to the Plan.
22. TERMINATION OF THE PLAN. The Plan shall terminate ten (10) years
from the date hereof, and an Option shall not be granted under the Plan after
that date although the terms of any Options may be amended at any date prior
to the end of its term in accordance with the Plan (including Section 23 of
the Plan). Any Options outstanding at the time of termination of the Plan
shall continue in full force and effect according to the terms and conditions
of the Option and this Plan.
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<PAGE>
23. AMENDMENT OF THE PLAN. The Plan may be amended at any time and
from time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under
Section 423 of the Code or Rule 16b-3 would be required. Notwithstanding the
discretionary authority granted to the Committee in Section 4 of the Plan, no
amendment of the Plan or any Option granted under the Plan shall impair any of
the rights of any holder, without the holder's consent, under any Option
theretofore granted under the Plan.
24. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for
Shares pursuant to the exercise of an Option may be postponed by the Company
for such period as may be required for it to comply with any applicable
requirements of any federal, state or local law or regulation or any
administrative or quasi-administrative requirement applicable to the sale,
issuance, distribution or delivery of such Shares. The Committee may, in its
sole discretion, require an Employee to furnish the Company with appropriate
representations and a written investment letter prior to the exercise of an
Option or the delivery of any Shares pursuant to the exercise of an Option.
25. FEES AND COSTS. The Company shall pay all original issue taxes on
the exercise of any Option granted under the Plan and all other fees and
expenses necessarily incurred by the Company in connection therewith.
26. NO CONTRACT OF EMPLOYMENT. Neither the adoption of this Plan nor
the grant of any Option shall be deemed to obligate the Company or any
Subsidiary to continue the employment of any Employee.
27. EFFECTIVENESS OF THE PLAN. The Plan shall become effective as of
the date of its adoption by the Board. The Plan shall thereafter be submitted
to the Company's stockholders for approval and, unless the Plan is approved by
the affirmative votes of the holders of Shares having a majority of the voting
power of the Shares represented at a meeting duly held in accordance with
Delaware General Corporation Law within twelve (12) months after being
approved by the Board, the Plan and all Options granted under it shall be null
and void, and of no force and effect.
28. OTHER PROVISIONS. As used in the Plan, and in other documents
prepared in implementation of the Plan, references to the masculine pronoun
shall be deemed to refer to the feminine or neuter, and references in the
singular or the plural shall refer to the plural or the singular, as the
identity of the person or persons or entity or entities being referred to may
require. The captions used in the Plan and in such other documents prepared in
implementation of the Plan are for convenience only and shall not affect the
meaning of any provision hereof or thereof.
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<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HEALTHCARE IMAGING SERVICES, INC.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS AND PROXY STATEMENT, EACH DATED NOVEMBER 17, 1997, AND
DOES HEREBY APPOINT ELLIOTT H. VERNON AND SCOTT P. MCGRORY, OR EITHER OF THEM,
WITH FULL POWER OF SUBSTITUTION, AS PROXY OR PROXIES OF THE UNDERSIGNED TO
REPRESENT THE UNDERSIGNED AND TO VOTE ALL SHARES OF COMMON STOCK OF HEALTHCARE
IMAGING SERVICES, INC. (THE "COMPANY") WHICH THE UNDERSIGNED WOULD BE ENTITLED
TO VOTE IF PERSONALLY PRESENT AT THE ANNUAL MEETING OF STOCKHOLDERS OF THE
COMPANY TO BE HELD AT 10:00 A.M. (EDT) ON THURSDAY, DECEMBER 18, 1997 AT THE
OFFICES OF THE COMPANY, TRI-PARKWAY CORPORATE PARK, 200 SCHULZ DRIVE, RED
BANK, NEW JERSEY 07701 AND AT ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF,
HEREBY REVOKING ALL PROXIES HERETOFORE GIVEN WITH RESPECT TO SUCH STOCK:
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(Except as marked to the contrary below) to vote for all nominees
listed below
NOMINEES: Jerold L. Fisher, Shawn A. Friedkin, Mitchell Hymowitz, Munr Kazmir,
Dominic A. Polimeni, Joseph J. Raymond and Elliott H. Vernon
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided.)
- -----------------------------------------------------------------------------
2. RATIFICATION AND APPROVAL OF GRANT OF RESTRICTED STOCK TO ELLIOTT H. VERNON.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF 1997 OMNIBUS INCENTIVE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. APPROVAL OF 1997 EMPLOYEE STOCK PURCHASE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
TO BE SIGNED ON OTHER SIDE
<PAGE>
(Continued from front)
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT(S)
THEREOF.
This Proxy, when properly executed, will be voted in accordance with the
directions given by the undersigned stockholder. If no direction is made, it
will be voted in favor of the approval of the election of the nominees for
director named herein, ratification and approval of the grant of restricted
stock to Elliott H. Vernon, approval of the 1997 Omnibus Incentive Plan and
approval of 1997 Employee Stock Purchase Plan.
(Signature(s))
--------------------------------
--------------------------------
--------------------------------
Dated: , 1997
-------------------
Please sign exactly as name(s)
appears hereon, and when
signing as attorney, executor,
administrator, trustee or
guardian, give your full title
as such. If the signatory is a
corporation, sign the full
corporate name by a duly
authorized officer. When shares
are held by joint tenants, both
should sign.
