<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
ON ASSIGNMENT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------
<PAGE> 2
[ON ASSIGNMENT LOGO]
April 25, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of On Assignment, Inc. (the "Company") on Monday, June 9, 1997, at 4:00 p.m., at
the Company's corporate headquarters, 26651 West Agoura Road, Calabasas,
California 91302. The formal Notice of Annual Meeting of Stockholders and Proxy
Statement accompanying this letter describe the business to be acted upon.
Please sign and return your Proxy now whether or not you plan to attend the
meeting. If you attend the meeting, you may still vote in person if you so
desire.
Sincerely,
/s/ H. TOM BUELTER
------------------------------------
H. Tom Buelter
Chairman of the Board, President and
Chief Executive Officer
YOUR VOTE IS IMPORTANT
SO THAT YOUR COMMON STOCK WILL BE REPRESENTED AT THE ANNUAL MEETING IN THE EVENT
YOU ARE NOT PERSONALLY PRESENT, PLEASE DATE, SIGN AND RETURN PROMPTLY THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. EXECUTION OF THE PROXY WILL NOT AFFECT
YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT THE MEETING.
<PAGE> 3
ON ASSIGNMENT, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 9, 1997
TO THE STOCKHOLDERS OF ON ASSIGNMENT, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of On
Assignment, Inc., a Delaware corporation (the "Company"), will be held on
Monday, June 9, 1997, at 4:00 p.m. local time, at the Company's corporate
headquarters, 26651 West Agoura Road, Calabasas, California 91302, for the
following purposes:
1. To elect two directors to serve for the ensuing three year term or until
his or her respective successor is elected and qualified.
2. To approve an amendment to the Company's Restated 1987 Stock Option Plan
(the "Option Plan") to increase the number of shares of the Company's
Common Stock reserved for issuance under the Option Plan by 500,000
shares.
3. To ratify the appointment of Deloitte & Touche LLP as independent
accountants of the Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 15, 1997 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to sign and
return the enclosed Proxy as promptly as possible in the envelope enclosed for
that purpose. Any stockholder attending the meeting may vote in person even if
he or she has returned a Proxy.
Sincerely,
/s/ H. TOM BUELTER
----------------------------------
H. Tom Buelter
Chairman of the Board, President
and Chief Executive Officer
Calabasas, California
April 25, 1997
<PAGE> 4
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION FOR STOCKHOLDERS.................................................. 1
MATTERS TO BE CONSIDERED AT ANNUAL MEETING............................................ 3
PROPOSAL ONE -- ELECTION OF DIRECTORS............................................... 3
PROPOSAL TWO -- APPROVAL AND RATIFICATION OF AMENDMENT TO RESTATED 1987 STOCK OPTION
PLAN............................................................................. 5
PROPOSAL THREE -- RATIFICATION OF INDEPENDENT ACCOUNTANTS........................... 13
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.................. 14
EXECUTIVE COMPENSATION AND RELATED INFORMATION........................................ 14
Board of Directors and Compensation Committee Report................................ 14
Stock Performance Graph............................................................. 16
Summary of Cash and Certain Other Compensation...................................... 17
Stock Options....................................................................... 18
Option Exercises and Holdings....................................................... 19
Certain Relationships and Related Transactions...................................... 19
ANNUAL REPORT AND FORM 10-K........................................................... 19
OTHER MATTERS......................................................................... 20
</TABLE>
<PAGE> 5
ON ASSIGNMENT, INC.
26651 WEST AGOURA ROAD
CALABASAS, CA 91302
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 9, 1997
GENERAL INFORMATION FOR STOCKHOLDERS
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of On Assignment, Inc., a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders to be held on Monday, June 9, 1997
(the "Annual Meeting"). The Annual Meeting will be held at 4:00 p.m. at the
Company's corporate headquarters, 26651 West Agoura Road, Calabasas, California
91302. These proxy solicitation materials were mailed on or about April 25, 1997
to all stockholders entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any person giving a Proxy has the power to revoke it at any time before its
exercise. It may be revoked by filing with the Senior Vice President, Finance
and Operations Support, and Chief Financial Officer of the Company at the
Company's principal executive offices, On Assignment, Inc., 26651 West Agoura
Road, Calabasas, CA 91302, a notice of revocation or another signed Proxy with a
later date. You may also revoke your Proxy by attending the Annual Meeting and
voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees or agents
of the Company. No compensation will be paid to these individuals for any such
services. Except as described above, the Company does not presently intend to
solicit proxies other than by mail.
RECORD DATE, VOTING AND SHARE OWNERSHIP
Stockholders of record on April 15, 1997 are entitled to notice of and to
vote at the Annual Meeting. At January 31, 1997, 5,171,262 shares of the
Company's Common Stock, $.01 par value, were issued and outstanding. No shares
of the Company's preferred stock are outstanding. Each stockholder is entitled
to one vote for each share of Common Stock held by such stockholder. All votes
will be tabulated by the inspector of election appointed for the meeting, who
will separately tabulate affirmative and negative votes, abstentions and broker
non-votes. Abstentions and broker nonvotes are counted as present for purposes
of determining the presence or absence of a quorum for the transaction of
business. Abstentions will be counted toward the tabulations of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
determining whether a proposal has been approved or not.
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
January 31, 1997 by (i) all persons who are beneficial
<PAGE> 6
owners of five percent or more of the Company's Common Stock, (ii) each director
and nominee, (iii) the Named Officers (as defined below in the section titled
"Executive Compensation and Related Information"), and (iv) all current
directors and executive officers as a group. Unless otherwise indicated, each of
the stockholders has sole voting and investment power with respect to the shares
beneficially owned, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
NAME AND ADDRESS SHARES SHARES OUTSTANDING(1)
- ---------------- --------- ---------------------
<S> <C> <C>
Warburg, Pincus Counsellors, Inc.(2).......................... 612,420 11.8%
466 Lexington Avenue
New York, NY 10017
Fiduciary Trust Company International(3)...................... 590,450 11.4%
Two World Trade Center
New York, NY 10048
Pilgrim Baxter & Associates, Ltd.(4).......................... 376,900 7.3%
11255 Drummers Lane, Suite 300
Wayne, PA 19087
H. Tom Buelter(5)............................................. 284,049 5.4%
Karen Brenner(6).............................................. 15,000 *
William E. Brock(7)........................................... 6,000 *
Jonathan S. Holman(8)......................................... 17,011 *
Jeremy M. Jones(9)............................................ 8,500 *
Kathy J. West(10)............................................. 72,718 1.4%
Ronald W. Rudolph(11)......................................... 7,917 *
Robert J. LaBombard........................................... 28,364 *
Mark A. Vettese(12)........................................... 4,061 *
All directors and officers as a group (10 persons)(13)........ 451,164 8.4%
</TABLE>
- ---------------
* Less than one percent.
(1) Percentage of beneficial ownership is calculated assuming 5,171,262 shares
of Common Stock were outstanding on January 31, 1997. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership within sixty days of January 31, 1997,
including but not limited to the exercise of an option; however, such
Common Stock is not deemed outstanding for the purpose of computing the
percentage owned by any other individual or entity. Such calculation is
required by General Rule 13d-3(1)(i) under the Securities Exchange Act of
1934.
(2) Pursuant to a Schedule 13G dated January 9, 1997 and filed with the
Securities and Exchange Commission, Warburg, Pincus Counsellors, Inc.
("Warburg") has reported that: it had sole power to dispose of such 612,420
shares but had sole voting power with respect to only 491,350 of such
shares; its beneficial ownership of such shares arose from its services as
investment adviser to investments accounts which own such shares; and none
of such investment accounts individually owns more than five percent of the
Company's securities.
(3) Pursuant to a Schedule 13G dated January 28, 1997 and filed with the
Securities and Exchange Commission, Fiduciary Trust Company International
("FTCI"), a Bank as defined in Section 3(a)(6) of the Securities Exchange
Act of 1934, has reported that: it had sole power to dispose of 571,100
shares and shared power to dispose of 19,350 shares; and had sole voting
power with respect to 520,800 shares and shared voting power with respect
to 69,650 shares.
(4) Pursuant to a schedule 13G dated February 14, 1997 and filed with the
Securities and Exchange Commission, Pilgrim Baxter & Associates, Ltd.
("Pilgrim") has reported that: it had sole power to dispose of such 376,900
shares and shared voting power with respect to such shares.
(5) Includes 139,649 shares underlying stock options exercisable within 60 days
of January 31, 1997.
(6) Includes 15,000 shares underlying stock options exercisable within 60 days
of January 31, 1997.
2
<PAGE> 7
(7) Includes 6,000 shares underlying stock options exercisable within 60 days
of January 31, 1997.
(8) Includes 13,500 shares underlying stock options exercisable within 60 days
of January 31, 1997 and 3,511 shares held by The Holman Group, Inc. Profit
Sharing Trust.
(9) Includes 8,500 shares underlying stock options exercisable within 60 days
of January 31, 1997.
(10) Includes 35,675 shares underlying stock options exercisable within 60 days
of January 31, 1997.
(11) Includes 7,917 shares underlying stock options exercisable within 60 days
of January 31, 1997.
(12) Includes 4,061 shares underlying stock options exercisable within 60 days
of January 31, 1997.
(13) Includes 233,427 shares underlying stock options exercisable within 60 days
of January 31, 1997.
To the Company's knowledge, each beneficial owner of more than ten percent
of the Company's capital stock filed all reports and reported all transactions
on a timely basis with the Securities and Exchange Commission (the
"Commission"), National Association of Securities Dealers, Inc. and the Company.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE -- ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall be
comprised of not less than four nor more than seven Directors, with the exact
number to be fixed by the Board. The currently authorized number of Directors is
five. The Company's Certificate of Incorporation provides for a classified Board
of Directors, with the terms of office of each class of Directors ending in
successive years. At the 1997 Annual Meeting, two Directors will be elected to
serve until the 2000 annual meeting or until his or her respective successor is
elected and qualified. The Board of Directors has selected two nominees, both of
whom are current Directors of the Company. Unless otherwise instructed, the
proxy holders will vote the Proxies received by them FOR the nominees named
below. If, however, either of the nominees named in the Proxy is unable or
unwilling to serve (which is not expected) at the time of the Annual Meeting,
the proxies (except those marked to the contrary) will be voted for such other
person(s) as the persons named in the enclosed Proxy may recommend. The two
candidates receiving the highest number of affirmative votes of the shares
entitled to vote at the Annual Meeting will be elected Directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE FOLLOWING NOMINEES TO SERVE AS DIRECTORS OF THE COMPANY UNTIL
THE THIRD ANNUAL MEETING FOLLOWING THE 1997 ANNUAL MEETING OR UNTIL THEIR
RESPECTIVE SUCCESSORS HAVE BEEN ELECTED AND QUALIFIED.
NOMINEES FOR TERM ENDING IN 2000
Set forth below is information regarding the nominees, including their
ages, the period during which they have served as Directors, and information
furnished by them as to principal occupations and directorships held by them in
corporations whose shares are publicly registered.
KAREN BRENNER, 41, has served as a Director of the Company since
October, 1993. Ms. Brenner has been a Managing Director of Noel Group, Inc.
("Noel"), a holding company for controlling or signifi-cant equity
interests in small and medium-sized operating companies, since November
1991. From October 1989 to November 1991, Ms. Brenner was a director and a
vice president of Noel. Since June 1994, Ms. Brenner has been Chairman and
Chief Executive Officer of Lincoln Snacks, a snack food company. Ms.
Brenner also serves as Chairman, President and Chief Executive Officer of
Belding Heminway Company, Inc. ("Belding"), a distributor of buttons and
home sewing and craft products. She was elected Chairman of the Board of
Belding in May 1996, and elected its President and Chief Executive Officer
in October 1996. Previously, she had been Vice Chairman and a director of
and consultant to Belding since February 1996. Ms. Brenner was formerly the
Chairman of The Forschner Group, Inc., a consumer goods company, from
February 1992 through February 1994 and a consultant to The Forschner
Group, Inc. from July 1990 through December 1994.
3
<PAGE> 8
JEREMY M. JONES, 55, has served as a Director of the Company since May
1995. Mr. Jones has been Chief Executive Officer and Chairman of the Board
of Apria Healthcare Group, Inc., a home healthcare services provider, since
its formation in 1995. From 1991 to 1995, Mr. Jones was Chief Executive
Officer and Chairman of the Board of Homedco Group, Inc., a home healthcare
services company which was merged into Apria Healthcare Group, Inc. in
1995.
CONTINUING DIRECTORS
Set forth below is information regarding the continuing Directors of the
Company, including their ages, the period during which they have served as
Directors, and information furnished by them as to principal occupations and
directorships held by them in corporations whose shares are publicly registered.
TERM ENDING IN 1998
H. TOM BUELTER, 56, has served as President, Chief Executive Officer
and a Director of the Company since he joined the Company in March 1989.
Mr. Buelter was elected Chairman of the Company's Board of Directors in
December, 1992. From 1983 to 1989, he was Senior Vice President of Kelly
Services, Inc., a temporary personnel firm, and Chief Operating Officer of
Kelly Assisted Living, a division of Kelly Services, Inc. which provides
temporary home-care personnel.
THE HONORABLE WILLIAM E. BROCK, 66, was elected to the Board of
Directors of the Company in April 1996. Since October 1996, he has been the
Founder and Chairman of Intellectual Development Systems, Inc., a firm
specializing in the servicing and delivery of assessment/developmental
materials to public schools. Since 1988, Senator Brock has been the Founder
and Chairman of The Brock Group, a firm specializing in international
trade, investment and human resources. From 1988 to 1991 he served as
Chairman of the National Endowment for Democracy, an organization he helped
found. Senator Brock served in President Reagan's cabinet as the United
Stated Trade Representative from 1981 to 1985 and as Secretary of Labor
from 1985 to 1987. From 1977 to 1981, Senator Brock served as National
Chairman of the Republican Party. From 1970 to 1976, he was a member of the
U.S. Senate and from 1962 to 1970 a member of the U.S. House of
Representatives. Since 1996, Senator Brock has served as a director of
Sinclair Broadcasting Group, Inc., a broadcasting company, and United
Payors & United Providers, Inc., an intermediary between insurance
companies and healthcare providers and a network management company.
TERM ENDING IN 1999
JONATHAN S. HOLMAN, 51, has served as a Director of the Company since
March 1995. Since 1981, Mr. Holman has been the President and Founder of
The Holman Group, Inc., an executive search firm.
There are no family relationships among executive officers or Directors of
the Company.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996, the Board of Directors held
four meetings and acted by unanimous written consent on three occasions. The
Board of Directors has an Audit Committee, a Compensation Committee and a Stock
Option Committee, and does not have a Nominating Committee.
The Audit Committee currently consists of two directors, Ms. Brenner and
Mr. Jones. The Audit Committee is primarily responsible for approving the
services performed by the Company's independent accountants and reviewing their
reports regarding the Company's accounting practices and systems of internal
accounting controls. The Audit Committee met two times during 1996.
The Compensation Committee consists of two directors, Mr. Brock, who served
on the committee since May 1996 and Mr. Holman. From July 1994 through May 1996,
Ms. Brenner served on the Compensation Committee. The Compensation Committee
held five meetings during 1996. It reviews the Company's general compensation
policies, recommends to the full Board of Directors the compensation levels for
the Company's
4
<PAGE> 9
executive officers, and administers the Company's Restated 1987 Stock Option
Plan and Employee Stock Purchase Plan.
The Stock Option Committee consists of one director, Mr. Buelter. The Stock
Option Committee acted by written consent on 16 occasions during 1996. It has
limited authority to grant stock options to eligible individuals who are not
officers or Directors of the Company subject to the short-swing profit
restrictions of Federal securities laws.
No currently serving Director attended fewer than 75% of the aggregate
number of meetings of the Board of Directors and meetings of the Committees of
the Board on which he or she served during 1996.
DIRECTOR COMPENSATION
Effective January 1, 1996, non-employee Directors receive the following
fees for services as Directors: $8,000 per year (payable quarterly in arrears)
during the period of their service as a Director; $1,500 per Board meeting or
Committee meeting (if held separately) attended in person; and $250 per
telephonic Board meeting or Committee meeting (if held separately). Also, the
Company reimburses all non-employee Directors for their reasonable expenses
incurred in attending Board or Committee meetings.
Directors also receive stock option grants under the Company's Restated
1987 Stock Option Plan. Under the automatic option grant program in effect under
the Company's Restated 1987 Stock Option Plan, each non-employee Board member
who has been or is first elected to the Board after October 13, 1993 has been or
will be automatically granted options to purchase 9,000 shares of Common Stock,
provided such individual has not previously been in the Company's employ. At
each Annual Meeting of Stockholders beginning with the 1993 Annual Meeting and
ending with the 1995 Annual Meeting, each individual who was at the time serving
as a non-employee Board member was automatically granted an option to purchase
1,500 shares of Common Stock on the date of the Annual Meeting, provided he or
she had served as a Board member for at least six months prior to the date of
such meeting. At each Annual Meeting of Stockholders beginning with the 1996
Annual Meeting, each individual who is at the time serving as a non-employee
Board member automatically was or will be granted an option to purchase 3,000
shares of Common Stock on the date of the Annual Meeting, without regard to
prior Board service. Accordingly, Mr. Brock was granted options for 9,000 shares
of the Company's Common Stock at an exercise price of $37.125 per share on April
1, 1996; and Ms. Brenner and Messrs. Brock, Holman and Jones were granted
options for 3,000 shares on the date of the 1996 Annual Meeting at an exercise
price of $39.00 per share and will be granted options for an additional 3,000
shares on the date of the 1997 Annual Meeting.
PROPOSAL TWO -- APPROVAL AND RATIFICATION OF AMENDMENT TO
RESTATED 1987 STOCK OPTION PLAN
INTRODUCTION
Stockholders are being asked to vote on a proposal to ratify an amendment
to the Company's Restated 1987 Stock Option Plan ("Option Plan") to increase by
500,000 the number of shares of the Company's Common Stock reserved for issuance
under the Option Plan from 1,500,000 shares to 2,000,000 shares. The affirmative
vote of a majority of the Company's outstanding Common Stock represented and
entitled to vote at the Annual Meeting is required for approval of the
amendment.
The Option Plan was adopted by the Board of Directors on October 9, 1987,
and has been amended on numerous occasions, most recently as of September 21,
1992, the date of the Company's initial public offering, on September 30, 1992
to permit the establishment of a secondary committee to administer the Plan, on
October 13, 1993 to amend the automatic director grant program and limit the
maximum number of shares any individual may be granted over the remaining term
of the Option Plan, on December 7, 1995 to approve further amendment of the
automatic director grant program and on February 13, 1997 to approve the
amendment which is the subject of this Proposal Two. The Option Plan, as
amended, and amendments thereto
5
<PAGE> 10
were approved by the stockholders on December 11, 1987, September 4, 1992, May
23, 1994 and May 30, 1996.
The Board of Directors believes that a competitive stock option plan is
crucial to the Company's ability to recruit and retain highly qualified
officers, employees, non-employee directors and other advisors. The Board
therefore recommends a vote FOR Proposal Two.
The terms and provisions of the Option Plan are summarized below. The
summary, however, does not purport to be a complete description of the Option
Plan. Copies of the actual plan document may be obtained by any stockholder upon
written request to the Secretary of the Company at the corporate offices in
Calabasas, California.
PLAN STRUCTURE; ELIGIBILITY
The Option Plan is comprised of two parts: a discretionary grant program
and an automatic grant program. Under the discretionary grant program, options
may be granted to employees (including officers), consultants and other
independent contractors of the Company or its parent or subsidiary corporations
who contribute to the management, growth and financial success of the Company or
its parent or subsidiary corporations. Under the automatic grant program,
options are automatically granted to the non-employee members of the Board.
As of January 31, 1997, approximately 170 employees (including 6 executive
officers) were eligible to participate in the Option Plan and four non-employee
Board members were eligible for automatic option grants.
ADMINISTRATION
The Option Plan is administered by the Compensation Committee, comprised of
at least two non-employee members of the Board of Directors ("Committee"). In
addition, the Option Plan may be administered (including the granting of
options) with respect to individuals who are not officers or directors of the
Company by a secondary committee comprised of one or more Board members. The
Company has such a secondary committee (the "Stock Option Committee") which has
limited authority to grant stock options to eligible individuals who are not
officers or Directors of the Company subject to the short-swing profit
restrictions of Federal securities laws.
The Committee (or the Stock Option Committee to the extent acting as plan
administrator) has the sole and exclusive authority, subject to the provisions
of the Option Plan, to determine the eligible individuals who are to receive
discretionary options under the Option Plan, the number of shares to be covered
by each granted option, the date or dates on which the option is to become
exercisable and the maximum term for which the option is to remain outstanding.
The Committee will also have the authority to determine whether the granted
option is to be an incentive stock option under the Federal tax laws and to
establish rules and regulations for proper plan administration. The automatic
grant program is self-administering.
ISSUABLE SHARES
The maximum number of shares of Common Stock which may be issued over the
term of the Option Plan shall not exceed 2,000,000 shares. Such authorized share
reserve is comprised of (i) the 1,500,000 shares authorized by the Board under
the Option Plan, and subsequently approved by the stockholders plus (ii) an
additional increase of 500,000 shares which is the subject of this Proposal Two.
This amount is subject to adjustment from time to time in the event of certain
changes in the Company's capital structure.
In no event may any one individual participating in the Option Plan be
granted stock options after December 31, 1993 for more than 250,000 shares of
Common Stock over the remaining term of the plan.
Should any option under the Option Plan expire or terminate prior to
exercise or surrender in full, the shares subject to the portion of the option
not so exercised or surrendered will be available for subsequent option grants.
Shares subject to any option surrendered in accordance with the Option Plan and
all share
6
<PAGE> 11
issuances under the Option Plan, whether or not the Company repurchased such
shares pursuant to its repurchase rights under the Option Plan, will reduce on a
share-for-share basis the number of shares available for subsequent option
grants.
Because the Option Plan is discretionary, benefits to be received by
individual optionees are not determinable, except that the options to be
received by the non-employee members of the Board are set pursuant to a formula
as described below. The table below shows, as to each of the executive officers
named in the Summary Compensation Table and the various indicated individuals
and groups, (i) the number of shares of Common Stock for which options have been
granted under the Option Plan for the one (1)-year period ending December 31,
1996 plus the period through January 31, 1997 and (ii) the weighted average
exercise price payable per share.
NEW PLAN BENEFITS AND OPTION GRANT TABLE
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
NUMBER OF PRICE OF GRANTED
NAME AND POSITION OPTION SHARES OPTIONS
- ----------------- ------------- ----------------
<S> <C> <C>
H. Tom Buelter, Chairman of the Board, President and Chief
Executive Officer............................................... 0 --
Kathy J. West, Senior Vice President, Chief Operating Officer..... 0 --
Ronald W. Rudolph, Senior Vice President, Finance and Operations
Support, and Chief Financial Officer............................ 15,000 $29.00
Mark A. Vettese, Vice President and General Manager, Healthcare
Financial Staffing.............................................. 15,000 34.00
Robert J. LaBombard, Vice President and General Manager,
EnviroStaff..................................................... 20,000 36.50
Karen Brenner, Director........................................... 3,000 39.00
William E. Brock, Director........................................ 12,000 37.59
Jonathan S. Holman, Director...................................... 3,000 39.00
Jeremy M. Jones, Director......................................... 3,000 39.00
Executive Officers as a group (6 persons)......................... 50,000 33.50
Non-employee directors as a group (4 persons)..................... 21,000 38.20
All employees, including current officers who are not executive
officers, as a group (164 persons).............................. 211,482 32.41
</TABLE>
As of January 31, 1997, approximately 693,349 shares of Common Stock were
subject to outstanding options under the Option Plan(1) and 780,909 shares of
Common Stock had been issued upon exercise of options. Accordingly, 25,742
shares of Common Stock were available for future option grants under the Option
Plan.
OPTION PRICE AND EXERCISABILITY
The exercise price of options issued under the Option Plan may not be less
than eighty-five percent (85%) of the fair market value of the Common Stock on
the grant date, and the maximum option term may not exceed ten (10) years.
Options issued under the Option Plan may become exercisable in cumulative
increments over a period of months or years as determined by the Committee.
The option price may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. Outstanding options may also be
exercised through a same-day sale program, pursuant to which a designated
brokerage firm is instructed to effect an immediate sale of the shares purchased
under the option
- ---------------
(1) The shares available for future option grants will be increased to the
extent outstanding options terminate or expire unexercised and will be
adjusted in the event of certain changes to the Company's capital structure.
7
<PAGE> 12
and pay to the Company, out of the sales proceeds available on the settlement
date, sufficient funds to cover the option price for the purchased shares plus
all applicable withholding taxes.
The Committee may also assist any optionee (including an officer or
director) in the exercise of outstanding options under the discretionary grant
program by authorizing a loan from the Company or permitting the optionee to pay
the option price in installments over a period of years. The terms and
conditions of any such loan or installment payment will be established by the
Committee in its sole discretion, but in no event may the maximum credit
extended to the optionee exceed the aggregate option price payable for the
purchased shares (less the par value) plus any Federal, state or local income
taxes or Federal employment taxes incurred by the optionee in connection with
the option exercise.
VALUATION
For purposes of establishing the option price and for all other valuation
purposes under the Option Plan, the fair market value per share of Common Stock
on any relevant date will be the closing price per share on such date, as
reported on the Nasdaq Stock Market. If there is no reported closing price for
such date, then the closing price for the last previous date for which such
quotation exists will be determinative of fair market value.
On January 31, 1997, the fair market value of the Common Stock was $35.25
per share.
TERMINATION OF SERVICE
Outstanding options under the Option Plan will remain exercisable for 3
months following the optionee's cessation of service with the Company (other
than cessation as a result of permanent disability or death), unless the
Committee determines that such exercise period should be further extended for
one or more additional months or years. Under no circumstances, however, may any
such option remain exercisable after the specified expiration date of the option
term. Should the optionee become permanently disabled while holding one or more
exercisable options, then those options may subsequently be exercised by the
optionee or his or her personal representative within 12 months following such
optionee's cessation of service. Should the optionee die while holding one or
more exercisable options, then those options may subsequently be exercised by
the personal representative of the optionee's estate or by the persons to whom
such options are transferred by the optionee's will or by the laws of
inheritance within 36 months following such optionee's cessation of service.
During the applicable exercise period following the optionee's cessation of
service, the option may not be exercised for option shares which were not vested
at the time of such cessation of service. However, the Committee will have the
discretionary authority to accelerate in whole or in part the vesting of any
outstanding options held by the optionee and may exercise this discretion at any
time while the option remains outstanding.
For purposes of the Option Plan, the optionee will be deemed to be in the
service of the Company for so long as such individual renders periodic services
to the Company or any parent or subsidiary, whether as an employee, a member of
the board of directors or an independent consultant.
STOCKHOLDER RIGHTS AND ASSIGNABILITY OF OPTIONS
No optionee is to have any stockholder rights with respect to the option
shares until such individual has exercised the option, paid the option price and
been issued a stock certificate for such shares. Options are not assignable or
transferable other than by will or by the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by the optionee.
8
<PAGE> 13
ACCELERATION OF OPTIONS
In the event of any of the following stockholder-approved transactions to
which the Company is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the state of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company; or
(iii) any reverse merger in which the Company is the surviving entity
but in which 50% or more of the Company's outstanding voting stock is
transferred to holders different from those who held the stock immediately
prior to such merger,
each outstanding option under the discretionary grant program will automatically
become exercisable for all of the option shares, unless (1) the option is either
to be assumed by the successor corporation (or its parent corporation) in such
Corporate Transaction or is otherwise to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or (2) the
acceleration of such option is subject to other limitations imposed by the
Committee at the time of grant.
Upon the consummation of the Corporate Transaction, all outstanding options
under the Option Plan will terminate and cease to be exercisable, except to the
extent assumed by the successor corporation.
The acceleration of options as described above may have the effect of
discouraging or deterring a change in the control of the Company.
SURRENDER OF OPTIONS FOR CASH OR STOCK
Officers of the Company subject to the short-swing profit restrictions of
the Federal securities laws may be granted limited stock appreciation rights as
part of any stock option grants made to such officers under the Option Plan. Any
option with such a limited stock appreciation right in effect for at least 6
months shall automatically be cancelled upon the occurrence of a Hostile
Take-Over, to the extent the option is at the time exercisable for fully vested
shares. In return, the optionee will be entitled to a cash distribution from the
Company in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the cancelled option over (ii) the
aggregate exercise price payable for such shares.
For purposes of such limited stock appreciation right, the following
definitions will be in effect under the Option Plan:
Hostile Take-Over: (i) the acquisition by any person or related group
of persons (other than the Company or its affiliates) of securities
possessing more than 50% of the combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer which the
Board of Directors does not recommend the Company's stockholders to accept
and (ii) more than 50% of the securities so acquired in such tender or
exchange offer are accepted from holders other than officers and directors
of the Company who are subject to the short-swing profit restrictions of
the Federal securities laws.
Take-Over Price: the greater of (i) the fair market value per share on
the date of cancellation, as determined in accordance with the valuation
provisions of the Option Plan described above, or (ii) the highest reported
price per share paid by the acquiring entity in effecting the Hostile
Take-Over.
Outstanding stock appreciation rights granted before September 21, 1992 to
certain officers and directors of the Company under the Option Plan allow such
individuals to surrender the underlying options to the Company for a cash
distribution, calculated in the manner indicated above, in the event a hostile
tender offer for 25% or more of the Company's outstanding voting securities is
successfully completed or a change in the majority of the Board of Directors is
effected through one or more proxy contests.
The Option Plan includes a stock appreciation rights feature whereby the
Committee has the authority to accept the surrender of one or more outstanding
options under the Option Plan and authorize in exchange the payment by the
Company of an appreciation distribution equal to the excess of (i) the fair
market value (on the date of surrender) of the vested shares of Common Stock
over (ii) the option price payable for such vested
9
<PAGE> 14
shares. Such payment may be made, at the discretion of the Committee, in shares
of Common Stock valued at fair market value on the date of surrender or in cash.
Whether an option is surrendered for cash or Common Stock, the shares covered by
the surrendered option will not thereafter be available for issuance under the
Plan. With the exception of the limited stock appreciation rights described
above, no stock appreciation rights have been granted under the Option Plan to
date.
CANCELLATION AND NEW GRANT OF OPTIONS
With the consent of the affected optionees, the Committee has the authority
to cancel outstanding options under the Option Plan and to grant replacement
options covering the same or different numbers of shares of Common Stock but
having an option price per share not less than 85% of the fair market value of
the Common Stock on the new grant date (100% of fair market value in the case of
an Incentive Option). It is anticipated that the option price under the
replacement grant will in all instances be less than the option price in effect
under the cancelled option.
CHANGES IN CAPITALIZATION
In the event any change is made to the Common Stock issuable under the
Option Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares, or other change in corporate
structure effected without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable under the Option Plan, (ii) the number and/or class of securities and
price per share in effect under each outstanding option, (iii) the maximum
number of shares which may be granted to each individual participant, and (iv)
the number of shares to be made the subject of subsequent automatic option
grants.
Each outstanding option which is assumed or is otherwise to continue in
effect after a merger or business combination will be appropriately adjusted to
apply and pertain to the number and class of securities which would have been
issuable, in connection with such merger or business combination, to an actual
holder of the same number of shares of Common Stock as are subject to such
option immediately prior to such merger or business combination. Appropriate
adjustments will also be made to the option price payable per share and to the
number and class of securities available for issuance under the Option Plan.
Option grants under the Option Plan will not affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
EXCESS GRANTS
The Option Plan permits the grant of options to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Option Plan. Any options so granted cannot be exercised prior to stockholder
approval of an amendment sufficiently increasing the number of shares available
for issuance under the Option Plan.
NON-EMPLOYEE DIRECTOR AUTOMATIC GRANT PROGRAM
The automatic grant program under the Option Plan authorizes the grant of
options to non-employee members of the Board. Each non-employee Board member who
has been or is first elected to the Board after the October 13, 1993 has been or
will be automatically granted options to purchase 9,000 shares of Common Stock,
provided such individual has not previously been in the Company's employ. At
each Annual Meeting of Stockholders beginning with the 1993 Annual Meeting and
ending with the 1995 Annual Meeting, each individual who was at the time serving
as a non-employee Board member was automatically granted options to purchase
1,500 shares of Common Stock on the date of the Annual Meeting, provided he or
she had served as a Board member for at least six months prior to the date of
such meeting. At each Annual Meeting of Stockholders beginning with the 1996
Annual Meeting, each individual who is at the time serving as a non-employee
Board member will automatically be granted an option to purchase 3,000 shares of
Common Stock on the date of the Annual Meeting, without regard to prior Board
service.
10
<PAGE> 15
The option price per share for each automatic grant will be the fair market
value per share of Common Stock on the date of grant, and the option price for
purchased shares will be payable in cash or shares of Common Stock or through a
cashless exercise procedure.
The initial automatic option grants become exercisable in 3 annual
installments beginning on the grant date, provided the optionee remains a member
of the Board. The annual automatic option grants for 1,500 shares and the annual
automatic grants for 3,000 shares to Board members who have served at least 6
months prior to the grant date are immediately exercisable upon grant. The
annual automatic grants for 3,000 shares to non-employee Board members who have
not served as Board members for at least 6 months prior to the date of such
grants, shall be subject to a 6-month vesting schedule from the grant date,
provided the optionees remain members of the Board. However, full and immediate
vesting of the initial automatic grant and the annual automatic grant will occur
upon a Corporate Transaction (as such term is defined in the section above
entitled "Acceleration of Options") and Change in Control (as such term is
defined below). Also, each automatic option grant will be automatically
cancelled upon the occurrence of a Hostile Take-Over (as such term is defined in
the section above entitled "Surrender of Options for Cash or Stock"), whether or
not the option is otherwise at the time exercisable for such shares. In return
the optionee will be entitled to a cash distribution from the Company in an
amount equal to the excess of (i) the Take-Over Price of the shares of Common
Stock subject to the surrendered option over (ii) the aggregate exercise price
payable for such shares.
For all purposes under the Option Plan, a Change in Control shall be deemed
to have occurred if:
(i) any person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Company) directly or indirectly acquires
beneficial ownership of securities possessing more than 50% the total
combined voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's stockholders which
the Board does not recommend such stockholders to accept; or
(ii) there is a change in the composition of the Board over a period
of 24 consecutive months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
proxy contests for the election of Board members, to be comprised of
individuals who either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated for election
as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
Upon cessation of Board service, the options exercisable by the director
will remain exercisable for 6 months. Should the optionee die while holding one
or more options, then those options may subsequently be exercised by the
personal representative of the optionee's estate or by the persons to whom such
options are transferred by the optionee's will or by the laws of inheritance
within 3 years after the date of the optionee's cessation of Board service.
AMENDMENT AND TERMINATION OF THE OPTION PLAN
The Board of Directors may amend or modify the Option Plan in any or all
respects whatsoever; provided, however, that the automatic grant program (and
the options outstanding thereunder) may not be amended more frequently than once
every 6 months, and no amendment to the Option Plan may adversely affect the
rights of outstanding option holders without their consent. The Board of
Directors may not, without the approval of the Company's stockholders: (i)
materially increase the maximum number of shares issuable under the Option Plan
or the number of shares for which automatic grants may be made to non-employee
Board members, except in the event of certain changes to the Company's capital
structure as indicated above; (ii) materially modify the eligibility
requirements for option grants; or (iii) otherwise materially increase the
benefits accruing to participants under the Option Plan.
The Board of Directors may terminate the Option Plan at any time, and the
Option Plan will in all events terminate not later than June 21, 2002. Any
options outstanding at the time of such plan termination will
11
<PAGE> 16
continue to remain outstanding and exercisable in accordance with the terms and
provisions of the instruments evidencing those grants. The Option Plan will,
however, automatically terminate on the date all shares available for issuance
are issued or cancelled pursuant to the exercise, surrender or cash-out of
outstanding options under the Option Plan.
FEDERAL TAX CONSEQUENCES
Options granted under the Option Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as described
below:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. However, the difference between the fair market
value of the purchased shares and the exercise price is generally included as
alternative minimum taxable income for purposes of the alternative minimum tax.
The optionee will recognize taxable income in the year in which the purchased
shares are sold or otherwise made the subject of disposition. For Federal tax
purposes, dispositions are divided into two categories: (i) qualifying and (ii)
disqualifying. The optionee will make a qualifying disposition of the purchased
shares if the sale or other disposition of such shares is made after the
optionee has held the shares for more than 2 years after the grant date of the
option and more than 1 year after the exercise date. If the optionee fails to
satisfy either of these two minimum holding periods prior to the sale or other
disposition of the purchased shares, then a disqualifying disposition will
result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the exercise date over (ii) the exercise price paid for the shares will be
taxable as ordinary income. Any additional gain recognized upon the disposition
will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the exercise date over (ii) the exercise price
paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee. The Company anticipates that the deductions attributable to the
compensation income arising from most exercises of non-statutory options under
the Option Plan will not be subject to the annual $1 Million deduction limit
which covers certain executive officers of the Company.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.
Parachute Payments. If the exercisability of an option or stock
appreciation right is accelerated as a result of a change of control, all or a
portion of the value of the option or stock appreciation right at that time
12
<PAGE> 17
may be a parachute payment for purposes of the excess parachute provisions of
the Internal Revenue Code. Those provisions generally provide that if parachute
payments exceed three times an employee's average compensation for the 5 tax
years preceding the change of control, the company loses its deduction and the
recipient is subject to a 20% excise tax on the amount of the parachute payments
in excess of one times such average compensation.
Note Forgiveness. If any promissory note delivered in payment of shares
acquired under the Option Plan is forgiven in whole or in part, the amount of
such forgiveness will be reportable by the participant as ordinary compensation
income. The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the participant in connection with
the acquisition of the shares and any note forgiveness. The deduction will be
allowed for the taxable year of the Company in which the ordinary income is
recognized by the participant.
ACCOUNTING TREATMENT
Option grants at 100% of fair market value will not result in any charge to
the Company's earnings. The number of outstanding options may be a factor in
determining the Company's earnings per share on a fully-diluted basis.
Should optionees be granted stock appreciation rights which have no
conditions upon exercisability other than a service or employment requirement,
then such rights will result in a compensation expense to be charged against the
Company's earnings. Accordingly, at the end of each fiscal quarter, the amount
(if any) by which the fair market value of the shares of Common Stock subject to
such outstanding stock appreciation rights has increased from the prior
quarter-end will be accrued as compensation expense, to the extent such amount
is in excess of the aggregate exercise price in effect for those rights.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Company's voting Common Stock represented and voted at the 1997 Annual Meeting
is required for approval of the amendment to the Option Plan. If such
stockholder approval is not obtained, then the amendment will not be adopted and
the number of shares reserved for issuance under the Option Plan will not be
increased by 500,000 shares.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company is seeking the affirmative vote of a majority of the issued and
outstanding voting shares for approval of the amendment to the Option Plan. The
Board of Directors believes that the amendment to the Option Plan is necessary
in order to continue to provide equity incentives to attract and retain the
services of high quality officers, employees, non-employee Directors and other
advisors.
FOR THIS REASON, THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THIS PROPOSAL.
PROPOSAL THREE -- RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of Deloitte & Touche LLP,
independent accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending December 31, 1997, and is asking the
stockholders to ratify this appointment.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors feels that such a change would be in the best interests of the Company
and its stockholders. The affirmative vote of the holders of a majority of the
Company's voting shares represented and voting at the Annual Meeting is required
to ratify the selection of Deloitte & Touche LLP.
13
<PAGE> 18
Deloitte & Touche LLP has audited the Company's consolidated financial
statements annually since 1986. A representative of Deloitte & Touche LLP is
expected to be present at the Annual Meeting, will have the opportunity to make
a statement if he or she desires to do so, and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP TO SERVE AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 which require them to file reports with respect
to their ownership of the Common Stock and their transactions in such Common
Stock. Based upon (i) the copies of Section 16(a) reports which the Company
received from such persons for their 1996 fiscal year transactions in the Common
Stock and their Common Stock holdings and (ii) the written representations
received from one or more of such persons that no annual Form 5 reports were
required to be filed by them for the 1996 fiscal year, the Company believes that
all reporting requirements under Section 16(a) for such fiscal year were met in
a timely manner by its executive officers, Board members and greater than 10%
stockholders.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
BOARD OF DIRECTORS AND COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the On Assignment, Inc.
Board of Directors (the "Board"), recommends to the Board the compensation of
the Company's executive officers and administers the Company's Restated 1987
Stock Option Plan (the "Option Plan") under which grants may be made to such
officers and other key employees and the Company's Employee Stock Purchase Plan.
In addition, the Committee recommends to the Board the individual bonus programs
to be in effect for executive officers each fiscal year. The full Board sets the
base salaries and approves individual bonus programs of the Company's executive
officers, with Mr. Buelter abstaining as to his own salary and bonus program.
For the 1996 fiscal year, the Board accepted the recommendations of the
Committee in establishing the compensation payable to Mr. H. Tom Buelter, the
Company's Chairman of the Board, President and Chief Executive Officer, and the
Company's other executive officers.
GENERAL COMPENSATION POLICY. Our fundamental policy is to offer the
Company's executive officers competitive compensation opportunities based upon
their personal performance, the financial performance of the Company and their
contribution to that performance. It is our objective to make a substantial
portion of each officer's compensation contingent upon the Company's performance
as well as upon his or her own level of performance. Accordingly, each executive
officer's compensation package is comprised of three elements: (i) base salary
which reflects individual performance and is designed primarily to be
competitive with salary levels of similarly sized companies, (ii) annual
variable performance awards payable in cash and tied to the Company's
achievement of performance goals, and (iii) long-term stock-based incentive
awards which strengthen the mutuality of interests between the executive
officers and the Company's stockholders. Generally, as an officer's level of
responsibility increases, a greater portion of his or her total compensation
will be dependent upon Company performance and stock price appreciation rather
than base salary.
FACTORS. Several of the more important factors which were considered in
establishing the components of each executive officer's compensation package for
the 1996 fiscal year are summarized below. Additional factors were also taken
into account to a lesser degree. The Committee and/or the Board may in their
discretion apply entirely different factors, particularly different measures of
financial performance, in recommending and/or setting executive compensation for
future fiscal years, but all compensation decisions will be designed to further
the general compensation policy indicated above.
14
<PAGE> 19
- BASE SALARY. The base salary for each executive officer is set on the
basis of personal performance, the average salary levels in effect for
comparable positions with companies with total revenues similar to the Company's
and internal comparability standards.
- ANNUAL INCENTIVE COMPENSATION. Annual bonuses, set as a percentage of
salary based on position, are earned by each executive officer on the basis of
the Company's achievement of corporate performance targets established by the
Board at the start of the fiscal year. For fiscal year 1996, the performance
targets were based on the Company's 1996 Budget as approved by the Board at its
December 1995 meeting. The Committee recommended and the Board granted bonuses
at targeted levels, as the Company achieved record revenues and net income.
- LONG-TERM INCENTIVE COMPENSATION. The Committee periodically approves
grants of stock options to each of the Company's executive officers under the
Option Plan. The grants are designed to align the interests of each executive
officer with those of the stockholders and provide each individual with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. Each grant generally allows the officer to
acquire shares of the Company's common stock at a fixed price per share (the
market price on the grant date) over a specified period of time (up to 10
years), thus providing a return to the executive officer only if the market
price of the shares appreciates over the option term. The size of the option
grant to each executive officer generally is set to achieve a potential
percentage ownership stake in the Company that the Committee deems appropriate
in order to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, but also takes into account the
individual's potential for future responsibility over the option term, the
individual's personal performance in recent periods and the individual's current
holdings of the Company's stock and options. New options were granted to three
of the Company's executive officers in fiscal 1996 and such grants were
consistent with these policies. Mr. Rudolph received an option grant in 1996 in
part because of the expansion of his responsibilities to include management of
the Operations Support area at the Company's corporate headquarters. Mr.
LaBombard and Mr. Vettese received initial stock option grants upon their
employment with the Company.
CEO COMPENSATION. The annual base salary for the Company's Chief Executive
Officer, Mr. H. Tom Buelter remained the same in 1996 as in 1995 by virtue of
the Compensation Committee's and Board's decisions at their December 1995
meetings, when they set executive officer compensation for 1996, to not increase
Mr. Buelter's annual base salary. The decision to maintain his base salary was
made primarily on the basis of the rate of base salary paid to the chief
executive officers of the companies with total revenues similar to the Company's
and the desire to make a greater percentage of Mr. Buelter's compensation
variable with Company performance. The remaining components of Mr. Buelter's
1996 fiscal year compensation were entirely dependent upon the Company's
financial performance and provided no dollar guarantees. The bonus paid to Mr.
Buelter for the 1996 fiscal year was based on the Company's performance in 1996,
including the achievement of record profits and revenues, and the growth of the
Company's annual net income and revenues by 29.1% and 21.4%, respectively, and
the Company's acquisition and integration of EnviroStaff, Inc.
We conclude our report with the acknowledgment that no member of the
Compensation Committee is a former or current officer or employee of the Company
or any of its subsidiaries and that except for Mr. Buelter, no member of the
Board of Directors is a former or current officer or employee of the Company or
any of its subsidiaries.
The Board of Directors
Karen Brenner
William E. Brock*
H. Tom Buelter
Jonathan S. Holman*
Jeremy M. Jones
* Compensation Committee Member
15
<PAGE> 20
STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on September 22, 1992, the first day the Company's stock
was publicly traded. Also depicted are the composite prices of companies listed
on the Nasdaq Stock Market and of companies listed in the SIC Code No. 736 --
Personnel Supply Services Companies Index. The information for this graph has
been provided to the Company by Media General Financial Services.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
ON ASSIGNMENT INC., NASDAQ COMPOSITE INDEX
AND PEER GROUP INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) ON ASSIGNMENT PEER GROUP INDEX NASDAQ INDEX
<S> <C> <C> <C>
SEPT. 22 100 100 100
1992 144.26 128.07 108.57
1993 137.70 138.59 130.23
1994 209.84 160.87 136.73
1995 429.51 214.49 177.35
1996 386.89 258.91 220.39
</TABLE>
16
<PAGE> 21
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer (the "CEO") and the Company's four most highly
compensated executive officers other than the CEO (collectively, the "Named
Officers"), for services rendered in all capacities to the Company for each of
the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- ------------------------------------------- ---- -------- ------- ---------------------
<S> <C> <C> <C> <C>
H. Tom Buelter............................. 1996 $225,000 $45,000 0
Chairman of the Board, President 1995 225,000 56,250 50,000
and Chief Executive Officer 1994 225,000 56,250 0
Kathy J. West.............................. 1996 165,000 33,000 0
Senior Vice President, 1995 152,000 38,750 15,000
Chief Operating Officer 1994 130,000 26,000 0
Ronald W. Rudolph(1)....................... 1996 150,000 30,000 15,000
Senior Vice President, Finance and 1995 105,000 35,000 40,000
Operations Support, and Chief Financial 1994 -- -- --
Officer
Robert J. LaBombard(2)..................... 1996 99,726 19,945 20,000
Vice President and General Manager, 1995 -- -- --
EnviroStaff 1994 -- -- --
Mark A. Vettese(3)......................... 1996 112,548 33,000 15,000
Vice President and General Manager, 1995 -- -- --
Healthcare Financial Staffing 1994 -- -- --
</TABLE>
- ---------------
(1) Mr. Rudolph joined the Company April 1, 1995.
(2) Mr. LaBombard joined the Company March 27, 1996, and resigned his position
effective January 31, 1997.
(3) Mr. Vettese joined the Company February 19, 1996, and resigned his position
effective February 28, 1997.
17
<PAGE> 22
STOCK OPTIONS
The following table provides information with respect to the stock option
grants made during the 1996 fiscal year under the Company's Restated 1987 Stock
Option Plan to the Named Officers for such fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------------------- AT ASSUMED ANNUAL
% OF TOTAL RATES OF
OPTIONS/SARS EXERCISE STOCK PRICE APPRECIATION
GRANTED TO OR BASE FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($)(3) 10%($)(3)
- --------------------- ------------ ------------ --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
H. Tom Buelter....... 0 -- -- -- -- --
Kathy J. West........ 0 -- -- -- -- --
Ronald W. Rudolph.... 15,000 5.5% $ 29.00 11/27/2006 $ 273,569 $ 693,278
Robert J. LaBombard.. 20,000 7.4% 36.50 03/27/2006 459,093 1,163,432
Mark A. Vettese...... 15,000 5.5% 34.00 02/28/2006 320,736 812,809
</TABLE>
- ---------------
(1) Mr. Rudolph's option becomes exercisable in a series of equal monthly
installments over the 48 months of service from the November 27, 1996
vesting date for his option. Mr. LaBombard's and Mr. Vettese's options
become exercisable as to 25% of the option shares upon completion of one
year of service from their respective vesting dates of March 27, 1996 and
February 19, 1996 and the balance in a series of equal monthly installments
over the next 36 months of service thereafter. To the extent not already
exercisable, the options generally become exercisable upon a Corporate
Transaction unless the option is assumed or replaced with a comparable
option by the surviving entity. The options are also subject to "limited
stock appreciation rights" pursuant to which the options, to the extent
exercisable and outstanding for at least six months at the time of a
"Hostile Takeover", will automatically be cancelled in return for a cash
payment to the optionee based upon the tender-offer price of the common
Stock subject to that option. Each option has a maximum term of 10 years,
subject to earlier termination in the event of the optionee's cessation of
service to the Company. See Proposal Two, "Approval and Ratification of
Amendment to Restated 1987 Stock Option Plan."
(2) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
federal and state income tax liability incurred by the optionee in
connection with such exercise. The Compensation Committee has the
discretionary authority to reprice outstanding options under the Option Plan
through the cancellation of those options and the grant of replacement
options with an exercise price equal to the lower fair market value of the
option shares on the regrant date.
(3) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants made
to the executive officers.
18
<PAGE> 23
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of options
during the 1996 fiscal year and unexercised options held as of the end of such
year by the Named Officers for such fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF UNEXERCISED
VALUE REALIZED VALUE OF UNEXERCISED
(MARKET PRICE AT SECURITIES UNDERLYING IN-THE-MONEY OPTIONS/SARS
EXERCISE LESS OPTIONS/SARS AT FY-END(#) AT FY-END(1)
SHARES ACQUIRED EXERCISE PRICE) --------------------------- ---------------------------
NAME ON EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- --------------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Tom Buelter........ 22,500 $636,625 133,400 50,000 $ 3,130,170 $ 234,375
Kathy J. West......... 6,167 159,176 35,801 14,999 655,538 70,313
Ronald W. Rudolph..... 13,333 266,660 3,645 38,022 36,819 264,018
Robert J. LaBombard... 0 0 753 20,847 16,781 17,682
Mark A. Vettese....... 0 0 0 15,000 0 0
</TABLE>
- ---------------
(1) Based on the closing price per share of the Company's Common Stock as listed
on the Nasdaq Stock Market as of December 31, 1996 of $29.50, less the per
share exercise price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None of the Company's current executive officers have employment agreements
with the Company, and their employment may be terminated at any time at the
discretion of the Board of Directors. Mr. LaBombard, who resigned as Vice
President and General Manager, EnviroStaff on January 31, 1997, was employed
pursuant to a letter agreement which provided for: a monthly salary of
$10,833.33; a minimum bonus of 20% of base salary and the opportunity for higher
bonus payments if EnviroStaff exceeded certain performance milestones; and six
months of severance in the event his employment was terminated by the Company
without cause.
ANNUAL REPORT AND FORM 10-K
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1996 has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. The Annual
Report is not incorporated into this Proxy Statement and is not considered proxy
soliciting material.
The Company files an Annual Report on Form 10-K with the Securities and
Exchange Commission. Stockholders may obtain a copy of this report, without
charge, by writing to "Investor Relations Department" at the Company's principal
executive offices, 26651 West Agoura Road, Calabasas, CA 91302.
19
<PAGE> 24
OTHER MATTERS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's annual meeting of stockholders in 1998
must be received by the Company no later than February 28, 1998 in order that
they may be included in the proxy statement and form of proxy relating to that
meeting.
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is granted
by the execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
Dated: April 25, 1997
20
<PAGE> 25
PROXY ON ASSIGNMENT, INC. PROXY
26651 West Agoura Road, Calabasas, CA 91302
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders and the Proxy Statement and
appoints H. Tom Buelter and Ronald W. Rudolph and each of them, the Proxy of the
undersigned, with full power of substitution, to vote all shares of Common Stock
of On Assignment, Inc. (the "Company") held of record by the undersigned on
April 15, 1997, either on his or her own behalf or on behalf of any entity or
entities, at the Annual Meeting of Stockholders of the Company to be held June
9, 1997, and at any adjournment or postponement thereof, with the same force and
effect as the undersigned might or could do if personally present thereat. The
shares represented by this Proxy shall be voted in the manner set forth below.
1. To elect the following directors to serve until the 2000 annual meeting of
stockholders or until his or her respective successor is elected and
qualified:
<TABLE>
<CAPTION>
FOR WITHHOLD AUTHORITY TO VOTE
---- -----------------------------
<S> <C> <C>
Karen Brenner [ ] [ ]
Jeremy M. Jones [ ] [ ]
</TABLE>
2. To approve an amendment to the Company's 1987 Restated Stock Option Plan
(the "Option Plan") to increase by 500,000 the number of shares of the
Company's Common Stock reserved for issuance under the Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To ratify the Board of Director's selection of Deloitte & Touche LLP to
serve as the Company's independent accountants for the fiscal year ending
December 31, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
<PAGE> 26
This Proxy, when properly executed, will be voted in the manner directed herein.
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS LISTED AND FOR THE
OTHER PROPOSALS IF NO SPECIFICATION IS MADE.
Please sign exactly as your name(s) is (are) shown on the stock certificate to
which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or guardian,
please give full title, as such. If a corporation, please sign in full corporate
name by the President or other authorized officer. If a partnership, please sign
in the partnership's name by an authorized person.
Dated: , 1997
-----------------
-----------------------------
Signature
-----------------------------
Signature if held jointly
Please mark, sign, date and
return the proxy card
promptly using the enclosed
envelope.
<PAGE> 27
ON ASSIGNMENT, INC.
RESTATED 1987 STOCK OPTION PLAN
ARTICLE ONE
GENERAL
I. PURPOSES OF THE PLAN
A. This Restated 1987 Stock Option Plan (the "Plan") is
intended to promote the interests of On Assignment, Inc., a Delaware
corporation (the "Company"), by providing a method whereby eligible individuals
may be offered incentives and rewards which will encourage them to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Company and continue to render services to the Company (or its parent or
subsidiary corporations). This restatement of the Plan shall become effective
on the date on which the restatement is adopted by the Board, subject to the
approval of the stockholders ("Effective Date").
B. For purposes of the Plan, the following provisions
shall be applicable in determining the parent and subsidiary corporations of
the Company:
(i) Any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company
shall be considered to be a PARENT corporation of the Company,
provided each such corporation in the unbroken chain (other than the
Company) owns, at the time of the determination, 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.
(ii) Each corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company shall be considered to be a SUBSIDIARY of the Company,
provided each such corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, 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.
II. STRUCTURE OF THE PLAN
A. Option Programs. The Plan shall be divided into two
separate components: the Discretionary Option Grant Program described in
Article Two and the Automatic Option Grant Program described in Article Three.
Under the Discretionary Option Grant Program, eligible individuals may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock in accordance with the provisions of Article Two. Under the
Automatic Option Grant Program, each eligible member of the Company's Board of
Directors (the "Board") will automatically receive an option grant to purchase
shares of Common Stock in accordance with the provisions of Article Three.
B. General Provisions. Unless the context clearly
indicates otherwise, the provisions of Articles One and Four of the Plan shall
apply to the Discretionary Option Grant Program and the Automatic Option Grant
Program and shall accordingly govern the interests of all individuals under the
Plan.
<PAGE> 28
III. ADMINISTRATION OF THE PLAN
A. The Discretionary Option Grant Program shall be
administered by one or more committees comprised of Board members. The primary
committee (the "Primary Committee") shall be comprised of two or more
non-employee Board members and shall have sole and exclusive authority to grant
stock options and stock appreciation rights under the Discretionary Option
Grant Program to officers and employee-directors of the Company subject to the
short-swing profit restrictions of the Federal securities laws. Stock options
may be granted under the Discretionary Option Grant Program to all other
eligible employees and consultants by either the Primary Committee or a second
committee comprised of one or more Board members (the "Secondary Committee").
The members of the Primary Committee and the Secondary Committee shall each
serve for such period of time as the Board may determine and shall be subject
to removal by the Board at any time.
B. No Board member shall be eligible to serve on the
Primary Committee if such individual has, within the twelve (12)- month period
immediately preceding the date he or she is to be appointed to the Committee,
received an option grant or stock award under this Plan or any other stock plan
of the Company, its parent or subsidiary corporation, other than pursuant to
the Automatic Option Grant Program in effect under Article Three.
C. Subject to the limited authority provided the
Secondary Committee to effect option grants in accordance with the provisions
of Section III.A of this Article One, the Primary Committee shall serve as the
Plan Administrator and shall have full power and authority (subject to the
express provisions of the Discretionary Option Grant Program) to establish such
rules and regulations as it may deem appropriate for the proper administration
of such program and to make such determinations under the program and any
outstanding option as it may deem necessary or advisable. Decisions of the
Plan Administrator shall be final and binding on all parties with an interest
in the Plan or any outstanding option under this Discretionary Option Grant
Program. Service on the Primary or Secondary Committee shall constitute
service as a Board member, and members of either Committee shall accordingly be
entitled to full indemnification and reimbursement as Board members for their
service on either Committee. No member of the Primary or Secondary Committee
shall be liable for any act or omission made in good faith with respect to the
Plan or any option granted under the Plan.
D. Administration of the Automatic Option Grant Program
shall be self-executing in accordance with the express terms and conditions of
Article Three.
IV. ELIGIBILITY FOR OPTION GRANTS
A. The persons eligible to receive option grants under
Article Two shall be limited to the following:
(i) key employees (including officers
and directors) of the Company (or its parent or subsidiary
corporations) who render services which contribute to the success and
growth of the Company (or its parent or subsidiary corporations) or
which may reasonably be anticipated to contribute to the future
success and growth of the Company (or its parent or subsidiary
corporations); and
(ii) those consultants or independent
contractors who provide valuable services to the Company (or its
parent or subsidiary corporations).
<PAGE> 29
(iii) From and after the first date on
which the shares of the Company's common stock are registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"IPO Effective Date"), non-employee members of the Board or the
non-employee members of the board of directors of any parent
corporation shall not be eligible to participate in the Discretionary
Option Grant Program or in any other stock option, stock purchase,
stock bonus or other stock plan of the Company (or its parent or
subsidiary corporations). However, non-employee members of the Board
shall be eligible to receive automatic option grants pursuant to the
provisions of Article Three.
B. The Plan Administrator shall have full authority to
determine which eligible individuals are to receive option grants under the
Discretionary Option Grant Program, the number of shares to be covered by each
such grant, whether the granted option is to be an incentive stock option
("Incentive Option") which satisfies the requirements of Section 422 of the
Internal Revenue Code or a non-statutory option not intended to meet such
requirements, the time or times at which each such option is to become
exercisable, and the maximum term for which the option is to be outstanding.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
the Company's authorized but unissued or reacquired Common Stock. The
aggregate number of shares which may be issued under the Plan shall not exceed
2,000,000 shares, which includes an increase of 500,000 shares authorized by
the Board under the Plan on February 13, 1997 and which increase is subject to
stockholder approval at the 1997 Annual Stockholders Meeting. The total number
of shares issuable under the Plan shall be subject to adjustment from time to
time in accordance with the provisions of this Section V. In no event may any
one individual participating in the Plan be granted stock options for more than
250,000 shares of Common Stock over the remaining term of the Plan. For
purposes of this limitation, any option grants made prior to December 31, 1993
will not be taken into account.
B. Should an option expire or terminate for any reason
prior to exercise or surrender in full (including options canceled in
accordance with the cancellation-regrant provisions of Section IV of Article
Two), the shares subject to the portion of the option not so exercised or
surrendered shall be available for subsequent option grants under the Plan.
Shares subject to any option or portion thereof canceled in accordance with
Section V of Article Two or Section III of Article Three and shares repurchased
by the Company pursuant to its repurchase rights under the Plan shall not be
available for subsequent option grants under the Plan. In addition, should the
exercise price of an outstanding option under the Plan be paid with shares of
Common Stock, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised, and not by the net number of shares of Common Stock
actually issued to the option holder.
C. In the event any change is made to the Common Stock
issuable under the Plan by reason of (a) any Corporate Transaction (as defined
in Section III of Article Two) or (b) any stock split, stock dividend,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without receipt of consideration, then
unless such change results in the termination of all outstanding options under
the Plan as a result of the Corporate Transaction, appropriate adjustments
shall be made to (i) the aggregate class and/or number of shares issuable under
the Plan, (ii) the class and/or number of shares and price per share of the
Common Stock subject to each outstanding option under the Discretionary Option
Grant Program, (iii) the number and/or class of shares per non-employee Board
member for
<PAGE> 30
which automatic option grants are subsequently to be made under the Automatic
Option Grant Program, and (iv) the number and/or class of shares and price per
share of the Common Stock in effect under each automatic grant outstanding
under the Automatic Option Grant Program. Such adjustments to the outstanding
options are to be effected in a manner which shall preclude the enlargement or
dilution of rights and benefits under such options. The adjustments determined
by the Plan Administrator shall be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Article Two shall be
authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees may only be granted non- statutory
options. Each granted option shall be evidenced by one or more instruments in
the form approved by the Plan Administrator; provided, however, that each such
instrument shall comply with and incorporate the terms and conditions specified
below. Each instrument evidencing an Incentive Option shall, in addition, be
subject to the applicable provisions of Section II of this Article Two.
A. Option Price.
1. The option price per share shall be fixed by
the Plan Administrator, provided, however, that in no event shall the option
price per share be less than eighty-five percent (85%) of the fair market value
of a share of Common Stock on the date of the option grant.
2. The option price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section VI
of this Article Two and the instrument evidencing the grant, be payable in one
of the alternative forms specified below:
(i) cash or check made payable to the
Company's order;
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Company's earnings
for financial reporting purposes and valued at Fair Market Value on
the Exercise Date (as such terms are defined below); or
(iii) through a broker-dealer sale and
remittance procedure pursuant to which the optionee shall provide
irrevocable written instructions (I) to the designated broker-dealer
to effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds an amount equal to the aggregate
option price payable for the purchased shares plus all applicable
Federal and state income and employment taxes required to be withheld
by the Company by reason of such purchase and (II) to the Company to
deliver the certificates for the purchased shares directly to such
broker- dealer.
For purposes of this subparagraph 2, the Exercise Date shall
be the first date on which the Company shall have received written notice of
the exercise of the option. Except to the extent the sale and remittance
procedure is utilized in connection with the exercise of the option, payment of
the option price for the purchased shares must accompany such notice.
<PAGE> 31
3. The Fair Market Value of a share of Common
Stock on any relevant date under subparagraph 1 or 2 above (and for all other
valuation purposes under the Plan) shall be determined in accordance with the
following provisions:
- If the Common Stock is not at the time listed
or admitted to trading on any stock exchange but is traded on the
NASDAQ National Market System, the fair market value shall be the
closing price of one share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers through its NASDAQ system or any successor system. If there
is no closing price for the Common Stock on the date in question, then
the closing price on the last preceding date for which such quotation
exists shall be determinative of fair market value.
- If the Common Stock is at the time listed or
admitted to trading on any national stock exchange, then the Fair
Market Value shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of Common Stock on
such exchange on the date in question, then the Fair Market Value
shall be the closing selling price on the exchange on the last
preceding date for which such quotation exists.
- If the Common Stock is at the time neither
listed nor admitted to trading on any stock exchange nor traded on the
NASDAQ National Market System, or if the Plan Administrator determines
that the value determined pursuant to the preceding paragraphs does
not reflect Fair Market Value, then the Fair Market Value shall be
determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
B. Term and Exercise of Options. Each option granted
under this Article Two shall be exercisable at such time or times, during such
period, and for such number of shares as shall be determined by the Plan
Administrator and set forth in the stock option agreement evidencing such
option; provided, however, that no such option shall have a term in excess of
ten (10) years from the grant date. During the lifetime of the optionee, the
option shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee otherwise than by will or by the laws of descent
and distribution.
C. Termination of Service.
1. Except to the extent otherwise provided
pursuant to Section VII of this Article Two, the following provisions shall
govern the exercise period applicable to any options held by the optionee at
the time of cessation of Service or death.
- Should the optionee cease to remain in
Service for any reason other than death or permanent disability, then
the period for which each outstanding option held by such optionee is
to remain exercisable shall be limited to the three (3)-month period
following the date of such cessation of Service.
- In the event such Service terminates by
reason of permanent disability (as defined in Section 22(e)(3) of the
Internal Revenue Code), then the period for which each outstanding
option held by the optionee is to remain
<PAGE> 32
exercisable shall be limited to the twelve (12)-month period following
the date of such cessation of Service.
- Should the optionee die while in Service or
during the three (3)-month period following his or her cessation of
Service, then the period for which each of his or her outstanding
options is to remain exercisable shall be limited to the three
(3)-year period following the date of the optionee's cessation of
Service. During such limited period, the option may be exercised by
the personal representative of the optionee's estate or by the person
or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and
distribution.
- Under no circumstances, however, shall any
such option be exercisable after the specified expiration date of the
option term.
- Each such option shall, during such limited
exercise period, be exercisable for any or all of the shares for which
the option is exercisable on the date of the optionee's cessation of
Service. Upon the expiration of such limited exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate and cease to be exercisable.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to permit one or more options held by the
optionee under this Article Two to be exercised, during the limited period of
exercisability provided under subparagraph 1 above, not only with respect to
the number of shares for which each such option is exercisable at the time of
the optionee's cessation of Service but also with respect to one or more
subsequent installments of purchasable shares for which the option would
otherwise have become exercisable had such cessation of Service not occurred.
3. For purposes of the foregoing provisions of
this paragraph I.C (and all other provisions of the Plan), unless it is
evidenced otherwise in the specific option agreement evidencing the option
grant and/or the purchase agreement evidencing the purchased optioned shares,
the optionee shall be deemed to remain in SERVICE for so long as such
individual renders services on a periodic basis to the Company or any parent or
subsidiary corporation in the capacity of an Employee, a non-employee member of
the Board or an independent consultant or advisor. The optionee shall be
considered to be an EMPLOYEE for so long as such individual remains in the
employ of the Company or one or more of its parent or subsidiary corporations
subject to the control and direction of the employer entity not only as to the
work to be performed but also as to the manner and method of performance.
D. Stockholder Rights. An optionee shall have none of
the rights of a stockholder with respect to any shares covered by the option
until such individual shall have exercised the option, paid the exercise price
for the purchased shares and been issued a stock certificate for such shares.
E. Repurchase Rights. The shares of Common Stock
acquired upon the exercise of options granted under this Article Two may be
subject to one or more repurchase rights of the Company in accordance with the
following provisions:
1. The Plan Administrator may in its discretion
determine that it shall be a term and condition of one or more options
exercised under this Article Two that the
<PAGE> 33
Company (or its assignees) shall have the right, exercisable upon the
optionee's cessation of Service, to repurchase at the option price all or (at
the discretion of the Company and with the consent of the optionee) any portion
of the shares of Common Stock previously acquired by the optionee upon the
exercise of such option. Any such repurchase right shall be exercisable by the
Company (or its assignees) upon such terms and conditions (including the
establishment of the appropriate vesting schedule and other provision for the
expiration of such right in one or more installments over the optionee's period
of Service) as the Plan Administrator may specify in the instrument evidencing
such right.
2. All of the Company's outstanding repurchase
rights shall automatically terminate, and all shares subject to such terminated
rights shall immediately vest in full, upon the occurrence of any Corporate
Transaction under Section III of this Article Two; provided, however, that no
such termination of the repurchase rights or immediate vesting of the shares
shall occur if (and to the extent): (i) the Company's outstanding repurchase
rights are to be assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination of
repurchase rights and acceleration of vesting are precluded by other
limitations imposed by the Plan Administrator at the time of the option grant.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable
to all Incentive Options granted under this Article Two. Incentive Options may
only be granted to individuals who are Employees. Options which are
specifically designated as "non-statutory" options when issued under the Plan
shall not be subject to such terms and conditions.
A. Option Price. The option price per share of the
Common Stock subject to an Incentive Option shall in no event be less than one
hundred percent (100%) of the Fair Market Value of a share of Common Stock on
the date of grant.
B. Dollar Limitation. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock
for which one or more options granted to any Employee under this Plan (or any
other option plan of the Company or its parent or subsidiary corporations) may
for the first time become exercisable as Incentive Options under the Federal
tax laws during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability thereof as Incentive Options
under the Federal tax laws shall be applied on the basis of the order in which
such options are granted.
C. 10% Stockholder. If any individual to whom an
Incentive Option is to be granted pursuant to the provisions of the Plan is on
the date of grant the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any one of its
parent or subsidiary corporations (such person to be herein referred to as a
10% Stockholder), then the option price per share shall not be less than one
hundred and ten percent (110%) of the Fair Market Value per share of Common
Stock on the date of grant and the option term shall not exceed five (5) years
measured from the grant date.
Except as modified by the preceding provisions of this Section
II, all the provisions of the Plan shall be applicable to the Incentive Options
granted hereunder.
III. CORPORATE TRANSACTIONS
<PAGE> 34
A. In the event of any of the following
stockholder-approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which
the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the state of the Company's
incorporation;
(ii) the sale, transfer or other
disposition of all or substantially all of the assets of the Company;
or
(iii) any reverse merger in which the
Company is the surviving entity but in which fifty percent (50%) or
more of the Company's outstanding voting stock is transferred to
holders different from those who held the stock immediately prior to
such merger,
then each option outstanding under this Article Two shall be automatically
accelerated so that each such option shall, immediately prior to the specified
effective date for such Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock purchasable under such
option and may be exercised for all or any portion of such shares. However, no
option shall be so accelerated if and to the extent (i) such option is to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable option to purchase shares of the capital stock of such successor
corporation or parent thereof or (ii) such acceleration is subject to other
applicable limitations imposed by the Plan Administrator in the relevant option
agreement.
B. In connection with any such Corporate Transaction,
the exercisability as an incentive stock option under the Federal tax laws of
any accelerated options under this Article Two shall remain subject to the
applicable dollar limitation of paragraph II.B of this Article Two.
C. The grant of options under this Article Two shall in
no way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
D. Upon the consummation of the Corporate Transaction,
all outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two and to
grant in substitution therefor new options under the Plan covering the same or
different numbers of shares of Common Stock but having an option price per
share not less than eighty-five percent (85%) of Fair Market Value (one hundred
percent (100%) of such Fair Market Value in the case of an Incentive Option or
one hundred and ten percent (110%) of such Fair Market Value in the case of an
Incentive Option granted to a 10% Stockholder) on the date of grant.
V. SURRENDER OF OPTIONS FOR CASH OR STOCK
A. Provided and only if the Plan Administrator
determines in its discretion to implement the stock appreciation right
provisions of this Section V, one or more optionees may
<PAGE> 35
be granted the right, exercisable upon such terms and conditions as the Plan
Administrator may establish at the time of the option grant or at any time
thereafter, to surrender all or part of an unexercised option under this
Article Two in exchange for a distribution from the Company, payable in cash or
in shares of Common Stock, equal in amount to the excess of (i) the Fair Market
Value (at date of surrender) of the number of shares in which the optionee is
at the time vested under the surrendered option or portion thereof over (ii)
the aggregate option price payable for such vested shares.
B. No surrender of an option shall be effective
hereunder unless it is approved by the Plan Administrator. If the surrender is
so approved, then the distribution to which the optionee shall accordingly
become entitled under this Section V may be made in shares of Common Stock
valued at Fair Market Value at date of surrender, in cash, or partly in shares
and partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the optionee shall retain whatever rights the optionee had
under the surrendered option (or surrendered portion thereof) on the date of
surrender and may exercise such rights at any time prior to the later of (i)
five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised at any time after ten (10) years (or five (5) years in the case of
a 10% Stockholder) after the date of the option grant.
D. One or more officers of the Company subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights
in tandem with their outstanding options under this Article Two. Each
outstanding option with such a limited stock appreciation right in effect for
at least six (6) months shall automatically be canceled, to the extent
exercisable for vested shares of Common Stock, upon the occurrence of a Hostile
Take-Over, and the optionee shall in return be entitled to a cash distribution
from the Company in an amount equal to the excess of (i) the Take-Over Price of
the number of shares in which the optionee is at the time vested under the
canceled option or canceled portion over (ii) the aggregate option price
payable for such vested shares. Such cash distribution shall be made within
five (5) days following the consummation of the Hostile Take-Over. Neither the
approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option cancellation and cash distribution.
The balance (if any) of each such option shall continue in full force and
effect in accordance with the terms and conditions of the instrument evidencing
such grant.
E. For purposes of paragraph V.D, the following
definitions shall be in effect:
A Hostile Take-Over shall be deemed to occur in the
event (i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company) directly
or indirectly acquires beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Act of 1934, as amended (the
"1934 Act")) of securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders which the Board does not recommend such
stockholders to accept and (ii) more than fifty percent (50%) of the
securities so acquired in such tender or exchange offer are accepted
from holders other than Company officers and directors participating
in the Plan.
<PAGE> 36
The Take-Over Price per share shall be deemed to be
equal to the greater of (a) the Fair Market Value per share on the
date of cancellation, as determined pursuant to the valuation
provisions of paragraph I.A.3 of this Article Two, or (b) the highest
reported price per share paid in effecting such Hostile Take-Over.
However, if the canceled option is an Incentive Option, the Take-Over
Price shall not exceed the clause (a) price per share.
F. The shares of Common Stock subject to any option
surrendered or canceled for an appreciation distribution pursuant to this
Section V shall NOT be available for subsequent option grants under the Plan.
VI. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may assist any optionee
(including any officer or director) in the exercise of one or more options
under this Article Two by (a) authorizing the extension of a loan to such
optionee from the Company or (b) permitting the optionee to pay the option
price for the purchased Common Stock in installments over a period of years.
The terms of any loan or installment method of payment (including the interest
rate and terms of repayment) will be established by the Plan Administrator in
its sole discretion. Loans and installment payments may be granted without
security or collateral (other than loans to optionees who are consultants or
independent contractors, which must be adequately secured by collateral other
than the purchased shares), but the maximum credit available to the optionee
shall not exceed the sum of (i) the aggregate option price payable for the
purchased shares (less the par value) plus (ii) any Federal and state income
and employment tax liability incurred by the optionee in connection with the
exercise of the option.
B. The Plan Administrator may, in its absolute
discretion, determine that one or more loans extended under Section VI.A above
shall be subject to forgiveness by the Company in whole or in part upon such
terms and conditions as the Plan Administrator in its discretion deems
appropriate.
VII. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority,
exercisable in its sole discretion to extend, either at the time when the
option is granted or at any time while the option remains outstanding, the
period of time for which any option granted under this Article Two is to remain
exercisable following the optionee's cessation of Service from the period set
forth in the option agreement to such greater period of time as the Plan
Administrator shall deem appropriate; provided, however, that in no event shall
such option be exercisable after the specified expiration date of the option
term.
<PAGE> 37
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants
pursuant to the provisions of this Article Three shall be limited to the
following:
(1) each individual who is serving as a
non-employee member of the Board on the IPO Effective Date; and
(2) each individual who is first appointed or
elected as a non-employee Board member at any time after the IPO
Effective Date.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants will be made under this
Article Three on the dates specified below:
(i) Each individual who has not
previously been an Employee, and who first becomes a non- employee
Board member at any time after the IPO Effective Date, whether through
election at an Annual Stockholders Meeting or through appointment by
the Board, shall automatically be granted, at the time of such initial
election or appointment, a non- statutory stock option to purchase
9,000 shares of Common Stock.
(ii) Commencing with the 1993 Annual
Stockholders Meeting and each subsequent Annual Stockholders Meeting
until 1996, each individual who is at the time serving as a
non-employee member of the Board shall receive a grant of a
non-statutory option to purchase 1,500 shares of Common Stock,
provided such individual has been a member of the Board for at least
six (6) months.
(iii) Commencing with the 1996 Annual
Stockholders Meeting and each subsequent Annual Stockholders Meeting,
each individual who is at the time serving as a non-employee member of
the Board shall receive a grant of a non- statutory option to purchase
3,000 shares of Common Stock, instead of the 1,500 shares under
Section II.A(ii) above.
The 9,000-share limitation, 1,500-share limitation and
3,000-share limitation on the automatic option grant to be made to each
non-employee Board member shall be subject to periodic adjustment pursuant to
the applicable provisions of Section V.C of Article One.
B. Exercise Price. The exercise price per share shall
be equal to one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the automatic grant date.
<PAGE> 38
C. Payment.
The exercise price shall be payable in one of the
alternative forms specified below:
(i) cash or check made payable to the
Company's order;
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Company's earnings
for financial reporting purposes and valued at Fair Market Value on
the Exercise Date (as such terms are defined in paragraph I.A of
Article Two); or
(iii) through a broker-dealer sale and
remittance procedure pursuant to which the optionee shall provide
irrevocable written instructions (I) to the designated broker-dealer
to effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds an amount equal to the aggregate
option price payable for the purchased shares plus all applicable
Federal and state income and employment taxes required to be withheld
by the Company by reason of such purchase and (II) to the Company to
deliver the certificates for the purchased shares directly to such
broker- dealer.
Except to the extent the sale and remittance procedure
specified above is utilized for the exercise of the option, payment of the
exercise price for the purchased shares must accompany the written notice of
option exercise.
D. Option Term. Each automatic grant under this Article
Three shall have a maximum term of ten (10) years measured from the automatic
grant date.
E. Exercisability. Each annual automatic grant for
1,500 shares shall be immediately exercisable in full for the option shares.
Each annual automatic grant for 3,000 shares shall be immediately exercisable
in full for the option shares, provided that the optionee has been a member of
the Board for six (6) months on the annual automatic grant date; if the
optionee has not been a member of the Board for six (6) months on the annual
automatic grant date, such automatic option grant shall become exercisable in
full for the option shares on the date six (6) months following the annual
automatic grant date. Each initial automatic grant for 9,000 shares shall
become exercisable for the option shares in three (3) installments as follows:
(i) The option shall become exercisable
for one-third (1/3) of the option shares upon completion of twelve
(12) months of Board service measured from the automatic grant date.
(ii) The option shall become exercisable
for an additional one-third (1/3) of the option shares upon the
completion of twenty-four (24) months of Board service measured from
the automatic grant date.
(iii) The option shall become exercisable
for the final one-third (1/3) of the option shares upon the completion
of thirty-six (36) months of Board service measured from the automatic
grant date.
As the option becomes exercisable for one or more installments
of the option shares, the installments shall accumulate, and the option shall
remain exercisable for the accumulated
<PAGE> 39
installments until the expiration or sooner termination of the option term.
The option, however, shall not become exercisable for any additional option
shares following the optionee's cessation of Board service, except to the
extent the option is otherwise to become exercisable in accordance with the
provisions of Section III of this Article Three.
F. Non-Transferability. During the lifetime of the
optionee, the option shall be exercisable only by the optionee and shall not be
assignable or transferable by the optionee otherwise than by will or by the
laws of descent and distribution following the optionee's death.
G. Effect of Termination of Board Membership.
1. Should the optionee cease to be a Board
member for any reason (other than death) while holding an automatic option
grant under this Article Three, then such optionee shall have a six (6)-month
period following the date of such cessation of Board membership in which to
exercise such option for any or all of the shares of Common Stock for which the
option is exercisable at the time the optionee ceases service as a Board
member.
2. Should the optionee die while serving as a
Board member or during the six (6)-month period following his or her cessation
of Board service, then the option may subsequently be exercised, for any or all
of the shares of Common Stock for which the option is exercisable at the time
of the optionee's cessation of Board membership, by the personal representative
of the optionee's estate or by the person or persons to whom the option is
transferred pursuant to the optionee's will or in accordance with the laws of
descent and distribution. Any such exercise must, however, occur within three
(3) years after the date of the optionee's cessation of Board service.
3. In no event shall any automatic grant under
this Article Three remain exercisable after the specified expiration date of
the ten (10)-year option term. Upon the expiration of the applicable exercise
period in accordance with subparagraphs 1 and 2 above or (if earlier) upon the
expiration of the ten (10)-year option term, the automatic grant shall
terminate and cease to be exercisable.
H. Stockholder Rights. The holder of an automatic
option grant under this Article Three shall have no stockholder rights with
respect to any shares covered by such option until such individual shall have
exercised the option, paid the exercise price for the purchased shares and been
issued a stock certificate for such shares.
I. Remaining Terms. The remaining terms and conditions
of each automatic option grant shall be as set forth in the prototype
Non-Employee Director Automatic Grant Agreement.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction (as such
term is defined in Section III of Article Two), then the exercisability of each
automatic option grant outstanding under this Article Three shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares. Upon
the consummation of the Corporate Transaction, all automatic option grants
under this Article Three shall terminate and cease to be outstanding.
<PAGE> 40
B. In connection with any Change in Control of the
Company, the exercisability of each automatic option grant at the time
outstanding under this Article Three shall automatically accelerate so that
each such option shall, immediately prior to the specified effective date for
the Change in Control, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. For purposes of this Article
Three, a Change in Control shall be deemed to occur in the event:
(i) any person or related group of
persons (other than the Company or a person that directly or
indirectly controls, is controlled by, or is under common control
with, the Company) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities pursuant
to a tender or exchange offer made directly to the Company's
stockholders which the Board does not recommend such stockholders to
accept; or
(ii) there is a change in the composition
of the Board over a period of twenty-four (24) consecutive months or
less such that a majority of the Board members (rounded up to the next
whole number) cease, by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least two-thirds of the Board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
C. Upon the occurrence of a Hostile Take-Over, each
automatic option grant which has been outstanding under this Article Three for
a period of at least six (6) months shall automatically be canceled in return
for a cash distribution from the Company in an amount equal to the excess of
(i) the Take-Over Price of the shares of Common Stock at the time subject to
the canceled option (whether or not the option is otherwise at the time
exercisable for such shares) over (ii) the aggregate exercise price payable for
such shares. The cash distribution payable upon such cancellation shall be
made within five (5) days following the consummation of the Hostile Take-Over.
Neither the approval of the Plan Administrator nor the consent of the Board
shall be required in connection with such option cancellation and cash
distribution.
D. For purposes of this Article Three, Hostile Take-Over
shall have the meaning assigned to such term in paragraph V.E of Article Two.
The Take-Over Price per share shall be deemed to be equal to the greater of (a)
the Fair Market Value per share on the date of cancellation, as determined
pursuant to the valuation provisions of paragraph I.A.3 of Article Two, or (b)
the highest reported price per share paid in effecting such Hostile Take-Over.
E. The shares of Common Stock subject to each option
canceled in connection with the Hostile Take-Over shall NOT be available for
subsequent issuance under this Plan.
F. The automatic option grants outstanding under this
Article Three shall in no way affect the right of the Company to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
<PAGE> 41
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program,
including any automatic option grants outstanding under this Article Three, may
not be amended at intervals more frequently than once every six (6) months,
other than to the extent necessary to comply with applicable Federal income tax
laws and regulations.
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever;
provided, however, that (i) no such amendment or modification shall, without
the consent of the holders, adversely affect rights and obligations with
respect to options at the time outstanding under the Plan and (ii) any
amendment to the Automatic Option Grant Program (or any options outstanding
thereunder) shall be in compliance with the limitation of Section IV of Article
Three. In addition, the Board shall not, without the approval of the
stockholders of the Company (i) increase the maximum number of shares issuable
under the Plan, except for permissible adjustments under Section V.C of Article
One, (ii) materially modify the eligibility requirements for the grant of
options under the Plan or (iii) otherwise materially increase the benefits
accruing to participants under the Plan.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was restated on June 22, 1992 to be
effective on the IPO Effective Date, and the Company's stockholders approved
the restatement on September 4, 1992. Article One, Section III of the Plan was
subsequently amended to permit the establishment of a secondary committee to
administer the Plan. Such amendment became effective on the September 30, 1992
date of its approval by the Board. The Plan was restated on October 13, 1993
to (i) amend the automatic grant program under the Option Plan to increase to
9,000 from 3,000 the number of shares awarded to non-employee directors upon
initial election or appointment and to delete vesting restrictions for the
annual 1,500-share automatic option grants and (ii) limit the maximum number of
shares for which any individual participant may be granted stock options over
the remaining term of the Option Plan. The Plan was restated on December 7,
1995 to (i) amend the automatic grant program under the Option Plan to increase
to 3,000 from 1,500 the number of shares awarded to each non-employee director
upon each annual meeting of the Company's stockholders and (ii) eliminate the
six-month service requirement for receiving such automatic annual grants,
provided that the annual option grants to non- employee directors who have not
served as Board members for at least six (6) months prior to the date of such
annual grant shall become exercisable six (6) months after the date of such
grant. The Plan was restated on February 13, 1997 to increase by 500,000 the
number of shares of the Company's Common Stock reserved for issuance under the
Plan from 1,500,000 shares to 2,000,000 shares. If stockholder approval is not
obtained within twelve (12) months after the February 13, 1997 date of the
Board's approval of the share increase under the Plan, then any options granted
on the basis of such share increase shall terminate and cease to be
outstanding.
B. The provisions of this 1997 restatement shall apply
only to options granted under the Plan from and after the Effective Date. Each
option issued and outstanding under the Plan immediately prior to the Effective
Date shall continue to be governed by the terms and conditions of the Plan (and
the instrument evidencing such grant) as in effect on the date each such option
was previously granted, and nothing in this restatement shall be deemed to
affect or
<PAGE> 42
otherwise modify the rights or obligations of the holders of such prior options
with respect to the acquisition of shares of Common Stock thereunder.
C. The option acceleration provisions of Section III of
Article Two relating to Corporate Transactions may, in the Plan Administrator's
discretion, be extended to one or more outstanding stock options under the Plan
which were granted prior to the IPO Effective Date and which do not otherwise
provide for such acceleration.
D. The sale and remittance procedure authorized for the
exercise of outstanding options under this Plan shall be available for all
options granted under this Plan on or after the IPO Effective Date and all
non-statutory options outstanding under the Plan.
E. The Plan shall terminate upon the earlier of (i) June
21, 2002 or (ii) the date on which all shares available for issuance under the
Plan shall have been issued or canceled pursuant to the exercise or surrender
of options granted hereunder. If the date of termination is determined under
clause (i) above, then options outstanding on such date shall thereafter
continue to have force and effect in accordance with the provisions of the
instruments evidencing such options.
F. Options may be granted under this Plan to purchase
shares of Common Stock in excess of the number of shares then available for
issuance under the Plan, provided (i) an amendment to increase the maximum
number of shares issuable under the Plan is adopted by the Board prior to the
initial grant of any such option and within one year thereafter such amendment
is approved by the stockholders of the Company and (ii) each option granted is
not to become exercisable, in whole or in part, at any time prior to the
obtaining of such stockholder approval.
III. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of
shares pursuant to options granted under the Plan shall be used for general
corporate purposes.
IV. WITHHOLDING
The Company's obligation to deliver shares upon the exercise
or surrender of any options granted under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
V. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
option or surrender right hereunder, and the issuance of stock upon the
exercise or surrender of any such option shall be subject to the procurement by
the Company of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options granted under it and the stock
issued pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan, unless and until, in the opinion of counsel
for the Company (or its successor in the event of any Corporate Transaction),
there shall have been compliance with all applicable requirements of the
Federal and state securities exchange on which stock of the same class is then
listed, and all other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery.
<PAGE> 43
VI. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Company in establishing this Plan,
nor any action taken by the Board or the Plan Administrator hereunder, nor any
provision of this Plan shall be construed so as to grant any individual the
right to remain in the employ or Service of the Company (or any parent or
subsidiary corporation) for any period of specific duration, and the Company
(or any parent or subsidiary corporation retaining the services of such
individual) may terminate such individual's employment or Service at any time
and for any reason, with or without cause.
