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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
DUANE READE INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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DUANE READE INC.
440 NINTH AVENUE
NEW YORK, NEW YORK 10001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"1999 Annual Meeting") of DUANE READE INC., a Delaware corporation ("Duane
Reade"), to be held on Thursday, May 6, 1999, at 2:00 p.m., Eastern Standard
time at .
At the 1999 Annual Meeting, you will be asked to consider and vote upon the
following matters, all of which are described more completely in the
accompanying Proxy Statement:
1. To elect six persons to Duane Reade's Board of Directors to serve for
a term of one year and until the election and qualification of their
respective successors;
2. To approve Duane Reade's 1997 Equity Participation Plan, as amended,
to increase the number of shares of Common Stock authorized for issuance
over the term of the Plan by 650,000 shares;
3. To approve an amendment to Duane Reade's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock to 75,000,000; and
4. To transact such other business as may properly come before the 1999
Annual Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED IN THE PROXY STATEMENT, FOR THE PROPOSAL TO AMEND THE 1997 EQUITY
PARTICIPATION PLAN AND FOR THE PROPOSAL TO AMEND THE CERTIFICATE OF
INCORPORATION.
Only Stockholders of record at the close of business on April 5, 1999 are
entitled to notice of, and to vote at, the 1999 Annual Meeting.
We urge you to review carefully the Proxy Statement. We hope you will attend
the 1999 Annual Meeting. However, whether or not you plan to attend the 1999
Annual Meeting, it is important that your shares are represented. Accordingly,
please complete, sign and date the enclosed proxy and return it in the enclosed
prepaid envelope. If you are present at the 1999 Annual Meeting you may, if you
wish, withdraw your proxy and vote in person.
Very truly yours,
Anthony J. Cuti, Chairman of the Board of
Directors,
Chief Executive Officer and President
April , 1999
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 6, 1999
DUANE READE INC.
440 NINTH AVENUE
NEW YORK, NEW YORK 10001
To the Stockholders of DUANE READE INC.:
The Annual Meeting of Stockholders (the "1999 Annual Meeting") of DUANE
READE INC., a Delaware corporation, will be held at , on Thursday,
May 6, 1999, at 2:00 p.m., Eastern Standard time for the following purposes:
1. To elect six persons to Duane Reade's Board of Directors to serve
for a term of one year and until the election and qualification of their
respective successors;
2. To approve Duane Reade's 1997 Equity Participation Plan, as amended,
to increase the number of shares of Common Stock authorized for issuance
over the term of the Plan by 650,000 shares;
3. To approve an amendment to Duane Reade's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock to 75,000,000; and
4. To transact such other business as may properly come before the 1999
Annual Meeting and any adjournments or postponements thereof.
The Board of Directors of Duane Reade has fixed the close of business on
April 5, 1999 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the 1999 Annual Meeting or any
adjournments or postponements thereof. Only stockholders of record at the close
of business on the Record Date are entitled to notice of, and to vote at, the
1999 Annual Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED IN THE PROXY STATEMENT, FOR THE PROPOSAL TO AMEND THE 1997 EQUITY
PARTICIPATION PLAN AND FOR THE PROPOSAL TO AMEND THE CERTIFICATE OF
INCORPORATION.
Whether or not you plan to attend the 1999 Annual Meeting, please complete,
sign, date and return promptly the enclosed form of proxy. A return envelope is
enclosed for your convenience and requires no postage for mailing in the United
States.
BY ORDER OF THE BOARD OF DIRECTORS
William J. Tennant, Secretary
DUANE READE INC.
April , 1999
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DUANE READE INC.
440 Ninth Avenue
New York, New York 10001
INTRODUCTION
This Proxy Statement is furnished to the stockholders of Duane Reade Inc., a
Delaware Corporation (the "Company"), in connection with the solicitation of
proxies on behalf of the Company's Board of Directors (the "Board of Directors")
to be voted at the 1999 Annual Meeting of Stockholders (the "1999 Annual
Meeting") to be held on Thursday, May 6, 1999 at 2:00 p.m., Eastern Standard
time at , or at such other time and place to which the 1999 Annual
Meeting may be adjourned, for the purposes set forth in the accompanying Notice
of Meeting. This Proxy Statement and Notice of Meeting and the related proxy
card are first being mailed to stockholders beginning on or about April 12 ,
1999. The Company's principal executive office is located at 440 Ninth Avenue,
New York, New York, 10001.
RECORD DATE
The Board of Directors has fixed the close of business on April 5, 1999 as
the record date (the "Record Date") for the 1999 Annual Meeting. Only
stockholders of record on that date are entitled to vote at the meeting in
person or by proxy.
PROXIES
Anthony J. Cuti and William J. Tennant were appointed by the Board of
Directors to vote the shares represented by the proxy card. Upon receipt by the
Company of a properly signed and dated proxy card, the shares represented
thereby will be voted in accordance with the instructions on the proxy card. If
a stockholder does not return a signed proxy card, his or her shares cannot be
voted by proxy. Stockholders are urged to mark the boxes on the proxy card to
show how their shares are to be voted.
IF A STOCKHOLDER RETURNS A SIGNED PROXY CARD WITHOUT MARKING THE BOXES, THE
SHARES REPRESENTED BY THE PROXY CARD WILL BE VOTED AS RECOMMENDED BY THE BOARD
OF DIRECTORS HEREIN AND ON THE PROXY CARD:
(I) FOR THE ELECTION OF THE PERSONS NAMED UNDER "ELECTION OF DIRECTORS"
AS NOMINEES FOR ELECTION AS DIRECTORS OF THE COMPANY (EACH A "NOMINEE" AND,
COLLECTIVELY, THE "NOMINEES") FOR TERMS TO EXPIRE ON THE DATE OF THE FIRST
ANNUAL MEETING OF THE COMPANY'S STOCKHOLDERS FOLLOWING THE 1999 ANNUAL
MEETING,
(II) FOR THE PROPOSAL TO ADOPT THE 1997 EQUITY PARTICIPATION PLAN, AS
AMENDED, AND
(III) FOR THE PROPOSAL TO AMEND THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED.
The proxy card also confers discretionary authority on the proxies to vote
on any other matter not presently known to the Board of Directors that may
properly come before the meeting or any adjournment thereof. Any proxy delivered
pursuant to this solicitation is revocable at the option of the person(s)
executing the same (i) upon receipt by the Company before the proxy is voted of
a duly executed proxy bearing a later date, (ii) by written notice of revocation
to the Secretary of the Company received before the proxy is voted or (iii) by
such person(s) voting in person at the 1999 Annual Meeting. Duly executed
proxies in the form enclosed, unless properly revoked, will be voted at the 1999
Annual Meeting.
The expenses incidental to the preparation and mailing of this proxy
material are being paid by the Company. The Company will reimburse banks,
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to stockholders. To assure
that a quorum will be present in person or by proxy at the Annual Meeting, it
may be necessary for certain officers, directors, employees or other agents of
the Company to solicit proxies by telephone, facsimile or
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other means or in person. No other solicitation currently is planned beyond the
mailing of this proxy material to stockholders and to brokerage firms, nominees,
custodians and fiduciaries, who may be requested to forward the proxy materials
to the beneficial owners of shares held of record by them.
VOTING SHARES AND QUORUM REQUIRED
On the Record Date, the Company had outstanding shares of Common
Stock, par value $.01 per share (the "Common Stock"). Holders of Common Stock on
the Record Date are entitled to one vote per share on all matters submitted to a
vote of stockholders. The presence in person or by proxy of the holders of a
majority of the issued and outstanding Common Stock, excluding Common Stock held
by the Company, is necessary to constitute a quorum at the 1999 Annual Meeting.
The affirmative vote of a majority of the shares of Common Stock represented
in person or by proxy at the 1999 Annual Meeting is required to elect the
Directors, and a majority of the shares of Common Stock represented is required
to approve the proposal to amend the 1997 Equity Participation Plan. The
proposal to approve the increase in the number of authorized shares of Common
Stock requires the affirmative vote of a majority of the outstanding shares of
Common Stock. Business that might have been transacted at the 1999 Annual
Meeting as originally called may be conducted at any adjournment at which the
requisite quorum is present.
Pursuant to the laws of the State of Delaware, the inspectors of the
election will not count shares represented by proxies that reflect abstentions
or "broker non-votes" (i.e., shares held by brokers or nominees that are
represented at the 1999 Annual Meeting, but with respect to which the broker or
nominee is not empowered to vote on a particular proposal) as votes cast with
respect to the election of Directors, and therefore, neither abstentions nor
broker non-votes will affect the election of Nominees. With respect to all other
proposals scheduled to come before the 1999 Annual Meeting, abstentions with
respect to a particular proposal will have the effect of a vote against such
proposal. Broker non-votes, however, will be treated as unvoted for purposes of
determining approval of such proposal and will not be counted as votes for or
against such proposal.
MATTERS TO BE VOTED UPON
1. ELECTION OF DIRECTORS
The Company's by-laws (the "By-laws") provide for no fewer than two nor more
than fourteen directors, as determined by the Board of Directors, which has
fixed the number of directors at six. Each of these directors will be elected at
the 1999 Annual Meeting to serve for a term of one year, or until their
successors are elected and qualified.
Each of the Nominees has indicated a willingness to serve as a member of the
Board of Directors if elected. If any of the Nominees should become unavailable
prior to the 1999 Annual Meeting, the proxy will be voted for a substituted
Nominee or Nominees designated by the Board of Directors. The information
provided below with respect to the Nominees is as of the Record Date.
The names of the Nominees for election as directors are listed below,
together with certain personal information as at April 5, 1999, including the
present principal occupation and recent business experience of each Nominee.
Each of the Nominees currently serves on the Board of Directors. There are no
family relationships among any of the Company's current directors, executive
officers or the Board's proposed Nominees.
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<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS AGE SINCE
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<S> <C> <C>
Anthony J. Cuti................................................................................... 53 1996
Mr. Cuti has been President and Chief Executive Officer of the Company since April 1996. Prior to
joining the Company, Mr. Cuti served as President and as a member of the Board of Directors of
Supermarkets General and Pathmark from 1993 to 1996 and, prior to being named President of
Supermarkets General and Pathmark, Mr. Cuti was Executive Vice President and Chief Financial
Officer of Supermarkets General. From 1984 to 1990, he was the Chief Financial Officer of the
Bristol-Myers International Group of the Bristol-Myers Company and prior to that was employed by
the Revlon Corporation.
Nicole S. Arnaboldi............................................................................... 40 1997
Ms. Arnaboldi is a Managing Director of DLJ Merchant Banking II, Inc. ("DLJMB"). She joined the
DLJ Merchant Banking Group in March 1993 after six years with The Sprout Group, the venture
capital affiliate of Donaldson Lufkin & Jenrette Securities Corporation ("DLJ").
David L. Jaffe.................................................................................... 40 1997
Mr. Jaffe is a Managing Director of DLJMB. Mr. Jaffe joined DLJ in 1984 and became a Managing
Director of DLJMB in 1995. He currently sits on the Board of Directors of each of OSF, Inc.,
Target Media Partners (Toronto Stock Exchange), Terra Nova Group (New York Stock Exchange) and
Brand Scaffold Services, Inc.
Andrew J. Nathanson............................................................................... 41 1997
Mr. Nathanson is a Managing Director of DLJ. Mr. Nathanson joined DLJ in 1989 from Drexel Burnham
Lambert and has been a Managing Director of DLJ since 1991. Mr. Nathanson also serves on the Board
of Directors of Specialty Foods Corporation.
Kevin Roberg...................................................................................... 48 1998
Mr. Roberg is currently a private investor. From 1995 to 1998, Mr. Roberg served as Chief
Executive Officer and President of ValueRx. Prior to serving in this position, Mr. Roberg served
as Chief Executive Officer and President of Medintell Systems Corporation, which was acquired by
ValueRx in 1995. From 1994 to 1995, Mr. Roberg served as President-- Western Health Plans and
President--PRIMExtra, Inc. for EBP Health Plans, Inc. Mr. Roberg served as Division President and
Chief Operating Officer of Diversified Pharmaceutical Services (a subsidiary of United HealthCare
Corporation) from 1990 to 1994.
David W. Johnson.................................................................................. 67 1998
Since 1993, Mr. Johnson has served as Chairman of the Board of Campbell Soup Company (New York
Stock Exchange). Prior and in addition to holding this position, Mr. Johnson served as President
and Chief Executive Officer of Campbell Soup Company from 1990 to 1997. Mr. Johnson also serves on
the Board of Directors of Colgate Palmolive Company (New York Stock Exchange).
</TABLE>
ELECTION OF THE NOMINEES REQUIRES THE AFFIRMATIVE VOTE OF OF A MAJORITY OF
THE SHARES OF COMMON STOCK HELD BY HOLDERS PRESENT AT THE 1999 ANNUAL MEETING.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE FOREGOING NOMINEES FOR
ELECTION AS DIRECTORS AND URGES EACH STOCKHOLDER TO VOTE "FOR" ALL NOMINEES.
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2. PROPOSAL TO APPROVE THE 1997 EQUITY PARTICIPATION PLAN, AS AMENDED.
The Board recommends that the stockholders of the Company vote to approve
the Company's 1997 Equity Participation Plan, as amended by the First Amendment
thereto (the "Equity Plan"). The Board and the Company's stockholders previously
approved the Equity Plan in 1997 immediately prior to the Company's initial
public offering. Taking into account applicable changes to the Company's
capitalization, a total of 1,321,181 shares of Common Stock were originally
reserved for issuance under the Equity Plan when it was adopted in 1997.
By the terms of the Equity Plan, the Board may amend the Equity Plan from
time to time with respect to the number of shares reserved for issuance under
the Equity Plan, subject to stockholder approval. The Board believes it is in
the best interests of the Company to continue to incentivize its employees,
consultants, and directors who are not employees of the Company ("Independent
Directors") by granting options, awards of restricted stock, performance awards,
dividend equivalents, awards of deferred stock, stock payments or stock
appreciation rights ("Awards") as part of their overall compensation, and that
an increase in the number of available shares is needed to permit the Company to
continue to grant options under the Equity Plan. As of December 15, 1998,
options to purchase 1,228,722 shares of Common Stock had been issued under the
Equity Plan, and only 92,409 shares remained available for additional grants.
Accordingly, on December 15, 1998, the Board approved the First Amendment to the
Plan, subject to stockholder approval, increasing the aggregate number of shares
of Common Stock which may be issued under the Equity Plan to 1,971,181.
Following the approval by the Board of the First Amendment to the Plan, on March
23, 1999, the Compensation Committee approved the following option grants,
subject to stockholder approval: options to purchase 180,000 shares of Common
Stock to Mr. Cuti, options to purchase 75,000 shares of Common Stock to Mr.
Charboneau, options to purchase 60,000 shares of Common Stock to Mr. Ray,
options to purchase 20,000 shares of Common Stock to Mr. Tennant and options to
purchase an aggregate of 115,000 shares of Common Stock to certain other
employees of the Company, each at an exercise price of $25.625 per share. On
March 23, 1999, the closing price of Common Stock on the New York Stock Exchange
was $25.625 per share. As of March 23, 1999, options to purchase 1,688,772
shares of the Common Stock had been issued under the Equity Plan.
DESCRIPTION OF THE EQUITY PLAN
The principal features of the Equity Plan are summarized below, but the
summary is qualified in its entirety by reference to the Equity Plan itself.
Copies of the Equity Plan can be obtained by making written request of the
Company's Secretary.
ADMINISTRATION. The Compensation Committee of the Board (the "Compensation
Committee") has the authority to conduct the general administration of the
Equity Plan. Under the terms of the Equity Plan, the Compensation Committee
consists of two or more Independent Directors, appointed by the Board, each of
whom must be both a "non-employee director" as defined in Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3"), and an "outside
director" for purposes of Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"). The Compensation Committee has the power to interpret
the Equity Plan and any Award agreement entered into under the Equity Plan, as
well as to adopt, amend and rescind rules for the administration,
interpretation, and application of the Equity Plan. The full Board conducts the
general administration of the Equity Plan with respect to options granted to
Independent Directors. In addition, the Board, in its absolute discretion, may
at any time, and from time to time, exercise any and all rights and duties of
the Compensation Committee under the Equity Plan, except with respect to matters
which under Rule 16b-3 or Section 162(m) of the Code are required to be
determined in the sole discretion of the Compensation Committee.
ELIGIBILITY. The Compensation Committee, in its sole discretion, may from
time to time grant Awards to any number of key employees or consultants of the
Company (or any subsidiary of the Company). The Compensation Committee
determines at the time of each grant the number of shares subject to such
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Awards. In addition, the Board, in its sole discretion, may from time to time
grant non-qualified stock options to any Independent Director. Subject to the
terms of the Equity Plan, the Board determines at the time of each such
Independent Director option grant the number of shares subject to such options.
Independent Directors are not eligible to receive any Awards other than
non-qualified stock options.
The maximum number of shares that may be granted under the Equity Plan to
any employee, consultant or Independent Director in any calendar year cannot
exceed 480,429. Expired or canceled Awards which have not been fully exercised
before expiration or cancellation may be granted again by the Company under the
Equity Plan. There are presently two Independent Directors and approximately 175
key employees and consultants eligible to receive options under the Equity Plan.
As consideration for the receipt of an Award, the employee, consultant or
Independent Director must agree to render faithful and efficient services to the
Company and its subsidiaries.
PAYMENT FOR SHARES. The exercise or purchase price for all options and
other Awards that provide a right to acquire Common Stock, together with all
taxes required to be withheld, must be paid in one of the following manners: (i)
in full in cash at the time of exercise or purchase, (ii) with the approval of
the Compensation Committee (or the Board, in the case of options granted to
Independent Directors), in whole or in part in Common Stock owned by the
recipient (or issuable upon exercise of the option) valued at its fair market
value on the date of exercise or through delivery of other property which
constitutes good and valuable consideration, (iii) through delivery of a
recourse promissory note bearing interest payable to the Company, (iv) through
delivery of a notice that the optionee has placed a market sell order with a
broker with respect to shares of Common Stock then issuable upon exercise of the
option and that the broker has been directed to pay the net proceeds of the sale
to the Company in satisfaction of the exercise price, or (v) by a combination of
the foregoing. In addition, the Compensation Committee (or the Board, in the
case of options granted to Independent Directors) may in its discretion allow a
delay in payment of up to thirty days from the date the option, or portion
thereof, is exercised.
AWARDS UNDER THE EQUITY PLAN. Each Award will be set forth in a separate
agreement with the person receiving the Award and will indicate the type, terms
and conditions of the Award.
NonQualified Stock Options ("NQSOs"). NQSOs will provide for the right to
purchase Common Stock at a specified price that, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Code, may be less than fair market value on the date of grant (but not less
than par value), and usually will become exercisable (as determined by the
Committee (or the Board, in the case of NQSOs granted to Independent Directors),
in one or more installments after the grant date, subject to the participant's
continued employment or services with the Company and/or subject to the
satisfaction of individual or Company performance targets established by the
Compensation Committee (or the Board, in the case of NQSOs granted to
Independent Directors). NQSOs may be granted for any term specified by the
Compensation Committee (or the Board, in the case of NQSOs granted to
Independent Directors).
Incentive Stock Options ("ISOs"). ISOs are designed to comply with certain
restrictions contained in the Code. Among such restrictions, ISOs must have an
exercise price not less than the fair market value of a share of Common Stock on
the date of grant, may only be granted to employees and must expire within a
specified period of time following the optionee's termination of employment; but
may be subsequently modified to be disqualified from treatment as ISOs. In the
case of an ISO granted to an individual who owns (or is deemed to own) at least
10% of the total combined voting power of all classes of stock of the Company,
the Equity Plan provides that the exercise price must be at least 110% of the
fair market value of a share of Common Stock on the date of grant and that the
ISO must expire upon the fifth anniversary of the date of its grant. Subject to
certain Code limitations, ISOs will become exercisable as determined by the
Compensation Committee.
Restricted Stock. Restricted stock may be sold to employees and consultants
at various prices (but not below par value) and made subject to such
restrictions as may be determined by the Compensation Committee. In general,
restricted stock may be repurchased by the Company at the original purchase
price
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if the specified conditions or restrictions are not met and may not be sold or
otherwise transferred or hypothecated until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will receive dividends prior to the time the restrictions lapse.
Deferred Stock. Deferred stock may be awarded to employees and consultants,
typically without payment of consideration, subject to vesting conditions based
on continued employment or on performance criteria established by the
Compensation Committee. Like restricted stock, deferred stock may not be sold or
otherwise transferred or hypothecated until vesting conditions are removed or
are satisfied. Unlike restricted stock, however, deferred stock will not be
issued until the deferred stock award has vested, and recipients of deferred
stock generally will have no voting or dividend rights prior to the time when
vesting conditions are satisfied.
Stock Appreciation Rights ("SARs"). SARs may be granted to employees and
consultants in connection with stock options or other Awards or separately. SARs
granted in connection with stock options or other Awards typically provide for
payments to the holder based upon increases in the price of Common Stock over
the exercise price of the related option or other Award, but, alternatively,
such SARs may provide for payments based upon criteria such as book value.
Except as required by Section 162(m) of the Code with respect to an SAR intended
to qualify as performance-based compensation and except for any restrictions
that may be imposed by the Compensation Committee in the SAR Agreement, there
are no restrictions specified in the Equity Plan on the amount of gain
realizable from the exercise of SARs. The Compensation Committee may elect to
make SAR payments in cash or in Common Stock or in a combination of both.
Dividend Equivalents. Dividend equivalents represent the value of the
dividends per share paid on Common Stock and may be granted to employees and
consultants in connection with any number of shares subject to another Award
(such as an option or SAR) held by such individual. The Compensation Committee
may elect to pay dividend equivalents in cash or in Common Stock or in a
combination of both.
Performance Awards. Performance awards may be granted by the Compensation
Committee to employees and consultants on an individual or group basis.
Generally, these Awards will be based upon specific performance targets and may
be paid in cash or in Common Stock or in a combination of both. The value of
performance awards may be linked to market value, book value, net profits or
other measure of the value of Common Stock or other performance criteria over a
predetermined period.
Stock Payments. Stock payments may be awarded by the Compensation Committee
to employees and consultants in the form of shares of Common Stock or an option
or other right to purchase Common Stock as part of a deferred compensation
arrangement or otherwise in lieu of or in addition to all or any part of
compensation, including bonuses, that would otherwise be payable in cash to the
employee or consultant.
MERGER, CONSOLIDATION AND OTHER EVENTS. The Equity Plan provides the
Compensation Committee (or the Board, in the case of options granted to
Independent Directors) discretion to amend the terms (such as exercise price,
number shares and vesting) of outstanding Awards and future grants that may be
made under the Equity Plan upon the occurrence of a recapitalization, stock
split, reorganization, merger, consolidation, liquidation, dissolution, or sale,
transfer, exchange or other disposition of all or substantially all of the
assets of the Company or other similar corporate event. In addition, the Equity
Plan further provides that in any event, upon the occurrence of a "Sale of the
Company" (as defined in the Equity Plan) all outstanding Awards shall become
immediately exercisable, vested or payable, as applicable, unless any such Award
is otherwise assumed by a successor to the Company or replaced by a similar
right with respect to securities of the successor entity or subject to other
limitations imposed at the time of grant.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes U.S. federal tax treatment of options
granted under the Equity Plan under federal tax laws currently in effect. The
rules governing the tax treatment of options are quite technical and the
following discussion is necessarily general in nature and does not purport to be
complete.
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The statutory provisions and interpretations described below are, of course,
subject to change, and their application may vary in individual circumstances.
INCENTIVE STOCK OPTIONS. Generally, an optionee recognizes no taxable
income when an ISO which meets the requirements set forth in Section 422 of the
Code is granted to him or when that ISO is exercised by him. Upon exercise of
such ISO, however, the optionee's alternative minimum taxable income will
generally include the amount by which the fair market value of the Common Stock
acquired at the time of exercise exceeds the option exercise price. If the
optionee holds the shares acquired upon exercise of ISO for at least two years
after the date of grant and for at least one year after the date of exercise
(the "Holding Period"), the difference between the sale price and exercise price
upon subsequent disposal of the shares will be treated as long term capital gain
or loss. If the optionee disposes of the shares without holding such shares for
the appropriate period (a "Disqualifying Disposition"), at the time of such
Disqualifying Disposition the optionee will generally recognize ordinary income
in an amount equal to the fair market value of the Common Stock on the date of
exercise over the option exercise price. Any gain in excess of this amount will
be taxed as capital gain. If the optionee does not hold the shares for the
Holding Period, and the sale price is below the exercise price, the difference
between the amount realized on the sale and exercise price is treated as a loss.
NONQUALIFIED STOCK OPTION. There is no taxable income to an optionee when a
NQSO is granted to him. However, upon exercise of the NQSO, the optionee will
generally recognize ordinary income in an amount equal to the excess of the fair
market value of the shares of Common Stock acquired upon exercise, determined on
the date of exercise, over the aggregate exercise price of such NQSO. An
optionee's basis for the shares of Common Stock acquired upon exercise for
purposes of determining his gain or loss on his subsequent disposition of the
shares will be equal to the option price paid plus the ordinary income
recognized upon exercise.
BUSINESS DEDUCTIONS. In general, if the Company complies with applicable
income reporting requirements, the Company will be allowed a business expense
deduction to the extent an optionee recognizes ordinary income upon the exercise
of a NQSO or upon the Disqualifying Disposition of an ISO.
SECTION 162(M). Under Section 162(m) of the Code, income tax deductions of
publicly held companies may be limited to the extent total annual compensation
for certain executive officers exceeds $1 million in any one year. However, the
deduction limit under Section 162(m) does not apply to certain "performance-
based compensation" established by an independent compensation committee that is
adequately disclosed to, and approved by, stockholders. Under a Section 162(m)
transition rule for compensation plans of corporations that are privately held
and that become publicly held in an initial public offering, options granted
under the Equity Plan prior to the approval of the Plan, as amended, by the
Company's stockholders at the 1999 Annual Meeting will not be subject to Section
162(m). The Compensation Committee may designate a key employee a "Section
162(m) Participant" and determine whether the options granted to such key
employee will qualify as performance-based compensation as described in Section
162(m)(4)(C). Stock option agreements granting options intended to qualify as
performance-based compensation shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m)(4)(C) and the
regulations issued thereunder.
CASHLESS EXERCISES. The tax consequences resulting from the exercise of an
option through delivery of already-owned company shares is not completely
certain. For ISOs, the IRS, in published rulings, has taken the position that
(i) to the extent an equivalent value of shares is acquired, the optionee will
recognize no gain, (ii) the employee's basis in the stock acquired upon such
exercise is equal to the employee's basis in the surrendered shares increased by
any compensation income recognized by the employee, (iii) the employee's basis
in any additional shares acquired upon such exercise is zero, (iv) if the shares
delivered were acquired upon exercise of an ISO and are delivered prior to the
Holding Period, the delivery of the shares constitutes a Disqualifying
Disposition as to which the rules described above will apply and (v) any sale or
disposition of the acquired shares within the Holding Period will be viewed
first as a disposition of the shares with the lowest basis. For NQSOs, the IRS,
in published rulings, has taken the position that
7
<PAGE>
(i) to the extent an equivalent value of shares is acquired, the optionee will
recognize no gain, (ii) the employee's basis in the stock acquired upon such
exercise is equal to the employee's basis in the surrendered shares, (iii) any
additional shares acquired upon such exercise are compensation to the optionee
and (iv) the employee's basis in any such additional shares is their then-fair
market value.
SHARES ISSUED UNDER THE EQUITY PLAN
Since the inception of the Equity Plan through March 23, 1999, Mr. Cuti has
acquired options to purchase 676,569 shares of Common Stock at a weighted
average exercise price per share of $12.931; Mr. Charboneau has acquired options
to purchase 216,877 shares of Common Stock at a weighted average exercise price
per share of $14.311; Mr. Ray has acquired options to purchase 178,231 shares of
Common Stock at a weighted average exercise price per share of $14.152; and Mr.
Tennant has acquired options to purchase 67,292 shares of Common Stock at a
weighted average exercise price per share of $13.47. In addition, as of March
23, 1999, all executive officers as a group have acquired options relating to a
total of 1,138,969 shares of Common Stock at a weighted average exercise price
per share of $13.417; all current directors who are not executive officers of
the Company have acquired options to purchase a total of 20,000 shares of Common
Stock at a weighted average exercise price per share of $25.193; and all
employees who are not executive officers have acquired options relating to a
total of 529,803 shares of Common Stock at a weighted average exercise price per
share of $17.388. As options granted under the Equity Plan are discretionary and
are determined by the Compensation Committee (or the Board in the case of
options granted to Independent Directors) from time to time, the number of
shares of Common Stock that will be acquired by these persons in the future
under the Equity Plan is not currently determinable. In addition, since the
value of options depends upon the future market price of Common Stock, the value
of outstanding options is not presently determinable.
APPROVAL OF THIS AMENDMENT REQUIRES THE AFFIRMATIVE VOTE OF OF A MAJORITY OF
THE SHARES OF COMMON STOCK HELD BY HOLDERS PRESENT AT THE 1999 ANNUAL MEETING.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVING THE EQUITY
PLAN, AS AMENDED.
3. PROPOSAL TO AMEND THE AMENDED AND RESTATE CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES
GENERAL
The Board recommends that the stockholders approve an amendment to Article
IV of the Amended and Restated Certificate of Incorporation, which will increase
from 30,000,000 to 75,000,000 the number of shares of Common Stock that the
Company may issue.
PURPOSE
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to have additional Common Stock authorized that
would be available for issuance for general corporate purposes, including
raising capital to support business expansion, stock splits, stock dividends,
acquisitions or other developments which might make the issuance of additional
Common Stock desirable. If approval of an increase in the Company's authorized
Common Stock is postponed until a specific need arises, the delay and expense
incident to obtaining approval of the stockholders at that time could impair the
Company's ability to meet its objectives. If an increase in the Company's
authorized Common Stock is approved, no further action or approval by the
stockholders would be necessary prior to the issuance of the additional shares
unless applicable laws or regulations or the rules of any stock exchange on
which the Company's securities may then be listed required such action or
approval. As of March 23, 1998 there were 17,113,835 shares of Common Stock
issued and outstanding and 2,432,266 shares reserved for issuance pursuant to
the Company's stock option plans, leaving 10,453,899 authorized shares available
for issuance. Currently, there are no treasury shares.
8
<PAGE>
The holders of any of the additional shares of Common Stock issued in the
future would have the same rights and privileges as the holders of the shares of
Common Stock currently authorized and outstanding. Those rights do not include
preemptive rights with respect to the future issuance of any additional shares.
The Company does not now have any agreement, understanding, arrangement or
commitment that would result in the issuance of any of the additional shares
that would be authorized by the proposed amendment (other than pursuant to stock
options), and no assurance can be given at this time that additional shares
will, or as to the circumstances under which such shares might, in fact be
issued. However, the increased authorized shares could be used to make a
takeover attempt more difficult by using the shares to make a counter-offer for
the shares of a bidder or by selling shares to dilute the voting power of the
bidder. As of this date, the Board is unaware of any effort to accumulate the
Company's shares or to obtain control of the Company by means of a merger,
tender offer, solicitation in opposition to management or otherwise.
The amendment authorizing the increase in the authorized shares of Common
Stock will amend Article IV of the Company's Amended and Restated Certificate of
Incorporation. If the amendment is approved, the text of Article IV will read in
its entirety as set forth in Annex I to this proxy statement.
APPROVAL OF THIS AMENDMENT REQUIRES THE AFFIRMATIVE VOTE OF THE MAJORITY OF
THE OUTSTANDING SHARES OF COMMON STOCK. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR AMENDING THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
DIRECTOR ATTENDANCE
During the fiscal year ended December 26, 1998, the Board met four times and
acted seven times by unanimous written consent, the Audit Committee did not
meet, and the Compensation Committee met three times and acted one time by
unanimous written consent. Each director attended all of the meetings of the
Board and committees of the Board on which the director served during 1998.
Directors meet their responsibilities not only by attending Board and Committee
meetings, but also through communication with the Chairman and Chief Executive
Officer and other members of management on matters affecting the Company.
COMPENSATION OF DIRECTORS
Directors of the Company who are employees of the Company, DLJ or DLJMB or
their respective subsidiaries are not compensated for serving as directors. As
of the date of their election to the Board of Directors, each of Messrs. Roberg
and Johnson received 5,000 options to purchase Common Stock at $21.5625 per
share. The Company plans to compensate future Directors who are not employees of
the Company, DLJ or DLJMB ("Non-Employee Directors") with option grants for
serving in such capacity and for serving on committees of the Board of Directors
and to reimburse Non-Employee Directors for out-of-pocket expenses incurred in
such capacity.
9
<PAGE>
BOARD COMMITTEES
There are two committees of the Board as of the Record Date: an Audit
Committee and a Compensation Committee. Membership as of the record date was as
follows:
<TABLE>
<CAPTION>
AUDIT COMPENSATION
- ----------------- --------------
<S> <C>
Mr. Johnson Mr. Jaffe
Mr. Nathanson Mr. Johnson
Mr. Roberg Mr. Roberg
</TABLE>
AUDIT COMMITTEE No meetings during 1998
- - Recommends to the Board a firm of independent certified public accountants to
serve as the Company's auditors.
- - Meets with the Company's independent certified public accountants to review
procedures, fees and scope of annual audit.
- - Reviews the audit reports of the Company's auditors and the recommendations
made by them.
- - Reviews the financial, investment and accounting procedures and practices
followed by the Company.
COMPENSATION COMMITTEE Three meetings during 1998
One action by unanimous written consent
- - Advises and makes recommendations to the Board regarding annual salary and
bonus determinations of selected officers and senior management of the
Company, including the Chief Executive Officer.
- - Advises and makes recommendations to the Board regarding compensation of
directors.
- - Reviews and makes recommendations to the Board regarding the performance
standards under the Company's compensation and incentive programs for
directors, officers and senior management.
- - Reviews and makes recommendations to the Board regarding grants of Awards
under the Company's Equity Plan.
10
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DLJMB RELATIONSHIPS
In connection with the recapitalization of the equity interests of the
Company, pursuant to which DLJ Merchant Banking Partners II, L.P. ("DLJMBPII")
and certain of its affiliates (the "DLJ Entities") purchased an aggregate of
9,383,420 shares of the Company's Common Stock (the "Recapitalization"). The
aggregate purchase price for the shares acquired by the DLJ Entities was
approximately $78.7 million, or approximately $8.33 per share. Concurrently with
the Recapitalization, each of the DLJ Entities and all other shareholders except
members of management signed the Stockholders and Registration Rights Agreement.
See "--Stockholders and Registration Rights Agreement." DLJMB is the managing
general partner of DLJMBPII. Mr. Jaffe and Ms. Arnaboldi, directors of the
Company, are managing Directors of DLJMB, and Mr. Nathanson, also a director of
the Company, is a Managing Director of DLJ.
On September 30, 1997, the Company entered into a credit agreement (the "Old
Credit Agreement") in which DLJ Capital Funding, Inc., an affiliate of DLJMBPII
("DLJ Funding"), acted as the arranger and syndication agent. In connection with
the Old Credit Agreement, DLJ Funding received a customary funding fee of
approximately $2.4 million. On February 13, 1998, the Company entered into its
existing credit agreement (the "Existing Credit Agreement") for which DLJ
Funding acted as the manager and syndication agent. In connection with the
Existing Credit Agreement, DLJ Funding received a customary funding fee of
approximately $1.9 million. On September 11, 1998, the Existing Credit Agreement
was amended and restated, for which DLJ Funding acted as the manager and
syndication agent and received a customary funding fee of approximately $1.8
million. The Existing Credit Agreement was again amended and restated on March
17, 1999, for which DLJ Funding again acted as manager and syndication agent and
received a customary funding fee of approximately $1.0 million.
DLJ (an affiliate of DLJMB and DLJMBPII) acted as financial advisor to the
Company in connection with the structuring of the Recapitalization and received
customary fees for such services of approximately $3.5 million and reimbursement
for reasonable out-of-pocket expenses, and affiliates of DLJ received standby
commitment fees of approximately $1.2 million in connection with change of
control offers for the Company's 15% Senior Subordinated Zero Coupon Notes due
2004 (the "Zero Coupon Notes") and the Company's 12% Senior Notes due 2002 (the
"Senior Notes"), which offers were required as a result of the Recapitalization.
The Company agreed to indemnify DLJ in connection with its acting as financial
advisor. In addition, DLJ received its pro rata portion of the underwriters
compensation (approximately $4.258 million) in connection with its services as
lead underwriter in the initial public offering of the Company's Common Stock
that was consummated on February 13, 1998. DLJ also served as sole underwriter
in connection with the offering of the Company's 9 1/4% Senior Subordinated
Notes due 2008 that was consummated on February 13, 1998, for which DLJ received
$2.4 million of underwriting compensation payable in connection therewith, and
DLJ received $50,000 in connection with services relating to the defeasance of
the Zero Coupon Notes and the Senior Notes. In addition, the DLJ Entities
received $16.75 million from the sale of 1,091,658 shares of the Company's
Common Stock in connection with the exercise by the underwriters of their
overallotment option in connection with the initial public offering of the
Company's Common Stock.
CUTI LOAN AGREEMENTS
On November 9, 1998, upon unanimous approval of the Board of Directors of
the Company, the Company extended a $2.0 million loan (the "Cuti Loan") to Mr.
Cuti. For so long as the Existing Credit Agreement is outstanding, the Cuti Loan
bears interest at the rate of interest paid by the Company on its revolving
loans outstanding under the Existing Credit Agreement. Thereafter, the Cuti Loan
will bear interest at LIBOR plus 300 basis points. The Cuti Loan becomes due
upon the earliest to occur of (i) the termination of Mr. Cuti's employment with
the Company, (ii) the termination of the Cuti Employment
11
<PAGE>
Agreement, (iii) any sale by Mr. Cuti of 15% or more of the Company's Common
Stock held by Mr. Cuti or (iv) November 9, 2003.
Pursuant to the terms of the Cuti Employment Agreement and a Secured Loan
Agreement and related agreements among Mr. Cuti, the Company and DLJ (the "Loan
Documents"), on November 20, 1997, Mr. Cuti borrowed $1.0 million from DLJ (the
"Loan"). The Loan is secured by Mr. Cuti's pledge to DLJ of his options granted
under the Equity Plan and his option to purchase 496,569 shares of Common Stock,
and all Common Stock and other proceeds payable upon exercise or other
disposition thereof (the "Pledged Security"). The Loan is subject to interest at
the Federal Mid-Term Rate as in effect from time to time and is generally
payable in five equal installments commencing within 30 days after Mr. Cuti has
the ability to receive cash in exchange for any of the Pledged Security. In
addition, the Company may apply any amounts to which Mr. Cuti is entitled upon
termination of employment to repayment of the Loan. The Cuti Employment
Agreement and the Loan Documents further provide that in the event of
termination of Mr. Cuti's employment by reason of termination by the Company
without "cause" or the Company's non-renewal or his resignation with "good
reason" (as such terms are defined in the Cuti Employment Agreement), the
Company will reimburse Mr. Cuti for all interest accrued as of the date of such
termination if the Company has achieved certain specified financial targets for
the year prior to termination and the year of such termination. The Loan
Documents permits DLJ to assign the Loan to certain of its affiliates, including
the Company, and the Company is obligated pursuant to the Cuti Employment
Agreement to assume the Loan from DLJ as soon as practicable after the Company
and DLJ agree that the Company may do so. At December 26, 1998, DLJ had not
exercised such election.
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
In connection with the Recapitalization, certain of the shareholders of the
Company (the "Initial Shareholders") entered into a Stockholders and
Registration Rights Agreement, pursuant to which the Company has granted the
Initial Shareholders the right to cause the Company to register shares of Common
Stock (the "registrable securities") under the Securities Act. Under the terms
of the Stockholders and Registration Rights Agreement, at any time after
February 10, 1999, the holders of at least a majority of the registrable
securities held by the DLJ Entities can require the Company, subject to certain
limitations, to file a registration statement under the Securities Act covering
all or part of the registrable securities held by the DLJ Entities (a "demand
registration"). Currently, 8,291,763 outstanding shares of Common Stock
constitute registrable securities and therefore are eligible for registration
pursuant to the Stockholders and Registration Rights Agreement. The Company is
obligated to pay all registration expenses (other than underwriting discounts
and commissions and subject to certain limitations) incurred in connection with
demand registrations. In addition, the Stockholders and Registration Rights
Agreement provides the Initial Shareholders with "piggyback" registration
rights, subject to certain limitations, whenever the Company files a
registration statement on a registration form that cam be used to register
securities held by such Initial Shareholders.
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock (which constitutes the only
class of voting capital stock of the Company) by (i) each person known to the
Company to be the beneficial owner of 5% or more of the Common Stock, (ii) each
director, (iii) each Named Executive Officer and (iv) all executive officers and
directors as a group, based on data as of March 23, 1999.
SHARES BENEFICIALLY OWNED(1)
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT
- -------------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
DLJ Merchant Banking Partners II, L.P. and related investors(2)....................... 8,291,763 48.5%
Anthony J. Cuti....................................................................... 690,847(3) 3.9%
David L. Jaffe(4)..................................................................... -- --
Nicole S. Arnaboldi(4)................................................................ -- --
Andrew J. Nathanson(4)................................................................ -- --
Gary Charboneau....................................................................... 352,697(5) 2.1%
Jerry M. Ray.......................................................................... 163,416(6) 1.0%
William J. Tennant.................................................................... 99,179(7) *
Kevin Roberg.......................................................................... 12,800(8) *
David W. Johnson...................................................................... 11,000(9) *
All executive officers and directors as a group (9 persons)(3)........................ 1,329,939 7.4%
</TABLE>
- ------------------------
* Less than one percent
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares that such person has the right to acquire within 60
days after the date of this Proxy Statement. For purposes of calculating the
percentage of outstanding shares held by each person named above, any shares
that such person has the right to acquire within 60 days after the date of
this Proxy Statement are deemed to be outstanding, but not for the purposes
of calculating the percentage ownership of any other person.
(2) Consists of shares held directly by the following related investors, each of
whom is affiliated with DLJ: DLJ Merchant Banking Partners II, L.P.
("DLJMBPII"), 5,223,192 shares; DLJ Merchant Banking Partners II-A, L.P.
("DLJMBPII-A"), 208,012 shares; DLJ Offshore Partners II, C.V. ("DLJOPII"),
256,849 shares; DLJ Diversified Partners, L.P. ("DLJDP"), 305,371 shares;
DLJ Diversified Partners-A, L.P. ("DLJDPA"), 113,405 shares; DLJMB Funding
II, Inc. ("DLJMBFII"), 927,352 shares; DLJ Millennium Partners, L.P.
("Millennium"), 84,453 shares; DLJ Millennium Partners-A, L.P.
("Millennium-A"), 16,471 shares; DLJ EAB Partners, L.P. ("DLJEAB"), 23,452
shares; UK Investment Plan 1997 Partners ("UK Investment"), 138,196 shares;
and DLJ First ESC L.P. ("DLJ ESC" and, collectively with the aforementioned
entities, the "DLJMBPII Entities") 995,009 shares. See "Certain
Relationships and Related Transactions--DLJMB Relationships." The address of
each DLJMBPII, DLJMBIIA, DLJDP, DLJDPA, DLJMBFII, Millennium, Millennium-A,
DLJEAB, and DLJ ESC is 277 Park Avenue, New York, New York 10172. The
address of DLJOPII is c/o John B. Gorsiraweg, 14 Willemstad, Curacao,
Netherlands Antilles. The address of UK Investment is 2121 Avenue of the
Stars, Fox Plaza, Suite 3000, Los Angeles, California 90067. As a general
partner of each of DLJMBPII, DLJMBIIA, DLJOPII, Millennium and Millennium-A,
DLJMB may be deemed to beneficially own indirectly all of the shares held
directly by DLJMBPII, DLJMBIIA, DLJOPII, Millennium and Millennium-A, and as
the parent of each of DLJMB, DLJMBFII and DLJ LBO Plans Management
Corporation (the general partner of DLJEAB and DLJ ESC), Donaldson, Lufkin &
Jenrette Inc., the parent of DLJ ("DLJ Inc."), may be deemed to beneficially
own indirectly all of the
13
<PAGE>
shares held by DLJMBPII, DLJMBIIA, DLJOPII, DLJDP, DLJDPA, DLJEAB,
Millennium, Millennium-A, DLJMBFII, DLJESC and UK Investment. The address of
DLJ Inc. is 277 Park Avenue, New York, New York 10172.
(3) Includes 690,847 shares that could be acquired upon the exercise of
presently exercisable stock options.
(4) Mr. Nathanson is a Managing Director of DLJ and, as a result may be deemed
to beneficially own the shares of Common Stock held by the DLJMBPII
Entities. Mr. Nathanson expressly disclaims beneficial ownership of such
shares of Common Stock. Ms. Arnaboldi and Mr. Jaffe are managing directors
of DLJMB and DLJ Diversified Partners, Inc. ("DLJDPI"). DLJMB is the
managing general partner of DLJMBII, DLJMBIIA, DLJOPII, Millennium and
Millennium-A. DLJDPI is the managing general partner of DLJDP and DLJDPA. As
a result, Ms. Arnaboldi and Mr. Jaffe may be deemed to beneficially own the
shares of Common Stock held by each of DLJMBPII, DLJMBIIA, DLJOPII, DLJDP,
DLJDPA, Millennium and Millennium-A. Ms. Arnaboldi and Mr. Jaffe expressly
disclaim beneficial ownership of such shares of Common Stock.
(5) Includes 43,410 shares that could be acquired upon the exercise of presently
exercisable stock options.
(6) Includes 122,726 shares that could be acquired upon the exercise of
presently exercisable stock options.
(7) Includes 99,179 shares that could be acquired upon the exercise of presently
exercisable stock options.
(8) Includes 10,000 shares that could be acquired upon the exercise of presently
exercisable stock options.
(9) Includes 10,000 shares that could be acquired upon the exercise of presently
exercisable stock options.
14
<PAGE>
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the current executive officers and key
employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Anthony J. Cuti.................... 53 Chairman, Chief Executive Officer and President
William J. Tennant................. 51 Senior Vice President, Chief Financial Officer and Secretary
Gary Charboneau.................... 54 Senior Vice President--Sales and Merchandising
Jerry M. Ray....................... 51 Senior Vice President--Store Operations
</TABLE>
ANTHONY J. CUTI has been Chairman of the Board, President and Chief
Executive Officer of the Company since April 1996. Prior to joining the Company,
Mr. Cuti served as President and as a member of the Board of Directors of
Supermarkets General and Pathmark from 1993 to 1996 and, prior to being named
President of Supermarkets General and Pathmark, Mr. Cuti was Executive Vice
President and Chief Financial Officer of Supermarkets General. From 1984 to
1990, he was the Chief Financial Officer of the Bristol-Myers International
Group of the Bristol-Myers Company and prior to that was employed by the Revlon
Corporation.
WILLIAM J. TENNANT has been Senior Vice President and Chief Financial
Officer of the Company since February 1997. Mr. Tennant was appointed Secretary
of the Company in March 1999. Prior to joining the Company, Mr. Tennant was
Senior Vice President and Chief Financial Officer of Tops Appliance City, a
consumer electronics retailer, from 1993 to 1996. From 1986 to 1993, Mr. Tennant
served as Vice President and Controller for the Great Atlantic & Pacific Tea
Company.
GARY CHARBONEAU has been Senior Vice President in charge of Sales and
Merchandising of the Company since February 1993. Prior to joining the Company,
Mr. Charboneau held various positions at CVS, a retail drugstore chain, from
1978 to February 1993, most recently as Executive Vice President.
JERRY M. RAY has been Senior Vice President in charge of Store Operations
since July 1996 and served as Vice President of Pharmacy Operations from April
1995 to June 1996. From 1991 to 1994, Mr. Ray served as President and CEO of
Begley Drugstores, Inc.
15
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the principal components of compensation of
the Chief Executive Officer and the other three highest compensated executive
officers of the Company (the "Named Executive Officers") for the fiscal years
ended December 26, 1998 and December 27, 1997. The compensation set forth below
fully reflects compensation for services performed on behalf of the Company and
its subsidiaries. No options were granted during fiscal 1998 to the Named
Executive Officers.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
- ------------------------------------- --------- ---------- ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Cuti...................... $ 500,000 $ 1,000,000 -- -- $ 281,683
Chief Executive Officer 1998 1997 $ 386,000 $ 475,000 -- 496,569 --
Gary Charboneau......................
Senior Vice President-Sales and 1998 $ 266,539 $ 324,000 -- -- $ 146,212
Merchandising 1997 $ 243,000 $ 121,600 -- 141,877 --
Jerry M. Ray.........................
Senior Vice President-Store 1998 $ 212,404 $ 215,000 -- -- $ 76,576
Operations 1997 $ 200,000 $ 100,000 -- 118,231 --
William J. Tennant...................
Senior Vice President-Chief 1998 $ 187,404 $ 190,000 -- -- $ 58,905
Financial Officer 1997 $ 151,000(2) $ 61,300 -- 115,393 --
</TABLE>
- ------------------------
(1) Reflects amounts consisting of the term and non-term portion of a
split-dollar life insurance program.
(2) Reflects Mr. Tennant's salary for the partial year from February 18, 1997
(when he joined the Company) through December 27, 1997.
AGGREGATE OPTION EXERCISE IN FISCAL YEAR ENDED
DECEMBER 26, 1998 AND FISCAL YEAR-END OPTION VALUES
The following table summarizes the number and value of all unexercised
options held by the Named Executive Officers at the end of fiscal 1998. There
were no options exercised by the Named Executive Officers in the Company's last
fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY
AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
-------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES UNDERLYING VALUE
NAME OPTIONS EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------------- ----------- ----------- ------------- ------------- -------------
Anthony J. Cuti.................... -- -- 690,847 170,252 $ 22,361,690 $ 4,881,136
Gary Charboneau.................... -- -- 149,246 48,644 $ 4,266,831 $ 1,394,618
Jerry M. Ray....................... -- -- 122,726 40,537 $ 3,644,453 $ 1,162,184
William Tennant.................... -- -- 99,179 16,214 $ 2,910,870 $ 464,867
</TABLE>
CONTRACTS WITH NAME EXECUTIVE OFFICERS
Effective June 18, 1997, the Company entered into an employment agreement
with Anthony J. Cuti (the "Cuti Employment Agreement"). Pursuant to the Cuti
Employment Agreement, Mr. Cuti serves as Chairman, President and Chief Executive
Officer of the Company. The Cuti Employment Agreement provides for (i) a base
salary of $425,000 per year, which will increase to $500,000 in 1998 and
$550,000 in 1999 if certain EBITDA (earnings before interest, taxes,
depreciation, amortization, other non-cash items, non-recurring charges and
extraordinary charges) targets (as defined in the Cuti Employment Agreement) are
met and will increase every 18 months commencing July 1, 2001 by not less than
the percentage
16
<PAGE>
increase in a designated consumer price index for such 18-month period, (ii) an
annual incentive bonus of up to 200% of base salary based on certain EBITDA
targets and (iii) participation in all benefit plans generally available to
executive officers of the Company.
Pursuant to the Cuti Employment Agreement and the Equity Plan described
below, on June 18, 1997, Mr. Cuti was granted non-qualified stock options to
purchase an aggregate of 496,569 shares of Common Stock at an exercise price of
$8.33 per share. Subject to Mr. Cuti's continued employment with the Company,
the options generally will become 100% vested on the eighth anniversary of the
date of grant, but may vest sooner based on the Company's achievement of certain
specified financial targets. Furthermore, the vesting of options will accelerate
upon the occurrence of a sale of the Company (as defined in the Cuti Employment
Agreement) on or prior to December 30, 2001, based on the Company's achievement
of specified financial targets prior to the date of any such sale of the
Company.
The Cuti Employment Agreement provides that Mr. Cuti may generally only
transfer up to 10% of his shares of Common Stock in each calendar year while he
is an employee of the Company, except pursuant to certain rights and obligations
(i) to transfer ("put") his shares to the Company upon termination of employment
and (ii) to transfer shares in connection with certain transfers of Common Stock
by DLJMBPII. The Cuti Employment Agreement also provides that Mr. Cuti will be
given the opportunity to invest additional amounts in stock of the Company in
the event that DLJMBPII invests new equity in the Company or creates an
instrument that may be dilutive to Mr. Cuti's equity position relative to
DLJMBPII.
Mr. Cuti's initial term of employment is for three years and, unless
terminated by notice of non-renewal by either the Company or Mr. Cuti, will
continue thereafter for successive one-year periods. Pursuant to the Cuti
Employment Agreement, if the Company terminates Mr. Cuti without "cause" (as
defined in the Cuti Employment Agreement) or by notice of non-renewal or Mr.
Cuti resigns with "good reason" (as defined in the Cuti Employment Agreement),
Mr. Cuti will be entitled to continued base salary and incentive bonus payments
(at the rate of two times base salary and bonus for the year prior to
termination, which can be increased to three times base salary and bonus upon
the occurrence of certain events, including a sale of the Company) and employee
benefits for a two year period, which, under certain circumstances, including
Mr. Cuti's termination of employment prior to June 18, 2003 and within one year
following a sale of the Company, may be extended by one year. Additionally, the
vesting of Mr. Cuti's options may accelerate upon such a termination of
employment, based on the Company's financial performance prior to such
termination and whether a Sale of the Company has occurred. The Cuti Employment
Agreement also contains certain non-compete, non-solicitation and
confidentiality provisions. In addition, on November 9, 1998 the Company
extended Mr. Cuti a $2.0 million loan. See also "Certain Relationships and
Related Transaction--Cuti Loan Agreements."
The Company has also entered into agreements with Messrs. Charboneau and Ray
and certain other executives that provide for their initial base salary as well
as annual incentive bonuses based on certain EBITDA targets. Mr. Charboneau's
employment agreement provides for an annual base salary of $220,000 and for
additional increases from time to time as the Company may determine. Mr. Ray's
employment agreement provides for an annual base salary of $150,000 and for
additional increases from time to time as the Company may determine. Each of
Messrs. Charboneau and Ray are entitled to severance payments equaling 12 months
of their respective salaries if they are terminated without "cause" (as
respectively defined in the agreements).
The Company's agreement with Mr. Tennant provides for payment of an annual
base salary of $175,000 per year as well as for payment of annual incentive
bonuses based upon achievements of certain financial targets. Mr. Tennant's
agreement also provides for the grant of stock options to acquire an aggregate
of 68,101 shares of Common Stock at an exercise price of $7.34 per share. These
options vested on June 18, 1997. The agreement also provides for 12 months of
salary continuation in the event Mr. Tennant is terminated without cause.
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<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has established the Supplemental Executive Retirement Plan
("SERP"), an unfunded retirement plan that provides a lump sum benefit equal to
the actuarial present value of a life annuity commencing at the later of age 65
or termination of employment for any reason other than for "cause." The SERP
benefit is calculated as a percentage of a participant's Final Average Earnings
(defined as the average base salary and bonus for the five years which produce
the greatest amount multiplied by the participant's years of services with the
Company). Currently, Mr. Cuti is the only SERP participant. Mr. Cuti's estimated
SERP benefit, based on the average of his 1996, 1997 and 1998 annualized
includable compensation and upon discount rates effective for termination of
employment in December 1998, is estimated to be $1,050,000, if termination of
employment occurs after 10 years of employment, when Mr. Cuti will be age
60 1/2, or $2,060,000 if termination of employment occurs after 14 1/2 years of
employment, when Mr. Cuti will be age 65. Pursuant to the Cuti Employment
Agreement, the Company is required to set aside funds in a "rabbi trust" to pay
Mr. Cuti's SERP benefit in specified circumstances, including a sale of the
Company, termination without "cause" and resignation for "good reason" (as
respectively defined in the Cuti Employment Agreement). Furthermore, in the
event of his termination without "cause" or by reason of the Company's
non-renewal, his resignation for "good reason," or his death or disability, Mr.
Cuti's SERP benefit will be calculated on the basis of 20 years of employment
regardless of his actual number of years of employment with the Company (the
present value of which was approximately $1,322,000 as of December 26, 1998).
STOCK OPTIONS
1992 STOCK OPTION PLAN. The Board of Directors adopted and the Company's
stockholders approved the 1992 Stock Option Plan (the "1992 Plan") in September
1992. Under the 1992 Plan, the Board of Directors may grant to executive and
other key employees of the Company nonqualified stock options to purchase up to
an aggregate of 510,757 shares of Common Stock of the Company at exercise prices
and terms specified by the Board of Directors.
At December 26, 1998, there were outstanding nonqualified stock options
issued under the 1992 Plan to purchase up to an aggregate of 224,833 shares of
Common Stock of the Company at exercise prices ranging from $0.58 to $40.88 per
share. The 1992 Plan was frozen as to the future grants following the initial
public offering of the Company's Common Stock. All options issued under the 1992
Plan are 100% vested.
1997 EQUITY PARTICIPATION PLAN. As of June 18, 1997, the Board of Directors
and stockholders of the Company approved the Equity Plan. Since consummation of
the initial public offering of the Company's Common Stock, the Equity Plan has
been administered by the Compensation Committee. The Board of Directors is
authorized under the Equity Plan to select the individuals to whom awards will
be made (the "Participants") and determine the terms and conditions of the
awards under the Equity Plan. An aggregate of 1,971,181 shares of Common Stock
of the Company have been reserved for issuance under the Equity Plan, subject to
certain adjustments reflecting changes in the Company's capitalization. The
Equity Plan provides that no Participant may receive awards relating to more
than 480,429 shares of Common Stock per year. For more information regarding the
Equity Plan, see "Matters to be Voted Upon--Proposal to Approve the 1997 Equity
Participation Plan, as Amended."
REPORT OF COMPENSATION COMMITTEE
In accordance with the rules and regulations of the SEC, the following
report of the Compensation Committee and the performance graph appearing
immediately thereafter shall not be deemed to be "soliciting material" or to be
"filed" with the SEC or subject to Regulations 14A or 14C of the Exchange Act,
or to the liabilities of Section 18 of the Exchange Act and shall not be deemed
to be incorporated by reference into any filing under the Securities Act of
1933, as amended, or the Exchange Act, notwithstanding any general incorporation
by reference of this Proxy Statement into any other filed document.
18
<PAGE>
SCOPE OF THE COMPENSATION COMMITTEE; MEMBERS
In 1998, the Compensation Committee was composed of two non-employee
directors: Messrs. Jaffe and Johnson.
The Compensation Committee is required to review and approve all aspects of
the compensation paid to the Company's Chief Executive Officer and the three
other most highly paid executive officers, all salaries and salary increases for
executives whose annual base salary is $180,000 or greater and all agreements
providing for the payment of benefits following a change in control of the
Company or severance following a termination of employment. The Compensation
Committee also reviews and approves the terms of each incentive compensation and
bonus program in effect for employees of the Company who are at or above
management level and the aggregate amounts which can be awarded thereunder each
year. The members of the Compensation Committee also administer the Company's
Equity Plan.
EXECUTIVE COMPENSATION FOR FISCAL 1998
The Compensation Committee's philosophy regarding compensation of executive
officers recognizes the need to honor existing employment agreements and the
belief that executives should be compensated at competitive levels that are
sufficient to attract and retain highly talented employees. Inherent in the
compensation philosophy is the emphasis on performance-based compensation. The
Company's executive compensation package currently consists of a mix of salary,
bonus awards and stock option grants as well as benefits plans offered by the
Company. The Company is currently considering implementing other long term
compensation programs and may do so prior to the end of 1999.
SALARY. The level of annual compensation for individual executive officers
is based upon a number of factors. The Compensation Committee took into account
a combination of the individual executive officer's performance and the
performance of the Company and the individual aspect of the Company's business
for which such person was responsible, the scope of such person's
responsibility, and the current compensation package in place for that officer.
Increases in an executive's annual base salary are dependent on such person's
performance, company-wide financial results and on general levels of wages and
price inflation.
BONUSES. In fiscal 1998 performance targets for executives were tied to the
attainment of specified levels of EBITDA, net revenue, operating income and cash
flow. In addition, a portion of each individual's award was granted on a
discretionary basis by his or her division head or the Chief Executive Officer,
or in the case of the three most highly paid executive officers other than the
Chief Executive Officer, whose bonus is determined solely under the Cuti
Employment Agreement, by the Compensation Committee, following an assessment of
each individual's performance.
EQUITY GRANTS. In keeping with the goal of enhancing the Company's
profitability and continuing to build stockholder value, the Company's long-term
compensation programs are designed to reward growth in stockholder value, as
well as to reward long-term service to the Company. Long term incentive rewards
are made under the Equity Plan, based on recommendations submitted to the
Compensation Committee by the Company's Chief Executive Officer. In fiscal 1998,
awards consisted of grants of stock options having exercise prices equal to 100%
of the fair market value of the Company's Common Stock on the date of grant.
The future value of these options is directly linked to increases in the
price of the Company's Common Stock, thereby linking long-term compensation to
increased stockholder value and continuing service to the Company. The terms of
options granted under the Equity Plan, including vesting, exercisability and
option term, are determined by the Compensation Committee, based upon relative
position and responsibilities of each executive officer, historical and expected
contributions of each officer of the Company, previous option grants to
executive officers and a review of the competitive equity compensation for
executive officers of similar rank in companies that are comparable to the
Company's industry and size. The value of awards under the Equity Plan is
primarily dependent upon increases in the
19
<PAGE>
price of the Company's Common Stock over a period of up to ten years. Generally,
the Equity Plan requires employees to remain employed by the Company throughout
the period in order to receive their awards.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Tax laws limit the deduction a
publicly held company is allowed for compensation paid to certain executive
officers. Generally, amounts paid in excess of $1.0 million to a covered
executive, other than performance-based compensation, cannot be deducted. The
Compensation Committee considers ways to maximize deductibility of executive
compensation, but the Compensation Committee retains the flexibility it deems
necessary to compensate executive officers in a manner commensurate with
performance and the competitive environment for executive talent regardless of
the ultimate deductibility of such compensation.
CEO COMPENSATION FOR FISCAL 1998
Mr. Cuti's $500,000 base salary represents his salary for serving as the
Company's President and CEO. Mr. Cuti's base salary is calculated solely
pursuant to the Cuti Employment Agreement, which set his 1998 base salary at
$500,000 if the targeted base EBITDA (the "Base EBITDA Target") for 1997 was met
or exceeded. The Cuti Employment Agreement defines the Company's EBITDA to
include the Company's earnings before interest, income taxes, depreciation,
amortization, extraordinary charges, nonrecurring charges and other non-cash
items, but excluding any costs associated with the Recapitalization and
excluding any extraordinary or unusual expenses associated with the Company's
initial public offering in February 1998. As calculated pursuant to the Cuti
Employment Agreement, the Company's EBITDA for 1997 was $43.1 million, which
exceeded the Base EBITDA Target for 1997.
Mr. Cuti's 1998 bonus was $1,000,000. Pursuant to the Cuti Employment
Agreement, Mr. Cuti's bonus is based on certain EBITDA targets for 1998. If the
Company's 1998 EBITDA equals or exceeds 110% the Base EBITDA Target for 1998 set
forth in the Cuti Employment Agreement, Mr. Cuti is entitled to receive a target
bonus equal to 100% of his base salary and an additional incentive bonus also
equal to 100% of his base salary, or together, $1,000,000. The Company's EBITDA
for 1998 (as calculated pursuant to the Cuti Employment Agreement) was $62.0
million. Such amount exceeded the Base EBITDA Target by more than 110%.
The Cuti Employment Agreement also dictates the vesting of the non-qualified
stock options to purchase 496,569 shares of the Company's Common Stock granted
to Mr. Cuti under the Cuti Employment Agreement. Such options will not vest
until December 30, 2001 unless certain EBITDA targets are met, in which case
vesting of a portion of the options will accelerate. The Company's EBITDA for
1998 exceeded the Base EBITDA Target for 1999, which, under the Cuti Employment
Agreement, caused the immediate vesting of options to purchase 269,566 shares of
the Company's Common Stock on December 26, 1998.
The foregoing has been approved by all members of the Compensation
Committee.
DUANE READE INC.
COMPENSATION COMMITTEE
David L. Jaffe
David W. Johnson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the consummation of its initial public offering, the Company did
not have a compensation committee. Instead, compensation decisions regarding the
Company's executive officers were made by the Board of Directors. Each executive
officer of the Company has an employment agreement with the Company that
establishes his annual compensation. See "--Contracts with Named Executive
Officers."
20
<PAGE>
Mr. Jaffe is a Managing Director of DLJMB. For a description of the
relationship and transactions between the Company and DLJMB and certain of its
affiliates, see "Certain Relationships and Related Transactions" and "Security
Ownership of Certain Owners and Management."
STOCK PERFORMANCE GRAPH
The following line graph compares the cumulative total return on the
Company's Common Stock with the cumulative total return of companies in the
Russell 2000 Index and companies in the S&P Retail (Drug Stores) Index for the
period beginning February 11, 1998 (the date of the Company's initial public
offering) and ending December 31, 1998. The graph assumes that the value of the
investment in the Company and in each index was $100 on February 11, 1998 and
assumes that all dividends were reinvested. Companies in the Russell 2000 Index
have similar market capitalization to the Company, and the Company was one of
the companies included in the Russell 2000 Index during 1998. The Company has
also selected the S&P Retail (Drug Stores) Index, which consists of CVS,
Rite-Aid, Walgreen and Longs Drugs.
COMPARISON OF 10 MONTH CUMULATIVE TOTAL RETURN(*)
AMONG DUANE READE INC., RUSSELL 2000 INDEX AND S&P RETAIL (DRUG STORES) INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DUANE READE INC. RUSSELL 2000 S&P RETAIL (DRUG STORES)
<S> <C> <C> <C>
2/11/98 100 100 100
3/98 155 112 110
6/98 182 109 116
9/98 230 87 125
12/98 233 101 163
</TABLE>
<TABLE>
<CAPTION>
DUANE READE INC. RUSSELL 2000 S & P RETAIL (DRUG STORES)
---------------- --------------- -----------------------------
<S> <C> <C> <C>
2/11/98................................................ 100 100 100
3/31/98................................................ 155 112 110
6/30/98................................................ 182 109 116
9/30/98................................................ 230 87 101
12/31/98............................................... 233 101 163
</TABLE>
* $100 invested on February 11, 1998 in stock or on January 31, 1998 in
index, including reinvestment of dividends.
21
<PAGE>
OTHER BUSINESS FOR MEETING
The Board of Directors does not know of any materials that will be presented
for action at the 1999 Annual Meeting other than those described above and
matters incident to the conduct of the meeting. If, however, any other matters
not presently known to management should come before the 1999 Annual Meeting, it
is intended that the shares represented by the accompanying proxy will be voted
on such matters in accordance with the discretion of the holders of such proxy.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP
to audit the accounts of the Company with respect to its operations for the
fiscal year ending on December 25, 1999 and to perform such other services as
may be required. Should the firm be unable to perform these services for any
reason, the Board of Directors will appoint other independent auditors to
perform these services. PricewaterhouseCoopers LLP served as independent
auditors of the Company for the fiscal year ending December 26, 1998.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires directors, officers and persons
who beneficially own more than 10% of a registered class of stock of the Company
to file initial reports of ownership (Form 3) and reports of changes in
beneficial ownership (Forms 4 and 5) with the Commission and the New York Stock
Exchange. Such persons are also required under the rules and regulations
promulgated by the Commission to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms, as amended, furnished
to the Company, the Company believes that its directors, officers and greater
than 10% beneficial owners complied with all applicable Section16(a) filing
requirements except as follows: Messrs. David Johnson and Kevin Roberg, through
inadvertence, failed to file a Form 3 upon becoming directors of the Company on
February 13, 1998. Forms reporting each of Mr. Johnson's and Mr. Roberg's
holdings at the time they became directors were promptly filed by Mr. Johnson
and Mr. Roberg after the oversight was discovered. The Company believes that all
holdings and transactions of Mr. Johnson and Mr. Roberg have been properly and
timely disclosed in the Company's quarterly and annual reports. In addition,
DLJMBPII, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA
Conseil Vie Assurance Mutuelle, AXA Courtage Assurance Mutuelle, AXA, The
Equitable Companies Incorporated, DLJ Inc., and DLJ Capital Investors, Inc.
(collectively, the "DLJ Reporting Persons") neglected to file a joint Form 4
report in 1998 to reflect the participation of the DLJMBPII Entities in the
Company's initial public offering as selling stockholders, pursuant to which
each DLJMBPII Entity sold a portion of the Company's Common Stock held by such
DLJMPBII Entity, and the DLJ Reporting Persons also neglected to include the
holdings of DLJ ESC in their joint Form 3 filed as of last February 9, 1998. A
Form 4 reporting these transactions and holdings was promptly filed by the DLJ
Reporting Persons upon discovery of their oversight. The Company believes that
all such transactions and the holdings of the DLJ Reporting Persons were
properly and timely reported by the DLJ Reporting Persons on Schedule 13G (filed
under a different Exchange Act provisions) and amendments thereto, and that all
such transactions and holdings have been properly and timely disclosed in the
Company's Registration Statement on Form S-1 for the initial public offering and
the Company's annual reports.
STOCKHOLDER PROPOSALS FOR 2000
Any stockholder of the Company who wishes to present a proposal at the next
annual meeting of stockholders of the Company, and who wishes to have such
proposal included in the Company's proxy statement for the meeting, must in
accordance with Rule 14a-8 of the Exchange Act, deliver a copy of such proposal
to the Company at 440 Ninth Avenue, New York, New York 10001, Attention:
Secretary, no later
22
<PAGE>
than November 30, 1999; however, if next year's annual meeting of stockholders
is held on a date more than 30 days before or after the corresponding date of
the 1999 Annual Meeting, any stockholder who wishes to have a proposal included
in the Company's proxy statement and proxy for that meeting must deliver a copy
of the proposal to the Company within a reasonable time before the proxy
solicitation is made. The Company reserves the right to decline to include in
the Company's proxy statement and proxy any stockholder's proposal that does not
comply with the rules of the Commission and/or the By-laws for the inclusion
therein.
ANNUAL REPORT
The Company's 1998 Annual Report to Stockholders was mailed to stockholders
on April , 1999. The 1998 Annual Report to Stockholders does not form any part
of the materials for the solicitation of proxies. Upon written request, the
Company will provide stockholders with a copy of its Annual Report on Form 10-K
for the year ended December 26, 1998 (the "Form 10-K"), as filed with the
Commission, and any amendments thereto, without charge. Please direct written
requests for a copy of the Form 10-K, and any amendments thereto, to: Duane
Reade Inc., 440 Ninth Avenue, New York, New York 10001; Attention: Secretary.
23
<PAGE>
ANNEX I TO PROXY STATEMENT
TEXT OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The amendment authorizing the increase in the authorized shares of Common
Stock will amend Article IV of the Company's Amended and Restated Certificate of
Incorporation. If the amendment is approved, Article IV will read in its
entirety as follows:
FOURTH: The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 80,000,000 shares of stock,
consisting of (i) 75,000,000 shares of Common Stock, par value $.01 per
share (the "Common Stock") and (ii) 5,000,000 shares of preferred stock, par
value $.01 per share (the "Preferred Stock") which may be designated as
provided below:
The board of directors of the Corporation (the "Board of Directors") is
hereby empowered to authorize by resolution or resolutions from time to time
the issuance of one or more classes or series of Preferred Stock and to fix
the designations, powers, preferences and relative, participating, optional
or other rights, if any, and the qualifications, limitations or restrictions
thereof, if any, with respect to each such class or series of Preferred
Stock and the number of shares constituting each such class or series, and
to increase or decrease the number of shares of any such class or series to
the extent permitted by the General Corporation Law of the State of
Delaware.
24
<PAGE>
APPENDIX 1
SPECIMEN OF PROXY CARD
DUANE READE INC.
The undersigned hereby appoints Anthony J. Cuti and William J. Tennant,
each of them with full power of substitution, to act as proxy and to represent
the undersigned at the 1999 annual meeting of stockholders and to vote all
shares of Common Stock of Duane Reade Inc. that the undersigned is entitled
to vote and would possess if personally present at said meeting to be held
at, on May 6, 1999 at 2:00 p.m., Eastern Standard time, and at all
postponements or adjournments thereof upon the following matters:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WHEN
PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 LISTED ON THE REVERSE
SIDE. PROXIES ARE GRANTED THE DISCRETION TO VOTE UPON ALL OTHER MATTERS THAT MAY
PROPERLY BE BROUGHT BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT
THEREOF.
/X/ Please Mark your votes as indicated in this example.
1. Election of Directors
Nominees: Anthony J. Cuti, Nicole S. Arnaboldi, David L. Jaffe,
Andrew J. Nathanson, Kevin Roberg, David W. Johnson
FOR ALL NOMINEES WITHHELD FROM ALL NOMINEES
/ / / /
/ / --------------------------------------------------
FOR, except as noted above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES.
2. Approval of 1997 Equity FOR WITHHELD
Participation Plan, as Amended / / / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PLAN.
3. Amendment of Amended and FOR WITHHELD
Restated Certificate of / / / /
Incorporation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT.
<PAGE>
MARK HERE IF
YOU PLAN TO ATTEND
THE MEETING / /
MARK HERE FOR
ADDRESS CHANGE AND
NOTE AT LEFT / /
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
Signature(s) Date
----------------------------------- ---------------------------
NOTE: Please sign exactly as name appears on this card. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
<PAGE>
APPENDIX 2 TO PROXY STATEMENT
THE 1997 EQUITY PARTICIPATION PLAN
OF
DUANE READE HOLDING CORP.
Duane Reade Holding Corp., a Delaware corporation, has adopted The 1997
Equity Participation Plan of Duane Reade Holding Corp. (the "Plan"), effective
June 18, 1997, for the benefit of its eligible employees, consultants and
directors.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock and/or
rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of directors,
Employees and consultants considered essential to the long range success of the
Company by offering them an opportunity to own stock in the Company and/or
rights which will reflect the growth, development and financial success of the
Company.
ARTICLE I.
DEFINITIONS
1.1. GENERAL. Wherever the following terms are used in this Plan they shall
have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. AFFILIATE. "Affiliate" with respect to any person shall mean any other
person or entity directly or indirectly controlling, controlled by or under
common control with, such person where "control" shall have the meaning given
such term under Rule 405 of the Securities Act.
1.3. AWARD LIMIT. "Award Limit" shall mean 4,000,000 shares of Common
Stock, as adjusted pursuant to Section 10.3.
1.4. BOARD. "Board" shall mean the Board of Directors of the Company.
1.5. CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6. COMMITTEE. "Committee" shall mean the Compensation Committee of the
Board, or another committee of the Board, appointed as provided in Section 9.1.
1.7. COMMON STOCK. "Common Stock" shall mean the Class B common stock of
the Company, par value $.01 per share.
<PAGE>
1.8. COMPANY. "Company" shall mean Duane Reade Holding Corp., a Delaware
corporation.
1.9. DEFERRED STOCK. "Deferred Stock" shall mean Common Stock awarded under
Article VII of this Plan.
1.10. DIRECTOR. "Director" shall mean a member of the Board.
1.11. DIVIDEND EQUIVALENT. "Dividend Equivalent" shall mean a right to
receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VII of this Plan.
1.12. EMPLOYEE. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.13. EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
1.14. FAIR MARKET VALUE. "Fair Market Value" of a share of Common Stock as
of a given date shall be (i) the average closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), over the thirty trading days immediately preceding the date
of determination, or (ii) if Common Stock is not traded on an exchange but is
quoted on Nasdaq or a successor quotation system, the average mean between the
closing representative bid and asked prices for the Common Stock over the thirty
trading days immediately preceding the date of determination as reported by
Nasdaq or such successor quotation system or (iii) if Common Stock is not
publicly traded on an exchange and not quoted on Nasdaq or a successor quotation
system, the fair market value of a share of Common Stock determined, without
regard to any minority discount or control premium, in good faith by the
Committee or as otherwise specified pursuant to any Option Agreement.
1.15. GRANTEE. "Grantee" shall mean an Employee or consultant granted a
Performance Award, Dividend Equivalent, Stock Payment or Stock Appreciation
Right, or an award of Deferred Stock, under this Plan.
1.16. INCENTIVE STOCK OPTION. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and which
is designated as an Incentive Stock Option by the Committee.
1.17. INDEPENDENT DIRECTOR. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
2
<PAGE>
1.18. INDEPENDENT THIRD PARTY. "Independent Third Party" shall mean any
entity other than (i) the Company, (ii) DLJ or (iii) any Affiliate or Subsidiary
of either the Company of DLJ.
1.19. NON-QUALIFIED STOCK OPTION. "Non-Qualified Stock Option" shall mean
an Option which is not designated as an Incentive Stock Option by the Committee.
1.20. OPTION. "Option" shall mean a stock option granted under Article III
of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
PROVIDED, HOWEVER, that Options granted to Independent Directors and consultants
shall be Non-Qualified Stock Options.
1.21. OPTIONEE. "Optionee" shall mean an Employee, consultant or
Independent Director granted an Option under this Plan.
1.22. PERFORMANCE AWARD. "Performance Award" shall mean a cash bonus, stock
bonus or other performance or incentive award that is paid in cash, Common Stock
or a combination of both, awarded under Article VII of this Plan.
1.23. PLAN. "Plan" shall mean The 1997 Equity Participation Plan of Duane
Reade Holding Corp.
1.24. QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
1.25. RESTRICTED STOCK. "Restricted Stock" shall mean Common Stock awarded
under Article VI of this Plan.
1.26. RESTRICTED STOCKHOLDER. "Restricted Stockholder" shall mean an
Employee or consultant granted an award of Restricted Stock under Article VI of
this Plan.
1.27. RULE 16B-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.28. SALE OF THE COMPANY. "Sale of the Company" shall mean the
consummation of one of the following events:
(a) any Independent Third Party is or becomes the Beneficial Owner (as
defined below), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities. For purposes of this Plan, the term "Beneficial
Owner" shall have the meaning given to such term in Rule 13d-3 under the
Exchange Act;
(b) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation (or other entity), other than a
merger or
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consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; PROVIDED, HOWEVER, that a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than 25% of the
combined voting power of the Company's then outstanding securities shall
not constitute a Sale of the Company; or
(c) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
1.29. SECTION 162(M) PARTICIPANT. "Section 162(m) Participant" shall mean
any Employee so designated by the Committee and whose compensation for the
fiscal year in which the Employee is so designated or a future fiscal year may
be subject to the limit on deductible compensation imposed by Section 162(m) of
the Code.
1.30. STOCK APPRECIATION RIGHT. "Stock Appreciation Right" shall mean a
stock appreciation right granted under Article VIII of this Plan.
1.31. STOCK PAYMENT. "Stock Payment" shall mean (i) a payment in the form
of shares of Common Stock, or (ii) an option or other right to purchase shares
of Common Stock, as part of a deferred compensation arrangement, made in lieu of
all or any portion of the compensation, including without limitation, salary,
bonuses and commissions, that would otherwise become payable to a Employee or
consultant in cash, awarded under Article VII of this Plan.
1.32. SUBSIDIARY. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50 percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
1.33. TERMINATION OF CONSULTANCY. "Termination of Consultancy" shall mean
the time when the engagement of an Optionee, Grantee or Restricted Stockholder
as a consultant to the Company or a Subsidiary is terminated for any reason,
with or without cause, including, but not by way of limitation, by resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary. The
Committee, in its sole discretion, shall determine the effect of all matters and
questions relating to Termination of Consultancy, including, but not by way of
limitation, the question of whether a Termination of Consultancy resulted from a
discharge for good cause, and all questions of whether a particular leave of
absence constitutes a Termination of Consultancy. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
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reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
1.34. TERMINATION OF DIRECTORSHIP. "Termination of Directorship" shall mean
the time when an Optionee who is an Independent Director ceases to be a Director
for any reason, including, but not by way of limitation, a termination by
resignation, failure to be elected, death or retirement. The Board, in its sole
discretion, shall determine the effect of all matters and questions relating to
Termination of Directorship with respect to Independent Directors.
1.35. TERMINATION OF EMPLOYMENT. "Termination of Employment" shall mean the
time when the employee-employer relationship between an Optionee, Grantee or
Restricted Stockholder and the Company or any Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) a termination where there is a simultaneous reemployment or
continuing employment of such Optionee, Grantee or Restricted Stockholder by the
Company or any Subsidiary, (ii) at the sole discretion of the Committee, a
termination which results in a temporary severance of the employee-employer
relationship, and (iii) at the sole discretion of the Committee, a termination
which is followed by the simultaneous establishment of a consulting relationship
by the Company or a Subsidiary with the former employee. The Committee, in its
sole discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether a particular leave of absence
constitutes a Termination of Employment; PROVIDED, HOWEVER, that, with respect
to Incentive Stock Options, unless otherwise determined by the Committee in its
sole discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Code Section. Notwithstanding any other provision
of this Plan, the Company or any Subsidiary has an absolute and unrestricted
right to terminate an Employee's employment at any time for any reason
whatsoever, with or without cause, except to the extent expressly provided
otherwise in writing.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. SHARES SUBJECT TO PLAN.
(a) The shares of stock subject to Options, awards of Restricted Stock,
Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock
Payments or Stock Appreciation Rights shall be Common Stock, initially shares of
the Company's Class B Common Stock, par value $.01 per share. The aggregate
number of such shares which may be issued upon exercise of such Options, rights
or awards under the Plan shall not exceed eleven
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million (11,000,000). The shares of Common Stock issuable upon exercise of such
Options, rights or awards may be either previously authorized but unissued
shares or treasury shares.
(b) The maximum number of shares which may be subject to Options, awards of
Restricted Stock, Performance Awards, Dividend Equivalents, awards of Deferred
Stock, Stock Payments or Stock Appreciation Rights granted under the Plan to any
individual in any calendar year shall not exceed the Award Limit. To the extent
required by Section 162(m) of the Code, shares subject to Options which are
canceled shall continue to be counted against the Award Limit and if, after
grant of an Option, the price of shares subject to such Option is reduced, such
adjustment shall be treated as a cancellation of such Option and a grant of a
new Option and both the Option deemed to be canceled and the Option deemed to be
granted shall be counted against the Award Limit. Furthermore, to the extent
required by Section 162(m) of the Code, if, after grant of a Stock Appreciation
Right, the base amount on which stock appreciation is calculated is reduced to
reflect a reduction in the Fair Market Value of the Company's Common Stock, such
adjustment shall be treated as a cancellation of such Stock Appreciation Right
and a grant of a new Stock Appreciation Right and both the Stock Appreciation
Right deemed to be canceled and the Stock Appreciation Right deemed to be
granted shall be counted against the Award Limit.
2.2. ADD-BACK OF OPTIONS AND OTHER RIGHTS. If any Option, or other right to
acquire shares of Common Stock under any other award under this Plan, expires or
is canceled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by this Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Options or other awards which are
adjusted pursuant to Section 10.3 and become exercisable with respect to shares
of stock of another corporation shall be considered canceled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Shares of Common Stock which are delivered by the Optionee or Grantee or
withheld by the Company upon the exercise of any Option or other award under
this Plan, in payment of the exercise price thereof or withholding taxes
thereon, may again be optioned, granted or awarded hereunder, subject to the
limitations of Section 2.1. If any share of Restricted Stock is forfeited by a
Grantee or repurchased by the Company pursuant to Section 6.6 hereof, such share
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares of
Common Stock may again be optioned, granted or awarded if such action would
cause an Incentive Stock Option to fail to qualify as an incentive stock option
under Section 422 of the Code.
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ARTICLE III.
GRANTING OF OPTIONS
3.1. ELIGIBILITY. Subject to the Award Limit, any Employee or consultant
selected by the Committee pursuant to Section 3.4(a)(i) and any Independent
Director selected by the Board pursuant to Section 3.4(b)(i) shall be eligible
to be granted an Option.
3.2. DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
3.3. QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock Option
shall be granted to any person who is not an Employee.
3.4. GRANTING OF OPTIONS
(a) The Committee shall from time to time, in its sole discretion, and
subject to applicable limitations of this Plan:
(i) Select from among the Employees and consultants (including
Employees or consultants who have previously received Options or other
awards under this Plan) such of them as in its opinion should be granted
Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected Employees or consultants;
(iii) Subject to Section 3.3, determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such
Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent
with this Plan; PROVIDED, HOWEVER, that the terms and conditions of Options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code.
(b) The Board shall from time to time, in its sole discretion, and subject
to applicable limitations of this Plan:
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(i) determine which Independent Directors (including Independent
Directors who have previously received Options or other awards under this
Plan) such of them as in its opinion should be granted Options;
(ii) determine the number of shares to be subject to such Options
granted to the selected Independent Directors; and
(iii) determine the terms and conditions of such Options, consistent
with this Plan.
(c) Upon the selection of a Employee, consultant or Independent Director to
be granted an Option, the Committee (or Board) shall instruct the Secretary of
the Company to issue the Option and may impose such conditions on the grant of
the Option as it deems appropriate. Without limiting the generality of the
preceding sentence, the Committee (the Board, with respect to Independent
Directors) may, in its sole discretion and on such terms as it deems
appropriate, require as a condition on the grant of an Option that the Employee,
consultant or Independent Director surrender for cancellation some or all of the
unexercised Options, awards of Restricted Stock or Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments or
other rights which have been previously granted to him under this Plan or
otherwise. An Option, the grant of which is conditioned upon such surrender, may
have an Option price lower (or higher) than the exercise price of such
surrendered Option or other award, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
(d) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such Option from treatment as an "incentive stock
option" under Section 422 of the Code.
ARTICLE IV.
TERMS OF OPTIONS
4.1. OPTION AGREEMENT. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee (or the Board, in the case of Options granted to Independent
Directors) shall determine, consistent with this Plan. Stock Option Agreements
evidencing Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code. Stock Option Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
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4.2. OPTION PRICE. The price per share of the shares subject to each Option
shall be set by the Committee (or Board with respect to Independent Directors);
PROVIDED, HOWEVER, that such price shall be no less than the par value of a
share of Common Stock, unless otherwise permitted by applicable state law, and
(i) in the case of Options intended to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code, such price shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the date the
Option is granted; (ii) in the case of Incentive Stock Options such price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted (or the date the Option is modified, extended or
renewed for purposes of Section 424(h) of the Code); and (iii) in the case of
Incentive Stock Options granted to an individual then owning (within the meaning
of Section 424(d) of the Code) more than 10% of the total combined voting power
of all classes of stock of the Company or any Subsidiary or parent corporation
thereof (within the meaning of Section 422 of the Code), such price shall not be
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code).
4.3. OPTION TERM. The term of an Option shall be set by the Committee in
its sole discretion; (or Board, with respect to Independent Directors) PROVIDED,
HOWEVER, that, in the case of Incentive Stock Options, the term shall not be
more than ten (10) years from the date the Incentive Stock Option is granted, or
five (5) years from such date if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee (or Board, with respect to Independent Directors) may
extend the term of any outstanding Option in connection with any Termination of
Employment, Termination of Consultancy or Termination of Directorship of the
Optionee, or amend any other term or condition of such Option relating to such a
termination.
4.4. OPTION VESTING
(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee (or Board, with respect
to Independent Directors) and the Committee (or Board, with respect to
Independent Directors) may determine that an Option may not be exercised in
whole or in part for a specified period after it is granted. At any time after
grant of an Option, the Committee (or Board, with respect to Independent
Directors) may, in its sole discretion and subject to whatever terms and
conditions it selects, accelerate the period during which an Option vests.
(b) No portion of an Option which is unexercisable at Termination of
Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee (or Board, with respect to Independent Directors)
either in the Stock Option Agreement or by action of the Committee (or Board)
following the grant of the Option.
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(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any parent or subsidiary
corporation (within the meaning of Section 422 of the Code) of the Company)
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such stock
is granted.
4.5. CONSIDERATION. In consideration of the granting of an Option, the
Optionee shall agree, in the written Stock Option Agreement, to render faithful
and efficient services to the Company and its Subsidiaries. Nothing in this Plan
or in any Stock Option Agreement hereunder shall confer upon any Optionee any
right to continue in the employ of, or as a consultant for, the Company or any
Subsidiary, or as a director of the Company, or shall interfere with or restrict
in any way the rights of the Company and any Subsidiary, which are hereby
expressly reserved, to discharge any at any time for any reason whatsoever, with
or without good cause.
4.6. PERFORMANCE AND SUPER-PERFORMANCE OPTIONS. Notwithstanding the
foregoing, attached hereto and incorporated by this reference are forms of a
Non-Qualified Performance Option Agreement and a Non-Qualified Super-Performance
Option Agreement that set forth certain specified terms applicable to those
Options to be granted under the Plan as of June 18, 1997 that are intended to be
"Performance Options" or "Super-Performance Options," respectively, as described
more fully in each such form of agreement.
ARTICLE V.
EXERCISE OF OPTIONS
5.1. PARTIAL EXERCISE. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Committee (or the Board, in the case of Options granted to
Independent Directors) may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.
5.2. MANNER OF EXERCISE. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his office:
(a) A written notice complying with the applicable rules established by the
Committee (or the Board, in the case of Options granted to Independent
Directors) stating that the Option, or a portion thereof, is exercised. The
notice shall be signed by the Optionee or other person then entitled to exercise
the Option or such portion of the Option;
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(b) Such representations and documents as the Committee (or the Board, in
the case of Options granted to Independent Directors), in its sole discretion,
deems necessary or advisable to effect compliance with all applicable provisions
of the Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations. The Committee or Board may, in its sole
discretion, also take whatever additional actions it deems appropriate to effect
such compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to Section
10.1 by any person or persons other than the Optionee, appropriate proof of the
right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, the
Committee (or the Board, in the case of Options granted to Independent
Directors), may in its sole discretion (i) allow a delay in payment up to thirty
(30) days from the date the Option, or portion thereof, is exercised; (ii) allow
payment, in whole or in part, through the delivery of shares of Common Stock
owned by the Optionee, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price of
the Option or exercised portion thereof; (iii) allow payment, in whole or in
part, through the surrender of shares of Common Stock then issuable upon
exercise of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iv) allow payment, in whole or in part, through the delivery of
property of any kind which constitutes good and valuable consideration; (v)
allow payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Committee or the Board; (vi) allow payment, in whole
or in part, through the delivery of a notice that the Optionee has placed a
market sell order with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has been directed to
pay a sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs (ii),
(iii), (iv), (v) and (vi). In the case of a promissory note, the Committee (or
the Board, in the case of Options granted to Independent Directors) may also
prescribe the form of such note and the security to be given for such note. The
Option may not be exercised, however, by delivery of a promissory note or by a
loan from the Company when or where such loan or other extension of credit is
prohibited by law.
5.3. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;
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(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory body
which the Committee or Board shall, in its sole discretion, deem necessary or
advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee (or Board, in the case of
Options granted to Independent Directors) shall, in its sole discretion,
determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Committee (or Board, in the case of Options granted to
Independent Directors) may establish from time to time for reasons of
administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax.
5.4. RIGHTS AS STOCKHOLDERS. The holders of Options shall not be, nor have
any of the rights or privileges of, stockholders of the Company in respect of
any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
5.5. OWNERSHIP AND TRANSFER RESTRICTIONS. The Committee (or Board, in the
case of Options granted to Independent Directors), in its sole discretion, may
impose such restrictions on the ownership and transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the respective Stock Option Agreement or
another written agreement between the Company and the Optionee may be referred
to on the certificates evidencing such shares. The Committee may require the
Employee to give the Company prompt notice of any disposition of shares of
Common Stock acquired by exercise of an Incentive Stock Option within (i) two
years from the date of granting (including the date the Option is modified,
extended or renewed for purposes of Section 424(h) of the Code) such Option to
such Employee or (ii) one year after the transfer of such shares to such
Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement.
ARTICLE VI.
AWARD OF RESTRICTED STOCK
6.1. ELIGIBILITY. Subject to the Award Limit, any Employee or consultant
selected by the Committee may be awarded Restricted Stock.
6.2. AWARD OF RESTRICTED STOCK
(a) The Committee may from time to time, in its sole discretion:
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(i) Select from among the Employees and consultants (including
Employees or consultants who have previously received other awards under
this Plan) such of them as in its opinion should be awarded Restricted
Stock; and
(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with this Plan.
(b) The Committee shall establish the purchase price, if any, and form of
payment for Restricted Stock; PROVIDED, HOWEVER, that such purchase price shall
be no less than the par value of the Common Stock to be purchased, unless
otherwise permitted by applicable state law. In all cases, legal consideration
shall be required for each issuance of Restricted Stock.
(c) Upon the selection of a Employee or consultant to be awarded Restricted
Stock, the Committee shall instruct the Secretary of the Company to issue such
Restricted Stock and may impose such conditions on the issuance of such
Restricted Stock as it deems appropriate.
6.3. RESTRICTED STOCK AGREEMENT. Restricted Stock shall be issued only
pursuant to a written Restricted Stock Agreement, which shall be executed by the
selected Employee or consultant and an authorized officer of the Company and
which shall contain such terms and conditions as the Committee shall determine,
consistent with this Plan.
6.4. CONSIDERATION. As consideration for the issuance of Restricted Stock,
in addition to payment of any purchase price, the Restricted Stockholder shall
agree, in the written Restricted Stock Agreement, to render faithful and
efficient services to the Company and its Subsidiaries. Nothing in this Plan or
in any Restricted Stock Agreement hereunder shall confer on any Restricted
Stockholder any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Restricted Stockholder at any time for any reason whatsoever,
with or without good cause.
6.5. RIGHTS AS STOCKHOLDERS. Subject to Section 6.6, upon delivery of the
shares of Restricted Stock to the escrow holder pursuant to Section 6.7, the
Restricted Stockholder shall have, unless otherwise provided by the Committee,
all the rights of a stockholder with respect to said shares, subject to the
restrictions in his Restricted Stock Agreement, including the right to receive
all dividends and other distributions paid or made with respect to the shares;
PROVIDED, HOWEVER, that in the sole discretion of the Committee, any
extraordinary distributions with respect to the Common Stock shall be subject to
the restrictions set forth in Section 6.6.
6.6. RESTRICTION. All shares of Restricted Stock issued under this Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Restricted Stock
Agreement, be subject to such restrictions as the Committee shall provide, which
restrictions may include, without limitation, restrictions concerning voting
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rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; PROVIDED, HOWEVER,
that, except with respect to shares of Restricted Stock granted pursuant to
Section 6.10, by action taken after the Restricted Stock is issued, the
Committee may, on such terms and conditions as it may determine to be
appropriate, remove any or all of the restrictions imposed by the terms of the
Restricted Stock Agreement. Restricted Stock may not be sold or encumbered until
all restrictions are terminated or expire.
6.7. REPURCHASE OF RESTRICTED STOCK. The Committee shall provide in the
terms of each individual Restricted Stock Agreement that the Company shall have
the right to repurchase from the Restricted Stockholder the Restricted Stock
then subject to restrictions under the Restricted Stock Agreement immediately
upon a Termination of Employment or, if applicable, upon a Termination of
Consultancy between the Restricted Stockholder and the Company, at a cash price
per share equal to the price paid by the Restricted Stockholder for such
Restricted Stock; PROVIDED, HOWEVER, that the Committee in its sole discretion
may provide that no such right of repurchase shall exist in the event of a
Termination of Employment following a "change of ownership or control" (within
the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or any successor
regulation thereto) of the Company or because of the Restricted Stockholder's
death or disability; PROVIDED, FURTHER, that, except with respect to shares of
Restricted Stock granted pursuant to Section 6.10 the Committee in its sole
discretion may provide that no such right of repurchase shall exist in the event
of a Termination of Employment or a Termination of Consultancy without cause or
following any change in control or ownership of the Company or because of the
Restricted Stockholder's retirement, or otherwise.
6.8. ESCROW. The Secretary of the Company or such other escrow holder as
the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Restricted Stock Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
6.9. LEGEND. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to be
placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Restricted Stock Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
6.10. PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS.
(a) Notwithstanding anything in the Plan to the contrary, the Committee may
grant Restricted Stock to a Section 162(m) Participant the restrictions with
respect to which lapse upon the attainment of performance goals for the Company
which are related to one or more of the following business criteria: (i) pre-tax
income, (ii) operating income, (iii) cash flow, (iv) earnings per share, (v)
return on equity, (vi) return on invested capital or assets, (vii) cost
reductions or savings, (viii) funds from operations, (ix) appreciation in the
fair market value of
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Common Stock and (x) earnings before any one or more of the following items:
interest, taxes, depreciation or amortization.
(b) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
Restricted Stock which may be granted to one or more Section 162(m)
Participants, no later than ninety (90) days following the commencement of any
fiscal year in question or any other designated fiscal period or period of
service (or such other time as may be required or permitted by Section 162(m) of
the Code), the Committee shall, in writing, (i) designate one or more Section
162(m) Participants, (ii) select the performance goal or goals applicable to the
fiscal year or other designated fiscal period or period of service, (iii)
establish the various targets and amounts of Restricted Stock which may be
earned for such fiscal year or other designated fiscal period or period of
service and (iv) specify the relationship between performance goals and targets
and the amounts of Restricted Stock to be earned by each Section 162(m)
Participant for such fiscal year or other designated fiscal period or period of
service. Following the completion of each fiscal year or other designated fiscal
period or period of service, the Committee shall certify in writing whether the
applicable performance targets have been achieved for such fiscal year or other
designated fiscal period or period of service. In determining the amount earned
by a Section 162(m) Participant, the Committee shall have the right to reduce
(but not to increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or other
designated fiscal period or period of service.
ARTICLE VII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1. ELIGIBILITY. Subject to the Award Limit, any Employee or consultant
selected by the Committee pursuant to Sections 7.2, 7.3, 7.4 or 7.5 shall be
eligible to be awarded Performance Awards, Dividend Equivalents, awards of
Deferred Stock, and/or Stock Payments.
7.2. PERFORMANCE AWARDS. Any Employee or consultant selected by the
Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to the market value, book value, net profits or
other measure of the value of Common Stock or other specific performance
criteria determined appropriate by the Committee, in each case on a specified
date or dates or over any period or periods determined by the Committee, or may
be based upon the appreciation in the market value, book value, net profits or
other measure of the value of a specified number of shares of Common Stock over
a fixed period or periods determined by the Committee. In making such
determinations, the Committee shall consider (among such other factors as it
deems relevant in light of the specific type of award) the contributions,
responsibilities and other compensation of the particular Employee or
consultant.
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7.3. DIVIDEND EQUIVALENTS. Any Employee or consultant selected by the
Committee may be granted Dividend Equivalents based on the dividends declared on
Common Stock, to be credited as of dividend payment dates, during the period
between the date an Option, Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Option, Stock Appreciation
Right, Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee. Such Dividend Equivalents shall be converted to
cash or additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee. With respect
to Dividend Equivalents granted with respect to Options intended to be qualified
performance-based compensation for purposes of Section 162(m) of the Code, such
Dividend Equivalents shall be payable regardless of whether such Option is
exercised.
7.4. STOCK PAYMENTS. Any Employee or consultant selected by the Committee
may receive Stock Payments in the manner determined from time to time by the
Committee. The number of shares shall be determined by the Committee and may be
based upon the Fair Market Value, book value, net profits or other measure of
the value of Common Stock or other specific performance criteria determined
appropriate by the Committee, determined on the date such Stock Payment is made
or on any date thereafter.
7.5. DEFERRED STOCK. Any Employee or consultant selected by the Committee
may be granted an award of Deferred Stock in the manner determined from time to
time by the Committee. The number of shares of Deferred Stock shall be
determined by the Committee and may be linked to the market value, book value,
net profits or other measure of the value of Common Stock or other specific
performance criteria determined to be appropriate by the Committee, in each case
on a specified date or dates or over any period or periods determined by the
Committee. Common Stock underlying a Deferred Stock award will not be issued
until the Deferred Stock award has vested, pursuant to a vesting schedule or
performance criteria set by the Committee. Unless otherwise provided by the
Committee, a Grantee of Deferred Stock shall have no rights as a Company
stockholder with respect to such Deferred Stock until such time as the award has
vested and the Common Stock underlying the award has been issued.
7.6. PERFORMANCE AWARD AGREEMENT, DIVIDEND EQUIVALENT AGREEMENT, DEFERRED
STOCK AGREEMENT, STOCK PAYMENT AGREEMENT. Each Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment shall be evidenced by a
written agreement, which shall be executed by the Grantee and an authorized
Officer of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with this Plan.
7.7. TERM. The term of a Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment shall be set by the Committee in its sole
discretion.
7.8. EXERCISE OR PURCHASE PRICE. The Committee may establish the exercise
or purchase price of a Performance Award, shares of Deferred Stock, or shares
received as a Stock
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Payment; PROVIDED, HOWEVER, that such price shall not be less than the par value
for a share of Common Stock, unless otherwise permitted by applicable state law.
7.9. EXERCISE UPON TERMINATION OF EMPLOYMENT. A Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or
payable only while the Grantee is an Employee or consultant; PROVIDED, HOWEVER,
that the Committee in its sole discretion may provide that the Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be
exercised or paid subsequent to a Termination of Employment following a "change
of control or ownership" (within the meaning of Section 1.162-27(e)(2)(v) or any
successor regulation thereto) of the Company; PROVIDED, FURTHER, that except
with respect to Performance Awards granted pursuant to Section 7.12, the
Committee in its sole discretion may provide that the Performance Awards may be
exercised or paid following a Termination of Employment or a Termination of
Consultancy without cause, or following a change in control of the Company, or
because of the Grantee's retirement, death or disability, or otherwise.
7.10. PAYMENT ON EXERCISE. Payment of the amount determined under Section
7.1 or 7.2 above shall be in cash, in Common Stock or a combination of both, as
determined by the Committee. To the extent any payment under this Article VII is
effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 5.3.
7.11. CONSIDERATION. In consideration of the granting of a Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment, the
Grantee shall agree, in a written agreement, to render faithful and efficient
services to the Company and its Subsidiaries. Nothing in this Plan or in any
agreement hereunder shall confer on any Grantee any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.
7.12. PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS.
(a) Notwithstanding anything in the Plan to the contrary, the Committee may
grant any performance or incentive awards described in Article VII to a Section
162(m) Participant that vest or become exercisable or payable upon the
attainment of performance goals for the Company which are related to one or more
of the following business criteria: (i) pre-tax income, (ii) operating income,
(iii) cash flow, (iv) earnings per share, (v) return on equity, (vi) return on
invested capital or assets, (vii) cost reductions or savings, (viii) funds from
operations, (ix) appreciation in the fair market value of Common Stock and (x)
earnings before any one or more of the following items: interest, taxes,
depreciation or amortization.
(b) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
performance or incentive awards described in Article VII which may be granted to
one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in
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question or any other designated fiscal period or period of service (or such
other time as may be required or permitted by Section 162(m) of the Code), the
Committee shall, in writing, (i) designate one or more Section 162(m)
Participants, (ii) select the performance goal or goals applicable to the fiscal
year or other designated fiscal period or period of service, (iii) establish the
various targets and bonus amounts which may be earned for such fiscal year or
other designated fiscal period or period of service and (iv) specify the
relationship between performance goals and targets and the amounts to be earned
by each Section 162(m) Participant for such fiscal year or other designated
fiscal period or period of service. Following the completion of each fiscal year
or other designated fiscal period or period of service, the Committee shall
certify in writing whether the applicable performance targets have been achieved
for such fiscal year or other designated fiscal period or period of service. In
determining the amount earned by a Section 162(m) Participant, the Committee
shall have the right to reduce (but not to increase) the amount payable at a
given level of performance to take into account additional factors that the
Committee may deem relevant to the assessment of individual or corporate
performance for the fiscal year or other designated fiscal period or period of
service.
ARTICLE VIII.
STOCK APPRECIATION RIGHTS
8.1. GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right may be
granted to any Employee or consultant selected by the Committee. A Stock
Appreciation Right may be granted (i) in connection and simultaneously with the
grant of an Option, (ii) with respect to a previously granted Option, or (iii)
independent of an Option. A Stock Appreciation Right shall be subject to such
terms and conditions not inconsistent with this Plan as the Committee shall
impose and shall be evidenced by a written Stock Appreciation Right Agreement,
which shall be executed by the Grantee and an authorized officer of the Company.
The Committee, in its sole discretion, may determine whether a Stock
Appreciation Right is to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code and Stock Appreciation Right Agreements
evidencing Stock Appreciation Rights intended to so qualify shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Without limiting the generality of the foregoing,
the Committee may, in its sole discretion and on such terms as it deems
appropriate, require as a condition of the grant of a Stock Appreciation Right
to an Employee or consultant that the Employee or consultant surrender for
cancellation some or all of the unexercised Options, awards of Restricted Stock
or Deferred Stock, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments, or other rights which have been previously
granted to him under this Plan or otherwise. A Stock Appreciation Right, the
grant of which is conditioned upon such surrender, may have an exercise price
lower (or higher) than the exercise price of the surrendered Option or other
award, may cover the same (or a lesser or greater) number of shares as such
surrendered Option or other award, may contain such other terms as the Committee
deems appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of shares, price, exercise period or any other term
or condition of such surrendered Option or other award.
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8.2. COUPLED STOCK APPRECIATION RIGHTS
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the number of
shares subject to the simultaneously or previously granted Option to which it is
coupled.
(c) A CSAR shall entitle the Grantee (or other person entitled to exercise
the Option pursuant to this Plan) to surrender to the Company unexercised a
portion of the Option to which the CSAR relates (to the extent then exercisable
pursuant to its terms) and to receive from the Company in exchange therefor an
amount determined by multiplying the difference obtained by subtracting the
Option exercise price from the Fair Market Value of a share of Common Stock on
the date of exercise of the CSAR by the number of shares of Common Stock with
respect to which the CSAR shall have been exercised, subject to any limitations
the Committee may impose.
8.3. INDEPENDENT STOCK APPRECIATION RIGHTS
(a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated to
any Option and shall have a term set by the Committee. An ISAR shall be
exercisable in such installments as the Committee may determine. An ISAR shall
cover such number of shares of Common Stock as the Committee may determine. The
exercise price per share of Common Stock subject to each ISAR shall be set by
the Committee. An ISAR is exercisable only while the Grantee is an Employee or
consultant; provided that the Committee may determine that the ISAR may be
exercised subsequent to Termination of Employment or Termination of Consultancy
without cause, or following a change in control of the Company, or because of
the Grantee's retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person entitled to exercise
the ISAR pursuant to this Plan) to exercise all or a specified portion of the
ISAR (to the extent then exercisable pursuant to its terms) and to receive from
the Company an amount determined by multiplying the difference obtained by
subtracting the exercise price per share of the ISAR from the Fair Market Value
of a share of Common Stock on the date of exercise of the ISAR by the number of
shares of Common Stock with respect to which the ISAR shall have been exercised,
subject to any limitations the Committee may impose.
8.4. PAYMENT AND LIMITATIONS ON EXERCISE
(a) Payment of the amount determined under Section 8.2(c) and 8.3(b) above
shall be in cash, in Common Stock (based on its Fair Market Value as of the date
the Stock Appreciation Right is exercised) or a combination of both, as
determined by the Committee. To the extent such payment is effected in Common
Stock it shall be made subject to satisfaction of all provisions of Section 5.3
above pertaining to Options.
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(b) Grantees of Stock Appreciation Rights may be required to comply with
any timing or other restrictions with respect to the settlement or exercise of a
Stock Appreciation Right, including a window-period limitation, as may be
imposed in the sole discretion of the Board or Committee.
8.5. CONSIDERATION. In consideration of the granting of a Stock
Appreciation Right, the Grantee shall agree, in the written Stock Appreciation
Right Agreement, to render faithful and efficient services to the Company and
its Subsidiaries. Nothing in this Plan or in any Stock Appreciation Right
Agreement hereunder shall confer on any Grantee any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.
ARTICLE IX.
ADMINISTRATION
9.1. COMPENSATION COMMITTEE. Prior to the Company's initial registration of
Common Stock under Section 12 of the Exchange Act, the Compensation Committee
shall consist of the entire Board. Following such registration, the Compensation
Committee (or another committee of the Board assuming the functions of the
Committee under this Plan) shall administer the Plan; PROVIDED, HOWEVER, that
unless and until such Committee consists solely of two or more Independent
Directors, each of whom is both a "non-employee director" as defined by Rule
16b-3 and an "outside director" for purposes of Section 162(m) of the Code, the
Committee shall continue to consist of the entire Board. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee may be filled by the Board.
9.2. DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the Committee
to conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to interpret this Plan and the
agreements pursuant to which Options, awards of Restricted Stock or Deferred
Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments are granted or awarded, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Notwithstanding the
foregoing, the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to Options granted
to Independent Directors. Any such grant or award under this Plan need not be
the same with respect to each Optionee, Grantee or Restricted Stockholder. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its sole
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan.
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9.3. MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is present
or by a memorandum or other written instrument signed by all members of the
Committee.
9.4. COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. Members of
the Committee shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, Grantees, Restricted Stockholders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan, Options, awards of Restricted Stock or Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
ARTICLE X.
MISCELLANEOUS PROVISIONS
10.1. NOT TRANSFERABLE.
(a) Except as expressly provided otherwise pursuant to a written agreement
between the Company and an Optionee, Grantee or Restricted Stockholder, Options,
Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments under this Plan may
not be sold, pledged, assigned, or transferred in any manner other than by will
or the laws of descent and distribution or pursuant to a QDRO, unless and until
such rights or awards have been exercised, or the shares underlying such rights
or awards have been issued, and all restrictions applicable to such shares have
lapsed. No Option, Restricted Stock award, Deferred Stock award, Performance
Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment or
interest or right therein shall be liable for the debts, contracts or
engagements of the Optionee, Grantee or Restricted Stockholder or his successors
in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect, except to the extent that such disposition is permitted
by the preceding sentence.
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(b) During the lifetime of the Optionee or Grantee, only he may exercise an
Option or other right or award (or any portion thereof) granted to him under the
Plan, unless it has been disposed of pursuant to a QDRO. After the death of the
Optionee or Grantee, any exercisable portion of an Option or other right or
award may, prior to the time when such portion becomes unexercisable under the
Plan or the applicable Stock Option Agreement or other agreement, be exercised
by his personal representative or by any person empowered to do so under the
deceased Optionee's or Grantee's will or under the then applicable laws of
descent and distribution.
10.2. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN. Except as
otherwise provided in this Section 10.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 10.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan, and no action of
the Board or the Committee may be taken that would otherwise require stockholder
approval as a matter of applicable law, regulation or rule. Furthermore, no
modification of the Award Limit shall be effective prior to the approval of the
Company's stockholders. No amendment, suspension or termination of this Plan
shall, without the consent of the holder of Options, Restricted Stock awards,
Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments, alter or impair any rights or obligations under
any Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments theretofore
granted or awarded, unless the award itself otherwise expressly so provides. No
Options, Restricted Stock, Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted or
awarded during any period of suspension or after termination of this Plan, and
in no event may any Incentive Stock Option be granted under this Plan after the
first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is approved by the
Company's stockholders under Section 10.4.
10.3. CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.
(a) Subject to Section 10.3(e), in the event that the Committee (or the
Board, in the case of Options granted to Independent Directors) determines that
any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), recapitalization, reclassification, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, liquidation, dissolution, or sale,
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transfer, exchange or other disposition of all or substantially all of the
assets of the Company (including, but not limited to, a Sale of the Company), or
exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of the
Company, or other similar corporate transaction or event, in the Committee's
sole discretion (or in the case of Options granted to Independent Directors, the
Board's sole discretion), affects the Common Stock such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan or with respect to an Option, Restricted Stock award, Performance
Award, Stock Appreciation Right, Dividend Equivalent, Deferred Stock award or
Stock Payment, then the Committee (or the Board, in the case of Options granted
to Independent Directors) shall, in such manner as it may deem equitable, adjust
any or all of
(i) the number and kind of shares of Common Stock (or other securities
or property) with respect to which Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted
under the Plan, or which may be granted as Restricted Stock or Deferred
Stock (including, but not limited to, adjustments of the limitations in
Section 2.1 on the maximum number and kind of shares which may be issued
and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents, or Stock Payments, and in
the number and kind of shares of outstanding Restricted Stock or Deferred
Stock, and
(iii) the grant or exercise price with respect to any Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment.
(b) Subject to Section 10.3(e), in the event of any Sale of the Company or
other transaction or event described in Section 10.3(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of the
Company, or the financial statements of the Company or any affiliate, or of
changes in applicable laws, regulations, or accounting principles, the Committee
(or the Board, in the case of Options granted to Independent Directors) in its
sole discretion is hereby authorized to take any one or more of the following
actions whenever the Committee (or the Board, in the case of Options granted to
Independent Directors) determines that such action is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or with respect to any option, right or
other award under this Plan, to facilitate such transactions or events or to
give effect to such changes in laws, regulations or principles:
(i) In its sole discretion, and on such terms and conditions as it
deems appropriate, the Committee (or the Board, in the case of Options
granted to Independent Directors) may provide, either by the terms of the
agreement or by action taken prior to the occurrence of such transaction or
event and either automatically or upon the
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optionee's request, for either the purchase of any such Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or
any Restricted Stock or Deferred Stock for an amount of cash equal to the
amount that could have been attained upon the exercise of such option,
right or award or realization of the optionee's rights had such option,
right or award been currently exercisable or payable or fully vested or the
replacement of such option, right or award with other rights or property
selected by the Committee (or the Board, in the case of Options granted to
Independent Directors) in its sole discretion;
(ii) In its sole discretion, the Committee (or the Board, in the case
of Options granted to Independent Directors) may provide, either by the
terms of such Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock or by
action taken prior to the occurrence of such transaction or event that it
cannot vest, be exercised or become payable after such event;
(iii) In its sole discretion, and on such terms and conditions as it
deems appropriate, the Committee (or the Board, in the case of Options
granted to Independent Directors) may provide, either by the terms of such
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent,
or Stock Payment, or Restricted Stock or Deferred Stock or by action taken
prior to the occurrence of such transaction or event, that for a specified
period of time prior to such transaction or event, such option, right or
award shall be exercisable as to all shares covered thereby,
notwithstanding anything to the contrary in (i) Section 4.4 or (ii) the
provisions of such Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred
Stock;
(iv) In its sole discretion, and on such terms and conditions as it
deems appropriate, the Committee (or the Board, in the case of Options
granted to Independent Directors) may provide, either by the terms of such
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent,
or Stock Payment, or Restricted Stock or Deferred Stock or by action taken
prior to the occurrence of such transaction or event, that upon such event,
such option, right or award be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be substituted for
by similar options, rights or awards covering the stock of the successor or
survivor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and
(v) In its sole discretion, and on such terms and conditions as it
deems appropriate, the Committee (or the Board, in the case of Options
granted to Independent Directors) may make adjustments in the number and
type of shares of Common Stock (or other securities or property) subject to
outstanding Options, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents, or Stock Payments, and in the number and kind of
outstanding Restricted Stock or Deferred Stock and/or in the terms and
conditions
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of (including the grant or exercise price), and the criteria included in,
outstanding options, rights and awards and options, rights and awards which
may be granted in the future.
(vi) In its sole discretion, and on such terms and conditions as it
deems appropriate, the Committee may provide either by the terms of a
Restricted Stock award or Deferred Stock award or by action taken prior to
the occurrence of such event that, for a specified period of time prior to
such event, the restrictions imposed under a Restricted Stock Agreement or
a Deferred Stock Agreement upon some or all shares of Restricted Stock or
Deferred Stock may be terminated, and, in the case of Restricted Stock,
some or all shares of such Restricted Stock may cease to be subject to
repurchase under Section 6.6 or forfeiture under Section 6.5 after such
event;
(c) Notwithstanding Sections 10.3(b), in the event of any Sale of the
Company, each outstanding Performance Award, Stock Appreciation Right, Dividend
Equivalent, Stock Payment, Restricted Stock, or Deferred Stock award shall,
immediately prior to the effective date of the Sale of the Company,
automatically become fully exercisable for all of the shares of Common Stock at
the time subject to such rights or fully vested, as applicable, and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding right shall not so accelerate if and to the extent: (i)
such right is, in connection with the Sale of the Company, to remain outstanding
for securities of the Company following such transaction, to be assumed by the
successor or survivor corporation (or parent thereof) or to be replaced with a
comparable right with respect to shares of the capital stock of the successor or
survivor corporation (or parent thereof) or (ii) the acceleration of
exercisability of such right is subject to other limitations imposed by the
Committee at the time of grant. The determination of comparability of rights
under clause (i) above shall be made by the Committee, and its determination
shall be final, binding and conclusive.
(d) Subject to Sections 10.3(e) and 10.8, the Committee (or the Board, in
the case of Options granted to Independent Directors) may, in its sole
discretion, include such further provisions and limitations in any Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock
Payment, or Restricted Stock or Deferred Stock agreement or certificate, as it
may deem equitable and in the best interests of the Company.
(e) With respect to Options, Stock Appreciation Rights and performance or
incentive awards described in Article VII which are granted to Section 162(m)
Participants and are intended to qualify as performance-based compensation under
Section 162(m)(4)(C), no adjustment or action described in this Section 10.3 or
in any other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of the
Code or would cause such option or stock appreciation right to fail to so
qualify under Section 162(m)(4)(C), as the case may be, or any successor
provisions thereto. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in short-swing
profits liability under Section 16 or violate the exemptive conditions of Rule
16b-3 unless the Committee (or the Board, in the case of Options granted to
Independent Directors) determines that the option or other award is not to
comply with such
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exemptive conditions. The number of shares of Common Stock subject to any
option, right or award shall always be rounded to the next whole number.
10.4. APPROVAL OF PLAN BY STOCKHOLDERS. This Plan has been approved by the
Company's stockholders as of June 18, 1997.
10.5. TAX WITHHOLDING. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Optionee, Grantee or
Restricted Stockholder of any sums required by federal, state or local tax law
to be withheld with respect to the issuance, vesting, exercise or payment of any
Option, Restricted Stock, Deferred Stock, Performance Award, Stock Appreciation
Right, Dividend Equivalent or Stock Payment. The Committee (or the Board, in the
case of Options granted to Independent Directors) may in its sole discretion and
in satisfaction of the foregoing requirement allow such Optionee, Grantee or
Restricted Stockholder to elect to have the Company withhold shares of Common
Stock otherwise issuable under such Option or other award (or allow the return
of shares of Common Stock) having a Fair Market Value equal to the sums required
to be withheld.
10.6. LOANS. The Committee may, in its sole discretion, extend one or more
loans to Employees in connection with the exercise or receipt of an Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment granted under this Plan, or the issuance of Restricted Stock or Deferred
Stock awarded under this Plan. The terms and conditions of any such loan shall
be set by the Committee.
10.7. FORFEITURE PROVISIONS. Pursuant to its general authority to determine
the terms and conditions applicable to awards under the Plan, the Committee (or
the Board, in the case of Options granted to Independent Directors) shall have
the right (to the extent consistent with the applicable exemptive conditions of
Rule 16b-3) to provide, in the terms of Options or other awards made under the
Plan, or to require the recipient to agree by separate written instrument, that
(i) any proceeds, gains or other economic benefit actually or constructively
received by the recipient upon any receipt or exercise of the award, or upon the
receipt or resale of any Common Stock underlying such award, must be paid to the
Company, and (ii) the award shall terminate and any unexercised portion of such
award (whether or not vested) shall be forfeited, if (a) a Termination of
Employment, Termination of Consultancy or Termination of Directorship occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the award, or (b) the recipient at any time, or during a
specified time period, engages in any activity in competition with the Company,
or which is inimical, contrary or harmful to the interests of the Company, as
further defined by the Committee (or the Board, as applicable).
10.8. LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-BASED
COMPENSATION. Notwithstanding any other provision of this Plan, this Plan, and
any Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment granted, or Restricted Stock or Deferred Stock awarded, to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable
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exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are requirements for the application of
such exemptive rule. To the extent permitted by applicable law, the Plan,
Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents,
Stock Payments, Restricted Stock and Deferred Stock granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of this Plan,
any Option, Stock Appreciation Right or performance or incentive award described
in Article VII which is granted to a Section 162(m) Participant and is intended
to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.
10.9. EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The adoption of
this Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives or
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary or (ii) to grant or assume options or other rights or awards
otherwise than under this Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.
10.10. COMPLIANCE WITH LAWS. This Plan, the granting and vesting of
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this
Plan and the issuance and delivery of shares of Common Stock and the payment of
money under this Plan or under Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments granted or Restricted Stock or
Deferred Stock awarded hereunder are subject to compliance with all applicable
federal and state laws, rules and regulations (including but not limited to
state and federal securities law and federal margin requirements) and to such
approvals by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if requested by
the Company, provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with all applicable
legal requirements. To the extent permitted by applicable law, the Plan,
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
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10.11. TITLES. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Plan.
10.12. GOVERNING LAW. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Duane Reade Holding Corp. on June 18, 1997, and was approved by the
Company's stockholders on June 18, 1997.
Executed on this 18th day of June, 1997.
/s/ Hyman Needleman
-------------------
Secretary
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APPENDIX 3 TO PROXY STATEMENT
FIRST AMENDMENT TO THE
1997 EQUITY PARTICIPATION PLAN OF
DUANE READE INC.
Duane Reade Inc. (the "Company"), a corporation organized under the laws of
the State of Delaware, by resolution of its Board of Directors (the "Board")
adopted the 1997 Equity Participation Plan of Duane Reade Inc. (the "Plan"),
effective as of June 18, 1997. Section 10.2 of the Plan allows the Board to
amend the Plan in certain respects at any time or from time to time.
In order to amend the Plan in certain respects, this Amendment to the Plan
has been adopted by a resolution of the Board on December 15, 1998, effective as
set forth herein. This amendment to the Plan, together with the Plan,
constitutes the entire Plan as amended to date.
1. AMENDMENT TO SECTION 1.14(I). Section 1.14(i) of the Plan is amended,
effective as of December 15, 1998, to read in its entirety as follows:
"(i) the average closing price of a share of Common Stock on the principal
exchange on which shares of Common Stock are then trading, if any (or as
reported on any composite index which includes such principal exchange), over
the five trading days immediately preceding the date of determination, or"
2. AMENDMENT TO SECTION 2.1(A). Section 2.1(a) of the Plan is amended,
effective as of December 15, 1998, to provide that the aggregate number of
shares of Common Stock which may be issued upon the exercise of stock options or
other awards under the Plan pursuant to Section 2.1(a) shall be increased from
1,321,181 shares to 1,971,181 shares; PROVIDED, HOWEVER, that the foregoing
increase in the number of shares that may be issued upon exercise of stock
options or other awards under the Equity Plan shall not be effective without the
approval of a majority of the Company's stockholders given on or before December
15, 1999; PROVIDED, FURTHER, that if the Company's stockholders do not approve
the foregoing increase prior to December 15, 1999, any stock options or other
awards granted with respect to a number of shares in excess of 1,321,181 shall
be void ab initio.
3. AMENDMENT TO SECTION 2.1(B). Section 2.1(b) of the Plan is amended,
effective as of December 15, 1998, to read in its entirety as follows:
"(b) The maximum number of shares which may be subject to Options, awards
of Restricted Stock, Performance Awards, Dividend Equivalents, awards of
Deferred Stock, Stock Payments or Stock Appreciation Rights granted under the
Plan to any individual in any calendar year shall not exceed the Award Limit. To
the extent required by Section 162(m) of the Code, shares subject to Options
which are canceled shall continue to be counted against the Award Limit."
Dated: March 30, 1999 DUANE READE INC.
By: /s/ William J. Tennant
---------------------------------------
Name: William J. Tennant
Title: Senior Vice President, Chief
Financial Officer and Secretary
