SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.204.14a-11(c) or
ss.240.14a-12
Employee Solutions, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| $________ Filing Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed Maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary proxy materials.
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid: _________
(2) Form, Schedule or Registration Statement No.: _________
(3) Filing Party: _____________________
(4) Date Filed: ______________________
<PAGE>
[LOGO]
Employee Solutions, Inc.
Making business better.
6225 North 24th Street
Phoenix, Arizona 85016
_____________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 2, 1998
_____________________
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of Employee Solutions, Inc., an
Arizona corporation (the "Company"), will be held on Tuesday, June 2, 1998 at
9:00 a.m. local time, at The Scottsdale Plaza Resort, 7200 North Scottsdale
Road, Scottsdale, Arizona for the following purposes:
(1) To elect six directors to serve for the next year or until
their successors are elected;
(2) To consider and act upon a proposal to amend the Company's
1995 Option Plan to increase the number of shares for which
options may be granted by 1,000,000.
(3) To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 23, 1998
are entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person.
By order of the Board of Directors
Paul M. Gales
Secretary
Phoenix, Arizona
April 21, 1998
- --------------------------------------------------------------------------------
IMPORTANT: It is important that your shareholdings be represented at the
Meeting. Whether or not you expect to attend the meeting, please complete, date
and sign the enclosed Proxy and mail it promptly in the enclosed envelope to
assure representation of your shares. No postage need be affixed if mailed in
the United States.
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
Employee Solutions, Inc.
Making business better.
6225 North 24th Street
Phoenix, Arizona 85016
_____________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
June 2, 1998
_____________________
SOLICITATION, EXECUTION AND REVOCATION OF PROXIES
Proxies in the accompanying form are solicited on behalf, and at the
direction, of the Board of Directors of Employee Solutions, Inc. (the
"Company"). All shares represented by properly executed proxies, unless such
proxies have previously been revoked, will be voted in accordance with the
direction on the proxies. If no direction is indicated, the shares will be voted
in favor of the proposals to be acted upon at the Annual Meeting. The Board of
Directors is not aware of any other matter which may come before the meeting. If
any other matters are properly presented at the meeting for action, including a
question of adjourning the meeting from time to time, the persons named in the
proxies and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment.
When stock is in the name of more than one person, the proxy is valid
if signed by any of such persons unless the Company receives written notice to
the contrary. If the shareholder is a corporation, the proxy should be signed in
the name of such corporation by an executive or other authorized officer. If
signed as attorney, executor, administrator, trustee, guardian or in any other
representative capacity, the signer's full title should be given and, if not
previously furnished, a certificate or other evidence of appointment should be
furnished.
This Proxy Statement and the form of proxy which is enclosed are being
mailed to the Company's shareholders commencing on or about April 28, 1998.
A shareholder executing and returning a proxy has the power to revoke
it at any time before it is voted. A shareholder who wishes to revoke a proxy
can do so by executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of the Company prior to the vote at the Annual
Meeting, by written notice of revocation received by the Secretary prior to the
vote at the Annual Meeting or by appearing in person at the Annual Meeting,
filing a written notice of revocation and voting in person the shares to which
the proxy relates.
In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by the directors, officers and
regular employees of the Company. Such persons will receive no additional
compensation for such services. Arrangements will also be made with certain
brokerage firms and certain other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of Common Stock
held of record by such persons, and such brokers, custodians, nominees and
fiduciaries will be reimbursed for their reasonable out-of-pocket expenses
incurred in connection therewith. It is not anticipated that any other persons
will be engaged to solicit proxies. However, the Company may seek services of an
outside proxy solicitor in the event such services become necessary. All
expenses incurred in connection with this solicitation will be borne by the
Company.
The mailing address of the principal corporate office of the Company is
6225 North 24th Street, Phoenix, Arizona 85016.
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only shareholders of record at the close of business on April 23, 1998
(the "Record Date") will be entitled to vote at the meeting. As of April 21,
1998, there were issued and outstanding 31,739,795 shares of Common Stock. Each
holder of Common Stock is entitled to one vote, exercisable in person or by
proxy, for each share of the Company's Common Stock held of record on the Record
Date. The presence of a majority of the shares of Common Stock entitled to vote,
in person or by proxy, is required to constitute a quorum for the conduct of
business at the Annual Meeting.
Each shareholder present, either in person or by proxy, will have
cumulative voting rights with respect to the election of directors. Under
cumulative voting, each shareholder is entitled to as many votes as is equal to
the number of shares of Common Stock of the Company held by the shareholder on
the Record Date multiplied by the number of directors to be elected, and such
votes may be cast for any single nominee or divided among two or more nominees.
The six nominees, or such fewer number of nominees as may stand for election,
receiving the highest number of votes will be elected to the Board of Directors.
There are no conditions precedent to the exercise of cumulative voting rights.
Unless otherwise instructed in any proxy, the persons named in the form of proxy
which accompanies this Proxy Statement (the "Proxy Holders") will vote the
proxies received by them for the Company's six nominees set forth in "Election
of Directors" below. If additional persons are nominated for election as
directors, the Proxy Holders intend, unless otherwise instructed in any proxy,
to vote all proxies received by them in such manner in accordance with
cumulative voting as will assure the election of as many of the Company's
nominees as possible, and, in such event, the specific nominees for whom votes
will be cast will be determined by the Proxy Holders. If authority to vote for
any nominee of the Company is withheld in any proxy, the Proxy Holders intend,
unless otherwise instructed in such proxy, to vote the shares represented by
such proxy, in their discretion, cumulatively for one or more of the other
nominees of the Company. The affirmative vote of a majority of a quorum is
required with respect to the approval of Proposal 2 set forth herein.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the inspectors of election appointed for the meeting and will
determine whether or not a quorum is present. The inspectors of election will
include abstentions and broker non-votes in the determination of the number of
shares present for quorum purposes. Abstentions are counted in tabulations of
the votes cast on proposals presented to shareholders, whereas broker non-votes
are not counted for purposes of determining whether a proposal has been
approved.
All share and per-share information in this Proxy Statement has been
adjusted to reflect two-for-one stock splits effected in the form of 100% stock
dividends effective January 16, 1996 and July 26, 1996.
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock at April 21, 1998 with respect to (i)
each person who beneficially owns more than 5% of the Company's outstanding
Common Stock including such person's address, (ii) each director of the Company
and each person nominated to become a director at the Annual Meeting, (iii) each
of the executive officers listed in the Summary Compensation Table below and
(iv) all directors and executive officers of the Company as a group. As of April
21, 1998 there were issued and outstanding 31,739,795 shares of Common Stock,
each entitled to vote at the Annual Meeting.
Shares Beneficially Owned (1)
-----------------------------
Number Percent
------ -------
Marvin D. Brody (2) 2,744,088 8.6%
6225 N. 24th Street
Phoenix, Arizona 8516
Harvey A. Belfer (3) 1,840,480 5.8%
6225 N. 24th Street
Phoenix, Arizona 85016
Roy A. Flegenheimer (4) 416,666 1.3%
Robert L. Mueller (3) 90,000 *
Morris C. Aaron (5) 76,666 *
Jeffery A. Colby (6) 53,361 *
Paul M. Gales (5) 40,000 *
Mark J. Gambill (5) 16,667 *
Sara R. Dial 0 *
Quentin P. Smith 0 *
All executive officers and directors
as a group (10 persons) (7) 5,277,928 16.3%
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting
or investment power with respect to securities. In accordance with SEC
rules, shares which may be acquired upon conversion or exercise of stock
options, warrants or convertible securities which are currently
exercisable or which become exercisable within 60 days are deemed
beneficially owned by the optionee. Except as indicated by footnote, and
subject to community property laws where applicable, the persons or
entities named in the table above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them.
(2) Includes 2,309,088 shares held by a limited partnership of which Mr.
Brody and his spouse are the general partners and Mr. Brody, his spouse
and adult children are the limited partners. Also, includes 400,000
shares of Common Stock held by an entity wholly-owned by Mr. Brody's
spouse, as to which Mr. Brody disclaims beneficial ownership.
(3) Voting and investment power shared with spouse.
(4) Includes 392,666 shares which Mr. Flegenheimer has the right to acquire
upon the exercise of stock options.
(5) Shares which the beneficial owner has the right to acquire upon the
exercise of stock options.
(6) Includes 53,333 shares which Mr. Colby has the right to acquire upon the
exercise of stock options.
(7) Includes 579,332 shares which executive officers and directors have the
right to acquire upon the exercise of stock options.
<PAGE>
PROPOSAL 1 -
ELECTION OF DIRECTORS
Six directors are to be elected at the Annual Meeting. Unless otherwise
instructed, the Proxy Holders will vote the Proxies received by them for the
Company's nominees, Harvey A. Belfer, Marvin D. Brody, Jeffery A. Colby, Sara R.
Dial, Robert L. Mueller, and Quentin P. Smith, Jr. Each director will hold
office until the next annual meeting of shareholders and thereafter until his
successor is elected and has qualified. Cumulative voting is permitted under
Arizona law in the election of directors. The number of directors may be
increased to a maximum of nine.
If any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director.
The names of the directors and certain information about them are set
forth below.
<TABLE>
<CAPTION>
Director
Name Age Position with Company Since
- -------------------------- --- ------------------------------------------------- -----
<S> <C> <C> <C>
Marvin D. Brody 54 Chairman of the Board, President, Chief Executive 1991
Officer and Director
Harvey A. Belfer 60 Director 1991
Jeffery A. Colby 44 Director; President of TEAM Services 1995
Sara R. Dial 34 Director 1998
Robert L. Mueller 70 Director 1995
Quentin P. Smith, Jr. 46 Director 1998
</TABLE>
Marvin D. Brody co-founded the Company in 1991. He has been a Director of
the Company since its inception, became the Company's Chief Executive Officer in
November 1994 and has served as President since June 1996. Prior to becoming the
Company's Chief Executive Officer, Mr. Brody was engaged in the private practice
of law since 1973. He graduated from John Marshall Law School with a Juris
Doctorate degree in 1969.
Harvey A. Belfer co-founded the Company in 1991 and has been a Director
since the Company's inception. He was also the Company's Chief Executive Officer
from its founding until November 1994 and its President from its founding until
June 1996. From 1984 until 1991, Mr. Belfer was an executive officer of Contract
Personnel Systems, Inc. and Corporate Personnel Services, Inc., both PEOs.
Jeffery A. Colby has been a Director of the Company since November 1995.
Mr. Colby founded TEAM Services, a PEO in the music and advertising industries,
in 1992 and has been its Chief Executive Officer since 1994 and President since
January 1996. The Company acquired TEAM Services in 1996; see "Certain
Transactions" under "Compensation Committee Interlocks and Insider
Participation." Since December 1986, Mr. Colby has served as President of
Colbyco, Inc., a Chicago-based company which provides consulting, audit and
freight bill payment services for the transportation industry. From 1975 to
1986, Mr. Colby was a principal at the Chicago-based law firm of Fox & Grove.
<PAGE>
Sara R. Dial became a Director of the Company in January 1998. Ms. Dial
is the President and Chief Executive Officer of Sara Dial & Associates, Inc., a
professional business consulting service. Previously, Ms. Dial served as the
Director of the Arizona Department of Commerce from 1993-1996 and Director of
the Financial Services and Housing Division of the Arizona Department of
Commerce from 1991-1993.
Robert L. Mueller has been a Director of the Company since February 1995.
Mr. Mueller has been an independent consultant since 1993. From 1987 to 1993, he
was the President, Chief Operating Officer and a Director of Proler
International Corp., a steel recycler headquartered in Houston, Texas.
Quentin P. Smith, Jr. became a Director of the Company in January 1998.
Mr. Smith is the President of Cadre Business Advisors, LLC, a professional
management consulting services company. Previously, Mr. Smith was the
Partner-in-Charge of the Desert Southwest Business Consulting Group of Arthur
Andersen LLP from 1993 to 1995 and a co-owner of Data Line Service Company, a
data processing service bureau, from 1988-1991. Mr. Smith is a director of
Arizona Public Service Co.
Compliance with Section 16(a) Reporting Requirements
Under the securities laws of the United States, the Company's directors,
its executive officers, and persons holding more than 10% of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Company is required to disclose any failure to
file by these dates. All of these filing requirements were satisfied during the
year ended December 31, 1997, except that Edward L. Cain, Jr., a former
executive officer and director of the Company, did not file on a timely basis
one report relating to one transaction. In making these disclosures, the Company
has relied solely on written representations of its directors and executive
officers and copies of the reports that they have filed with the Commission.
Board Meetings and Committees
The Board of Directors held 10 Directors' meetings during the fiscal year
ended December 31, 1997. No director attended fewer than 75% of the aggregate of
all meetings of the Board of Directors and any committee on which such director
served during the period of such service.
The Company's Audit Committee currently consists of Ms. Dial and Messrs.
Mueller and Smith. The Audit Committee held nine meetings during 1997. The
Company's Audit Committee reviews the Company's financial reporting,
relationships with its independent auditors and other matters affecting the
financial statements of the Company.
The Company's Compensation Committee currently consists of Ms. Dial and
Messrs. Mueller and Smith. The Compensation Committee held four meeting during
1997. The Compensation Committee reviews executive compensation and stock option
awards under the Company's stock option plans.
The Company does not have a nominating committee. Nominations of persons
to be directors and other functions of such committees are considered by the
full Board of Directors.
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, with respect to the years ended December
31, 1997, 1996 and 1995, compensation awarded to, earned by or paid to (i) the
Company's Chief Executive Officer and (ii) the four other highest compensated
executive officers who were serving as executive officers at December 31, 1997
and whose total salary and bonus exceeded $100,000 in 1997.
<TABLE>
<CAPTION>
Long Term
Annual Compensation in Dollars Compensation
------------------------------ ------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Compensation Options/SARs(1) Compensation(4)
------------------ ---- ------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Marvin D. Brody 1997 $ 327,400 $ (3) $ 5,545
Chief Executive Officer, 1996 276,246 (3) -- 5,333
President (2) 1995 165,992 20,493 (5) -- 5,244
Roy A. Flegenheimer 1997 $ 186,053 $ (3) -- $ 5,619
Chief Operating Officer 1996 177,400 (3) 70,000 5,401
1995 151,699 (3) 360,000(6) 5,508
Morris C. Aaron (7) 1997 $ 164,242 $ (3) 50,000 5,949
Chief Financial Officer, 1996 81,731 (3) 150,000 4,826
Treasurer 1995 -- -- -- --
Paul M. Gales (7) 1997 $ 177,307 $ (3) 50,000 5,949
Senior Vice President, 1996 39,712 (3) 120,000 1,316
General Counsel and 1995 -- -- -- --
Secretary
Mark J. Gambill (8) 1997 $ 129,135 $ 62,430(9) 50,000 4,353
Senior Vice President 1996 -- -- -- --
Sales and Marketing 1995 -- -- -- --
</TABLE>
(1) Consist entirely of stock options; no stock appreciation rights ("SARs")
were granted or are outstanding.
(2) Compensated as Chief Executive Officer since January 1995; became
President in June 1996.
(3) Less than 10% of the total of annual salary.
(4) Term life and health insurance premiums.
(5) Automobile lease.
(6) Includes options to purchase 160,000 shares of Common Stock issued in
February 1994 which were canceled in April 1995 and simultaneously
replaced by options to acquire the same number of shares.
(7) Morris C. Aaron and Paul M. Gales joined the Company in 1996.
(8) Mark J. Gambill joined the Company in 1997.
(9) Includes $40,483 of relocation expense related to a loss on the sale of
personal residence.
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
The following table sets forth information about stock option grants
during the last fiscal year to the executive officers named in the Summary
Compensation Table receiving grants during such period. Messrs. Brody and
Flegenheimer did not receive options in 1997.
<TABLE>
<CAPTION>
Individual Grants
------------------------------- Potential Realizable Dollar
Number of Percent of Value at Assumed Annual
Securities Option/SARs Rates of Stock Price
Underlying Granted to Base Price Appreciation for
Options/SARs Employees in (Dollars Expiration Option Term(2)
Name Granted Fiscal Year (per share) Date 5% 10%
- --------------- ------------- -------------- ----------- ---------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Morris C. Aaron 50,000 4.7 $ 5.4060 7/7/07 $ 169,990 $ 430,789
Paul M. Gales 50,000 4.7 $ 5.4060 7/7/07 $ 169,990 $ 430,789
Mark J. Gambill 50,000 4.7 $ 6.9380 3/18/07 $ 218,164 $ 552,869
</TABLE>
(1) Consist entirely of stock options and do not include SARs.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock appreciation of 5% or 10%
compounded annually from the date the respective options were granted to
their expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Common Stock. The potential
realizable value of the foregoing options is calculated by assuming that
the market price of the underlying security appreciates at the indicated
rate for the entire term of the option and that the option is exercised
at the exercise price and sold on the last day of its term at the
appreciated price.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE TABLE (1)
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning option exercises
during the last fiscal year and the number and value of options outstanding at
the end of the last fiscal year. Mr. Brody exercised no options in 1997, and had
no outstanding options at December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Dollar Value of Unexercised
Number Underlying Unexercised In-the-Money Options
Shares Dollar Options at FY- End at FY-End(2)
Acquired Value --------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roy A. Flegenheimer(3) 6,000 $ 20,526 392,666 93,334 $ 764,816 $ 48,114
Morris C. Aaron -- $ -- 76,666 123,334 $ 0 $ 0
Paul M. Gales -- $ -- 40,000 130,000 $ 0 $ 0
Mark J. Gambill -- $ -- -- 50,000 $ 0 $ 0
</TABLE>
(1) No SARs are outstanding.
(2) Based on the last trade of the Company's Common Stock on the NASDAQ
National Market on December 31, 1997 at $4.313 per share.
(3) Includes options granted under both the 1993 and 1995 Option Plan.
<PAGE>
Employment Contracts, Termination of Employment, and Change-in-Control
Arrangements
The Company has entered into substantially identical employment
agreements with each of Morris C. Aaron, Roy A. Flegenheimer, Paul M. Gales and
Mark J. Gambill, which agreements provide for base salaries of $163,500;
$201,465; $175,000 and $160,000, respectively. The base salaries are subject to
annual review by the Company's compensation committee. The agreements provide
that if the employee terminates his employment with the Company for any reason
other than for cause, by his disability, or by his death, within 12 months from
events which constitute a "change of control" (as defined in the agreement), the
employee will receive a lump sum equal to 2.99 times a base amount as well as a
continuation of his medical coverage and other benefits to which he, as a
terminated employee, was entitled at the time immediately prior to the change of
control. The agreements extend indefinitely, but are terminable by either the
Company or the employee with stated notice.
The Company's 1995 Option Plan provides that in the event of a merger,
consolidation or reorganization with another corporation in which the Company is
not the surviving corporation (an "Acquisition"), appropriate provision shall be
made with respect to outstanding and unexercised options to either (a)
substitute on an equitable basis appropriate shares of the surviving corporation
for such options or (b) cancel such options upon payment of the fair market
value of such options to the respective holders. The Company's 1993 Option Plan
provides that in the event of an Acquisition, appropriate provision shall be
made with respect to outstanding and unexercised options to either (a)
substitute on an equitable basis appropriate shares of the surviving corporation
for such options or (b) accelerate the vesting and permit the exercise of all
such options prior to such Acquisition.
Compensation of Directors
The Company's directors who do not receive a salary or commissions from
the Company receive a quarterly retainer of $2,500 plus a fee of $500 per each
board or committee meeting attended in person. Directors also are reimbursed for
reasonable out-of-pocket expenses incurred in attending Board of Directors'
meetings. Non-employee directors of the Company are eligible for the grant of
stock options pursuant to the 1993 Option Plan, and are eligible under certain
circumstances for option grants under a formula grant provision of the 1995
Option Plan. Under the provisions of the 1995 Option Plan in effect prior to
June 1996, every non-employee director of the Company was automatically granted
options to acquire 80,000 shares of the Company's Common Stock upon becoming a
director. In June 1996, the 1995 Option Plan was altered to provide for
automatic annual grants of options for 2,500 shares of Common Stock upon
election or at the date of the annual meeting (or other day of election) for
each non-employee director for ten year terms; provided, however, that directors
elected prior to June 1996 are not eligible to receive such options until the
year 2000 annual meeting of shareholders. In January 1998, the automatic grant
to non-employee directors under the 1995 Option Plan upon the date of initial
election to the Board was increased to 10,000 options.
In 1995, Robert L. Mueller and Jeffery A. Colby, both at that time
non-employee directors, were each granted options for 80,000 shares of Common
Stock, with an exercise prices of $1.9375 and $4.3125, respectively, equal to
the fair market value of the Common Stock on the date of grant. Mr. Mueller's
options were immediately exercisable, and Mr. Colby's options vest in equal
installments on the first three anniversaries of the date of grant. Ms. Dial and
Mr. Smith each were granted options for 10,000 shares of Common Stock upon their
election to the Board in January 1998, with an exercise price of $4.969 per
share, equal to the fair market value of the Common Stock on the date of grant.
Harvey A. Belfer entered into a five-year employment agreement with the
Company effective January 1, 1993. Mr. Belfer also agreed not to engage in
certain activities that compete with the Company until two years after the
termination of the employment agreement. Mr. Belfer retired as President
effective June 26, 1996, at which time his employment agreement was terminated.
The Board of Directors replaced Mr. Belfer's employment agreement with a
five-year consulting agreement which provides for compensation of $35,000 per
year and contains non-competition provisions; $35,000 was paid to Mr. Belfer in
1997 under this agreement.
<PAGE>
Compensation Committee Interlocks and Insider Participation
During fiscal 1997, the Compensation Committee consisted of Messrs. Belfer and
Mueller. Mr. Belfer has engaged in certain relationships and related
transactions with the Company which are described immediately below in "Certain
Transactions" and immediately above in "Compensation of Directors." The
subheading "Certain Transactions" also describes certain other relationships and
transactions with current or former board members.
Certain Transactions
Edward L. Cain, Jr.
The Company has entered into a series of transactions with Edward L.
Cain, Jr., a former director and executive officer of the Company. A number of
the transactions discussed as occurring in 1996 or 1997 were affected by 1998
transactions described below; however, they are discussed to give context to the
1998 transactions.
In 1996, pursuant to an option granted in 1994, the Company acquired, in
consideration of 648,000 unregistered shares of Common Stock, the interest of
Edward L. Cain, Jr., in a joint venture operating under the name Employee
Solutions-East, Inc. (ESEI). ESEI was previously 99% owned by Mr. Cain, and 1%
owned by the Company. In connection with the creation of the ESEI joint venture,
Mr. Cain had received warrants (later converted into options under the 1995
Option Plan) to acquire 400,000 shares of the Company's Common Stock at an
exercise price of $2.125 per share which were to expire through November 10,
2004, and were exercisable in five years or sooner if certain events occur.
Mr. Cain was required to sign a promissory note in connection with the
ESEI acquisition in the principal amount of $385,624 payable, together with
interest at 8% per annum, on December 31, 1996 to reimburse the Company for
certain expenses incurred by ESEI. Such amounts were repaid to the Company in
early 1997.
Mr. Cain entered into an Amended and Restated Employment Agreement with
the Company effective January 1, 1996. The agreement provided for compensation
in the form of commissions based upon administrative fees collected from the
Company's PEO business and contained non-competition provisions which included
certain exceptions during the term of the employment agreement ended June 23,
1999, unless earlier terminated.
Under their non-competition arrangements with the Company, Mr. Cain and
another person were permitted to sell certain PEO services which were declined
by the Company, not otherwise meeting Company standards or meeting certain other
conditions. Mr. Cain was required to pay the Company 50% of all commissions and
similar compensations which he receives for such brokerage. The amount paid in
1996 was approximately $24,975. In addition, Professional Employer Resources
Corporation (Perc), a company jointly owned by those individuals, had an
arrangement with the Company under which it receives commissions for the
referral of new business to the Company; a Company subsidiary performs certain
administrative services on behalf of Perc.
In 1996 and 1997, the Company paid Perc $352,648 and $134,716,
respectively, in aggregate commissions for the referral of business (net of an
adjustment in 1996 described below). Perc also conducted a number of activities
in 1996 which were ultimately agreed among Mr. Cain, the other individual and
the Company that, although they were conducted in good faith, may have been
beyond the scope of activities which the individuals were permitted to conduct.
In March 1997, Perc reimbursed the Company $543,550, constituting its 1996
estimated earnings resulting from these activities. In addition, Perc agreed to
pay the Company $273,000 (plus 6% interest from January 1, 1997) not later than
December 31, 1997; that represents $157,000 in payment for administrative
services performed for Perc by a Company subsidiary in 1996 and $116,000
representing an overpayment by the Company to Perc resulting from a
determination that commissions were not due with respect to a transaction. Mr.
Cain has agreed with the Company to divest his interest in Perc prior to the end
of 1997.
In certain instances, if it is determined upon review of year end
information that commissions have been overpaid during the course of the year,
persons who receive those commission payments are required to repay them to the
Company. During 1996, the Company overpaid commissions of up to $123,000 to Mr.
Cain in addition to the adjustment for Perc referred to above. Mr. Cain and the
Company disagreed as to the amount, but agreed to reconcile final 1996
commissions and complete repayments by the end of 1997.
<PAGE>
As part of a comprehensive transaction to address open issues and certain
disagreements resulting from the above arrangements, in April 1998, the Company
entered into a series of agreements with Mr. Cain. Pursuant to these agreements,
Mr. Cain resigned all positions as a director and executive officer of the
Company and its subsidiaries; Mr. Cain's position with the Company had
previously ceased being considered an executive officer position in late 1997.
The arrangements include an amended employment agreement which provides for an
annual salary of $42,000 and for the immediate vesting of 100,000 of the stock
options currently held by Mr. Cain. The employment agreement term extends
through December 1999. All exceptions to the non-competition provisions have
been terminated, and the Company acquired all rights to commissions otherwise
payable to Mr. Cain by the Company with respect to the Company's current PEO
business in exchange for a payment of $515,000. The joint venture agreement was
terminated, and the parties executed mutual releases. All future commissions
otherwise payable to PERC were terminated, and the $273,000 note from PERC (a
portion of which had been forgiven in connection with the acquisition of the ERC
companies in September 1997) was canceled. In connection with these agreements,
Mr. Cain executed a promissory note payable to the Company in an aggregate
amount of $350,000, primarily representing the return of certain commissions
which were overpaid in prior periods (including the balance of for commission
overpayments in 1996). The note is payable February 28, 2000, subject to earlier
payment in whole or in part upon certain future exercises of stock options held
by Mr. Cain.
Colby Employment Agreement/TEAM Services
Mr. Colby, a member of the Company's Board of Directors since November
1995, was the controlling shareholder of TEAM Services at the time of its June
1996 acquisition by the Company, and served as Chief Executive Officer of TEAM
Services since 1993. In connection with the TEAM Services acquisition, Mr. Colby
entered into a three-year employment agreement with the Company pursuant to
which he continues to act as TEAM Services' President and provides, among other
services, certain marketing services. Mr. Colby receives a base salary of
$75,000 per year, plus commissions equivalent to those of Company regional sales
vice presidents, but not less than $60,000.
In addition, under the 1996 agreements by which the Company acquired all
the outstanding capital stock of TEAM services, the Company agreed to a total
purchase price of four times total TEAM Services' pre-tax income for the
12-month period ending June 30, 1999. The purchase price will be paid in the
form of net assumed liabilities (approximately $825,000 assumed at closing) and
unregistered Common Stock. Any unregistered shares of Common Stock which may be
issued would be entitled to certain piggy-back and demand registration rights.
There is no stated maximum consideration payable in the transaction.
Other
Mr. Belfer is part owner of a client company which utilizes the Company's
employee leasing services. The Company billed MD $571,955 for employee leasing
services during 1997.
Compensation Committee Report on Executive Compensation
The Company's Compensation Committee is responsible for:
(1) reviewing and approving the annual salary, bonus and other
benefits, direct and indirect, including perquisites and personal
benefits, to be paid or awarded to key executives;
(2) reviewing and approving new compensation and stock plans and
changes to existing plans; and
(3) administering the incentive compensation plans, stock option and
other stock-based plans and other employee benefit plans of the
Company and its subsidiaries or establishing committees to perform
such functions.
Compensation Philosophy
The general philosophy of the Company's executive compensation program is
to offer key executives compensation that is competitive in the marketplace yet
also based on the Company's performance and the employee's individual
contribution and performance. The Company's executive compensation policies are
intended to motivate and reward executives for long-term strategic management
and the enhancement of shareholder value through cash payments (salary) and
equity incentives (in the form of stock options). The executive compensation
objectives of the Company are to attract and retain highly qualified managers
through competitive salary and benefit programs, encourage extraordinary effort
on the part of management through well-designed incentive opportunities and
contribute to the short- and long-term interests of the Company's shareholders.
<PAGE>
The Company's executive compensation program consists of two key
elements, an annual component (salary) and a long-term component (stock
options). The Company's policies with respect to each of these elements, as well
as the basis for determining the compensation of Mr. Brody, are described below.
Salary
Salaries for executive officers are determined by evaluating several
factors, including the executive's individual performance, experience and level
of responsibility, as well as compensation data for executives with comparable
responsibilities in the Company. No particular weight was given any factor, nor
did the Committee utilize a specific statistical methodology. The Committee did
not utilize an independent consulting firm in formulating compensation decisions
in 1997, though it intends to do so in 1998. Two of the executive officer
salaries for fiscal 1997, Messrs. Aaron and Flegenheimer, were set by employment
agreements entered into by the Board of Directors prior to the commencement of a
Compensation Committee. One former executive officer was compensated by
commissions during 1997 and did not receive a salary. The Company believes this
arrangement provided incentives appropriate for that individual during 1997.
The Chief Executive Officer's salary for fiscal 1997 remained unchanged
from the level which was set by the Compensation Committee in June 1996. Several
factors were considered in determining the Chief Executive Officer's salary,
primarily including his individual performance, experience and level of
responsibility, the substantial growth of the Company in 1996, the expected
continued growth, the Company's financial situation and his equity ownership in
the Company. The 1997 salary also reflects the first full year in which Mr.
Brody served as both Chairman and President. The Board of Directors did not
utilize any particular mathematical formula or other specific objective
standards in determining Mr. Brody's current salary.
The Committee did not use cash bonuses as a component of executive
compensation in 1997. However, the Committee is evaluating the use of cash
bonuses as an additional method of linking an executive officer's compensation
to individual and/or Company performance and has requested recommendations from
an independent consulting firm in regard thereto.
Stock Options
Stock-based compensation is viewed as a critical incentive component of the
Company's overall executive compensation program because it directly ties an
executive's compensation to the results experienced by the Company's
shareholders and because it permits the Company to recruit and retain top
talent. Grants of stock options are made under two plans, each of which has been
approved by the Company's shareholders. With respect to the option grants made
to employees and executive officers of the Company, the existing number of
options held by each proposed optionee is considered, with a goal of increasing
the equity incentive of the optionees.
In April 1995, the Company's Board of Directors adopted the 1995 Stock
Option Plan (the "1995 Option Plan"), which was approved by the Company's
shareholders in July 1995 and amended subsequently with shareholder approval to
increase the number of shares and make other changes. Under the 1995 Option
Plan, incentive stock options and nonqualified stock options may be granted to
executive officers, other key employees, non-employee directors and others whose
participation is deemed to be in the Company's best interest. During fiscal
1997, options to purchase a total of 1,070,157 shares of the Company's Common
Stock were granted under the 1995 Option Plan to the Company's employees, of
which 150,000 were granted to the executive officers named in the Summary
Compensation Table herein. An amendment to the 1995 Option Plan is proposed to
permit continuing option grants in the future. The Company also maintains the
1993 Incentive Stock Option Plan (the "1993 Option Plan"). However, the
Committee generally is no longer making option grants under the 1993 Option
Plan, although it has the authority to grant options thereunder for up to 93,341
additional shares. See "Proposal 2" below.
<PAGE>
Because of his significant ownership interest in the Company, no stock
options have been granted to the Company's Chief Executive Officer. The
Compensation Committee may consider the award of options to Mr. Brody in the
future depending on the nature of his overall compensation arrangements.
Other Compensation
In addition to salaries and stock options, the Company provides
compensation in the form of automobile and telephone expenses and term life and
health insurance premiums to its Chief Executive Officer and certain of its
executive officers.
Section 162(m)
Section 162(m) of the Internal Revenue Code limits, to one million
dollars, the deductibility by a publicly held corporation of compensation paid
in a taxable year to the Chief Executive Officer and any other executive officer
whose compensation is required to be reported in the Summary Compensation Table.
Qualified performance-based compensation will not be subject to the deduction
limit if certain conditions are met, including a condition that the performance
goals under which the compensation is paid must be established by a committee
comprised solely of two or more "outside directors". The Company's stock option
plans provide such performance-based compensation, although many outstanding
options were granted at a time when the board or board committee which
authorized the grant did not satisfy the "outside director" requirement. As a
result of those outstanding options, it is possible that executive compensation
could exceed the Section 162(m) deductibility limit in certain cases, subject to
the timing of exercises of stock options and the market prices of the Company's
Common Stock at the time of such exercises. The Compensation Committee of the
Board of Directors is currently responsible for making determinations with
respect to stock option grants and currently meets the "outside director"
requirement described above.
Respectfully submitted,
Sara R. Dial
Robert L. Mueller
Quentin P. Smith, Jr.
Harvey Belfer (former member)
<PAGE>
SHAREHOLDER RETURN COMPARISON
Set forth below is a graph comparing the percentage change in the
cumulative total shareholder return on the Company's Common Stock with the
cumulative total return of the Standard & Poor's 500 Stock Index and two peer
groups for the period commencing August 12, 1993 (the date on which trading in
the Company's Common Stock commenced) and ending December 31, 1997. Shareholder
returns are calculated based on the closing price of the Company's Common Stock
on the relevant dates for each measurement period. The graph assumes that $100
was invested on August 12, 1993 in Company Common Stock, in the Standard &
Poor's 500 Stock Index and two peer groups, and that, as to such indices,
dividends were reinvested. The Company has not, since its inception, paid any
dividends on the Common Stock.
One peer group used for this chart consists of AccuStaff Inc., Automatic
Data Processing, Inc., Barrett Business Services, Inc., Digital Solutions, Inc.,
and Paychex Inc. (the "Old Peer Group"). The Old Peer Group has been expanded to
reflect additional companies (Administaff Inc., Novacare Employee Services,
Staff Leasing Inc., TEAM America, and Vincam Group Inc.) that offer PEO
services. Although the Company does not consider all the companies in the peer
groups to be direct competitors operating in exactly the same line of business
as the Company, many analysts of the Company view the temporary services and
payroll processing businesses to be comparable to the employee leasing business.
Accordingly, the Company has selected a peer group including companies engaged
in such businesses.
Historical stock price performance shown on the graph is not necessarily
indicative of future price performance.
<TABLE>
<CAPTION>
August 12, December 31, December 31, December 31, December 31, December 31,
1993 1993 1994 1995 1996 1997
---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Employee Solutions, Inc. 100.00 150.00 144.96 680.00 1,640.00 344.96
Standard and Poor's 500 100.00 105.39 106.78 146.90 180.63 240.90
Old Peer Group 100.00 113.14 122.89 170.54 210.86 292.14
Peer Group 100.00 113.14 122.89 170.54 212.34 293.55
</TABLE>
<PAGE>
PROPOSAL 2 -
APPROVAL OF AN AMENDMENT OF THE EMPLOYEE SOLUTIONS, INC. 1995
STOCK OPTION PLAN INCREASING SHARES AVAILABLE FOR GRANT BY 1,000,000 SHARES
Stock options play a key role in the Company's ability to recruit, reward
and retain executives and key employees. The Company believes that equity based
incentive programs help insure a tight link between the interests of its
shareholders and employees and enhance the Company's ability to continue
recruiting and retaining top talent. For example, the Company has recently
announced that it is conducting an executive search for a new President;
although no candidate has yet been selected, it is expected that the
compensation package necessary to obtain the services of a qualified candidate
would need to include a significant stock option component. The Company also
intends to continue to seek acquisition candidates, and it may be necessary or
desirable to award options to key employees of acquired companies when future
acquisition transactions are completed. The Company believes that the continued
operation of the 1995 Option Plan in light of the Company's continuing growth
necessitates an increase in the shares available for grant thereunder.
The Board of Directors proposes an amendment to the 1995 Option Plan to
increase the number of shares of Company Common Stock which may be subject to
options granted under the 1995 Option Plan by 1,000,000 shares, to 4,500,000
shares. Because options for only approximately 196,241 shares remain available
for grant under the 1995 Option Plan, the Board has determined that it is
necessary to increase the number of options available to continue the incentive
effect for employees which is created by the grant of stock options. The Board
believes that stock options both provide a significant incentive to officers and
key employees, and tie compensation to the results experienced by the Company's
shareholders.
The 1,000,000 share increase was chosen to provide a sufficient pool for
expected option grants over the next two years, to avoid the expense of annual
votes to increase shares. However, the number is intended to be sufficiently low
so as to not unduly increase the option pool without further shareholder
consideration. The Board believes that the number of shares available will be
appropriate given Company's total number of shares outstanding.
In the event the proposal is not approved by the shareholders, the 1995
Option Plan will continue but the Company will be severely limited in the number
of options which may be granted. The Board is concerned such a situation could
negatively affect employee morale and the Company's ability to attract top
talent, to the Company's detriment. Therefore, the Board of Directors
unanimously recommends a vote for the proposal.
Amendment Terms
If the proposal is approved by the shareholders, the 1995 Option Plan
would be amended by changing the number of shares for which options may be
granted to 4,500,000, which is a 1,000,000 share increase from the
(split-adjusted) 3,500,000 shares for which options could be granted currently.
Of these, options for a total of 3,303,759 shares have either been exercised or
remain outstanding.
Summary of 1995 Option Plan
The summary of the 1995 Option Plan included in this Proxy Statement is
qualified in its entirety by the specific language of the 1995 Option Plan.
Copies of the 1995 Option Plan are available to any shareholder upon request
addressed to Investor Relations Department, Employee Solutions, Inc., 6225 North
24th Street, Phoenix, Arizona 85016.
Purposes. The purposes of the 1995 Option Plan are to attract and retain
the best available employees, directors and third parties who can provide
valuable services to the Company or any parent, subsidiary or affiliate, to
provide additional incentive to such persons, and to promote the success of the
Company's business.
Administration and Share Reserve. A total of 3,500,000 shares of the
Company's Common Stock are currently authorized for issuance under the 1995
Option Plan. As of April 23, 1998, 292,325 shares have been issued upon exercise
of stock options and a total of 3,011,434 shares were subject to outstanding
options granted under the 1995 Option Plan, leaving 196,241 shares remaining for
future option grants (which would be increased to 1,196,241 shares available for
future option grants if this Proposal 2 is approved).
<PAGE>
The 1995 Option Plan is administered by the Board of Directors or by a
committee of directors appointed by the Board and constituted so as to permit
the 1995 Option Plan to comply with the disinterested administration provisions
under Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934. The
administering body, which currently is the Compensation Committee, is referred
to herein as the "Committee". The Committee determines those persons to whom
stock options will be granted, the terms of such grants and the number of shares
subject to options. The 1995 Option Plan provides for the grant of options which
qualify as "incentive stock options" (sometimes referred to herein as "ISOs")
under Section 422 of the Internal Revenue Code (the "Code") and nonstatutory
stock options which do not specifically qualify for favorable income tax
treatment under the Code (sometimes referred to herein as "NSOs").
Eligibility. Any employee of the Company or any parent, subsidiary or
affiliate is eligible to receive options under the 1995 Option Plan, provided
that incentive stock options may only be granted to employees of the Company or
any parent or subsidiary of the Company. Nonstatutory options may also be
granted to other persons who are not officers, directors or employees, but whose
participation is deemed to be in the Company's best interests. As of April 23,
1998, approximately 216 employees (including ten executive officers and
directors) and three non-employee directors were eligible to participate in the
1995 Option Plan.
Non-employee directors automatically receive nonqualified options to
acquire 10,000 shares of the Company's Common Stock upon their initial election
to the Board and options to acquire 2,500 shares at each subsequent annual
meeting of shareholders. Options granted pursuant to the automatic grant
provision have a 10-year term and become vested one-time subject to the
optionee's continued board service.
Stock Option Programs. Certain employees of ESEI, a wholly-owned
subsidiary of the Company, were eligible to receive grants of stock options
under the 1995 Stock Option Plan pursuant to a stock option program. Pursuant to
the program, regional vice presidents of ESEI were eligible to receive stock
options based on their production, subject to conditions with respect to the
level of ESEI's ongoing PEO business. Stock options granted to the regional vice
presidents under the ESEI stock option program vest based on years of continuous
service as a regional vice president. All options granted under this program
will have an exercise price not less than the fair market value of the Company's
Common Stock on the date of grant. Options to acquire 19,445 shares are eligible
for grant under the ESEI program, which program has been terminated.
Stock Subject to the 1995 Option Plan. The aggregate number of shares
which may be issued pursuant to the exercise of options granted under the 1995
Option Plan currently is subject to adjustments in certain circumstances,
including reorganizations, stock splits, reverse stock splits, stock dividends,
spin-offs and other distributions of assets to shareholders. The shares acquired
upon exercise would be issued in tandem with Preferred Stock Purchase Rights, to
the extent provided under the Company's Shareholders Rights Plan. If any
outstanding option grant under the 1995 Option Plan for any reason expires or is
terminated, the shares of Common Stock allocable to the unexercised portion of
the option grant shall again be available for options under the 1995 Option Plan
as if no options had been granted with respect to such shares.
Terms and Conditions of Options. Stock options granted under the 1995
Option Plan may have a maximum term of 10 years (five years in the case of
incentive stock options granted to a holder of more than 10% of the Company's
stock). The per-share exercise price of incentive stock options may not be less
than the fair market value of the Common Stock (110% of the fair market value in
the case of a holder of more than 10% of the Company's stock) on the date of
grant. The exercise price of nonstatutory stock options may be any amount as
determined by the Committee in its discretion. The aggregate fair market value
of shares with respect to which incentive stock options are exercisable for the
first time, during any calendar year by any holder of incentive stock options,
cannot exceed $100,000, with the fair market value of such shares determined as
of the time the incentive stock options for such shares were granted. Options
are not transferable except that the Committee in its discretion may grant
options that are transferable to immediate family members of the optionee or to
trusts or partnerships for such family members. Options can be exercised only
while an optionee is providing services for the Company or any parent,
subsidiary or affiliate, except that an option may be exercised within certain
periods of time after termination of employment other than for cause and in the
event of retirement, death or permanent disability.
Payment of the exercise price may be made in cash, or, if permitted by
the grant, by transferring to the Company shares of the Company's Common Stock
at fair market value on the date of exercise, provided that the optionee held
the shares for at least six months. At the discretion of the Committee, the
Company may extend credit to finance option exercises. Subject to certain
limitations, the Committee may modify, extend or renew outstanding options,
reduce the exercise price of options, accept the surrender of outstanding
options and grant new options in substitution. No individual may be granted
options for more than 250,000 shares in any calendar year. That amount is
subject to adjustment in the case of future stock splits, stock dividends,
recapitalizations
<PAGE>
and similar changes. Each option may have additional terms and conditions
consistent with the 1995 Option Plan as determined by the Committee.
Accelerating Events. Unless otherwise provided in the grant letter, in
the event of a merger, consolidation or reorganization with another corporation
in which the Company is not the surviving organization, shares subject to
outstanding options may be substituted with shares from the surviving
corporation, or options may be canceled and the optionee paid the excess of fair
market value over the exercise price multiplied by the number of shares subject
to options. Upon dissolution or liquidation of the Company, the optionee shall
receive a cash payment computed in the manner described in the preceding
sentence.
Termination or Amendment of the 1995 Option Plan. The 1995 Option Plan
provides that the Board may at any time terminate or amend the 1995 Option Plan
without shareholder approval except where doing so would result in
non-compliance with Rule 16b-3, the Code, or other applicable laws or
regulations. The provisions for automatic grants to non-employee directors can
not be amended more than once every six months other than to comport with
changes in applicable law or regulations. Unless sooner terminated by the Board
or by the purchase of all stock subject to the 1995 Option Plan, the 1995 Option
Plan will expire in April 2005.
Certain Federal Income Tax Consequences
The following is a brief summary of the Company's understanding of the
principal Federal income tax consequences of grants or awards made under the
1995 Option Plan based upon the applicable provisions of the Code in effect on
the date hereof.
Nonqualified Stock Options. An optionee will not recognize taxable income
at the time an NSO is granted. Upon exercise of an NSO, an optionee will
recognize compensation income in an amount equal to the difference between the
exercise price and the fair market value of the shares at the date of exercise.
The amount of such difference will be a deductible expense to the Company for
tax purposes. On a subsequent sale or exchange of shares acquired pursuant to
the exercise of an NSO, the optionee will recognize a taxable gain or loss,
measured by the difference between the amount realized on the disposition and
the tax basis of such shares. The tax basis will, in general, be the amount paid
for the shares plus the amount treated as compensation income at the time the
shares were acquired pursuant to the exercise of the option.
When the NSO exercise price is paid in stock, the exercise is treated as:
(a) a tax-free exchange of the shares of stock (without recognizing any taxable
gain with respect thereto) for a like number of new shares (with such new shares
having the same basis and holding period as the old); and (b) an issuance of a
number of additional shares having a fair market value equal to the "spread"
between the exercise price and the fair market value of the shares for which the
NSO is exercised. The optionee's basis in the additional shares will equal the
fair market value of the shares on the date of exercise and the holding period
for such shares will begin on the date the optionee acquires them. This mode of
payment does not affect the ordinary income tax liability incurred upon exercise
of the NSO described above.
Incentive Stock Options. An optionee will not recognize taxable income at
the time an ISO is granted. Further, an optionee will not recognize taxable
income upon exercise of an ISO if the optionee complies with two separate
holding periods: shares acquired upon exercise of an ISO must be held for at
least two years after the date of grant and for at least one year after the date
of exercise. The difference between the exercise price and the fair market value
of the stock at the date of exercise is, however, an alternative minimum tax
preference item. When the shares of stock received pursuant to the exercise of
an ISO are sold or otherwise disposed of in a taxable transaction and the
optionee has complied with the appropriate holding periods, the optionee will
recognize a capital gain or loss, measured by the difference between the
exercise price and the amount realized.
Ordinarily, an employer granting ISOs will not be allowed any business
expense deduction with respect to stock issued upon exercise of an ISO. However,
if all the requirements for an ISO are met except for the holding period rules
set forth above, the optionee will be required, at the time of the disposition
of the stock, to treat the lesser of the gain realized or the difference between
the exercise price and the fair market value of the stock at the date of
exercise as ordinary income and the excess, if any, as capital gain. The Company
will be allowed a corresponding business expense deduction to the extent of the
amount of the optionee's ordinary income.
<PAGE>
Valuation
As of April 20, 1998, the last trade price for the Company's Common
Stock, as reported by the NASDAQ National Market, was $4.781 per share.
Option Grants
As of April 20, 1998, the following persons, or groups of persons, have
been granted the indicated number of options under the 1995 Option Plan:
<TABLE>
<CAPTION>
Individual/Group Position Number
<S> <C> <C>
Marvin D. Brody Chairman of the Board, Director,
President and Chief Executive Officer 0
Roy A. Flegenheimer Chief Operating Officer 370,000
Morris C. Aaron Chief Financial Officer 200,000
Paul M. Gales Senior Vice President, General Counsel
and Secretary 170,000
Mark J. Gambill Senior Vice President, Sales and Marketing 50,000
Harvey A. Belfer Director 0
Jeffery A. Colby Director and President of TEAM Services 90,000
Sara R. Dial Director 10,000
Robert L. Mueller Director 80,000
Quentin P. Smith, Jr. Director 10,000
All executive officers as a group (five persons) 790,000
All directors who are not executive officer, as a group (five persons) 190,000
All non-executive officer and non-director employees as a group (1) 2,323,759
</TABLE>
(1) Excludes options terminated without exercise.
As of the date of this proxy statement, there has been no determination
by the Committee with respect to future awards under the 1995 Option Plan. The
table of option grants under "Executive Compensation -- Option/SAR Grants in the
Last Fiscal Year" provides information with respect to the grant of options
under the 1995 Option Plan during the last fiscal year to the executive officers
named in the Summary Compensation Table. For information regarding the options
granted to the non-executive officer directors during the past fiscal year, see
"Executive Compensation - Compensation of Directors."
Recommendation
The Board of Directors unanimously recommends that the shareholders vote
FOR approval of this proposal to amend the Employee Solutions, Inc. 1995 Option
Plan to increase the number of shares available for grant under the 1995 Option
Plan by 1,000,000 shares.
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP as independent
auditors to audit the financial statements of the Company for the fiscal year
ending December 31, 1998. It is the Company's policy not to recommend to the
security holders an independent auditor for election, approval or ratification.
Arthur Andersen LLP's representatives are expected to be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions. Arthur Andersen
LLP has audited the Company's financial statements since 1994.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matter properly comes before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent as the Board of Directors may recommend.
SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be
presented by such shareholders at the Company's Annual Meeting for the fiscal
year ending December 31, 1998 must be received by the Company no later than
January 5, 1999 in order that they may be considered for inclusion in the proxy
statement and form of proxy relating to that meeting. Additionally, if a
shareholder wishes to present to the Company an item for consideration as an
agenda item for a special meeting, the shareholder must give reasonable notice
to the Secretary and give a brief description of the business desired to be
discussed.
April 21, 1998 THE BOARD OF DIRECTORS
<PAGE>
PROXY
EMPLOYEE SOLUTIONS, INC.
6225 NORTH 24TH STREET
PHOENIX, ARIZONA 85016
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Marvin D. Brody and Paul M. Gales as lawful
agent and Proxy, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares of
Common Stock of Employee Solutions, Inc. held of record by the undersigned on
April 23, 1998, at the Annual Meeting of Shareholders to be held on June 2, 1998
or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
NOMINEES IN PROPOSAL 1 AND FOR PROPOSAL 2.
<PAGE>
[X] Please mark your
votes as in the
example
1. ELECTION OF DIRECTORS
_
|_| FOR the nominees listed below (except as marked to the contrary below)
_
|_| WITHHOLD AUTHORITY to vote for all nominees listed below
Harvey A. Belfer, Marvin D. Brody, Jeffery A. Colby, Sara R. Dial, Robert
L. Mueller, Quentin P. Smith, Jr.
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the following line.
___________________________________________________________________________
This proxy also grants to the proxy holders the discretionary power to vote
the proxy for a substitute nominee in the event any nominee becomes
unavailable, to vote the shares represented cumulatively for one or more,
but less than all, of the nominees named above if additional persons are
nominated for election as directors, and to vote such shares cumulatively
for one or more of the nominees named above other than those (if any) for
whom authority to vote is withheld.
2. PROPOSAL TO APPROVE AN AMENDMENT OF THE COMPANY'S 1995 OPTION PLAN TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK FOR WHICH OPTIONS MAY BE
GRANTED BY 1,000,000 SHARES.
The Board of Directors unanimously recommends that the shareholders vote
FOR approval of this proposal.
_ _ _
|_| FOR |_| AGAINST |_| ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
----------------- ----------------
Dated:_____________________, 1998
(Be sure to date this Proxy)
________________________________________
Signature
________________________________________
Signature
Please sign exactly as name appears below.
When shares are held by more than one owner,
all should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full corporate
name by president or authorized officer. If a
partnership, please sign in partnership name
by authorized person.
<PAGE>
Appendix
(per SEC rules; not being
included in mailing)
EMPLOYEE SOLUTIONS, INC.
1995 STOCK OPTION PLAN,
AS AMENDED BY SHAREHOLDER ACTION
ON JUNE 26, 1996 JULY 9, 1997 AND JUNE 2, 1998
AND BY BOARD OF DIRECTORS ACTION
ON JANUARY 25, 1998
1. Purpose
The purposes of the 1995 Stock Option Plan ("Plan") of Employee
Solutions, Inc., an Arizona corporation, are to attract and retain the best
available employees and directors of Employee Solutions, Inc. or any parent or
subsidiary or affiliate of Employee Solutions, Inc. which now exists or
hereafter is organized or acquired by or acquires Employee Solutions, Inc.
(collectively or individually as the context requires the "Company") as well as
appropriate third parties who can provide valuable services to the Company, to
provide additional incentive to such persons and to promote the success of the
business of the Company. This Plan is intended to comply with Rule 16b-3 under
Section 16 of the Securities Exchange Act of 1934, as amended or any successor
rule ("Rule 16b-3"), and the Plan shall be construed, interpreted and
administered to comply with Rule 16b-3.
2. Definitions
(a) "Affiliate" means any corporation, partnership, joint venture or
other entity, domestic or foreign, in which the Company, either directly or
through another affiliate or affiliates, has a 50% or more ownership interest.
(b) "Affiliated Group" means the group consisting of the Company and
any entity that is an "affiliate," a "parent" or a "subsidiary" of the Company.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Compensation or Stock Option Committee of the
Board (as designated by the Board), if such a committee has been appointed.
(e) "Code" means the United States Internal Revenue Code of 1986, as
amended.
(f) "Incentive Stock Options" means options intended to qualify as
incentive stock options under Section 422 of the Code, or any successor
provision.
<PAGE>
(g) "ISO Group" means the group consisting of the Company and any
corporation that is a "parent" or a "subsidiary" of the Company.
(h) "Nonemployee Director" shall have the meaning assigned in Section
4(a)(ii) hereof.
(i) "Nonqualified Stock Options" means options that are not intended to
qualify for favorable income tax treatment under Sections 421 through 424 of the
Code.
(j) "Parent" means a corporation that is a "parent" of the Company
within the meaning of Code Section 424(e).
(k) "Section 16" means Section 16 of the Securities Exchange Act of
1934, as amended.
(l) "Subsidiary" means a corporation that is a "subsidiary" of the
Company within the meaning of Code Section 424(f).
3. Incentive and Nonqualified Stock Options
Two types of options (referred to herein as "options," without
distinction between such two types) may be granted under the Plan: Incentive
Stock Options and Nonqualified Stock Options.
4. Eligibility and Administration
(a) Eligibility. The following individuals shall be eligible to receive
grants pursuant to the Plan as follows:
(i) Any employee (including any officer or director who is an
employee) of the Company or any ISO Group member shall be eligible to receive
either Incentive Stock Options or Nonqualified Stock Options under the Plan. An
employee may receive more than one option under the Plan.
(ii) Any director who is not an employee of the Company or any
Affiliated Group member (a "Nonemployee Director") shall be eligible to receive
only Nonqualified Stock Options in the manner provided in paragraph 12 hereof.
(iii) Any other individual whose participation the Board or
the Committee determines is in the best interests of the Company shall be
eligible to receive Nonqualified Stock Options.
(b) Administration. The Plan may be administered by the Board or by a
Committee appointed by the Board which is constituted so to permit the Plan to
comply under Rule 16b-3.
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The Company shall indemnify and hold harmless each director and Committee member
for any action or determination made in good faith with respect to the Plan or
any option. Determinations by the Committee or the Board shall be final and
conclusive upon all parties.
5. Shares Subject to Options
The stock available for grant of options under the Plan shall be shares
of the Company's authorized but unissued or reacquired voting common stock. The
aggregate number of shares that may be issued pursuant to exercise of options
granted under the Plan shall be 4,500,000 shares. No individual shall be granted
options for more than 250,000 shares in any calendar year. If any outstanding
option grant under the Plan for any reason expires or is terminated, the shares
of common stock allocable to the unexercised portion of the option grant shall
again be available for options under the Plan as if no options had been granted
with respect to such shares.
6. Terms and Condition of Options
Option grants under the Plan shall be evidenced by agreements in such
form and containing such provisions as are consistent with the Plan as the Board
or the Committee shall from time to time approve. Each agreement shall specify
whether the option(s) granted thereby are Incentive Stock Options or
Nonqualified Stock Options. Such agreements may incorporate all or any of the
terms hereof by reference and shall comply with and be subject to the following
terms and conditions:
(a) Shares Granted. Each option grant agreement shall specify the
number of Incentive Stock Options and/or Nonqualified Stock Options being
granted; one option shall be deemed granted for each share of stock. In
addition, each option grant agreement shall specify the exercisability and/or
vesting schedule of such options, if any.
(b) Purchase Price. The purchase price for a share subject to (i) a
Nonqualified Stock Option may be any amount determined in good faith by the
Committee, and (ii) an Incentive Stock Option shall not be less than 100% of the
fair market value of the share on the date the option is granted, provided,
however, the option price of an Incentive Stock Option shall not be less than
110% of the fair market value of such share on the date the option is granted to
an individual then owning (after the application of the family and other
attribution rules of Section 424(d) or any successor rule of the Code) more than
10% of the total combined voting power of all classes of stock of the Company or
any ISO Group member. For purposes of the Plan, "fair market value" at any date
shall be (i) the reported closing price of such stock on the New York Stock
Exchange or other established stock exchange or Nasdaq National Market on such
date, or if no sale of such stock shall have been made on that date, on the
preceding date on which there was such a sale, (ii) if such stock is not then
listed on an exchange or the Nasdaq National Market, the last trade price per
share for such stock in the over-the-counter market as quoted on Nasdaq or the
pink sheets or successor publication of the National Quotation Bureau on such
date, or (iii) if such
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<PAGE>
stock is not then listed or quoted as referenced above, an amount determined in
good faith by the Board or the Committee.
(c) Termination. Unless otherwise provided herein or in a specific
option grant agreement which may provide for accelerated vesting and/or longer
or shorter periods of exercisability, no option shall be exercisable after the
expiration of the earliest of
(i) in the case of an Incentive Stock Option:
(1) 10 years from the date the option is granted, or
five years from the date the option is granted to an
individual owning (after the application of the family and
other attribution rules of Section 424(d) of the Code) at the
time such option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company
or any ISO Group member,
(2) three months after the date the optionee ceases
to perform services for the Company or any ISO Group member,
if such cessation is for any reason other than death,
disability (within the meaning of Code Section 22(e)(3)), or
cause,
(3) one year after the date the optionee ceases to
perform services for the Company or any ISO Group member, if
such cessation is by reason of death or disability (within the
meaning of Code Section 22(e)(3)), or
(4) the date the optionee ceases to perform services
for the Company or any ISO Group member, if such cessation is
for cause, as determined by the Board or the Committee in its
sole discretion;
(ii) in the case of a Nonqualified Stock Option;
(1) 10 years from the date the option is granted,
(2) two years after the date the optionee ceases to
perform services for the Company or any Affiliated Group
member, if such cessation is for any reason other than death,
permanent disability, retirement or cause,
(3) three years after the date the optionee ceases to
perform services for the Company or any Affiliated Group
member, if such cessation is by reason of death, permanent
disability or retirement, or
(4) the date the optionee ceases to perform services
for the Company or any Affiliated Group member, if such
cessation is for cause, as determined by the Board or the
Committee in its sole discretion;
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<PAGE>
provided, that, unless otherwise provided in a specific option grant agreement,
an option shall only be exercisable for the periods above following the date an
optionee ceases to perform services to the extent the option was exercisable on
the date of such cessation.
(d) Method of Payment. The purchase price for any share purchased
pursuant to the exercise of an option granted under the Plan shall be paid in
full upon exercise of the option by any of the following methods, (i) by cash,
(ii) by check, or (iii) to the extent permitted under the particular grant
agreement, by transferring to the Company shares of stock of the Company at
their fair market value as of the date of exercise of the option as determined
in accordance with paragraph 6(b), provided that the optionee held the shares of
stock for at least six months. Notwithstanding the foregoing, the Company may
arrange for or cooperate in permitting broker- assisted cashless exercise
procedures. The Company may also extend and maintain, or arrange for the
extension and maintenance of, credit to an optionee to finance the optionee's
purchase of shares pursuant to the exercise of options, on such terms as may be
approved by the Board or the Committee, subject to applicable regulations of the
Federal Reserve Board and any other applicable laws or regulations in effect at
the time such credit is extended.
(e) Exercise. Except for options which have been transferred pursuant
to paragraph 6(f), no option shall be exercisable during the lifetime of an
optionee by any person other than the optionee, his or her guardian or legal
representative. The Board or the Committee shall have the power to set the time
or times within which each option shall be exercisable and to accelerate the
time or times of exercise; provided, however, except as provided in paragraph
12, no options may be exercised prior to the later of the expiration of six
months from the date of grant thereof or shareholder approval, unless otherwise
provided by the Board or Committee. To the extent that an optionee has the right
to exercise one or more options and purchase shares pursuant thereto, the
option(s) may be exercised from time to time by written notice to the Company
stating the number of shares being purchased and accompanied by payment in full
of the purchase price for such shares. Any certificate for shares of outstanding
stock used to pay the purchase price shall be accompanied by a stock power duly
endorsed in blank by the registered owner of the certificate (with the signature
thereon guaranteed). If the certificate tendered by the optionee in such payment
covers more shares than are required for such payment, the certificate shall
also be accompanied by instructions from the optionee to the Company's transfer
agent with respect to the disposition of the balance of the shares covered
thereby.
(f) Nontransferability. No option shall be transferable by an optionee
otherwise than by will or the laws of descent and distribution, provided that
the Committee in its discretion may grant options that are transferable, without
payment of consideration, to immediate family members of the optionee or to
trusts or partnerships for such family members; the Committee may also amend
outstanding options to provide for such transferability.
(g) ISO $100,000 Limit. If required by applicable tax rules regarding a
particular grant, to the extent that the aggregate fair market value (determined
as of the date an Incentive Stock Option is granted) of the shares with respect
to which an Incentive Stock Option grant under
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<PAGE>
this Plan (when aggregated, if appropriate, with shares subject to other
Incentive Stock Option grants made before said grant under this Plan or another
plan maintained by the Company or any ISO Group member) is exercisable for the
first time by an optionee during any calendar year exceeds $100,000 (or such
other limit as is prescribed by the Code), such option grant shall be treated as
a grant of Nonqualified Stock Options pursuant to Code Section 422(d).
(h) Investment Representation. Unless the shares of stock covered by
the Plan have been registered with the Securities and Exchange Commission
pursuant to Section 5 of the Securities Act of 1933, as amended, each optionee
by accepting an option grant represents and agrees, for himself or herself and
his or her transferees by will or the laws of descent and distribution, that all
shares of stock purchased upon the exercise of the option grant will be acquired
for investment and not for resale or distribution. Upon such exercise of any
portion of any option grant, the person entitled to exercise the same shall upon
request of the Company furnish evidence satisfactory to the Company (including a
written and signed representation) to the effect that the shares of stock are
being acquired in good faith for investment and not for resale or distribution.
Furthermore, the Company may if it deems appropriate affix a legend to
certificates representing shares of stock purchased upon exercise of options
indicating that such shares have not been registered with the Securities and
Exchange Commission and may so notify its transfer agent.
(i) Rights of Optionee. An optionee or transferee holding an option
grant shall have no rights as a shareholder of the Company with respect to any
shares covered by any option grant until the date one or more of the options
granted thereunder have been properly exercised and the purchase price for such
shares has been paid in full. No adjustment shall be made for dividends
(ordinary or extraordinary, whether cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such share certificate is issued, except as provided for in paragraph 6(k).
Nothing in the Plan or in any option grant agreement shall confer upon any
optionee any right to continue performing services for the Company or any
Affiliated Group member, or interfere in any way with any right of the Company
or any Affiliated Group member to terminate the optionee's services at any time.
(j) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of an option. The value of any fractional
share subject to an option grant shall be paid in cash in connection with an
exercise that results in all full shares subject to the grant having been
exercised.
(k) Reorganizations, Etc. Subject to paragraph 9 hereof, if the
outstanding shares of stock of the class then subject to this Plan are increased
or decreased, or are changed into or exchanged for a different number or kind of
shares or securities, as a result of one or more reorganizations, stock splits,
reverse stock splits, stock dividends, spin-offs, other distributions of assets
to shareholders, appropriate adjustments shall be made in the number and/or type
of shares or securities for which options may thereafter be granted under this
Plan and for which options then outstanding under this Plan may thereafter be
exercised. Any such adjustments in
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<PAGE>
outstanding options shall be made without changing the aggregate exercise price
applicable to the unexercised portions of such options.
(l) Option Modification. Subject to the terms and conditions and within
the limitations of the Plan, the Board or the Committee may modify, extend or
renew outstanding options granted under the Plan, accept the surrender of
outstanding options (to the extent not theretofore exercised), reduce the
exercise price of outstanding options, or authorize the granting of new options
in substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, no modification of an option (either directly or
through modification of the Plan) shall, without the consent of the optionee,
alter or impair any rights of the optionee under the option.
(m) Grants to Foreign Optionees. The Board or the Committee in order to
fulfill the Plan purposes and without amending the Plan may modify grants to
participants who are foreign nationals or performing services for the Company or
an Affiliated Group member outside the United States to recognize differences in
local law, tax policy or custom.
(n) Other Terms. Each option grant agreement may contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Board or the Committee, such as without limitation
discretionary performance standards, tax withholding provisions, or other
forfeiture provisions regarding competition and confidential information.
7. Termination or Amendment of the Plan
The Board may at any time terminate or amend the Plan; provided, that
shareholder approval shall be obtained of any action for which shareholder
approval is required in order to comply with Rule 16b-3, the Code or other
applicable laws or regulatory requirements within such time periods prescribed.
8. Shareholder Approval and Term of the Plan
The Plan shall be effective as of April 6, 1995, the date as of which
it was adopted by the Board, subject to ratification by the shareholders of the
Company within (each of) the time period(s) prescribed under Rule 16b-3, the
Code, and any other applicable laws or regulatory requirements, and shall
continue thereafter until terminated by the Board. Unless sooner terminated by
the Board, in its sole discretion, the Plan will expire on April 6, 2005 solely
with respect to the granting of Incentive Stock Options or such later date as
may be permitted by the Code for Incentive Stock Options, provided that options
outstanding upon termination or expiration of the Plan shall remain in effect
until they have been exercised or have expired or been forfeited.
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<PAGE>
9. Merger, Consolidation or Reorganization
In the event of a merger, consolidation or reorganization with another
corporation in which the Company is not the surviving corporation, the Board,
the Committee (subject to the approval of the Board) or the board of directors
of any corporation assuming the obligations of the Company hereunder shall take
action regarding each outstanding and unexercised option pursuant to either
clause (a) or (b) below:
(a) Appropriate provision may be made for the protection of such option
by the substitution on an equitable basis of appropriate shares of the surviving
corporation, provided that the excess of the aggregate fair market value (as
defined in paragraph 6(b)) of the shares subject to such option immediately
before such substitution over the exercise price thereof is not more than the
excess of the aggregate fair market value of the substituted shares made subject
to option immediately after such substitution over the exercise price thereof;
or
(b) Appropriate provision may be made for the cancellation of such
option. In such event, the Company, or the corporation assuming the obligations
of the Company hereunder, shall pay the optionee an amount of cash (less normal
withholding taxes) equal to the excess of the highest fair market value (as
defined in paragraph 6(b)) per share of the Common Stock during the 60-day
period immediately preceding the merger, consolidation or reorganization over
the option exercise price, multiplied by the number of shares subject to such
options (whether or not then exercisable).
10. Dissolution or Liquidation
Anything contained herein to the contrary notwithstanding, on the
effective date of any dissolution or liquidation of the Company, the holder of
each then outstanding option (whether or not then exercisable) shall receive the
cash amount described in paragraph 9(b) hereof and such option shall be
cancelled.
11. Withholding Taxes
(a) General Rule. Pursuant to applicable federal and state laws, the
Company is or may be required to collect withholding taxes upon the exercise of
an option. The Company may require, as a condition to the exercise of an option
or the issuance of a stock certificate, that the optionee concurrently pay to
the Company (either in cash or, at the request of optionee but in the discretion
of the Board or the Committee and subject to such rules and regulations as the
Board or the Committee may adopt from time to time, in shares of Common Stock of
the Company) the entire amount or a portion of any taxes which the Company is
required to withhold by reason of such exercise, in such amount as the Committee
or the Board in its discretion may determine.
(b) Withholding from Shares to be Issued. In lieu of part or all of any
such payment, the optionee may elect, subject to such rules and regulations as
the Board or the Committee may
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adopt from time to time, or the Company may require that the Company withhold
from the shares to be issued that number of shares having a fair market value
(as defined in paragraph 6(b)) equal to the amount which the Company is required
to withhold.
(c) Special Rule for Insiders. Any such request or election (to satisfy
a withholding obligation using shares) by an individual who is subject to the
provisions of Section 16 shall be made in accordance with the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
12. Automatic Grants to Certain Directors
(a) Grant. Except in the case of an initial election of a Nonemployee
Director (which shall be governed by subsection (c) hereof) each person who is
elected as a Nonemployee Director at any Annual Meeting of Shareholders
automatically shall be granted, effective as of the date of such Annual Meeting,
options to acquire 2,500 shares of the Company's Common Stock for each year of
the term to which such Nonemployee Director is elected. Options granted pursuant
to this paragraph 12 shall become exercisable at the rate of 2,500 shares of the
Company's Common Stock upon the date of each Annual Meeting following the date
of grant, provided that the Nonemployee Director has served as such throughout
the preceding year. Notwithstanding anything herein to the contrary, any person
who is a Nonemployee Director as of April 30, 1996 shall not be entitled to
receive any grant under this paragraph 12 until the 2000 Annual Meeting of
Shareholders.
(b) Certain Option Terms. Options granted pursuant to this paragraph 12
shall have a 10-year term from the date of grant, provided that any option held
by a Nonemployee Director who is removed from the Board for cause shall expire
on the date of such removal. The exercise price of all options granted pursuant
to this paragraph 12 shall be the fair market value of the Company's Common
Stock on the date of grant.
(c) Initial Election to Board of Directors. Any person who initially
becomes a Nonemployee Director, whether at an Annual Meeting of Shareholders or
at any time other than on the date of an Annual Meeting, shall automatically be
granted options exercisable for 10,000 shares of Common Stock for the first year
(including a partial year in the case of an election between Annual Meeting),
and for an additional 2,500 shares of Common Stock for each additional year of
the term to which such Nonemployee Director is elected. Options for one third of
such shares shall vest on each of the first three anniversary dates of the
initial election to the Board. Other terms of such option shall be as set forth
elsewhere in this paragraph 12.
(d) Stock Splits. Notwithstanding anything in the Plan to the contrary,
the number of options to be granted pursuant to paragraphs 12(a) and 12(c) shall
not be adjusted for forward stock splits or similar occurrences which are
effected during the year ending December 31, 1996, provided that options granted
pursuant to paragraphs 12(a) or 12(c) prior to the effective date of
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any such occurrence shall be subject to adjustment in the same manner as other
options granted pursuant to the Plan.
(e) Limitation on Amendment. This paragraph 12 shall not be amended
more than once every six months other than to comport with changes in the Code,
the Employee Retirement Income Security Act, or the rules thereunder.
10
