SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 (Amendment No. 1)
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
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
EMPLOYEE SOLUTIONS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[EMPLOYEE SOLUTIONS, INC. LOGO]
6225 North 24th Street
Phoenix, Arizona 85016
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 25, 1999
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of Employee Solutions, Inc., an Arizona
corporation (the "Company"), will be held on Tuesday, May 25, 1999 at 10:00 a.m.
local time, at the Camelback Inn, 5402 E. Lincoln Drive, Scottsdale, Arizona for
the following purposes:
(1) To elect seven 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 enlarge the option grant provisions applicable to non-employee
directors; and
(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 20, 1999 are
entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person.
By order of the Board of Directors
/s/ Paul M. Gales
----------------------------------
Paul M. Gales
Secretary
Phoenix, Arizona
April 19, 1999
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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.
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<PAGE>
[EMPLOYEE SOLUTIONS, INC. LOGO]
6225 North 24th Street
Phoenix, Arizona 85016
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 25, 1999
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 26, 1999.
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.
2
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only shareholders of record at the close of business on April 20, 1999 (the
"Record Date") will be entitled to vote at the meeting. As of March 31, 1999,
there were issued and outstanding 32,413,413 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 seven 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 seven 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.
3
<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 March 31, 1999 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.
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NUMBER PERCENT
------ -------
Marvin D. Brody (2) 2,074,088 6.4%
6900 E. Camelback, #830
Scottsdale, Arizona 85251
Harvey A. Belfer (3) 1,680,480 5.2%
6019 E. Indian Bend Road
Paradise Valley, Arizona 85253
Roy A. Flegenheimer (4) 493,334 1.5%
Robert L. Mueller (5) 100,000 *
Morris C. Aaron (6) 162,199 *
Jeffery A. Colby (7) 40,028 *
Paul M. Gales 5,675 *
Mark J. Gambill 10,000 *
Sara R. Dial (8) 25,833 *
Quentin P. Smith (8) 19,333 *
David R. Carpenter 53,500 *
James E. Gorman 2,656 *
All executive officers and directors
as a group (12 persons) (2)(3)(5)(7)(8) 4,023,593 12.4%
* 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 1,594,088 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) Mr. Belfer resigned as a member of the Board of Directors in April 1999.
(4) Includes 423,334 shares which Mr. Flegenheimer has the right to acquire
upon the exercise of stock options.
(5) Voting and investment power with respect to 90,000 shares shared with
spouse.
(6) Includes 159,999 shares which Mr. Aaron has the right to acquire upon the
exercise of stock options.
(7) Includes 39,900 shares which Mr. Colby has the right to acquire upon the
exercise of stock options.
(8) Includes 5,833 shares which the beneficial owner has the right to acquire
upon the exercise of stock options.
4
<PAGE>
PROPOSAL 1 -
ELECTION OF DIRECTORS
Seven 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, Quentin P. Smith, Jr., Marvin D. Brody, David R. Carpenter,
Jeffery A. Colby, Sara R. Dial, Kennard F. Hill and Robert L. Mueller. 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.
Any shareholder entitled to vote for the election of directors at a meeting
may nominate persons for election as directors only if written notice of such
shareholder's intent to make such nomination and providing specified information
is given to the Secretary of the Company at its corporate offices not later
than: (i) with respect to an election to be held at an annual meeting of
shareholders, not less than 60 nor more than 90 days before the meeting, or
within 15 days after public disclosure of the meeting date, if later; and (ii)
with respect to any election to be held at a special meeting of shareholders for
the election of directors, within 15 days after public disclosure of the meeting
date.
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.
DIRECTOR
NAME AGE POSITION WITH COMPANY SINCE
---- --- --------------------- -----
Quentin P. Smith, Jr. 47 Chairman, Chief Executive Officer,
President and Director 1998
Marvin D. Brody 55 Director 1991
David R. Carpenter 60 Director 1998
Jeffery A. Colby 45 Director; President of TEAM Services 1995
Sara R. Dial 35 Director 1998
Kennard F. Hill 58 Director 1999
Robert L. Mueller 71 Director 1995
Quentin P. Smith, Jr. has been a Director of the Company since January
1998, Chairman of the Board of Directors since August 1998, and Chief Executive
Officer and President since February 1999. Mr. Smith was President of Cadre
Business Advisors, LLC, a professional management consulting services company,
from April 1995 to February 1999. Previously, Mr. Smith was 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 to 1991. Mr. Smith is a director of Arizona Public Service Co.
Marvin D. Brody is engaged in the private practice of law. Mr. Brody
co-founded the Company in 1991. He has been a Director of the Company since its
inception, served as Chief Executive Officer from November 1994 to August 1998,
and served as President from June 1996 through August 1998. Prior to becoming
the Company's Chief Executive Officer, Mr. Brody was engaged in the private
practice of law since 1973.
David R. Carpenter has been a Director of the Company since October 1998.
Since February 1997, Mr. Carpenter has served as Chairman and CEO of UniHealth
Foundation, a nonprofit healthcare organization based in Burbank, California.
Since 1997, Mr. Carpenter has also served as Chairman and CEO of Paradigm
Partners International, LLC. From 1990 through 1995, Mr. Carpenter served in
various capacities for Transamerica Corporation, including Executive Vice
President and Group Vice President. From 1980 through 1995, Mr. Carpenter served
in various capacities with Transamerica Occidental Life Insurance Company,
including Chairman and Chief Executive Officer. He has also served as a director
of PacifiCare Health Systems, a managed health care services company, since
1989. Mr. Carpenter is a Fellow of the Society of Actuaries.
5
<PAGE>
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.
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.
Kennard F. Hill has been Chief Executive Officer and a director of Condor
Technology Solutions, Inc., since January 1997 and its Chairman since February
1998. Condor provides a wide range of information technology ("IT") services and
solutions to middle market organizations, Fortune 1000 companies and public
sector organizations. Mr. Hill was Group President of I-NET, Inc., a network
computing and systems integration services company, from September 1995 to
December 1996. From June 1993 to June 1995, Mr. Hill was President and Chief
Executive Officer of Insource Technology, Inc., an IT consulting firm. From June
1992 to June 1993, Mr. Hill was a private consultant on client/server
acquisition strategy in the healthcare industry. From 1988 to July 1992, Mr.
Hill was Chief Executive Officer of DataLine Inc., a data processing and IT
firm. From 1968 to 1988, Mr. Hill was employed by Electronic Data Systems
Corporation ("EDS"), a full-service IT provider. He served as President of
General Motors-EDS for North America from 1985 to 1988. At EDS, Mr. Hill also
served as chief of the Healthcare Division, having previously served as its
Director of Sales. Mr. Hill also was an officer of EDS's Federal Corp.
subsidiary and a director of its National Heritage Insurance Corp. subsidiary,
which provides healthcare underwriting for lower-income policyholders. In
December 1994, Mr. Hill filed a voluntary petition in bankruptcy in order to
discharge indebtedness arising out of his divorce and several partnerships in
which he was a limited partner. The bankruptcy was discharged in January 1996.
Mr. Hill attended the University of Texas and served two tours of duty as a
United States Army pilot in Vietnam.
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. From 1983
to 1987, he was President and Chief Executive Officer of Judson Steel Company.
From 1975 to 1983, he was Chairman, President and Chief Executive Officer of
Connors Steel Corp.
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, 1998. 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 nine Directors' meetings during the fiscal year
ended December 31, 1998. 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 (Chairperson) and Carpenter. The Audit Committee held eight meetings
during 1998. 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.
6
<PAGE>
The Company's Human Resources Committee (formerly referred to as the
Compensation Committee) currently consists of Ms. Dial (Chairperson) and Messrs.
Mueller and Carpenter. The Compensation Committee held four meetings during
1998. Among other human resource-related functions, the Human Resources
Committee reviews executive compensation and stock option awards under the
Company's stock option plans.
The Company does not have a separate nominating committee. Nominations of
persons to be directors and other functions of such committees are considered by
the Human Resources Committee subject to the approval of the full Board of
Directors.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, with respect to the years ended December
31, 1998, 1997 and 1996, compensation awarded to, earned by or paid to (i) two
individuals who served as the Company's Chief Executive Officer during 1998;
(ii) two executive officers who were serving as executive officers at December
31, 1998 and whose total salary and bonus exceeded $100,000 in 1998; and (iii)
two individuals whose total salary and bonus exceeded $100,000 and who served as
executive officers during a portion of 1998 but were not serving as such at
December 31, 1998.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION IN DOLLARS COMPENSATION
------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS (1) COMPENSATION(2)
--------------------------- ---- ------ ----- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James E. Gorman 1998 $174,620 $200,000 $82,288 (4) 350,000 (5) $3,835
Chief Executive Officer, 1997 -- -- -- -- --
President (3) 1996 -- -- -- -- --
Marvin D. Brody 1998 $226,446 -- (7) 100,000 (8) $483,960 (9)
Chief Executive Officer, 1997 327,400 -- (7) -- 5,545
President (6) 1996 276,246 -- (7) -- 5,333
1998 $171,904 -- (7) 50,000 5,730
Roy A. Flegenheimer 1997 186,053 -- (7) -- 5,619
Chief Operating Officer (10) 1996 177,400 -- (7) 70,000 5,401
Morris C. Aaron (11) 1998 $144,468 -- (7) 50,000 $180,160 (12)
Chief Financial Officer, 1997 164,242 -- (7) 50,000 5,949
Treasurer 1996 81,731 -- (7) 150,000 4,826
Paul M. Gales (13) 1998 $214,500 $37,500 (7) 215,000 (5) $6,730
Senior Vice President, 1997 177,307 -- (7) 50,000 5,949
General Counsel and Secretary 1996 39,712 -- (7) 120,000 1,316
Mark J. Gambill (14) 1998 $187,115 $37,500 (7) 125,000 (5) $5,806
Senior Vice President 1997 129,135 -- $62,430 (15) 50,000 4,353
Chief Marketing Officer 1996 -- -- -- -- --
</TABLE>
(1) Consist entirely of stock options; no stock appreciation rights ("SARs")
were granted or are outstanding.
(2) Term life and health insurance premiums unless otherwise specified.
(3) Mr. Gorman served as President and Chief Executive Officer from May 1998
and August 1998, respectively, to February 1999, and as a Director from
August 1998 to April 1999.
(4) Relocation expense.
(5) Option grants in 1998 include certain options that were issued upon the
simultaneous cancellation of a greater number of options. See "Human
Resources Committee Report on Stock Option Repricing."
(6) Mr. Brody served as President and Chief Executive Officer through August
1998.
(7) Less than 10% of total of annual salary.
(8) Cancelled in August 1998 effective at time of termination of employment.
(9) Includes severance payment of $393,000 and consulting payments of $84,905.
(10) Mr. Flegenheimer served as Chief Operating Officer through August 1998.
(11) Mr. Aaron served as Chief Financial Officer from January 1996 through
September 1998.
(12) Includes severance payments of $173,437.
(13) Mr. Gales joined the Company in 1996.
(14) Mr. Gambill joined the Company in 1997.
(15) Includes $40,483 of relocation expense related to a loss on the sale of
personal residence.
8
<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.
<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>
James E. Gorman 150,000 (3) 7.4 $2.25 11/11/08 $ 212,252 $ 537,888
200,000 (4) $5.22 cancelled 11/12/98
Marvin D. Brody 100,000 4.9 $5.28 cancelled 8/6/98 -- --
Roy A. Flegenheimer 50,000 2.5 $5.28 5/6/08 $ 166,028 $ 420,748
Morris C. Aaron 50,000 2.5 $5.28 5/6/08 $ 166,028 $ 420,748
Paul M. Gales 165,000 (3) 8.1 $2.25 11/11/08 $ 233,477 $ 591,677
50,000 (4) $5.28 cancelled 11/12/98
Mark J. Gambill 75,000 (3) 6.2 $2.25 11/11/08 $ 106,126 $ 268,944
50,000 (4) $5.28 cancelled 11/12/98
</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.
(3) Includes options issued upon the simultaneous cancellation of a greater
number of options. See "Human Resources Committee Report on Stock Option
Repricing."
(4) These (and in the case of Messrs. Gales and Gambill, other) options held by
the executive officer were cancelled in November 1998. See "Human Resources
Committee Report on Stock Option Repricing."
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.
<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>
James E. Gorman 0 0 0 150,000 $ 0 $46,500
Marvin D. Brody 0 0 0 0 $ 0 $ 0
Roy A. Flegenheimer (3) 46,000 $131,140 406,667 73,333 $109,600 $ 0
Morris C. Aaron 0 $ 0 116,667 133,333 $ 0 $ 0
Paul M. Gales 0 $ 0 0 165,000 $ 0 $51,150
Mark J. Gambill 0 $ 0 0 75,000 $ 0 $23,250
</TABLE>
(1) No SARs are outstanding.
(2) Based on the last trade of the Company's Common Stock on NASDAQ on December
31, 1998 at $2.56 per share.
(3) Includes options granted under both the 1993 and 1995 Option Plan.
9
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into substantially identical employment agreements
with each of Paul M. Gales and Mark J. Gambill. The base salaries under the
agreements are subject to annual review by the Company's compensation committee.
The agreements provide for a payment equal to 12 months base salary if the
Company terminates the agreement without cause. 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 has entered into a three-year employment agreement with Quentin
P. Smith, Jr. in connection with his election as President and Chief Executive
Officer on February 15, 1999. The agreement provides for an initial annual base
salary of $375,000, and provides that Mr. Smith is not entitled to receive cash
bonuses. The Company provided incentive compensation to Mr. Smith in the form of
options to acquire 180,000 shares of the Company's Common Stock, which options
vest in equal parts over three years. The agreement provides for a payment equal
to 12 months base salary if the Company terminates the agreement without cause.
If employment is terminated 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" (defined in the agreement to include only hostile takeovers,
as defined), Mr. Smith is entitled to receive a lump sum payment equal to $5
million minus the value of all of Mr. Smith's vested and unvested stock options.
The Company entered into a three-year employment agreement dated May 11,
1998 with James E. Gorman, formerly Chief Executive Officer, President and a
director of the Company. Mr. Gorman's base salary under the agreement at the
time he ceased serving as an executive officer of the Company was $275,000. The
agreement included a guaranteed first year bonus of $100,000 and provisions
similar to those in Mr. Smith's agreement in the event of a hostile takeover (as
defined) of the Company. The Company is engaged in discussions with Mr. Gorman
concerning the disposition of the agreement.
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. 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 formula grant provisions of the 1995 Option Plan, options
for 10,000 shares of Common Stock are granted automatically to each Director
upon initial election, with subsequent automatic grants of options for 2,500
shares of Common Stock at the date of each annual meeting at which the
non-employee director is re-elected. Non-employee directors elected prior to
June 1996 are not eligible to receive options under the formula grant provision
until the year 2000 annual meeting of shareholders. The formula grant provision
is proposed to be amended. See "Proposal 2" herein.
Ms. Dial and Messrs. Smith and Carpenter each were granted options for
10,000 shares of Common Stock upon their initial election to the Board in 1998
and Ms. Dial and Mr. Smith also were granted options for 2,500 shares of Common
Stock at the 1998 Annual Meeting of Shareholders pursuant to the formula grant
provision described above, with an exercise price equal to the fair market value
of the Common Stock on the date of grant.
In October 1998, a one-time cash payment of $80,000 was made to each of the
Company's then-current non-employee directors (Ms. Dial and Messrs. Mueller and
Smith) and to incoming Board member David Carpenter. The payment was
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<PAGE>
authorized in view of the significantly increased time commitments for
non-employee directors resulting from the restructuring and related programs
initiated by the Company in 1998, and to balance consideration provided to
then-current non-employee directors with the consideration provided in
conjunction with recruiting Mr. Carpenter to the Board. While the Company would
have preferred at the time to provide consideration to its non-employee
directors in the form of equity in the Company (in the form of stock grants or
stock options), the Company instead determined to provide a cash payment due
primarily to strict limitations on stock option grants to non-employee directors
provided in the Company's 1995 Option Plan. These provisions are proposed to be
amended to provide greater flexibility in the future. See "Proposal 2" herein.
The Company has entered into a two-year consulting agreement with Marvin D.
Brody commencing August 1998 that provides monthly payments of $16,375. The
agreement also provides a monthly office expense allowance of $1,250 per month
through September 1999. The agreement includes confidentiality and
non-competition provisions. Mr. Brody received $84,905 under this agreement in
1998.
Quentin P. Smith, Jr. received $30,010 in 1998 pursuant to a consulting
services arrangement. The arrangement was terminated in connection with Mr.
Smith's election as President and Chief Executive Officer in February 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, the following individuals served on the Compensation
Committee (now referred to as the Human Resources Committee) at various times:
Mr. Belfer, Mr. Mueller, Ms. Dial, Mr. Smith and Mr. Carpenter. Certain
relationships and related transactions with the Company are described
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
As reported in the Proxy Statement for the 1998 Annual Meeting of
Shareholders, the Company entered into a series of agreements in April 1998 with
Edward L. Cain, Jr. 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 that 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
previous 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. 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.
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. Subject to final board approval, Mr.
Colby's base salary was increased to $210,000 per year in 1998.
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 that may be
issued would be entitled to certain piggy-back and demand registration rights.
There is no stated maximum consideration payable in the transaction.
As previously reported in the Company's 1998 Report on Form 10-K, the
Company was named as a defendant in a breach-of-contract action filed by an
employee of the Company in February 1999. The 10-K also reported that a director
of the Company had agreed to indemnify the Company personally for amounts paid
by the Company in connection with the
11
<PAGE>
matter, if any. The Company recently agreed upon settlement terms with the
employee, subject to the completion of definitive settlement documents. Under
the settlement terms, the Company will provide a cash payment of $373,333 and
enter into a three-year arrangement under which sales and marketing services
will be provided by the employee on an independent contractor basis. The Company
has been advised by the director, Mr. Brody, that he believes that his
indemnification agreement does not extend to the settlement terms agreed to by
the Company. The Company currently is evaluating its options regarding this
matter.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Among other human resources-related functions, the Company's Human
Resources 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
bonus) 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.
The Company's executive compensation program consists of an annual
component (salary and incentive bonuses) 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 the Chief Executive Officer,
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
obtained certain information from an independent consulting firm in formulating
base salary decisions during the second quarter of 1998 and relied in part on
subjective judgments concerning performance. The Committee competes generally
for executive talent with comparably-sized publicly-held companies in the
Phoenix, Arizona metropolitan area and other PEOs nationally, and
publicly-available executive compensation information with respect to such
companies was considered.
The base salary of Marvin D. Brody (Chief Executive Officer through August
6, 1998) was increased in May 1998 from $325,000 to $393,000. The increase was
based on the following principal considerations: (i) Mr. Brody's base salary had
remained unchanged from the level previously set by the Compensation Committee
in June 1996; (ii) information available from the independent consulting firm
referred to in the preceding paragraph; and (iii) the Committee's subjective
judgment concerning progress being made on operational initiatives. The
Committee did not utilize any particular mathematical formula or other specific
objective standards in adjusting Mr. Brody's base salary.
The base salary of James E. Gorman (Chief Executive Officer from August 6,
1998 through February 15, 1999) was established through arms-length negotiation
with Mr. Gorman at the time he initially joined the Company as its President and
Chief Operating Officer in May 1998. The Committee also took into account
information obtained from an independent
12
<PAGE>
consulting firm and publicly-available compensation information relating to
other publicly-held companies, as noted above. Mr. Gorman's base salary was
adjusted following his election as Chief Executive Officer to reflect his
increased duties and responsibilities.
BONUS
The Committee seeks to use cash bonuses as an additional method of linking
an executive officer's compensation to individual and/or Company performance.
During the early portion of 1998, a preliminary bonus plan for executive
officers was developed that was based primarily on the achievement of financial
targets. Due to the restructuring and other operational initiatives that took
place later in 1998, the original targets became inapplicable. The Committee
nonetheless determined to pay the originally targeted cash bonuses to the
executive officers employed by the Company in late 1998 in view of the
extraordinary effort associated with the restructuring and related initiatives,
and retention concerns.
No bonus was paid to Mr. Brody in 1998. A cash bonus was approved for Mr.
Gorman in late 1998 based primarily on the ahead-of-plan accomplishment of
office closures and other cost-reduction goals associated with the Company's
restructuring initiative.
The change in the position of Chief Executive Officer in February 1999 has
delayed finalization of an executive bonus program for 1999. The Committee
intends to finalize a program based on individual and company-wide achievements.
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. The Committee also considered information
from the independent consulting firm and publicly-available data concerning
companies with which the Company competes for executive talent.
In addition to making certain stock option grants during 1998, the
Committee also approved the repricing of certain options held by executive
officers, subject to certain conditions and limitations. See "Human Resources
Committee Report on Stock Option Repricing" below. Mr. Gorman received stock
option grants in 1998 based on the same considerations upon which his base
salary was established at the time he initially joined the Company. Options were
granted to Mr. Brody in 1998 based on the same information upon which options
were granted to executive officers generally. Such options were cancelled at the
time Mr. Brody ceased serving as an executive officer of the Company.
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 and outstanding options held
by applicable executive officers were granted at a time when the board committee
which authorized the grant satisfied the "outside director" requirement. As
described above under the heading "Employment Contracts, Termination of
Employment and Change-in-Control Arrangements," Mr. Smith's employment agreement
provides for a payment of $5 million (reduced by the value of all of Mr. Smith's
vested and unvested stock options) if Mr. Smith's employment is terminated for
reasons other than cause, disability or death within 12 months after a hostile
takeover, as defined. The employment agreement for former President and Chief
Executive Officer, James E. Gorman, includes a similar provision. This payment
could exceed the Section 162(m)
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<PAGE>
deductibility limit. The Committee believes that the provision is reasonable in
light of overall employment arrangements and the limited circumstances under
which the change-in-control payment can become due.
RESPECTFULLY SUBMITTED,
SARA R. DIAL, CHAIRPERSON
DAVID R. CARPENTER
ROBERT L. MUELLER
QUENTIN P. SMITH, JR. (FORMER MEMBER)
HARVEY BELFER (FORMER MEMBER)
HUMAN RESOURCES COMMITTEE REPORT ON STOCK OPTION REPRICING
Effective November 12, 1998, the Human Resources Committee approved the
cancellation of certain stock options held by employees and the issuance of
replacement options. The replacement options generally had an exercise price of
$2.25 per share, which was the Nasdaq closing price of the Company's Common
Stock on November 12, 1998. The options that were cancelled had exercise prices
ranging from $4.00 to $23.38. Included in the repricing action were options held
by executive officers James E. Gorman, Paul M. Gales and Mark J. Gambill (see
table below for details).
The Committee concluded that repricing options held by executive officers
was an appropriate step to motivate and retain the executive officers in view of
the substantial and continuing disparity between the exercise price of the stock
options then held by the executive officers and recent prices of the Company's
Common Stock on Nasdaq. The Committee considered the contributions of the
affected executive officers in reaching its decision. The Committee reviewed
publicly-available information concerning stock option repricing. To provide
additional motivation and retention value in connection with the repricing, the
Committee required that a new three-year vesting schedule would be imposed with
respect to the repriced options. The Committee also provided that each executive
officer would be required to surrender 25% of the executive officer's options in
connection with the repricing.
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<PAGE>
The following table sets forth information concerning all repricings of
options held by executive officers since the completion of the Company's initial
public offering on August 12, 1993:
<TABLE>
<CAPTION>
TEN-YEAR OPTIONS/SAR REPRICINGS (1)
-----------------------------------
NUMBER OF
SECURITIES
UNDERLYING MARKET PRICE LENGTH OF ORIGINAL
OPTIONS/ OF STOCK AT EXERCISE PRICE OPTION TERM
SARS TIME OF AT TIME OF NEW REMAINING AT DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
---- ---- ------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
James E. Gorman 11/12/98 150,000 (2) $2.25 $5.22 $2.25 Through 5/08
President and Chief
Executive Officer
Paul M. Gales 11/12/98 165,000 (3) $2.25 $14.75 $2.25 Through 9/06
Senior Vice President (120,000 options)
and General Counsel $5.41
(50,000 options) Through 5/07
$5.28
(50,000 options) Through 5/08
Mark J. Gambill 11/12/98 75,000(4) $2.25 $6.93 $2.25 Through 3/07
Senior Vice President (50,000 options)
and $5.28 Through 5/08
Chief Marketing Officer (50,000 options)
Roy A. Flegenheimer 4/6/95 160,000 $1.94 $2.42 $2.125 Through 2/99
Chief Operating Officer
</TABLE>
(1) No SARs are outstanding.
(2) Mr. Gorman surrendered 200,000 options in exchange for 150,000 repriced
options.
(3) Mr. Gales surrendered 220,000 options in exchange for 165,000 repriced
options.
(4) Mr. Gambill surrendered 100,000 options in exchange for 75,000 repriced
options.
RESPECTFULLY SUBMITTED,
SARA R. DIAL, CHAIRPERSON
DAVID R. CARPENTER
ROBERT L. MUELLER
QUENTIN P. SMITH, JR. (FORMER MEMBER)
15
<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 a peer
group for the period commencing January 1, 1994 and ending December 31, 1998.
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 January 1, 1994 in Company Common Stock, in
the Standard & Poor's 500 Stock Index and the peer group, and that, as to such
indices, dividends were reinvested. The Company has not, since its inception,
paid any dividends on the Common Stock.
The peer group used for this chart consists of Administaff Inc., Automatic
Data Processing, Inc., Barrett Business Services, Inc., Modis Professional
Services (formerly AccuStaff), Novacare Employee Services, Paychex Inc., Staff
Leasing Inc., TEAM America, Teamstaff (formerly Digital Solutions, Inc.) and
Vincam Group Inc. Although the Company does not consider all the companies in
the peer group 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>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Employee Solutions, Inc. 100.00 96.64 453.33 1093.33 229.97 136.64
Standard and Poor's 500 100.00 101.32 139.40 171.40 228.59 293.91
Peer Group 100.00 108.61 150.72 187.66 259.43 328.57
</TABLE>
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<PAGE>
PROPOSAL 2 -
APPROVAL OF AN AMENDMENT OF THE EMPLOYEE SOLUTIONS, INC. 1995
STOCK OPTION PLAN TO ENLARGE OPTION GRANT PROVISIONS
APPLICABLE TO NON-EMPLOYEE DIRECTORS
Stock options play a key role in the Company's ability to recruit, reward
and retain directors, executives and key employees. The Company believes that
equity based incentive programs help create and maintain a tight link between
the interests of its shareholders and directors, executives and key employees,
and enhance the Company's ability to continue recruiting and retaining top
talent.
The 1995 Option Plan currently permits options to be granted to
non-employee directors solely on the basis of a formula that provides a grant of
10,000 options upon the director's initial election, and grants of 2,500 options
at each succeeding Annual Meeting at which the director is reelected. The
Company has placed a priority on recruiting and retaining non-employee Board
members of the highest possible quality. The Company has determined that the
strict limits set forth in the 1995 Option Plan with respect to option grants to
non-employee directors materially hinder the Company's efforts to recruit and
retain quality Board members.
Accordingly, the Board of Directors proposes amending the 1995 Option Plan
so that options for up to 50,000 shares may be granted to non-employee directors
upon their initial election to the Board, with the exact number to be determined
in the discretion of the committee of the Board responsible for administering
the Company's stock option programs (the "Committee"). The provision of the 1995
Option Plan that automatically grants 2,500 options to non-employee directors
reelected at succeeding Annual Meetings will be retained. However, the amendment
also permits supplemental option grants to be awarded to non-employee directors
in the discretion of the Committee. While the Board does not currently
anticipate that any supplemental grants will be issued, the Board believes that
the Company will benefit from the flexibility inherent in such provision should
supplemental grants become desirable or necessary in the future. The Board
believes that the amendments are necessary to recruit quality Board candidates.
Kennard F. Hill became a member of the Board of Directors on April 13,
1999. Mr. Hill received a grant of 10,000 options on such date pursuant to the
current formula provisions of the 1995 Option Plan and will receive an
additional grant of 2,500 options if re-elected at the Annual Meeting. Mr. Hill
will receive an additional grant of 40,000 options effective the date of the
1999 Annual Meeting if he is re-elected and this Proposal 2 receives shareholder
approval. With the exception of this grant to Mr. Hill, the approval of this
Proposal 2 will not result in the grant of options to current Board members.
Current Board members will be eligible for supplemental option grants in the
future if this Proposal 2 is adopted, though the Board does not have any current
intention to issue any supplemental grants.
If this Proposal 2 is not approved by the shareholders, the 1995 Option
Plan will continue in its current form, but the Company will be limited in the
number of options that may be granted to non-employee directors. The Board is
concerned such a situation could negatively affect the Company's ability to
attract and retain quality non-employee directors, to the Company's detriment.
Therefore, the Board of Directors unanimously recommends a vote for the
proposal.
AMENDMENT TEXT
The text of the proposed amendment is as follows:
12. 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 . Options granted pursuant to this paragraph
12(a) shall become exercisable upon the date of the first 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.
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<PAGE>
(b) Certain Option Terms. Options granted pursuant to subparagraphs
12(a) or (c) 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 subparagraphs 12(a)
and (c) 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 be eligible to receive a grant of options exercisable
for up to 50,000 shares of Common Stock. Options for one third of such
shares shall vest on each of the first three anniversary dates of the
initial election to the Board, subject to continued Board service.
Other terms of such options shall be as set forth elsewhere in this
paragraph 12.
(d) Supplemental Grants. In addition to option grants otherwise
available under this Paragraph 12, Nonemployee Directors shall be
eligible for supplemental grants from time to time in the discretion
of the Committee or the Board.
(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.
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 4,500,000 shares of the
Company's Common Stock are currently authorized for issuance under the 1995
Option Plan. As of March 31, 1999, 299,091 shares have been issued upon exercise
of stock options and a total of 3,285,194 shares were subject to outstanding
options granted under the 1995 Option Plan, leaving 915,715 shares remaining for
future option grants.
The 1995 Option Plan is administered by the Human Resources Committee of
the Board of Directors. 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 March 31,
1999, approximately 325 employees (including 11 executive officers and
directors) and six 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. The initial grants vest in three equal annual
installments, subject to continued board service. The annual grants become
vested on the date of the next annual meeting,
18
<PAGE>
subject to the optionee's continued board service throughout the year. Option
grant provisions with respect to non-employee directors are proposed to be
amended pursuant to this Proposal 2. See discussion and text of the amendment,
above.
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 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 grants to non-employee directors cannot 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
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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.
VALUATION
As of March 31, 1999, the closing price for the Company's Common Stock, as
reported by the NASDAQ National Market, was $1.00 per share.
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OPTION GRANTS
As of March 31, 1999, the following persons, or groups of persons, have
been granted the indicated number of options under the 1995 Option Plan:
INDIVIDUAL/GROUP POSITION NUMBER (1)
---------------- -------- ----------
James E. Gorman Director, Chief Executive Officer
and President (2) 150,000
Marvin D. Brody Chairman, Director, President
and Chief Executive Officer (3) 100,000
Roy A. Flegenheimer Chief Operating Officer (4) 420,000
Morris C. Aaron Chief Financial Officer (5) 250,000
Paul M. Gales Senior Vice President, General Counsel
and Secretary 165,000
Mark J. Gambill Senior Vice President and
Chief Marketing Officer 75,000
Jeffery A. Colby Director and President of TEAM Services 90,000
Sara R. Dial Director 12,500
Robert L. Mueller Director 80,000
Quentin P. Smith, Jr. Chairman, Director, President and
Chief Executive Officer 192,500
David R. Carpenter Director 10,000
All executive officers as a group (five persons) 566,125
All directors who are not executive officers, as a
group (seven persons) 442,500
All non-executive officer and non-director employees
as a group (6) 2,778,160
(1) Excludes options granted and subsequently cancelled via repricing.
(2) Mr. Gorman served as President and Chief Executive Officer from May 1998
and August 1998, respectively, to February 1999 and as a Director from
August 1998 to April 1999.
(3) Mr. Brody served as Chairman, President and Chief Executive Officer through
August 1998.
(4) Mr. Flegenheimer served as Chief Operating Officer through August 1998.
(5) Mr. Aaron served as Chief Financial Officer through September 1998.
(6) 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
so that options for up to 50,000 shares may be granted to non-employee directors
upon their initial election to the Board, with the exact number to be determined
in the discretion of the Committee, and so that supplemental option grants may
be awarded to non-employee directors in the discretion of the Committee.
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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, 1999. 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, 1999 must be received by the Company no later than December 23,
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 meeting, the shareholder must give notice to the Secretary not less than 60
nor more than 90 days before the meeting, or within 15 days after public
disclosure of the meeting date, if later, and give a brief description of the
business desired to be discussed. See "Proposal 1" herein for advance notice
requirements applicable to director nominations.
REPORT ON FORM 10-K
The Company will provide without charge a copy of its Report on Form 10-K
for the year ended December 31, 1998 upon written request addressed to Investor
Relations Department, Employee Solutions, Inc., 6225 N. 24th Street, Phoenix,
Arizona 85016.
April 19, 1999 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 Quentin P. Smith, Jr. 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 20, 1999, at the Annual Meeting of Shareholders to be held
on May 25, 1999 or any adjournment thereof.
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:
Quentin P. Smith, Jr., Marvin D. Brody, David R. Carpenter,
Jeffery A. Colby, Sara R. Dial, Kennard F. Hill, and Robert L. Mueller
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
ENLARGE OPTION GRANT PROVISIONS APPLICABLE TO NON-EMPLOYEE DIRECTORS.
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.
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.
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.
Dated: , 1999
----------------------------
(Be sure to date this Proxy)
------------------------------------------
Signature
------------------------------------------
Signature
<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 AND APRIL 13, 1999
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 (or successor)
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.
(g) "ISO Group" means the group consisting of the Company and any
corporation that is a "parent" or a "subsidiary" of the Company.
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(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.
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.
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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 conditions0:
(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 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
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(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; 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 broke - assisted cashless exercise procedures. The
Company may also extend and maintain, or arrange for the extension and
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<PAGE>
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 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
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<PAGE>
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 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.
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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.
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.
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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 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. 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. Options granted
pursuant to this paragraph 12(a) shall become exercisable upon the date of the
first 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 subparagraphs 12(a)
or (c) 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 subparagraphs 12(a) and (c) 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 be eligible to
receive a grant of options exercisable for up to 50,000 shares of Common Stock
Options for one third of such shares shall vest on each of the first three
anniversary dates of the initial election to the Board, subject to continued
Board service. Other terms of such options shall be as set forth elsewhere in
this paragraph 12.
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(d) SUPPLEMENTAL GRANTS. In addition to option grants otherwise available
under this Paragraph 12, Nonemployee Directors shall be eligible for
supplemental grants from time to time in the discretion of the Committee or the
Board.
(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.
