<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
RURAL/METRO CORPORATION
(Name of Registrant as Specified In Its Charter)
DEAN P. HOFFMAN
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
RURAL/METRO CORPORATION
-------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 21, 1996
-------------------------------------------------------------
The Annual Meeting of Stockholders of Rural/Metro Corporation, a
Delaware corporation (the "Company"), will be held at 10:00 a.m. (local time),
on Thursday, November 21, 1996, at the offices of the Company, 8401 East Indian
School Road, Scottsdale, Arizona, for the following purposes:
1. To elect three directors for a three-year term expiring in 1999.
2. To approve the amendment and restatement of the 1992 Stock Option
Plan (the "1992 Plan") and to approve an amendment to the Employee Stock
Purchase Plan (the "ESPP") to (a) make revisions to comply with the provisions
of the recently adopted Section 16 rules (the "Rules") under the Securities
Exchange Act of 1934 (the 1934 Act") that do not require stockholder approval;
(b) remove the prohibition on participation by Senior Committee members in the
Discretionary Grant Program under the 1992 Plan and by members of the Committee
in the ESPP as permitted by the Rules; and (c) provide for the discretion of the
plan administrator of the 1992 Plan to determine the exercise period for
nonqualified options upon termination of service.
3. To approve an amendment to the ESPP to extend the term of the plan
for a period of an additional seven years.
4. To ratify the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending June 30, 1997.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on October 7, 1996
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
To assure your representation at the meeting, however, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she previously has returned a
proxy.
Sincerely,
Louis G. Jekel
Secretary
Scottsdale, Arizona
October 15, 1996
<PAGE> 3
RURAL/METRO CORPORATION
8401 EAST INDIAN SCHOOL ROAD
SCOTTSDALE, ARIZONA 85251
-------------------------------------------------------------
PROXY STATEMENT
-------------------------------------------------------------
VOTING AND OTHER MATTERS
GENERAL
The enclosed proxy is solicited on behalf of Rural/Metro Corporation, a
Delaware corporation (the "Company"), by the Company's board of directors (the
"Board of Directors") for use at the Annual Meeting of Stockholders to be held
at 10:00 a.m. (local time), on Thursday, November 21, 1996 (the "Meeting"), or
at any adjournment thereof, for the purposes set forth in this Proxy Statement
and in the accompanying Notice of Annual Meeting of Stockholders. The Meeting
will be held at the offices of the Company, 8401 East Indian School Road,
Scottsdale, Arizona.
These proxy solicitation materials were first mailed on or about
October 18, 1996, to all stockholders entitled to vote at the Meeting.
VOTING SECURITIES AND VOTING RIGHTS
Stockholders of record at the close of business on October 7, 1996 (the
"Record Date"), are entitled to notice of and to vote at the Meeting. On the
Record Date, there were issued and outstanding 11,388,874 shares of the
Company's Common Stock, $0.01 par value per share (the "Common Stock").
The presence, in person or by proxy, of the holders of a majority of
the total number of shares of Common Stock outstanding constitutes a quorum for
the transaction of business at the Meeting. Each stockholder voting at the
Meeting, either in person or by proxy, may cast one vote per share of Common
Stock held on all matters to be voted on at the Meeting. Assuming that a quorum
is present, the affirmative vote of a majority of the shares of Common Stock of
the Company present in person or represented by proxy at the Meeting and
entitled to vote is required: (i) to elect three directors for a three-year term
expiring in 1999, (ii) to approve the amendment and restatement of the 1992
Stock Option Plan (the "1992 Plan") and to approve an amendment to the Employee
Stock Purchase Plan (the "ESPP") to (a) make revisions to comply with the
provisions of the recently adopted Section 16 rules (the "Rules") under the
Securities Exchange Act of 1934 (the 1934 Act") that do not require stockholder
approval; (b) remove the prohibition on participation by Senior Committee
members in the Discretionary Grant Program under the 1992 Plan and by Committee
members in the ESPP as permitted by the Rules; and (c) provide for the
discretion of the plan administrator of the 1992 Plan to determine the exercise
period for nonqualified options upon termination of service, (iii) to approve an
amendment to the ESPP to extend the term of the plan for a period of an
additional seven years, and (iv) to ratify the appointment of Arthur Andersen
LLP as the independent auditors of the Company for the fiscal year ending June
30, 1997.
Votes cast by proxy or in person at the Meeting will be tabulated by
the election inspectors appointed for the Meeting and will determine whether a
quorum is present. The election inspectors will treat abstentions as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
<PAGE> 4
VOTING OF PROXIES
When a proxy is properly executed and returned, the shares it
represents will be voted at the Meeting as directed. If no specification is
indicated, the shares will be voted: (i) "for" the election of the nominees set
forth in this Proxy Statement, (ii) "for" the amendment and restatement of the
1992 Plan and an amendment to the ESPP, including an amendment to extend the
term of the ESPP, and (iii) "for" the ratification of the appointment of Arthur
Andersen LLP as the independent auditors of the Company for the fiscal year
ending June 30, 1997.
REVOCABILITY OF PROXIES
Any person giving a proxy may revoke the proxy at any time before its
use by delivering to the Company written notice of revocation or a duly executed
proxy bearing a later date or by attending the Meeting and voting in person.
SOLICITATION
The cost of this solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for expenses incurred in forwarding
solicitation materials to such beneficial owners. Proxies also may be solicited
by certain of the Company's directors and officers, personally or by telephone
or telegram, without additional compensation.
ANNUAL REPORT AND OTHER MATTERS
The 1996 Annual Report to Stockholders, which was mailed to
stockholders with or preceding this Proxy Statement, contains financial and
other information about the activities of the Company but is not incorporated
into this Proxy Statement and is not to be considered a part of these proxy
soliciting materials. The information contained in the "Report of the Human
Resource/Compensation/Organization Committee of the Board of Directors" below
and "Company Performance Graph" below shall not be deemed "filed" with the
Securities and Exchange Commission (the "SEC") or subject to Regulations 14A or
14C or to the liabilities of Section 18 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
The Company will provide, without charge to each stockholder of record
as of the Record Date, a copy of the Company's annual report on Form 10-K for
the year ended June 30, 1996 as filed with the SEC. Any exhibits listed in the
Form 10-K report also will be furnished upon request at the actual expense
incurred by the Company in furnishing such exhibit. Any such requests should be
directed to the Company's Secretary at the Company's executive offices set forth
in this Proxy Statement.
2
<PAGE> 5
SECURITY OWNERSHIP OF
PRINCIPAL STOCKHOLDERS, DIRECTORS
AND OFFICERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock on October 7, 1996 by: (i) each
director and each nominee for director; (ii) the Named Executive Officers (as
defined herein) set forth in the Summary Compensation Table under the section
entitled "EXECUTIVE COMPENSATION;" (iii) all directors and executive officers of
the Company as a group; and (iv) each person known by the Company to be the
beneficial owner of more than five percent of the Common Stock.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY
OWNED
NAME OF BENEFICIAL OWNER (1)(2)(3) PERCENT
- - ------------------------ --------- -------
<S> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
- - ---------------------------------------
Warren S. Rustand(4)............................................... 99,250 *
James H. Bolin(5).................................................. 180,771 1.6%
Cor J. Clement(6).................................................. 220,099 1.9
Robert T. Edwards(7)............................................... 112,216 1.0
Louis G. Jekel(8).................................................. 150,955 1.3
William C. Turner.................................................. 8,000 *
Louis A. Witzeman(9)............................................... 121,665 1.1
Frank G. Zarb...................................................... 1,000 *
John E. Stuart(10)................................................. 64,779 *
Mark E. Liebner(11)................................................ 128,937 1.1
Executive officers and directors as a group
(16 persons)..................................................... 1,382,427 11.5%
5% STOCKHOLDERS:
- - ----------------
ESOP(12) .......................................................... 1,112,501 9.8%
</TABLE>
* Less than one percent
(1) Except as indicated, and subject to community property laws when
applicable, the persons 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 shares of Common Stock issuable to the identified person
pursuant to stock options that may be exercised within 60 days after
October 7, 1996. In calculating the percentage of ownership, such
shares are deemed to be outstanding for the purpose of computing the
percentage of shares of Common Stock owned by such person, but are not
deemed to be outstanding for the purpose of computing the percentage of
shares of Common Stock owned by any other stockholders.
(3) Excludes 29,291, 22,907, and 5,661 fully vested shares held by the ESOP
for the benefit of Messrs. Bolin, Edwards and Jekel, respectively, and
36, 1,022 and 226 shares held by the ESOP for the benefit of Messrs.
Rustand, Liebner and Stuart, respectively, that are 0%, 60% and 40%
vested, respectively. Such persons have sole voting power with respect
to the shares held in their account by the ESOP.
(4) Includes 71,250 shares of Common Stock issuable upon exercise of stock
options.
(5) Includes 80,834 shares of Common Stock issuable upon exercise of stock
options and 91,604 shares held by the Bolin Revocable Trust UA dated
February 27, 1996, James H. Bolin and Sandra L. Bolin, Trustees.
3
<PAGE> 6
(6) Includes 6,000 shares held in trust for the benefit of Mr. Clement over
which he retains voting control and 201,599 shares owned by Nederlandse
Veiligheidsdienst International, B.V. ("NVD"). Mr. Clement is the Chief
Executive Officer of NVD. He does not have voting or investment power
with respect to the shares of NVD and disclaims any beneficial
ownership of the shares held by NVD.
(7) Includes 81,251 shares of Common Stock issuable upon exercise of stock
options.
(8) Includes 47,500 shares of Common Stock issuable upon exercise of stock
options.
(9) Includes 29,562 shares held by the Louis A. Witzeman, Jr. Family
Investment Limited Partnership, of which 150 shares are held for the
benefit of other family members. Also includes 41,875 shares of Common
Stock issuable upon the exercise of stock options.
(10) Includes 42,917 shares of Common Stock issuable upon exercise of stock
options.
(11) Includes 67,667 shares of Common Stock issuable upon exercise of stock
options.
(12) The address of the Rural/Metro Corporation Employee Stock Ownership
Plan (the "ESOP") is c/o Rural/Metro Corporation, 8401 East Indian
School Road, Scottsdale, Arizona 85251.
PROPOSAL TO ELECT DIRECTORS
NOMINEES
The Company's Restated Certificate of Incorporation provides that the
number of directors shall be fixed from time to time by resolution of the Board
of Directors or stockholders. Presently the number of directors is fixed at nine
and that number of directors is divided into three classes, with one class
standing for election each year for three-year terms. The Board of Directors has
nominated JAMES H. BOLIN, LOUIS G. JEKEL, and WILLIAM C. TURNER for re-election
as Class II directors for three-year terms expiring in 1999 or until their
respective successors are elected and qualified. The Board of Directors is not
proposing a nominee for a third Class III director. Accordingly, after the
election of directors, a vacancy will exist on the Board of Directors, which, as
with all other vacancies, may be filled by a vote of a majority of the directors
then in office.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for each of the nominees named above. In the event that any of
the nominees is unable or declines to serve as a director at the time of the
Meeting, the proxies will be voted for a nominee, if any, designated by the
current Board of Directors to fill the vacancy. It is not expected that any of
the nominees will be unable or will decline to serve as a director.
The Board of Directors recommends a vote "For" the nominees named
herein.
4
<PAGE> 7
The following table sets forth certain information regarding the
directors and nominees for directors of the Company:
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION EXPIRES
---- --- -------- -------
<S> <C> <C> <C>
Warren S. Rustand 53 Chairman of the Board, Chief Executive Officer and 1997
Director (1)(2)(3)
Cor J. Clement 48 Vice Chairman of the Board and Director (1)(2)(4)(5) 1997
James H. Bolin 44 President and Director (3) 1996
Robert T. Edwards 56 Executive Vice President and Director (3) 1998
Louis G. Jekel 55 Secretary and Director 1996
William C. Turner 67 Director (1)(2)(3)(4)(5) 1996
Louis A. Witzeman 71 Director (2)(4) 1998
Frank G. Zarb 61 Director 1998
</TABLE>
(1) Member of the Human Resource/Compensation/Organization Committee.
(2) Member of the Nominating Committee.
(3) Member of the Executive Committee.
(4) Member of the Audit Committee.
(5) Member of the Senior Committee.
Warren S. Rustand has served as Chief Executive Officer of the Company
since August 1996, Chairman of the Board of Directors since May 1994, and a
member of the Board of Directors since August 1993. He also is member of the
Office of Chief Executive. Mr. Rustand has been Chairman and Chief Executive
Officer of The Cambridge Company, Ltd., a merchant banking and management
consulting firm, since 1987. He has served as Chairman of Health Partners of
Arizona, a managed care provider, since February 1996. Mr. Rustand is also
Chairman of an additional company and director of four companies, including
LucasVarity PLC Corporation, a New York Stock Exchange listed company. Mr.
Rustand served as appointments secretary to President Ford from 1974 to 1976,
and as special assistant to Mr. Ford while he was Vice President in 1973 and
1974.
Cor J. Clement has served as a member of the Board of Directors since
May 1992, and as Vice Chairman of the Board of Directors since August 1994. Mr.
Clement has been the President and Chief Executive Officer of NVD, an
international provider of security and industrial fire protection services
headquartered in the Netherlands, since February 1980.
James H. Bolin has served as the President of the Company since March
1995 and a member of its Board of Directors since February 1981. He also is a
member of the Office of Chief Executive. Mr. Bolin served as Senior Vice
President-Ambulance Services of the Company from October 1991 until March 1995,
Chief Financial Officer from October 1988 through September 1991, Senior Vice
President-Finance from August 1986 through September 1988, and Vice
President-Finance from April 1981 through July 1986. Mr. Bolin also is the
Chairman and Treasurer of the Rural/Metro ESOP Administrative Committee.
Robert T. Edwards has served as Executive Vice President of the Company
since October 1995 and a member of the Board of Directors since May 1993. He
also is a member of the Office of Chief Executive. He served as Senior Vice
President-Fire Protection Services from August 1991 until October 1995. Mr.
Edwards served as Vice President and General Manager of the Company's Maricopa
County operations from February 1989
5
<PAGE> 8
to August 1991, and as Vice President from July 1986 until August 1991. From
1978 to July 1986, Mr. Edwards served in various capacities with the Company.
Louis G. Jekel has served as Secretary of the Company and as a member
of the Board of Directors of the Company since 1968. Mr. Jekel directs the
Company's Wildland Fire Protection Operations with the State of Arizona and the
federal government. Mr. Jekel is also the Secretary of the Rural/Metro ESOP
Administrative Committee. Mr. Jekel is a partner in the law firm of Jekel &
Howard in Scottsdale.
William C. Turner has been a member of the Board of Directors of the
Company since November 1993. Mr. Turner is currently Chairman and Chief
Executive of Argyle Atlantic Corporation, an international merchant banking and
management consulting firm; Chairman of the Avon International Advisory Council
for Avon Products, Inc.; a director of the Goodyear Tire & Rubber Company; a
director of Microtest, Inc. and a trustee and executive committee member of the
United States Council for International Business. Mr. Turner is also a former
United States Ambassador and permanent representative to the Organization for
Economic Cooperation and Development. Since returning to the United States from
his ambassador post in Paris, Mr. Turner has served on the boards of directors
and/or international advisory councils of ten major listed corporations.
Louis A. Witzeman is the founder of the Company. Mr. Witzeman has
served as a member of the Board of Directors since the Company's formation in
1948, currently serving as Chairman of the Board Emeritus. Mr. Witzeman served
as Chief Executive Officer of the Company until his retirement in 1980.
Frank G. Zarb joined the Board of Directors of the Company in February
1996. Mr. Zarb has been the Chairman, Chief Executive Officer, and President of
Alexander & Alexander, an international risk management, human resource
consulting, and insurance brokerage firm, since June 1994. From 1988 to 1994,
Mr. Zarb was with The Travelers, Inc., serving as Vice Chairman and Group Chief
Executive. He also served as Chairman and Chief Executive Officer of Smith
Barney, their investment banking and brokerage subsidiary during this period.
Mr. Zarb has served Presidents Nixon and Ford from 1972 through 1977 in various
capacities, including the senior official responsible for energy activities and
policy, Associate Director of the Office of Management and Budget and Assistant
Secretary of Labor.
Directors hold office until their successors have been elected and
qualified. All officers serve at the pleasure of the Board of Directors. There
are no family relationships among any of the directors or officers of the
Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's bylaws authorize the Board of Directors to appoint among
its members one or more committees composed of one or more directors. As of
October 7, 1996, the Board of Directors had appointed the following standing
committees: a Human Resource/Compensation/Organization Committee; a Nominating
Committee; an Executive Committee; an Audit Committee; and a Senior Committee.
The Human Resource/Compensation/Organization Committee. The Human
Resource/ Compensation/Organization Committee reviews and acts on matters
relating to compensation levels and benefit plans for key executives of the
Company. The Human Resource/Compensation/Organization Committee also reviews the
succession planning for key executive personnel, monitors employee relations
issues and oversees senior management structure. The Committee held six formal
meetings during the fiscal year ended June 30, 1996.
Nominating Committee. The Company's Nominating Committee met separately
at three formal meetings during the fiscal year ended June 30, 1996. The
Nominating Committee reviews credentials of existing and prospective directors
and selects classes of directors.
6
<PAGE> 9
Executive Committee. The Company's Executive Committee met separately
at two formal meetings during the fiscal year ended June 30, 1996. The Executive
Committee acts as a liaison between management and the Board of Directors. At
times the Board of Directors empowers the Executive Committee to take certain
actions on behalf of the Board of Directors between regularly scheduled
meetings.
Audit Committee. The Company's Audit Committee met separately at one
formal meeting during the fiscal year ended June 30, 1996. The Audit Committee
reviews the annual financial statements and significant accounting issues and
the scope of the audit with the Company's independent auditors and is available
to discuss with the auditors any other audit related matters that may arise
during the year.
Senior Committee. The Senior Committee's function is to administer the
1992 Plan. The 1992 Plan requires that the Senior Committee be comprised of two
or more disinterested directors. The Senior Committee met separately at one
formal meeting during the fiscal year ended June 30, 1996.
The Board of Directors of the Company held a total of 14 meetings
during the fiscal year ended June 30, 1996. No director attended fewer than 75%
of the aggregate of (i) the total number of meetings of the Board of Directors,
and (ii) the total number of meetings held by all committees of the Board on
which such director was a member.
DIRECTOR COMPENSATION AND OTHER INFORMATION
Officers of the Company who serve on the Board of Directors receive no
additional compensation. The Company paid a director's fee in fiscal 1996 to Mr.
Rustand of $55,083 and to Mr. Clement of $35,000, plus reimbursement for
expenses for each Board or committee meeting attended. Messrs. Jekel and
Witzeman receive compensation for consulting services, which includes serving on
the Board of Directors. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The Company pays all of its other non-employee Board members an annual retainer
of $10,000 plus $1,000 for each Board meeting attended and $500 for each
committee meeting attended. The Company also pays $2,500 annually to any
non-employee chairman of each of the committees of the Board of Directors. Under
the terms of the Company's 1992 Plan, non-employee directors receive (i) stock
options to purchase 10,000 shares upon their first election to the Board of
Directors and options to purchase 2,500 shares at the meeting of the Board of
Directors held immediately after the annual meeting of stockholders (except that
the Chairman of the Board will receive stock options to acquire 5,000 shares),
and (ii) each year each non-employee Board member will receive stock options to
acquire a number of shares equal to 1,000 shares for each $0.05 increase in the
Company's earnings per share over the previous fiscal year (subject to a maximum
of 5,000 shares of stock per non-employee Board member).
In fiscal 1996, the Company granted options to Messrs. Rustand, Bolin,
Edwards, Jekel, Turner, Witzeman and Zarb to purchase 250,000, 32,500, 27,500,
7,500, 7,500, 7,500 and 10,000 shares of Common Stock, respectively, at exercise
prices of $24.00 to $24.50 per share.
7
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth the total compensation received for
services rendered in all capacities to the Company for the fiscal years ended
June 30, 1994, 1995, and 1996 by the Company's Chief Executive Officer, and its
four most highly compensated officers whose aggregate cash compensation exceeded
$100,000 (together the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------ ----------------------- -------
Restricted
Other Annual Stock Securities LTIP All Other
Name and Compensation Award(s) Underlying Payouts Compensation
Principal Position Year Salary ($) Bonus($) ($)(1) ($)(2) Options (#) ($) ($)(3)
- - ------------------ ---- ---------- -------- -------- -------- ----------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Warren Rustand(6) 1996 $306,250(4) $321,871 --- $660,000 250,000 --- $105,000(5)
Chief Executive Officer.........
James H. Bolin(6) 1996 $211,200 --- --- --- 32,500 --- $ 3,000
President....................... 1995 $180,303 $ 95,401 --- --- 27,500 --- $ 3,000
1994 $148,975 $ 81,077 --- --- 26,250 --- $ 2,930
Robert T. Edwards(6) 1996 $184,288 --- --- --- 27,500 --- $ 3,000
Executive Vice President........ 1995 $170,000 $ 74,665 --- --- 27,500 --- $ 1,642
1994 $149,112 $ 45,257 --- --- 26,250 --- $ 1,999
John E. Stuart 1996 $180,730 $ 2,972 --- --- 10,000 --- $ 3,000
Senior Vice President........... 1995 $173,250 $ 44,271 --- --- 27,500 --- $ 3,000
1994 $165,000 $ 31,259 --- --- 26,250 --- $ 1,578
Mark E. Liebner 1996 $157,736 --- --- --- 27,500 --- $ 3,000
Senior Vice President, Chief 1995 $144,200 $ 46,080 --- --- 25,000 --- $ 2,884
Financial Officer and Treasurer 1994 $118,120 $ 63,198 --- --- 23,500 --- $ 1,832
</TABLE>
(1) Other annual compensation did not exceed the lesser of $50,000 or 10%
of the total salary and bonus for any of the Named Executive Officers
except as noted.
(2) Fair market value at October 17, 1995 based upon the closing price of
the Company's Common Stock of $24.00 per share. At June 30, 1996,
Messrs. Rustand, Bolin, Edwards, Stuart and Liebner held 27,500;
12,500; 12,500; 18,750; and 52,500 shares of Common Stock,
respectively, subject to certain transfer and forfeiture restrictions.
The fair market value of such shares at June 30, 1996 was $941,875;
$428,125; $428,125; $642,188 and $1,798,125, respectively. See
"EXECUTIVE COMPENSATION -- EMPLOYMENT AGREEMENTS AND STOCK GRANT
AGREEMENTS."
(3) Unless otherwise indicated, consists of Company-matching contributions
to the Company's 401(k).
(4) Includes $100,000 in salary earned by Mr. Rustand in fiscal 1996 but
deferred to a future year.
(5) The Company paid $105,000 in insurance premiums in fiscal 1996 pursuant
to an agreement with Mr. Rustand to assist in purchasing split dollar
life insurance.
(6) Mr. Rustand became Chief Executive Officer of the Company in August
1996. Messrs. Rustand, Bolin and Edwards were members of the Office of
Chief Executive during fiscal 1996.
8
<PAGE> 11
OPTION GRANTS
The following table represents the options granted to the Named
Executive Officers in the last fiscal year and the value of such options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Percent Potential Realizable
Number of of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise or Price Appreciation for
Options Employees in Base Price Expiration Option Term(3)
Granted(#) Fiscal Year ($/Sh) Date 5%($) 10%($)
---------- ------------------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Warren Rustand........................ 250,000(1) 30% $24.00 2005 $3,773,368 $9,562,455
James H. Bolin........................ 32,500(2) 4% $24.00 2005 $ 490,538 $1,243,119
Robert T. Edwards .................... 27,500(2) 3% $24.00 2005 $ 415,070 $1,051,870
John E. Stuart ....................... 10,000(2) 1% $24.00 2005 $ 150,935 $ 382,498
Mark E. Liebner....................... 27,500(2) 3% $24.00 2005 $ 415,070 $1,051,870
</TABLE>
(1) The option agreement provides that one-fifth of the options become
exercisable in October 1996 and an additional one-fifth will become
exercisable in October of each year through 2000.
(2) The options became exercisable in August 1996.
(3) Calculated from a base price equal to the exercise price of each
option, which was the fair market value of the Common Stock on the date
of grant. The amounts represent only certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises and
Common Stock holdings cannot be predicted, and there can be no
assurance that the gains set forth on the table will be achieved.
9
<PAGE> 12
OPTION EXERCISES AND HOLDINGS
The following table represents certain information respecting the
options held by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-the-Money Options
Exercise Realized Options at Fiscal Year-End (#) at Fiscal Year-End ($)(2)
------------------------------ -------------------------
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- - -------- ----- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Warren S. Rustand......... -- -- 21,250 250,000 357,500 2,562,500
James H. Bolin............ -- -- 64,167 63,333 2,133,375 1,389,155
Robert T. Edwards......... -- -- 64,167 56,667 1,490,530 1,423,530
John E. Stuart............ -- -- 28,750 35,000 502,500 958,750
Mark E. Liebner........... 7,500 118,725 29,750 65,000 574,313 1,566,250
</TABLE>
(1) Calculated based on the market price at exercise multiplied by the
number of options exercised less the total exercise price of the
options exercised.
(2) Calculated based on $34.25, which was the closing sales price of the
Common Stock as quoted on the Nasdaq National Market on June 30, 1996,
multiplied by the number of applicable shares in-the-money less the
total exercise price.
EMPLOYMENT AGREEMENTS AND STOCK GRANT AGREEMENTS
Employment agreements with Messrs. Rustand, Bolin and Edwards expire in
December 1998. Mr. Stuart's and Mr. Liebner's employment agreements expire in
December 1997. Subject to annual review of the Human
Resources/Compensation/Organization Committee of the Board of Directors, each
agreement provides for a base salary (which currently are as follows: Mr.
Rustand, $275,000, Mr. Bolin, $219,648, Mr. Edwards, $217,659, Mr. Stuart,
$168,400, and Mr. Liebner, $163,754), and entitles the executive to participate
in stock option plans and other generally available benefit programs. Each
executive participates in the Company's management incentive program that
provides bonuses to executive officers and other members of management based
upon the Company achieving certain financial and operating goals as well as the
achievement of individual objectives established for each participant. In
addition, Mr. Rustand's employment agreement provides that he will receive a
credit of $100,000 per year in deferred compensation and reimbursements for
certain housing, travel, moving and other expenses incurred in Phoenix and
Tucson in connection with Mr. Rustand's employment with the Company. In
conjunction with his employment agreement, Mr. Rustand received (i) a grant of
27,500 shares of restricted stock vesting over four and one-half years under the
1992 Plan pursuant to a Restricted Stock Agreement together with a cash award as
shares vest in an amount sufficient to pay associated federal and state income
taxes, and (ii) a grant of options to purchase 250,000 shares of the Company's
stock vesting over five years under the 1992 Plan. The Company is required to
assist in purchasing a life insurance contract up to $2,000,000 pursuant to a
split dollar life insurance agreement.
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<PAGE> 13
Each employment agreement also provides that the executive will receive
his or her base salary plus certain benefits for two years (18 months for Mr.
Stuart and one year for Mr. Liebner) if the agreement is not renewed and for the
longer of the duration of the contract or two years (18 months for Mr. Stuart,
one year for Mr. Liebner) if the executive's employment is terminated without
cause or, in the case of Messrs. Rustand, Bolin, Edwards and Liebner, if such
persons terminate the agreement for good reason or should become disabled. In
addition, each agreement provides for the Company to indemnify the executive for
certain liabilities arising from actions taken within the scope of employment.
Each employment agreement contains restrictive covenants pursuant to which the
executive has agreed not to compete with the Company or to solicit any clients
or employees of the Company for a period of two years after the executive's
employment ceases.
Change of control agreements entered into by Messrs. Rustand, Bolin,
Edwards, Stuart and Liebner (the "Change of Control Agreements") provide that in
the event of a change of control and the surviving entity or individuals in
control do not offer such persons employment, terminate their employment, or
such persons terminate their employment for good reason, including a reduction
of their respective duties and/or salary or the surviving entity's failure to
assume their respective employment and change of control agreements, such
persons will receive two years' severance pay (18 months for Stuart) plus
certain benefits, including the acceleration of exercisability of their stock
options or the payment of the value of such stock options in the event they are
not accelerated or replaced with comparable options. For purposes of the Change
of Control Agreements, a "change of control" includes (i) the acquisition of
beneficial ownership by certain persons, acting alone or in concert with others,
of 30% or more of the combined voting power of the Company's then outstanding
voting securities; (ii) during any two-year period, Board members of the Company
at the beginning of such period cease to constitute at least a majority thereof
(except that any new Board member approved by at least two-thirds of the Board
members then still in office, who were directors at the beginning of such
period, is considered to be a member of the current Board); or (iii) approval by
the Company's shareholders of certain reorganizations, mergers, consolidations,
liquidations or sales of all or substantially all of the Company's assets.
In conjunction with their employment agreements, each of the Named
Executive Officers entered into a Conditional Stock Grant Agreement (the "Stock
Grant Agreement"). Each Stock Grant Agreement provided for the issuance of
shares of Common Stock subject to certain transfer and forfeiture restrictions
and restricts the executive from transferring any shares issued thereunder until
the lapse of the forfeiture restrictions. Each stock grant agreement also
provides for the forfeiture of all shares issued to the executive thereunder if
the executive leaves the employ of the Company for any reason within the
two-year period after the date of the agreement and for the forfeiture of
certain shares after such period if the executive violates the noncompetition or
nonsolicitation covenants contained in the executive's employment agreement.
EMPLOYEE STOCK OWNERSHIP PLAN
The ESOP is a tax-qualified employee stock ownership trust for the
benefit of current and former employees age 21 or over of the Company and its
subsidiaries. The ESOP was established in 1978 through the purchase from Louis
A. Witzeman, the Company's founder, of approximately 63% of the then outstanding
Common Stock of the Company in exchange for real estate and a note in the
principal amount of $728,000, with interest at 10% per annum, which note has
been paid in full. From time to time since the establishment of the ESOP, the
Company has contributed newly issued shares and treasury shares of Common Stock
and cash as employer contributions. The ESOP has used such cash contributions to
pay the note to Mr. Witzeman and to repurchase shares of Common Stock
distributed from the ESOP. Cash contributions of $298,500, $171,000, and $30,000
were made for the fiscal years ended June 30, 1992, 1993, and 1995,
respectively. Stock contributions of 11,685 and 4,364 shares were made for the
fiscal years ended June 30, 1995 and 1996, respectively. As of June 30, 1996,
there were 7,042 participants in the ESOP. Julian F. Weltsch is the Trustee of
the ESOP. The Company's ESOP Administrative Committee is responsible for
directing the Trustee in the general administration of the ESOP. With respect to
the shares of Common Stock of the Company held by the ESOP, the participants in
the ESOP are authorized to control how votes are cast by giving instructions to
the Trustee. Each participant may control the voting of such shares in the
proportion which the value of that participant's benefit in the ESOP fund bears
to the
11
<PAGE> 14
total value of all benefits therein. The ESOP permits any fully vested employee
to receive an in-service distribution of up to 50% of his or her account balance
while employed by the Company. An in-service distribution results in deferment
of the receipt of the balance of such employee's account until three years after
retirement or termination of employment. Participants in the ESOP otherwise may
only request distribution of their ESOP account balance in shares of Common
Stock under certain circumstances including termination of employment, early
retirement, retirement, death and disability. In fiscal 1996, 105,974 shares
were so distributed. In addition, upon completion of 10 plan years of service
and attainment of age 55, participants have the right to direct the investment
of 25% of their accounts into other diversified investments. Each participant's
account vests 20% after three years of service and 20% each additional year
thereafter.
1989 STOCK OPTION PLAN
The 1989 Stock Option Plan (the "1989 Plan") provides for the granting
of nonqualified stock options. Options may be issued to key employees and
directors of the Company or its subsidiaries ("Eligible Persons"). There are
currently options outstanding to acquire 409,075 shares of the Company's Common
Stock under the 1989 Plan. No more options will be issued under the 1989 Plan.
The expiration date, maximum number of shares purchasable and the other
provisions of the Options, including vesting provisions, were established at the
time of grant. Options were granted for terms of up to 10 years and become
exercisable in whole or in one or more installments at such time as was
determined by the Plan Administrator upon the grant of the Options. Exercise
prices of Options shall be the fair market value of the Common Stock at the time
of the grant. In the event of a change in control of the Company, all options
will be terminated and the optionholder must be paid in cash the difference
between the fair market value of his or her options and their exercise price.
1992 STOCK OPTION PLAN
The 1992 Stock Option Plan (the "1992 Plan") provides for the granting
of options to acquire Common Stock of the Company, the direct granting of Common
Stock of the Company, the granting of stock appreciation rights, or the granting
of other cash awards. The 1992 Plan is more fully discussed at "PROPOSAL TO
AMEND AND RESTATE THE COMPANY'S 1992 STOCK OPTION PLAN."
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted an Employee Stock Purchase Plan (the "ESPP"),
which allows eligible employees of the Company to purchase shares of Common
Stock at semi-annual intervals through periodic payroll deductions under the
ESPP. The Board has reserved 150,000 shares of Common Stock for this purpose.
The purchase price per share, in general, will be 85% of the closing stock price
of the Company's Common Stock on the participant's entry date into the offering
period. The purchase price is to be paid through periodic payroll deductions not
to exceed 10% of the participant's earnings due each semi-annual period of
participation within the offering period. However, no participant may purchase
more than $25,000 worth of Common Stock annually.
The purchase right of a participant will terminate automatically in the
event the participant ceases to be an employee of the Company, and any payroll
deductions collected from such individual during the semi-annual period in which
such termination occurs will be refunded. However, in the event of the
participant's disability or death, such payroll deduction may be applied to the
purchase of the Common Stock on the next semi-annual purchase date.
The ESPP provides for three annual offerings through the end of July
1997. If the proposed amendment to the ESPP is approved by the stockholders, the
term will be extended an additional seven years.
401(K) PLAN
The Company has a contributory retirement plan (the "401(k) Plan") for
the majority of its employees with at least one year of service. The 401(k) Plan
is designed to provide tax-deferred income to the Company's
12
<PAGE> 15
employees in accordance with the provisions of Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code").
The 401(k) Plan provides that each participant may contribute up to 12%
of his or her salary (not to exceed the statutory limit). The Company has
historically elected to make a fixed matching contribution to each participant's
account of up to 2% of total annual cash compensation received by respective
participants and a discretionary matching contribution in an amount equal to a
percentage determined by the Board of Directors of the contribution made by
participants. Discretionary matching contributions vest over a period of seven
years. All contributions by participants and fixed matching contributions of the
Company vest immediately. Under the terms of the 401(k) Plan, the Company also
may make discretionary profit sharing contributions. Profit sharing
contributions are allocated among participants based on their annual
compensation. Each participant has the right to direct the investment of his or
her funds among certain named plans.
Upon death, disability, retirement or the termination of employment,
participants may elect to receive periodic or lump sum payments. Additionally,
amounts may be withdrawn in cases of demonstrated hardship. Amounts contributed
to the 401(k) Plan by the Company for the named executive officers are set forth
in the Summary Compensation Table under the caption "EXECUTIVE COMPENSATION."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1996, the Company's Human
Resource/Compensation/Organization Committee consisted of Mr. Rustand, the
Company's Chief Executive Officer and a director, and Messrs. Clement and
Turner, currently directors of the Company.
COMPLIANCE WITH SECTION 16 OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on the Company's review of the copies of such forms
received by it during the fiscal year ended June 30, 1996, and written
representations that no other reports were required, the Company believes that
each person who, at any time during such fiscal year, was a director, officer or
beneficial owner of more than 10% of the Company's Common Stock complied with
all Section 16(a) filing requirements during such fiscal year or prior fiscal
years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company paid approximately $122,000 for the fiscal year ended June
30, 1996 for legal services to Jekel & Howard, attorneys at law, of which Mr.
Jekel is a principal. The Company believes that these services were provided on
terms no less favorable to the Company than could have been obtained from an
unrelated firm. Mr. Jekel is a participant in the Company's ESOP. Mr. Jekel also
receives $1,000 per month for services rendered to the Company and for serving
on the Board of Directors. Such services are terminable at will by the Company.
The Company paid approximately $72,000 for the year ended June 30, 1996
to Louis A. Witzeman under leases for five fire and ambulance stations. These
leases can be cancelled by the Company at any time. The Company believes that
these transactions are on terms no less favorable to the Company than could have
been
13
<PAGE> 16
obtained from unrelated third parties. Mr. Witzeman received $79,000 for the
fiscal year ended June 30, 1996 for fire protection and EMS advisory and
consulting services and for serving on the Board of Directors.
All future transactions between the Company and its officers, directors
and principal stockholders will be on terms no less favorable to the Company
than could be obtained from unaffiliated persons and will require the approval
of the Company's independent directors.
REPORT OF THE HUMAN RESOURCE/COMPENSATION/ORGANIZATION COMMITTEE
OF THE BOARD OF DIRECTORS
GENERAL
The Human Resource/Compensation/Organization Committee of the Board of
Directors (the "Committee") administers the compensation programs for the
Company's executive officers. The Committee is composed exclusively of
independent, non-employee directors who are not eligible to participate in any
of management's programs.
The Committee presents the following report on the compensation for the
Company's executive officers for fiscal 1996.
OVERVIEW AND PHILOSOPHY
The Company's executive compensation programs are based on the belief
that the interests of executive officers should be directly aligned with those
of the stockholders. The programs are strongly oriented toward a pay-
for-performance philosophy that includes a significant percentage of variable
compensation, and results in executives accumulating significant equity
positions in the Company's Common Stock. The Committee has established the
following principles to guide development of the Company's compensation programs
and to provide a framework for compensation decisions:
- provide a total compensation package that will attract the best
talent to the Company, motivate individuals to perform at their
highest levels, reward outstanding performance, and retain
executives whose skills are critical for building long-term
stockholder value;
- establish annual incentives for senior management that are directly
tied to the overall financial performance of the Company; and
- implement longer-term incentives that focus executive officers on
managing from the perspective of an owner with an equity stake in
the business, principally by the granting of Company stock and
stock options.
COMPENSATION PROGRAMS AND PRACTICES
The Committee determines salary ranges and incentive award
opportunities for all corporate officers. The Company's management compensation
program consists of cash and equity based components.
Cash Component: Cash compensation is designed to fluctuate with Company
performance. In the years that the Company exhibits superior
performance cash compensation is designed to generally be above average
levels; when financial performance is below goal, cash compensation is
designed to be below average competitive levels. This is achieved
through the Management Incentive Plan (MIP), which is paid out
semi-annually only if predetermined quantitative and qualitative goals
are attained.
14
<PAGE> 17
Base Pay: Base pay guidelines are established for Company
officers and managers based on their relative job content as
measured by the Hay Management Job Classification System.
Individual base pay within the guidelines is based on
sustained individual performance toward achieving the
Company's goals. Annual modifications to base pay levels are
proposed by the President and approved by the Committee each
August. Base pay modifications for executive officers averaged
approximately 4% in fiscal 1996.
Management Incentive Plan: The MIP is an annual cash incentive
plan. At the beginning of each fiscal year, detailed
performance contracts are created between the Company and the
executive that document the executive's accountabilities, and
define levels of performance on those accountabilities. A
portion of the performance contract is weighted to the overall
financial performance of the Company, and a portion is
weighted to the executive's particular area of responsibility.
MIP opportunity for executive officers can be as high as 80%
of the base pay midpoint of the executive officer's pay range.
Equity-based Component: The Company has a long history of encouraging
employees to become stockholders. In 1978, the Company formed an
Employee Stock Ownership Plan (ESOP) for the benefit of all qualified
employees. Over 90% of the Company's full and part-time employees are
beneficiaries of the ESOP trust. In 1989, the Company implemented its
first stock option plan through which the Company could grant qualified
and non-qualified stock options to management employees. The Company
believes that equity-based compensation in the form of the ESOP and
stock options links the interests of management and stockholders by
focusing employees and management on increasing stockholder value. The
actual value of such equity-based compensation depends entirely on the
future appreciation of the Company's stock. The Senior Committee of the
Board grants stock options using criteria consistent with the level of
an executive's anticipated impact on the Company's goals and
objectives. A description of the Company's stock option plans is set
forth under "EXECUTIVE COMPENSATION -- 1989 STOCK OPTION PLAN" and
"PROPOSAL TO AMEND AND RESTATE THE COMPANY'S 1992 STOCK OPTION PLAN."
See "EXECUTIVE COMPENSATION -- OPTION GRANTS" for options granted to
executive officers during fiscal 1996.
COMPENSATION OF CHIEF EXECUTIVE OFFICER AND PRESIDENT
The Committee uses the same factors and criteria described above in
making compensation decisions regarding the Chief Executive Officer and the
President. Mr. Rustand and Mr. Bolin are compensated pursuant to the agreements
described under the section entitled "EXECUTIVE COMPENSATION - EMPLOYMENT
AGREEMENTS AND STOCK GRANT AGREEMENTS." During the fiscal year ended June 30,
1996, Mr. Rustand's base pay was $275,000. The cash portion of his MIP incentive
was approximately 78% of his cash compensation during the year. The Committee
believes that the MIP bonus was reasonable based on the Company's overall
performance in fiscal 1996. During the fiscal year ended June 30, 1996, Mr.
Bolin's base pay was $211,200. See the table under "EXECUTIVE COMPENSATION --
OPTION GRANTS" for information regarding options granted to Mr. Bolin in fiscal
1996.
15
<PAGE> 18
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993 and
effective in 1994, generally disallows a tax deduction to public companies for
compensation in excess of $1 million paid to each of the corporation's chief
executive officer and four other most highly compensated executive officers.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met.
The Company currently intends to structure the performance-based
portion of the compensation of its executive officers in a manner that complies
with Section 162(m).
Members of the Human Resource/
Compensation/Organization Committee
Warren S. Rustand
Cor J. Clement
William C. Turner
COMPANY PERFORMANCE GRAPH
The following line graph compares cumulative total stockholder return,
assuming reinvestment of dividends, for: (i) the Common Stock; (ii) NASDAQ
Combined Composite Index; and (iii) the Russell 2000 Index. Because the Company
did not pay dividends on its Common Stock during the measurement period, the
calculation of the cumulative total stockholder return on the Common Stock did
not include dividends. The Russell 2000 Index is included because it is
comprised of publicly traded issuers with total market capitalization of between
$105,000,000 and $746,000,000, which is similar to the Company's total market
capitalization. Because of the small number of publicly traded companies in the
Company's peer group, the Company does not believe it can reasonably identify a
group of peer issuers. The graph assumes $100 was invested on July 16, 1993 (the
date on which the Company consummated its initial public offering and was
registered under Section 12 of the Exchange Act).
<TABLE>
<CAPTION>
Company Stock Index Industry Group Index
------- ----------- --------------------
<S> <C> <C> <C>
7/16/93 100 100 100
6/30/94 132 100 102
6/30/95 178 132 120
6/30/96 274 168 147
</TABLE>
16
<PAGE> 19
PROPOSAL TO AMEND THE EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has approved a proposal to amend the Company's
Employee Stock Purchase Plan (the "ESPP"), subject to approval by the Company's
stockholders. The amendments to the ESPP will (a) remove the prohibition on
participation by Committee members as permitted by the Rules; (b) extend the
term of the plan for a period of an additional seven years; and (c) make other
revisions to comply with the provisions of the recently adopted Rules that do
not require stockholder approval. The Board of Directors recommends a vote "For"
the proposed amendment to the ESPP.
The purpose of the ESPP is to promote superior levels of performance
from, and to encourage stock ownership by, eligible employees of the Company by
increasing their interest in the success of the Company. The ESPP is designed to
meet this goal by offering financial incentives for employees to purchase Common
Stock of the Company, thereby increasing the interest of employees in pursuing
the long-term growth, profitability and financial success of the Company. The
Company believes the proposed amendment to extend the term of the ESPP for an
additional seven years will further the achievement of this goal. The Board of
Directors believes that the proposed amendment to remove the prohibition on
participation by Committee members in the ESPP is necessary to attract, retain
and motivate directors.
PROPOSAL TO AMEND AND RESTATE THE COMPANY'S 1992 STOCK OPTION PLAN
The Board of Directors has approved a proposal to amend and restate the
Company's 1992 Stock Option Plan, subject to approval by the Company's
stockholders. The amendments to the 1992 Plan will (a) remove the prohibition on
participation by Senior Committee members in the Discretionary Grant Program as
permitted by the Rules; (b) provide for the discretion of the plan administrator
to determine the exercise period for nonqualified options upon termination of
service; and (c) make other revisions to comply with the provisions of the
recently adopted Rules that do not require stockholder approval. A copy of the
proposed amended and restated 1992 Plan is attached as Appendix A to this Proxy
Statement. The Board of Directors recommends a vote "For" the proposed amended
and restated 1992 Plan.
The 1992 Plan is intended to promote the interests of the Company by
providing key employees, non-employee members of the Board of Directors,
consultants and other independent contractors who provide valuable services to
the Company with the opportunity to acquire, or otherwise increase, their
proprietary interest in the Company as an incentive to remain in service to the
Company. Presently, the number of shares of Common Stock with respect to which
options may be issued under the 1992 Plan is 3,390,750. Through September 30,
1996, the Company has granted options covering 2,515,180 shares of Common Stock
previously reserved for issuance under the 1992 Plan.
1992 STOCK OPTION PLAN
GENERAL
The 1992 Plan, as amended, is divided into two programs: the
Discretionary Grant Program and the Automatic Option Program. The Discretionary
Grant Program provides for the granting of options to acquire Common Stock of
the Company ("Options"), the direct granting of the Common Stock of the Company
("Stock Awards"), the granting of stock appreciation rights ("SARs"), or the
granting of other cash awards ("Cash Awards") (Stock Awards, SARs and Cash
Awards are collectively referred to herein as "Awards"). Options and Awards
under the 1992 Plan may be issued to executives, key employees, and others
providing valuable services to the Company and its subsidiaries. The Options
issued may be incentive stock options or nonqualified stock options. The Company
believes that the Discretionary Grant Program represents an important factor in
attracting and
17
<PAGE> 20
retaining executives and other key employees and constitutes a significant part
of the compensation program for employees. The Automatic Option Program provides
for the automatic grant of Options to acquire the Company's Common Stock
("Automatic Options"). Automatic Options are granted to members of the Company's
Board of Directors who are not employed by the Company ("Eligible Directors").
The Company believes that the Automatic Option Program promotes the interests of
the Company by providing such directors the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company and
an increased personal interest in its continued success and progress.
If any change is made in the stock subject to the 1992 Plan, or subject
to any Option or SAR granted under the 1992 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
1992 Plan provides that appropriate adjustments will be made as to the maximum
number of shares subject to the 1992 Plan and the number of shares and exercise
price per share of stock subject to outstanding Options. An optionholder will
not have any of the rights of a stockholder with respect to optioned shares
until such holder exercises the Option.
ELIGIBILITY AND ADMINISTRATION
Options and Awards may be granted only to persons ("Eligible Persons")
who at the time of grant are either (i) key personnel (including officers and
directors) of the Company or subsidiaries of the Company, or (ii) consultants
and independent contractors who provide valuable services to the Company or to
subsidiaries of the Company. Options that are incentive stock options may be
granted only to key personnel of the Company (and its subsidiaries) who are also
employees of the Company (or its subsidiaries).
The Eligible Persons under the Discretionary Grant Program are divided
into two groups, and there will be a separate administrator (each, a "Plan
Administrator") for each group. One group consists of Eligible Persons who are
executive officers and directors of the Company and all persons who own 10% or
more of the Company's issued and outstanding stock. The power to administer the
Discretionary Grant Program with respect to those persons may be vested either
with the Board of Directors or with a committee comprised of two or more
"Non-Employee Directors" (as such term is defined under Rule 16(b)(3)(i)
promulgated under the 1934 Act) who are appointed by the Board (the "Senior
Committee"). The Senior Committee, in its sole discretion, may require approval
of the Board of Directors for specific grants of Options or Awards under the
Discretionary Grant Program. If the proposed amended and restated 1992 Plan is
approved by the stockholders, members of the Senior Committee may participate in
the Discretionary Grant Program as permitted by the Rules. The second group
consists of Eligible Persons who are not executive officers or directors of the
Company and those who do not own 10% or more of the Company's issued and
outstanding stock. The power to administrate the Discretionary Grant Program
with respect to the second group of Eligible Persons may be vested exclusively
with the Board of Directors of the Company or with a committee of two or more
directors. Each Plan Administrator will determine (a) which of the Eligible
Persons in its group will be granted Options and Awards, (b) the amount and
timing of such grant, and (c) such other terms and conditions as may be imposed
by the Plan Administrator consistent with the 1992 Plan.
To the extent that granted Options are incentive stock options, the
terms and conditions of those Options must be consistent with the qualification
requirements set forth in the Internal Revenue Code of 1986, as amended (the
"Code"). The maximum number of shares of stock with respect to which Options or
SARs may be granted to any employee during the term of the 1992 Plan may not
exceed 25% of the shares of stock covered by the 1992 Plan.
EXERCISE OF OPTIONS
The expiration date, maximum number of shares purchasable and the other
provisions of the Options, including vesting provisions, are established at the
time of grant. Options may be granted for terms of up to 10 years. Options vest
and thereby become exercisable in whole or in one or more installments at such
time as may be determined by the Plan Administrator upon the grant of the
Options. However, a Plan Administrator has the
18
<PAGE> 21
discretion to provide for the automatic acceleration of the vesting of any
Options or Awards granted under the Discretionary Grant Program in the event of
a "Change in Control" (as defined in the 1992 Plan).
The exercise prices of Options are determined by the Plan
Administrator, but if the option is intended to be an incentive stock option may
not be less than 100% (110% if the option is granted to a stockholder who at the
time the option is granted owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its
subsidiaries) of the fair market value of the Common Stock at the time of the
grant.
Options or awards granted pursuant to the Discretionary Grant Program
may be assigned, encumbered or otherwise transferred by the optionholder or
grantee if specifically allowed by the Plan Administrator upon the grant of such
Option or Award. If any optionholder ceases to be employed by the Company for a
reason other than death, such optionholder may, within three months after the
termination of such employment, exercise some or all of the vested incentive
stock options held by such employee. However, termination for cause terminates
all Options held by such employee.
If the proposed amended and restated 1992 Plan is approved by the
stockholders, Options which are not incentive stock options and which are
outstanding at the time an optionholder's service to the Company terminates will
remain exercisable for such period of time thereafter as determined by the Plan
Administrator at the time of grant of such Options. However, if the optionholder
is discharged for cause, all Options held by such optionholder will terminate.
AWARDS
The Plan Administrators also may grant Awards to Eligible Persons under
the 1992 Plan. Awards may be granted in the form of SARs, Stock Awards or Cash
Awards. Through September 30, 1996, Stock Awards in the amount of 31,980 shares
have been granted under the 1992 Plan.
Awards granted in the form of SARs entitle the recipient to receive a
payment equal to the appreciation in market value of a stated number of shares
of Common Stock from the price stated in the award agreement to the market value
of the Common Stock on the date first exercised or surrendered. The Plan
Administrators may determine, consistent with the 1992 Plan, such terms,
conditions, restrictions and limitations, if any, on any SARs.
Awards granted in the form of Stock Awards entitle the recipient to
receive directly Common Stock. Awards granted in the form of cash entitle the
recipient to receive direct payments of cash depending on the market value or
the appreciation of the Common Stock or other securities of the Company. The
Plan Administrators may determine such other terms, conditions and limitations,
if any, on any Awards.
The 1992 Plan provides that it is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Common
Stock, stock awards or any other type of award. To the extent permitted by
applicable law, the Company may issue any other options, warrants, or awards
other than pursuant to the 1992 Plan without stockholder approval.
TERMS AND CONDITIONS OF AUTOMATIC OPTIONS
The 1992 Plan provides that (i) each year at the meeting of the Board
of Directors held immediately after the annual meeting of stockholders, each
Eligible Director will be granted an Automatic Option to acquire 2,500 shares of
Common Stock (except that the Chairman of the Board will receive an Automatic
Option to acquire 5,000 shares if the chairman is an Eligible Director), and
(ii) each year each Eligible Director will receive an Automatic Option (the
"Formula Option") to acquire a number of shares equal to 1,000 shares for each
$0.05 EPS Increase, subject to a maximum of 5,000 shares of stock per Eligible
Director. For purposes of the foregoing, "EPS Increase" means the amount by
which earnings per share for the most recent fiscal year exceeds the earnings
per
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share for the previous fiscal year. Automatic Options (other than the Formula
Options) will vest one day prior to the next annual meeting of stockholders
after the applicable grant date unless the next annual meeting of stockholders
occurs less than six months after the applicable grant date, in which case the
Automatic Option will vest on the first anniversary of the applicable grant
date. Each Formula Option will vest on the first anniversary of the applicable
grant date.
The 1992 Plan will grant new Eligible Directors Automatic Options to
acquire 10,000 shares of Common Stock on the date of their first appointment or
election to the Board. Such Automatic Options granted to new Eligible Directors
vest one day prior to the next annual meeting of stockholders that occurs after
the applicable grant date unless the next annual meeting of stockholders occurs
less than six months after the applicable grant date, in which case the
Automatic Options become exercisable and vest on the first anniversary of the
applicable grant date. An Eligible Director is not eligible to receive the 2,500
share Automatic Option or the Formula Option if that grant date is within 30
days of such Eligible Director receiving the 10,000 share Automatic Option.
The 1992 Plan provides that, in the event of a Change in Control, all
unvested Automatic Options will automatically accelerate and immediately vest so
that each outstanding Automatic Option will, immediately prior to the effective
date of such Change in Control, become fully exercisable.
The exercise price per share of stock subject to each Automatic Option
is equal to the 100% of the fair market value per share on the date of the grant
of the Automatic Option. Each Automatic Option expires on the tenth anniversary
of the date. Eligible Directors also may be eligible to receive Options or
Awards under the Discretionary Option Program or option grants or direct stock
issuances under any other plans of the Company. Cessation of service on the
Board terminates any Automatic Options for shares that were not vested at the
time of such cessation. Automatic Options are nontransferable other than by will
or the laws of descent and distribution on the death of the optionholder and,
during the lifetime of the optionholder, are exercisable only by such
optionholder.
DURATION AND MODIFICATION
The 1992 Plan will remain in force until November 5, 2002. The Board of
Directors of the Company at any time may amend the 1992 Plan except that,
without the approval by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of the Company, the Board of Directors may
not (i) increase, except in the case of certain organic changes to the Company,
the maximum number of shares of Common Stock subject to the 1992 Plan, (ii)
reduce the exercise price at which Options may be granted or the exercise price
for which any outstanding Option may be exercised, (iii) extend the term of the
1992 Plan, (iv) change the class of persons eligible to receive Options or
Awards under the 1992 Plan, or (v) materially increase the benefits accruing to
participants under the 1992 Plan. In addition, the Board may not, without the
consent of the optionholder, take any action that disqualifies any Option
previously granted under the 1992 Plan for treatment as an incentive stock
option or which adversely affects or impairs the rights of the optionholder of
any outstanding Option. Notwithstanding the foregoing, the Board of Directors
may amend the 1992 Plan from time to time as it deems necessary in order to meet
the requirements of any amendments to Rule 16b-3 under the 1934 Act without the
consent of the stockholders of the Company.
REASONS FOR AND EFFECT OF THE PROPOSED AMENDMENT AND RESTATEMENT
The Board of Directors believes that the approval of the proposed
amendments to and restatement of the 1992 Plan is necessary to achieve the
purposes of the 1992 Plan and to promote the welfare of the Company and its
stockholders generally. The Board of Directors believes that the proposed
amendments to the 1992 Plan will aid the Company in attracting and retaining
directors, officers and key employees and motivating such persons to exert their
best efforts on behalf of the Company. In addition, the Company expects that the
proposed amendments will further strengthen the identity of interest of the
directors, officers and key employees with that of the stockholders.
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It is proposed to amend the 1992 Plan to remove the prohibition on
participation by Senior Committee members in the Discretionary Grant Program as
permitted by the Rules. The Board of Directors believes that this amendment is
necessary to attract, retain and motivate Eligible Directors and to encourage
such Directors to serve as members of the Senior Committee. It also is proposed
to amend the 1992 Plan to provide the Plan Administrator broader discretion in
determining the exercise period for non-qualified options upon termination of
service, which is intended to provide greater flexibility in structuring
compensation for Eligible Persons.
The restatement of the 1992 Plan is intended to reflect other minor
technical revisions and to provide for one integrated document to avoid
confusion.
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
Certain options granted under the 1992 Plan will be intended to qualify
as incentive stock options under Code Section 422. Accordingly, there will be no
taxable income to an employee when an incentive stock option is granted to him
or her when that option is exercised. The amount by which the fair market value
of the shares at the time of exercise exceeds the option price generally will be
treated as an item of preference in computing the alternate minimum taxable
income of the optionholder. If an optionholder exercises an incentive stock
option and does not dispose of the shares within either two years after the date
of the grant of the option or one year after the date the shares were
transferred to the optionholder, any gain realized upon disposition will be
taxable to the optionholder as a capital gain. If the optionholder does not
satisfy the applicable holding periods, however, the difference between the
option price and the fair market value of the shares on the date of exercise of
the option will be taxed as ordinary income, and the balance of the gain, if
any, will be taxed as capital gain. If the shares are disposed of before the
expiration of the one-year or two-year periods and the amount realized is less
than the fair market value of the shares at the date of exercise, the employee's
ordinary income is limited to the amount realized less the option exercise price
paid. The Company will be entitled to a tax deduction only to the extent the
optionholder has ordinary income upon the sale or other disposition of the
shares received when the option was exercised.
Certain other options issued under the 1992 Plan, including options
issued automatically to the non-employee members of the Board of Directors, will
be nonqualified options. The income tax consequences of nonqualified options
will be governed by Code Section 83. Under Code Section 83, the excess of the
fair market value of the shares of the Common Stock acquired pursuant to the
exercise of any option over the amount paid for such stock (hereinafter referred
to as "Excess Value") must be included in the gross income of the optionholder
in the first taxable year in which the Common Stock acquired by the optionholder
is not subject to a substantial risk of forfeiture. In calculating Excess Value,
fair market value will be determined on the date that the substantial risk of
forfeiture expires, unless a Section 83(b) election is made to include the
Excess Value in income immediately after the acquisition, in which case fair
market value will be determined on the date of the acquisition. Generally, the
Company will be entitled to a federal income tax deduction in the same taxable
year that the optionholder recognizes income. The Company will be required to
withhold income tax with respect to income reportable pursuant to Code Section
83 by an optionholder. The basis of the shares acquired by an optionholder will
be equal to the option price of those shares plus any income recognized pursuant
to Code Section 83. Subsequent sales of the acquired shares will produce capital
gain or loss. Such capital gain or loss will be long term if the stock has been
held for one year from the date of the substantial risk of forfeiture lapsed,
or, if a Section 83(b) election is made, one year from the date the shares were
acquired.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending June 30, 1997 and recommends that
stockholders vote in favor of the ratification of such appointment. In the event
of a negative vote on such
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ratification, the Board of Directors will reconsider its selection. The Board of
Directors anticipates that representatives of Arthur Andersen LLP will be
present at the Meeting, will have the opportunity to make a statement if they
desire, and will be available to respond to appropriate questions.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals that are intended to be presented by stockholders
at the annual meeting of stockholders of the Company for the fiscal year ending
June 30, 1997, to be included in the proxy statement and form of proxy relating
to such meeting, must be received by the Company no later than June 17, 1997.
Under the Company's bylaws, certain procedures are provided that a stockholder
must follow to nominate persons for election as a director or to introduce an
item of business at an annual meeting of stockholders. To be timely under these
procedures, notice of such nomination or business must be received by the
Company no later than: (i) 60 days prior to the annual meeting if such meeting
is to be held on a day that is between October 21, 1997 and November 21, 1997;
(ii) 90 days in advance of the annual meeting if the meeting is to be held on or
after November 21, 1997; or (iii) if the annual meeting is to be held on another
date, on or before the close of business on the 15th day following the date of
public disclosure of the date of such meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting.
If any other matters properly come before the 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.
Dated: October 15, 1996
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APPENDIX A
RURAL/METRO CORPORATION
1992 STOCK OPTION PLAN
(AS AMENDED THROUGH SEPTEMBER 1996)
ARTICLE I
GENERAL
1.1 PURPOSE OF PLAN; TERM
(a) BACKGROUND. On November 6, 1992, the predecessor to
Rural/Metro Corporation, a Delaware corporation (the "Company"), adopted the
Rural/Metro Corporation Senior Management Stock Option Plan (the "Original
Plan"). Thereafter, the Original Plan was amended and restated (the "Amended and
Restated Plan") and the stockholders approved the Amended and Restated Plan. The
Amended and Restated Plan was subsequently assumed by the Company upon a merger
with the predecessor. On September 21, 1994, the Company's Board of Directors
(the "Board") adopted an Amended and Restated 1992 Stock Option Plan (as amended
through August 1994) whereby an Automatic Grant Program was added, additional
shares of Stock were authorized to be issued under the Plan, and certain other
technical changes were made. The Amended and Restated 1992 Stock Option Plan (as
amended through August 1994) was approved by the stockholders of the Company on
December 8, 1994 and shall be referred to herein as the "Revised 1994 Plan." On
October 17, 1995, the Board adopted an Amended and Restated 1992 Stock Option
Plan (as amended through October 1995) (referred to herein as the "Revised 1995
Plan") whereby the Automatic Grant Program was amended, additional shares of
stock were authorized to be issued under the Plan, and certain other technical
changes were made. The Revised 1995 Plan was approved by the stockholders of the
Company on December 8, 1995. On September 6, 1996, the Board adopted a newly
Amended and Restated 1992 Stock Option Plan (the "Revised 1996 Plan") whereby
certain technical changes were made. The Revised 1996 Plan must be approved by
the stockholders of the Company within one year of the date of its adoption by
the Board. If not approved by the stockholders, the Revised 1995 Plan shall
continue in effect. If the Revised 1996 Plan is not timely approved by the
stockholders, any Options or Awards issued after the date of the adoption of the
Revised 1995 Plan shall remain valid and unchanged to the extent that such
Options or Awards contain terms such that they could have been issued under the
Revised 1995 Plan. This Amended and Restated Stock Option Plan shall be known as
the Rural/Metro Corporation 1992 Stock Option Plan (the "Plan"). Any Options or
Awards outstanding prior to the adoption by the Board of the Revised 1996 Plan
shall remain valid and unchanged.
(b) DEFINED TERMS. All initially capitalized terms used hereby
shall have the meaning set forth in Article V hereto.
(c) GENERAL PURPOSE. The Plan shall be divided into two
programs: the Discretionary Grant Program and the Automatic Grant Program.
(i) DISCRETIONARY GRANT PROGRAM. The purpose of the
Discretionary Grant Program is to further the interests of the Company and its
stockholders by encouraging key persons associated with the Company (or Parent
or Subsidiary Corporations) to acquire shares of the
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Company's Stock, thereby acquiring a proprietary interest in its business and an
increased personal interest in its continued success and progress. Such purpose
shall be accomplished by providing for the discretionary granting of options to
acquire the Company's Stock ("Discretionary Options"), the direct granting of
the Company's Stock ("Stock Awards"), the granting of stock appreciation rights
("SARs"), or the granting of other cash awards ("Cash Awards") (Stock Awards,
SARs and Cash Awards shall be collectively referred to herein as "Awards").
(ii) AUTOMATIC GRANT PROGRAM. The purpose of the
Automatic Grant Program is to promote the interests of the Company by providing
non-employee members of the Board the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company and
to thereby have an increased personal interest in its continued success and
progress. Such purpose shall be accomplished by providing for the automatic
grant of options to acquire the Company's Stock ("Automatic Options").
(d) CHARACTER OF OPTIONS. Discretionary Options granted under
this Plan to employees of the Company (or Parent or Subsidiary Corporations)
that are intended to qualify as "incentive stock options" as defined in Code
section 422 ("Incentive Stock Options") will be specified in the applicable
stock option agreement. All other Options granted under this Plan will be
nonqualified options.
(e) RULE 16B-3 PLAN. With respect to persons subject to
Section 16 of the Securities Exchange Act of 1934, as amended ("1934 Act"), the
Plan is intended to comply with all applicable conditions of Rule 16b-3 (and all
subsequent revisions thereof) promulgated under the 1934 Act. To the extent any
provision of the Plan or action by a Plan Administrator fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by such Plan Administrator. In addition, the Board may amend the Plan
from time to time as it deems necessary in order to meet the requirements of any
amendments to Rule 16b-3 without the consent of the stockholders of the Company.
(f) DURATION OF PLAN. The term of the Plan is 10 years
commencing on the date of adoption of the Original Plan by the Board as
specified in Section 1.1(a) hereof. No Option or Award shall be granted under
the Plan unless granted within 10 years of the adoption of the Plan by the
Board, but Options or Awards outstanding on that date shall not be terminated or
otherwise affected by virtue of the Plan's expiration.
1.2 STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN.
(a) DESCRIPTION OF STOCK AND MAXIMUM SHARES ALLOCATED. The
stock subject to the provisions of the Plan and issuable upon the grant of Stock
Awards or upon the exercise of SARs or Options granted under the Plan is shares
of the Company's common stock, $.01 par value per share (the "Stock"), which may
be either unissued or treasury shares, as the Board may from time to time
determine. Subject to adjustment as provided in Section 4.1 hereof, the
aggregate number of shares of Stock covered by the Plan and issuable thereunder
shall be 3,390,750 shares of Stock, which includes 65,750 shares of Stock
previously authorized under the Company's 1989 Stock Option Plan. Upon the
adoption of the Revised 1995 Plan by the Company's stockholders, the Company's
1989 Stock Option Plan was terminated such that no more options may be granted
under that plan.
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(b) CALCULATION OF AVAILABLE SHARES. For purposes of
calculating the maximum number of shares of Stock which may be issued under the
Plan: (i) the shares issued (including the shares, if any, withheld for tax
withholding requirements) upon exercise of an Option shall be counted and (ii)
the shares issued (including the shares, if any, withheld for tax withholding
requirements) as a result of a grant of a Stock Award or an exercise of an SAR
shall be counted.
(c) RESTORATION OF UNPURCHASED SHARES. If an Option or SAR
expires or terminates for any reason prior to its exercise in full and before
the term of the Plan expires, the shares of Stock subject to, but not issued
under, such Option or SAR shall, without further action or by or on behalf of
the Company, again be available under the Plan.
1.3 APPROVAL; AMENDMENTS.
(a) APPROVAL BY STOCKHOLDERS. The Revised 1996 Plan shall be
submitted to the stockholders of the Company for their approval at a regular or
special meeting to be held within 12 months after the adoption of the Revised
1996 Plan by the Board. Stockholder approval shall be evidenced by the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present in person or by proxy and voting at the meeting. The date
such stockholder approval has been obtained shall be referred to herein as the
"Effective Date."
(b) COMMENCEMENT OF PROGRAMS. The Automatic Grant Program
herein, shall commence immediately. The Discretionary Grant Program, as revised
herein, shall commence immediately subject to the terms set forth in Section
1.1(a).
(c) AMENDMENTS TO PLAN. The Board may, without action on the
part of the Company's stockholders, make such amendments to, changes in and
additions to the Plan as it may, from time to time, deem necessary or
appropriate and in the best interests of the Company; provided, the Board may
not, without the consent of the applicable Optionholder, take any action which
disqualifies any Discretionary Option previously granted under the Plan for
treatment as an Incentive Stock Option or which adversely affects or impairs the
rights of the Optionholder of any Discretionary Option outstanding under the
Plan, and further provided that, except as provided in Article IV hereof, the
Board may not, without the approval of the Company's stockholders, (i) increase
the aggregate number of shares of Stock subject to the Plan, (ii) reduce the
exercise price at which Discretionary Options may be granted or the exercise
price at which any outstanding Discretionary Option may be exercised, (iii)
extend the term of the Plan, (iv) change the class of persons eligible to
receive Discretionary Options or Awards under the Plan, or (v) materially
increase the benefits accruing to participants under the Plan. Notwithstanding
the foregoing, Discretionary Options or Awards may be granted under this Plan to
purchase shares of Stock in excess of the number of shares then available for
issuance under the Plan if (A) an amendment to increase the maximum number of
shares issuable under the Plan is adopted by the Board prior to the initial
grant of any such Option or Award and within one year thereafter such amendment
is approved by the Company's stockholders and (B) each such Discretionary Option
or Award granted is not to become exercisable or vested, in whole or in part, at
any time prior to the obtaining of such stockholder approval.
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ARTICLE II
DISCRETIONARY GRANT PROGRAM
2.1 PARTICIPANTS; ADMINISTRATION.
(a) ELIGIBILITY AND PARTICIPATION. Discretionary Options and
Awards may be granted only to persons ("Eligible Persons") who at the time of
grant are (i) key personnel (including officers and directors) of the Company or
Parent or Subsidiary Corporations, or (ii) consultants or independent
contractors who provide valuable services to the Company or Parent or Subsidiary
Corporations; provided that (1) Incentive Stock Options may only be granted to
key personnel of the Company (and its Parent or Subsidiary Corporations) who are
also employees of the Company (or its Parent or Subsidiary Corporations), and
(2) the maximum number of shares of stock with respect to which Options or SARs
may be granted to any employee during the term of the Plan shall not exceed 25
percent of the shares of stock covered by the Plan. A Plan Administrator shall
have full authority to determine which Eligible Persons in its administered
group are to receive Discretionary Option grants under the Plan, the number of
shares to be covered by each such grant, whether or not the granted
Discretionary Option is to be an Incentive Stock Option, the time or times at
which each such Discretionary Option is to become exercisable, and the maximum
term for which the Discretionary Option is to be outstanding. A Plan
Administrator shall also have full authority to determine which Eligible Persons
in such group are to receive Awards under the Discretionary Grant Program and
the conditions relating to such Award.
(b) GENERAL ADMINISTRATION. The Eligible Persons under the
Discretionary Grant Program shall be divided into two groups and there shall be
a separate administrator for each group. One group will be comprised of Eligible
Persons that are Affiliates. For purposes of this Plan, the term "Affiliates"
shall mean all "officers" (as that term is defined in Rule 16a-1(f) promulgated
under the 1934 Act) and directors of the Company and all persons who own ten
percent or more of the Company's issued and outstanding equity securities.
Initially, the power to administer the Discretionary Grant Program with respect
to Eligible Persons that are Affiliates shall be vested with the Board. At any
time, however, the Board may vest the power to administer the Discretionary
Grant Program with respect to Persons that are Affiliates exclusively with a
committee (the "Senior Committee") comprised of two or more Non-Employee
Directors which are appointed by the Board. The Senior Committee, in its sole
discretion, may require approval of the Board for specific grants of
Discretionary Options or Awards under the Discretionary Grant Program. The
administration of all Eligible Persons that are not Affiliates
("Non-Affiliates") shall be vested exclusively with the Board. The Board,
however, may at any time appoint a committee (the "Employee Committee") of two
or more persons who are members of the Board and delegate to such Employee
Committee the power to administer the Discretionary Grant Program with respect
to the Non-Affiliates. In addition, the Board may establish an additional
committee or committees of persons who are members of the Board and delegate to
such other committee or committees the power to administer all or a portion of
the Discretionary Grant program with respect to all or a portion of the Eligible
Persons. Members of the Senior Committee, Employee Committee or any other
committee allowed hereunder shall serve for such period of time as the Board may
determine and shall be subject to removal by the Board at any time. The Board
may at any time terminate all or a portion of the functions of the Senior
Committee, the Employee Committee, or any other committee allowed hereunder and
reassume all or a portion of powers and authority previously delegated to such
committee. The Board in its discretion may also require the members of the
Senior Committee, the Employee
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Committee or any other committee allowed hereunder to be "outside directors" as
that term is defined in any applicable regulations promulgated under Code
section 162(m).
(c) PLAN ADMINISTRATORS. The Board, the Employee Committee,
Senior Committee, and/or any other committee allowed hereunder, whichever is
applicable, shall be each referred to herein as a "Plan Administrator." Each
Plan Administrator shall have the authority and discretion, with respect to its
administered group, to select which Eligible Persons shall participate in the
Discretionary Grant Program, to grant Discretionary Options or Awards under the
Discretionary Grant Program, to establish such rules and regulations as they may
deem appropriate with respect to the proper administration of the Discretionary
Grant Program and to make such determinations under, and issue such
interpretations of, the Discretionary Grant Program and any outstanding
Discretionary Option or Award as they may deem necessary or advisable. Unless
otherwise required by law or specified by the Board with respect to any
committee, decisions among the members of a Plan Administrator shall be by
majority vote. Decisions of a Plan Administrator shall be final and binding on
all parties who have an interest in the Discretionary Grant Program or any
outstanding Discretionary Option or Award.
(d) GUIDELINES FOR PARTICIPATION. In designating and selecting
Eligible Persons for participation in the Discretionary Grant Program, a Plan
Administrator shall consult with and give consideration to the recommendations
and criticisms submitted by appropriate managerial and executive officers of the
Company. A Plan Administrator also shall take into account the duties and
responsibilities of the Eligible Persons, their past, present and potential
contributions to the success of the Company and such other factors as a Plan
Administrator shall deem relevant in connection with accomplishing the purpose
of the Plan.
2.2 TERMS AND CONDITIONS OF OPTIONS
(a) ALLOTMENT OF SHARES. A Plan Administrator shall determine
the number of shares of Stock to be optioned from time to time and the number of
shares to be optioned to any Eligible Person (the "Optioned Shares"). The grant
of a Discretionary Option to a person shall neither entitle such person to, nor
disqualify such person from, participation in any other grant of Options or
Stock Awards under this Plan or any other stock option plan of the Company.
(b) EXERCISE PRICE. Upon the grant of any Discretionary
Option, a Plan Administrator shall specify the option price per share. If the
Discretionary Option is intended to qualify as an Incentive Stock Option under
the Code, the option price per share may not be less than 100 percent of the
fair market value per share of the stock on the date the Discretionary Option is
granted (110 percent if the Discretionary Option is granted to a stockholder who
at the time the Discretionary Option is granted owns or is deemed to own stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any Parent or Subsidiary Corporation). The
determination of the fair market value of the Stock shall be made in accordance
with the valuation provisions of Section 4.5 hereof.
(c) INDIVIDUAL STOCK OPTION AGREEMENTS. Discretionary Options
granted under the Plan shall be evidenced by option agreements in such form and
content as a Plan Administrator from time to time approves, which agreements
shall substantially comply with and be subject to the terms of the Plan,
including the terms and conditions of this Section 2.2. As determined by a Plan
Administrator, each option agreement shall state (i) the total number of shares
to which it pertains,
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(ii) the exercise price for the shares covered by the Option, (iii) the time at
which the Options vest and become exercisable and (iv) the Option's scheduled
expiration date. The option agreements may contain such other provisions or
conditions as a Plan Administrator deems necessary or appropriate to effectuate
the sense and purpose of the Plan, including covenants by the Optionholder not
to compete and remedies for the Company in the event of the breach of any such
covenant.
(d) OPTION PERIOD. No Discretionary Option granted under the
Plan that is intended to be an Incentive Stock Option shall be exercisable for a
period in excess of 10 years from the date of its grant (five years if the
Discretionary Option is granted to a stockholder who at the time the
Discretionary Option is granted owns or is deemed to own stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or of any Parent or Subsidiary Corporation), subject to earlier
termination in the event of termination of employment, retirement or death of
the Optionholder. A Discretionary Option may be exercised in full or in part at
any time or from time to time during the term of the Discretionary Option or
provide for its exercise in stated installments at stated times during the
Option's term.
(e) VESTING; LIMITATIONS. The time at which the Optioned
Shares vest with respect to an Optionholder shall be in the discretion of that
Optionholder's Plan Administrator. Notwithstanding the foregoing, to the extent
a Discretionary Option is intended to qualify as an Incentive Stock Option, the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one or more Options granted to any person under
this Plan (or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time become exercisable as Incentive Stock
Options during any one calendar year shall not exceed the sum of $100,000
(referred to herein as the "$100,000 Limitation"). To the extent that any person
holds two or more Options which become exercisable for the first time in the
same calendar year, the foregoing limitation on the exercisability as an
Incentive Stock Option shall be applied on the basis of the order in which such
Options are granted.
(f) NO FRACTIONAL SHARES. Options shall be exercisable only
for whole shares; no fractional shares will be issuable upon exercise of any
Discretionary Option granted under the Plan.
(g) METHOD OF EXERCISE. In order to exercise a Discretionary
Option with respect to any vested Optioned Shares, an Optionholder (or in the
case of an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
(i) execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Discretionary
Option specifying the number of shares of Stock with respect to which the
Discretionary Option is being exercised;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 2.2(h) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the Discretionary Option (if other than the
Optionholder) has the right to exercise such Option.
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As soon as practicable after the Exercise Date, the Company shall mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising this Discretionary Option in accordance herewith) a certificate or
certificates representing the Stock for which the Discretionary Option has been
exercised in accordance with the provisions of this Plan. In no event may any
Discretionary Option be exercised for any fractional shares.
(h) PAYMENT OF OPTION PRICE. The aggregate Option Price shall
be payable in one of the alternative forms specified below:
(i) Full payment in cash or check made payable to the
Company's order; or
(ii) Full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
(iii) If a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
(i) REPURCHASE RIGHT. The Plan Administrator may, in its sole
discretion, set forth other terms and conditions upon which the Company (or its
assigns) shall have the right to repurchase shares of Stock acquired by an
Optionholder pursuant to a Discretionary Option. Any repurchase right of the
Company shall be exercisable by the Company (or its assignees) upon such terms
and conditions as the Plan Administrator may specify in the Stock Repurchase
Agreement evidencing such right. The Plan Administrator may also in its
discretion establish as a term and condition of one or more Discretionary
Options granted under the Plan that the Company shall have a right of first
refusal with respect to any proposed sale or other disposition by the
Optionholder of any shares of Stock issued upon the exercise of such
Discretionary Options. Any such right of first refusal shall be exercisable by
the Company (or its assigns) in accordance with the terms and conditions set
forth in the Stock Repurchase Agreement.
(j) TERMINATION OF INCENTIVE STOCK OPTIONS.
(i) TERMINATION OF SERVICE. If any Optionholder
ceases to be in Service to the Company for a reason other than death, such
Optionholder (or such Optionholder's successors in the case of the
Optionholder's death) may, within three months after the date of termination of
such Service, but in no event after the Incentive Stock Option's stated
expiration date, exercise some or all of the Incentive Stock Options that the
Optionholder was entitled to exercise on the date the Optionholder's Service
terminated; provided, that if Optionholder is discharged for cause, then the
Incentive Stock Option shall thereafter be void for all purposes. "Cause" shall
be limited to a termination of Service based upon a finding by the Plan
Administrator that the Optionholder (a) has been convicted of a felony involving
dishonesty, fraud, theft or embezzlement; (b) has repeatedly
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failed or refused, after written notice from the Company, in a material respect
to follow reasonable policies or directives established by the Company; (c) has
willfully and persistently failed, after written notice from the Company, to
attend to material duties or obligations imposed upon him; (d) has performed an
act or failed to act, which, if he were prosecuted and convicted, would
constitute a felony involving $1,000 or more of money or property of the
Company; or (e) has misrepresented or concealed a material fact for purposes of
securing employment with the Company. Notwithstanding the foregoing, if any
Optionholder ceases to be in Service to the Company by reason of permanent
disability within the meaning of section 22(e)(3) of the Code (as determined by
the applicable Plan Administrator), the Optionholder shall have 12 months after
the date of termination of Service, but in no event after the stated expiration
date of the Optionholder's Incentive Stock Options, to exercise Incentive Stock
Options that the Optionholder was entitled to exercise on the date the
Optionholder's Service terminated as a result of disability.
(ii) DEATH OF OPTIONHOLDER. If an Optionholder dies
while in the Company's Service, the Optionholder's vested Incentive Stock
Options on the date of death shall be exercisable within three months of such
death or until the stated expiration date of the Optionholder's Incentive Stock
Option, whichever occurs first, by the person or persons ("successors") to whom
the Optionholder's rights pass under a will or by the laws of descent and
distribution. As soon as practicable after receipt by the Company of the notice
of exercise and of payment in full of the Option Price as specified in Sections
2.2(g) and (h) hereof, a certificate or certificates representing the Optioned
Shares shall be registered in the name or names specified by the successors in
the written notice of exercise and shall be delivered to the successors.
(k) TERMINATION OF NONQUALIFIED OPTIONS. Any Options which are
not Incentive Stock Options and which are outstanding at the time an
Optionholder dies while in Service to the Company or otherwise ceases to be in
Service to the Company shall remain exercisable for such period of time
thereafter as determined by the Plan Administrator at the time of grant and set
forth in the documents evidencing such Options; provided, that no Option shall
be exercisable after the Option's stated expiration date, and provided further,
that if the Optionholder is discharged for Cause (as defined in Section
2.2(j)(i)), then the Option will thereafter be void for all purposes.
(l) OTHER PLAN PROVISIONS STILL APPLICABLE. If a Discretionary
Option is exercised upon the termination of Service or death of an Optionholder
under this Section 2.2, the other provisions of the Plan shall still be
applicable to such exercise, including the requirement that the Optionholder or
its successor may be required to enter into a Stock Repurchase Agreement.
(m) DEFINITION OF "SERVICE". For purposes of this Plan, unless
it is evidenced otherwise in the option agreement with the Optionholder, the
Optionholder shall be deemed to be in "Service" to the Company so long as such
individual renders continuous services on a periodic basis to the Company (or to
any Parent or Subsidiary Corporation) in the capacity of an employee, director,
or an independent consultant or advisor. In the discretion of a Plan
Administrator, an Optionholder shall be considered to be rendering continuous
services to the Company even if the type of services change, e.g., from employee
to independent consultant. The Optionholder shall be considered to be an
employee for so long as such individual remains in the employ of the Company or
one or more of its Parent or Subsidiary Corporations.
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2.3 TERMS AND CONDITIONS OF STOCK AWARDS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to
receive Stock Awards. The Plan Administrator of each administered group shall
determine the number of shares of Stock to be awarded from time to time to any
Eligible Person in such group. The grant of a Stock Award to a person shall
neither entitle such person to, nor disqualify such person from participation
in, any other grant of options or awards by the Company, whether under this Plan
or under any other stock option or award plan of the Company.
(b) AWARD FOR SERVICES RENDERED. Stock Awards shall be granted
in recognition of an Eligible Person's services to the Company. The grantee of
any such Stock Award shall not be required to pay any consideration to the
Company upon receipt of such Stock Award, except as may be required to satisfy
any applicable Delaware corporate law, employment tax, and/or income tax
withholding requirements.
(c) CONDITIONS TO AWARD. All Stock Awards shall be subject to
such terms, conditions, restrictions, or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company,
or payment by the recipient of any applicable employment or withholding taxes.
Such Plan Administrator may modify or accelerate the termination of the
restrictions applicable to any Stock Award under the circumstances as it deems
appropriate.
(d) AWARD AGREEMENTS. A Plan Administrator may require as a
condition to a Stock Award that the recipient of such Stock Award enter into an
award agreement in such form and content as that Plan Administrator from time to
time approves.
2.4 TERMS AND CONDITIONS OF SARS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to
receive SARs. The Plan Administrator of each administered group shall determine
the SARs to be awarded from time to time to any Eligible Person in such group.
The grant of a SAR to a person shall neither entitle such person to, nor
disqualify such person from participation in, any other grant of options or
awards by the Company, whether under this Plan or under any other stock option
or award plan of the Company.
(b) AWARD OF SARS. Concurrently with or subsequent to the
grant of any Discretionary Option to purchase one or more shares of Stock, a
Plan Administrator may award to the Optionholder with respect to each share of
Stock underlying the Option, a related SAR permitting the Optionholder to be
paid the appreciation on the Stock underlying the Discretionary Option in lieu
of exercising the Option. In addition, a Plan Administrator may award to any
Eligible Person an SAR permitting the Eligible Person to be paid the
appreciation on a designated number of shares of the Stock, whether or not such
Shares are actually issued.
(c) CONDITIONS TO SAR. All SARs shall be subject to such
terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance, financial performance of the Company, or
payment by the
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<PAGE> 34
recipient of any applicable employment or withholding taxes. Such Plan
Administrator may modify or accelerate the termination of the restrictions
applicable to any SAR under the circumstances as it deems appropriate.
(d) SAR AGREEMENTS. A Plan Administrator may require as a
condition to the grant of a SAR that the recipient of such SAR enter into a SAR
agreement in such form and content as that Plan Administrator from time to time
approves.
(e) EXERCISE. An Eligible Person who has been granted a SAR
may exercise such SAR subject to the conditions specified by the Plan
Administrator in the SAR agreement.
(f) AMOUNT OF PAYMENT. The amount of payment to which the
grantee of a SAR shall be entitled upon the exercise of each SAR shall be equal
to the amount, if any, by which the fair market value of the specified shares of
Stock on the exercise date exceeds the fair market value of the specified shares
of Stock on the date the Discretionary Option related to the SAR was granted or
became effective, or, if the SAR is not related to any Option, on the date the
SAR was granted or became effective.
(g) FORM OF PAYMENT. The SAR may be paid in either cash or
Stock, as determined in the discretion of the applicable Plan Administrator and
set forth in the SAR agreement. If the payment is in Stock, the number of shares
to be paid to the participant shall be determined by dividing the amount of the
payment determined pursuant to Section 2.4(f) by the fair market value of a
share of Stock on the exercise date of such SAR. As soon as practical after
exercise, the Company shall deliver to the SAR grantee a certificate or
certificates for such shares of Stock.
(h) TERMINATION OF EMPLOYMENT; DEATH. Section 2.2(j),
applicable to Incentive Stock Options, and Section 2.2(k), applicable to
nonqualified options, shall apply equally to the tandem SARs and if not issued
in tandem, Section 2.2(k) shall apply to the SARs.
2.5 OTHER CASH AWARDS
(a) IN GENERAL. The Plan Administrator of each administered
group shall have the discretion to make other awards of cash to Eligible Persons
in such group ("Cash Awards"). Such Cash Awards may relate to existing Options
or to the appreciation in the value of the Stock or other Company securities.
(b) CONDITIONS TO AWARD. All Cash Awards shall be subject to
such terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, and such Plan Administrator may require as a
condition to such Cash Award that the recipient of such Cash Award enter into an
award agreement in such form and content as the Plan Administrator from time to
time approves.
ARTICLE III
AUTOMATIC GRANT PROGRAM
3.1 ELIGIBLE PERSONS UNDER THE AUTOMATIC GRANT PROGRAM. The persons
eligible to participate in the Automatic Grant Program shall be limited to Board
members who are not employed by the Company, whether or not such persons qualify
as Non-Employee directors as
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<PAGE> 35
defined herein ("Eligible Directors"). Persons who are eligible under the
Automatic Grant Program may also be eligible to receive Discretionary Options or
Awards under the Discretionary Grant Program or option grants or direct stock
issuances under other plans of the Company.
3.2 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS.
(a) AMOUNT AND DATE OF GRANT. During the term of this Plan,
Automatic Grants shall be made to each Eligible Director ("Optionholder") as
follows:
(i) ANNUAL GRANTS. Each year on the Annual Grant Date
an Automatic Option to acquire 2,500 shares of Stock shall be granted to each
Eligible Director (except that an Automatic Option to acquire 5,000 shares of
Stock shall be granted to the Chairman of the Board, assuming the Chairman of
the Board is an Eligible Director) for so long as there are shares of Stock
available under Section 1.2 hereof. The "Annual Grant Date" shall be the date of
the Company's annual stockholders meeting. Notwithstanding the foregoing, (i)
any Eligible Director whose term ended on the Annual Grant Date and who was not
re-elected on that date shall not be eligible to receive any automatic option
grants on that Annual Grant Date, and (ii) any Eligible Director that was
granted an Automatic Option under Section 3.2(a)(ii) hereof within 30 days of an
Annual Grant Date shall be ineligible to receive an Automatic Option grant
pursuant to this Section 3.2(a)(i) on such Annual Grant Date.
(ii) INITIAL NEW DIRECTOR GRANTS. On the Initial
Grant Date, every new member of the Board who is an Eligible Director and has
not previously received an Automatic Option grant under this Section 3.2(a)(ii)
shall be granted an Automatic Option to acquire 10,000 shares of Stock for so
long as there are shares of Stock available under Section 1.2 hereof. The
"Initial Grant Date" shall be the date that an Eligible Director is first
appointed or elected to the Board.
(iii) FORMULA GRANT. Each year on the Formula Grant
Date, an Automatic Option to acquire shares of Stock shall be granted to each
Eligible Director for so long as there are shares of Stock available under
Section 1.2 hereof. Each year, the number of shares of Stock that may be
acquired under the Automatic Option granted pursuant to this Section 3.2(a)(iii)
shall be an amount equal to 1,000 shares of Stock for each $.05 EPS Increase,
subject to a maximum of 5,000 shares of Stock to each Eligible Director. For
purposes of the foregoing, "EPS Increase" means the amount by which the earnings
per share, as reported in the audited financial statements of the Company for
the most recent fiscal year exceeds the earnings per share for the Company, as
calculated under its audited financial statements, for the previous fiscal year.
The "Formula Grant Date" shall be the later of the last day of the second
calendar month occurring after the close of any fiscal year or the seventh day
after the earnings of the Company have been publicly announced for any such
fiscal year. Any Eligible Director that was granted an Automatic Option under
Section 3.2(a)(ii) hereof within 30 days of a Formula Grant Date shall be
ineligible to receive an Automatic Option pursuant to this Section 3.2(a)(iii)
on such Formula Grant Date.
(b) EXERCISE PRICE. The exercise price per share of Stock
subject to each Automatic Option Grant shall be equal to 100 percent of the fair
market value per share of the Stock on the date the Automatic Option was granted
as determined in accordance with the valuation provisions of Section 4.5 hereof
(the "Option Price").
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(c) VESTING. Each Automatic Option Grant (other than the
Formula Grant) shall become exercisable and vest one day before the next
succeeding stockholders' meeting that occurs after the applicable grant date
unless the next succeeding annual meeting occurs less than six months after the
applicable grant date, in which case the Automatic Grant shall become
exercisable and vest on the first anniversary of the applicable grant date. Each
Automatic Option Grant that is a Formula Grant shall become exercisable and vest
on the first anniversary of the applicable grant date. Each Automatic Option
shall only vest and become exercisable if the Optionholder has not ceased
serving as a Board member as of such vesting date.
(d) METHOD OF EXERCISE. In order to exercise an Automatic
Option with respect to any vested Optioned Shares, an Optionholder (or in the
case of an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
(i) execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Automatic
Option specifying the number of shares of Stock with respect to which the
Automatic Option is being exercised;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 3.2(e) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the Automatic Option (if other than the
Optionholder) has the right to exercise such Option.
As soon as practicable after the Exercise Date, the Company shall mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising the Automatic Option in accordance herewith) a certificate or
certificates representing the Stock for which the Automatic Option has been
exercised in accordance with the provisions of this Plan. In no event may any
Automatic Option be exercised for any fractional shares.
(e) PAYMENT OF OPTION PRICE. The aggregate Option Price shall
be payable in one of the alternative forms specified below:
(i) full payment in cash or check made payable to the
Company's order; or
(ii) full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
(iii) if a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the
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<PAGE> 37
Company to deliver the certificates for the Optioned Shares to be purchased
directly to such brokerage firm in order to complete the sale transaction.
(f) TERM OF OPTION. Each Automatic Option shall expire on the
tenth anniversary of the date on which an Automatic Option Grant was made
("Expiration Date"). Except as provided in Article IV hereof, should an
Optionholder's service as a Board member cease prior to the Expiration Date for
any reason while an Automatic Option remains outstanding and unexercised, then
the Automatic Option term shall immediately end and the Automatic Option shall
cease to be outstanding in accordance with the following provisions:
(i) The Automatic Option shall immediately terminate
and cease to be outstanding for any Optioned Shares of Stock which were not
vested at the time of Optionholder's cessation of Board service.
(ii) Should an Optionholder cease, for any reason
other than death, to serve as a member of the Board, then the Optionholder shall
have a six month period measured from the date of such cessation of Board
service in which to exercise the Automatic Options which vested prior to the
time of such cessation of Board service. In no event, however, may any Automatic
Option be exercised after the Expiration Date of such Automatic Option.
(iii) Should an Optionholder die while serving as a
Board member or within six months after cessation of Board service, then the
personal representative of the Optionholder's estate (or the person or persons
to whom the Automatic Option is transferred pursuant to the Optionholder's will
or in accordance with the laws of descent and distribution) shall have a one
year period measured from the date of the Optionholder's cessation of Board
service in which to exercise the Automatic Options which vested prior to the
time of such cessation of Board service. In no event, however, may any Automatic
Option be exercised after the Expiration Date of such Automatic Option.
ARTICLE IV
MISCELLANEOUS
4.1 CAPITAL ADJUSTMENTS. The aggregate number of shares of Stock
subject to the Plan, the number of shares covered by outstanding Options and
Awards and the price per share stated in such Options and Awards, and the number
of Automatic Options to be granted pursuant to the Automatic Program, shall be
proportionately adjusted for any increase or decrease in the number of
outstanding shares of Stock of the Company resulting from a subdivision or
consolidation of shares or any other capital adjustment or the payment of a
stock dividend or any other increase or decrease in the number of such shares
effected without the Company's receipt of consideration therefor in money,
services or property.
4.2 MERGERS, ETC. If the Company is the surviving corporation in any
merger or consolidation (not including a Corporate Transaction), any Option or
Award granted under the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to the Option or Award
would have been entitled prior to the merger or consolidation. Except as
provided in Section 4.3 hereof, a dissolution or liquidation of the Company
shall cause every Option or Award outstanding hereunder to terminate.
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4.3 CORPORATE TRANSACTION. In the event of stockholder approval of a
Corporate Transaction, (a) all unvested Automatic Options shall automatically
accelerate and immediately vest so that each outstanding Automatic Option shall,
one week prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the Optioned Shares and (b) the Plan
Administrator shall have the discretion and authority, exercisable at any time,
to provide for the automatic acceleration of one or more of the outstanding
Discretionary Options or Awards granted by it under the Plan. Upon the
consummation of the Corporate Transaction, all Options shall, to the extent not
previously exercised, terminate and cease to be outstanding.
4.4 CHANGE IN CONTROL.
(a) AUTOMATIC GRANT PROGRAM. In the event of a Change in
Control, all unvested Automatic Options shall automatically accelerate and
immediately vest so that each outstanding Automatic Option shall, immediately
prior to the effective date of such Change in Control, become fully exercisable
for all of the Optioned Shares. Thereafter, each Automatic Option shall remain
exercisable until the Expiration Date of such Automatic Option.
(b) DISCRETIONARY GRANT PROGRAM. In the event of a Change in
Control, a Plan Administrator shall have the discretion and authority,
exercisable at any time, whether before or after the Change in Control, to
provide for the automatic acceleration of one or more outstanding Discretionary
Options or Awards granted by it under the Plan upon the occurrence of such
Change in Control. A Plan Administrator may also impose limitations upon the
automatic acceleration of such Options or Awards to the extent it deems
appropriate. Any Options or Awards accelerated upon a Change in Control will
remain fully exercisable until the expiration or sooner termination of the
Option term.
(c) INCENTIVE STOCK OPTION LIMITS. The exercisability of any
Discretionary Options which are intended to qualify as Incentive Stock Options
and which are accelerated by the Plan Administrator in connection with a pending
Corporation Transaction or Change in Control shall, except as otherwise provided
in the discretion of the Plan Administrator and the Optionholder, remain subject
to the $100,000 Limitation and vest as quickly as possible without violating the
$100,000 Limitation.
4.5 CALCULATION OF FAIR MARKET VALUE OF STOCK. The fair market value of
a share of Stock on any relevant date shall be determined in accordance with the
following provisions:
(i) If the Stock is not at the time listed or
admitted to trading on any stock exchange but is traded in the over-the-counter
market, the fair market value shall be the mean between the highest bid and
lowest asked prices (or, if such information is available, the closing selling
price) per share of Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers through its Nasdaq system or any successor system. If there are no
reported bid and asked prices (or closing selling price) for the Stock on the
date in question, then the mean between the highest bid price and lowest asked
price (or the closing selling price) on the last preceding date for which such
quotations exist shall be determinative of fair market value.
(ii) If the Stock is at the time listed or admitted
to trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Stock on the date
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<PAGE> 39
in question on the stock exchange determined by the Board to be the primary
market for the Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no reported sale of Stock on such
exchange on the date in question, then the fair market value shall be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.
(iii) If the Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, then the fair market value shall be determined by the Board after taking
into account such factors as the Board shall deem appropriate, including one or
more independent professional appraisals.
4.6 USE OF PROCEEDS. The proceeds received by the Company from the sale
of Stock pursuant to the exercise of Options or Awards hereunder, if any, shall
be used for general corporate purposes.
4.7 CANCELLATION OF OPTIONS. Each Plan Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionholders, the cancellation of any or all outstanding Discretionary
Options granted under the Plan by that Plan Administrator and to grant in
substitution therefore new Discretionary Options under the Plan covering the
same or different numbers of shares of Stock as long as such new Discretionary
Options have an exercise price per share of Stock no less than the minimum
exercise price as set forth in Section 2.2(b) hereof on the new grant date.
4.8 REGULATORY APPROVALS. The implementation of the Plan, the granting
of any Option or Award hereunder, and the issuance of Stock upon the exercise of
any such Option or Award shall be subject to the procurement by the Company of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the Options or Awards granted under it and the Stock issued
pursuant to it.
4.9 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have, the members of a Plan Administrator shall be
indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, suit, legal proceeding to which any
member thereof may be a party by reason of any action taken, failure to act
under or in connection with the Plan or any rights granted thereunder and
against all amounts paid by them in settlement thereof or paid by them in
satisfaction of a judgment of any such action, suit or proceeding, except a
judgment based upon a finding of bad faith.
4.10 PLAN NOT EXCLUSIVE. This Plan is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Stock,
stock awards or any other type of award. To the extent permitted by applicable
law, any such other option, warrants or awards may be issued by the Company
other than pursuant to this Plan without stockholder approval.
4.11 COMPANY RIGHTS. The grants of Options shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
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4.12 PRIVILEGE OF STOCK OWNERSHIP. An Optionholder shall not have any
of the rights of a stockholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for the
Optioned Shares. No adjustment will be made for dividends or other rights for
which the record date is prior to the date of such exercise and full payment for
such Optioned Shares.
4.13 ASSIGNMENT. The right to acquire Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any
Optionholder except as specifically provided herein. Except as may be
specifically allowed by the Plan Administrator at the time of grant and set
forth in the documents evidencing a Discretionary Option or Award, no Option or
Award granted under the Plan or any of the rights and privileges conferred
thereby shall be assignable or transferable by an Optionholder or grantee other
than by will or the laws of descent and distribution, and such Option or Award
shall be exercisable during the Optionholder's or grantee's lifetime only by the
Optionholder or grantee. The provisions of the Plan shall inure to the benefit
of, and be binding upon, the Company and its successors or assigns, and the
Optionholders, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
4.14 SECURITIES RESTRICTIONS
(a) LEGEND ON CERTIFICATES. All certificates representing
shares of Stock issued upon exercise of Options or Awards granted under the Plan
shall be endorsed with a legend reading as follows:
The shares of Common Stock evidenced by this
certificate have been issued to the registered owner
in reliance upon written representations that these
shares have been purchased solely for investment.
These shares may not be sold, transferred or assigned
unless in the opinion of the Company and its legal
counsel such sale, transfer or assignment will not be
in violation of the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
(b) PRIVATE OFFERING FOR INVESTMENT ONLY. The Options and
Awards are and shall be made available only to a limited number of present and
future key personnel who have knowledge of the Company's financial condition,
management and its affairs. The Plan is not intended to provide additional
capital for the Company, but to encourage ownership of Stock among the Company's
key personnel. By the act of accepting an Option or Award, each grantee agrees
(i) that, any shares of Stock acquired will be solely for investment and not
with any intention to resell or redistribute those shares and (ii) such
intention will be confirmed by an appropriate certificate at the time the Stock
is acquired if requested by the Company. The neglect or failure to execute such
a certificate, however, shall not limit or negate the foregoing agreement.
(c) REGISTRATION STATEMENT. If a Registration Statement
covering the shares of Stock issuable upon exercise of Options granted under the
Plan is filed under the Securities Act of 1933, as amended, and is declared
effective by the Securities Exchange Commission, the provisions of Sections
4.14(a) and (b) shall terminate during the period of time that such Registration
Statement, as periodically amended, remains effective.
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4.15 TAX WITHHOLDING.
(a) GENERAL. The Company's obligation to deliver Stock upon
the exercise of Options under the Plan shall be subject to the satisfaction of
all applicable federal, state and local income tax withholding requirements.
(b) SHARES TO PAY FOR WITHHOLDING. The Board may, in its
discretion and in accordance with the provisions of this Section 4.15(b) and
such supplemental rules as it may from time to time adopt, provide any or all
Optionholders with the right to use shares of Stock in satisfaction of all or
part of the federal, state and local income tax liabilities incurred by such
Optionholders in connection with the exercise of their Options ("Taxes"). Such
right may be provided to any such Optionholder in either or both of the
following formats:
(i) STOCK WITHHOLDING. The Optionholder of an Option
may be provided with the election, which may be subject to approval by the Plan
Administrator, to have the Company withhold, from the Stock otherwise issuable
upon the exercise of such Option, a portion of those shares of Stock with an
aggregate fair market value equal to the percentage (not to exceed 100 percent)
of the applicable Taxes designated by the Optionholder.
(ii) STOCK DELIVERY. The Board may, in its
discretion, provide the Optionholder with the election to deliver to the
Company, at the time the Option is exercised, one or more shares of Stock
previously acquired by such individual (other than pursuant to the transaction
triggering the Taxes) with an aggregate fair market value equal to the
percentage (not to exceed 100 percent) of the taxes incurred in connection with
such Option exercise designated by the Optionholder.
4.16 GOVERNING LAW. The Plan shall be governed by and all questions
hereunder shall be determined in accordance with the laws of the State of
Arizona.
ARTICLE V
DEFINITIONS
The following capitalized terms used in this Plan shall have the
meaning described below:
"AFFILIATES" shall mean all "executive officers" (as that term is
defined in Rule 16a-1(f) promulgated under the 1934 Act) and directors of the
Company and all persons who own ten percent or more of the Company's issued and
outstanding Stock.
"ANNUAL GRANT DATE" shall mean the date of the Company's annual
stockholder meeting.
"AUTOMATIC GRANT PROGRAM" shall mean that program set forth in Article
III of this Agreement pursuant to which Eligible Directors, as defined herein,
are automatically granted Options upon certain events.
"AUTOMATIC OPTION GRANT" shall mean those automatic option grants made
on the Annual Grant Date, on the Initial Grant Date, and on the Formula Grant
Date.
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<PAGE> 42
"AUTOMATIC OPTIONS" shall mean those Options granted pursuant to the
Automatic Grant Program.
"AWARD" shall mean a Stock Award, SAR or Cash Award.
"BOARD" shall mean the Board of Directors of the Company.
"CASH AWARD" shall mean an award to be paid in cash and granted under
Section 2.5 hereunder.
"CHANGE IN CONTROL" shall mean and include the following transactions
or situation:
(i) A sale, transfer, or other disposition by the Company
through a single transaction or a series of transactions of securities of the
Company representing 30 percent or more of the combined voting power of the
Company's then outstanding securities to any "Unrelated Person" or "Unrelated
Persons" acting in concert with one another. For purposes of this definition,
the term "Person" shall mean and include any individual, partnership, joint
venture, association, trust corporation, or other entity (including a "group" as
referred to in Section 13(d)(3) of the 1934 Act. For purposes of this
definition, the term "Unrelated Person" shall mean and include any Person other
than the Company, a wholly-owned subsidiary of the Company, or an employee
benefit plan of the Company.
(ii) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of the Company to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(iii) A change in the ownership of the Company through a
single transaction or a series of transactions such that any unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing at
least 30 percent of the combined voting power of the Company's then outstanding
securities. For purposes of this Section, the term "Beneficial Owner" shall have
the same meaning as given to that term in Rule 13d-3 promulgated under the 1934
Act, provided that any pledgee of voting securities shall not be deemed to be
the Beneficial Owner thereof prior to its acquisition of voting rights with
respect to such securities.
(iv) Any consolidation or merger of the Company with or into
an Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the surviving
corporation representing at least 50 percent of the combined voting power of the
surviving corporation's then outstanding securities.
(v) During any period of two years, individuals who, at the
beginning of such period, constituted the Board of Directors of the Company
cease, for any reason, to constitute at least a majority thereof, unless the
election or nomination for election of each new director was approved by the
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period.
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<PAGE> 43
(vi) A change in control of the Company of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the 1934 Act, or any successor regulation of
similar import, regardless of whether the Company is subject to such reporting
requirement.
Notwithstanding any provision hereof to the contrary, the filing of a
proceeding for the reorganization of the Company under Chapter 11 of the General
Bankruptcy Code or any successor or other statute of similar import shall not be
deemed to be a Change of Control for purposes of this Plan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall mean Rural/Metro Corporation, a Delaware corporation.
"CORPORATE TRANSACTION" shall mean (a) a merger or consolidation in
which the Company is not the surviving entity, except for a transaction the
principal purposes of which is to change the state in which the Company is
incorporated; (b) the sale, transfer of or other disposition of all or
substantially all of the assets of the Company and complete liquidation or
dissolution of the Company, or (c) any reverse merger in which the Company is
the surviving entity but in which the securities possessing more than 50 percent
of the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
"DISCRETIONARY GRANT PROGRAM" shall mean the program described in
Article II of this Plan pursuant to which certain Eligible Directors are granted
Options or Awards in the discretion of the Plan Administrator.
"DISCRETIONARY OPTIONS" shall mean options granted under the
Discretionary Grant Program.
"EFFECTIVE DATE" shall mean the date that the Plan has been approved by
the stockholders as required by Section 1.3(a) hereof.
"ELIGIBLE DIRECTOR" shall mean, with respect to the Automatic Grant
Program, those Board members who are not employed by the Company, whether or not
such members are Non-Employee Directors as defined herein.
"ELIGIBLE PERSONS" shall mean (a) with respect to the Discretionary
Grant Program, those persons who, at the time that the Discretionary Option or
Award is granted, are (i) key personnel (including officers and directors) of
the Company or Parent or Subsidiary Corporations, or (ii) consultants or
independent contractors who provide valuable services to the Company or Parent
or Subsidiary Corporations; and (b) with respect to the Automatic Grant Program,
the Eligible Directors.
"EMPLOYEE COMMITTEE" shall mean that committee appointed by the Board
to administer the Plan with respect to the Non-Affiliates and comprised of two
or more persons who are members of the Board.
"EPS INCREASE" shall have the meaning set forth in Section 3.2(a)(iii)
hereof.
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<PAGE> 44
"EXERCISE DATE" shall be the date on which written notice of the
exercise of an Option is delivered to the Company in accordance with the
requirements of the Plan.
"EXPIRATION DATE" shall be the 10-year anniversary of the date on which
an Automatic Option Grant was made.
"FORMULA GRANT DATE" shall have the meaning as set forth in Section
3.2(a)(iii) hereof.
"INCENTIVE STOCK OPTION" shall mean a Discretionary Option that is
intended to qualify as an "incentive stock option" under Code section 422.
"INITIAL GRANT DATE" shall mean the date that an Eligible Director is
first appointed or elected to the Board.
"NON-AFFILIATES" shall mean all persons who are not Affiliates.
"NON-EMPLOYEE DIRECTORS" shall mean those Directors who satisfy the
definition of "Non-Employee Director" under Rule 16b-3(b)(3)(i) promulgated
under the 1934 Act.
"$100,000 LIMITATION" shall mean the limitation pursuant to which the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one or more Options granted to any person under
this Plan (or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time be exercisable as Incentive Stock Options
during any one calendar year shall not exceed the sum of $100,000.
"OPTIONHOLDER" shall mean an Eligible Person or Eligible Director to
whom Options have been granted.
"OPTIONED SHARES" shall be those shares of Stock to be optioned from
time to time to any Eligible Director.
"OPTION PRICE" shall mean (i) with respect to Discretionary Options,
the exercise price per share as specified by the Plan Administrator pursuant to
Section 2.2(b) hereof, and (ii) with respect to Automatic Options, the exercise
price per share as specified by Section 3.2(b) hereof.
"OPTIONS" shall mean options to acquire Stock granted under the Plan.
"PARENT CORPORATION" shall mean any corporation in the unbroken chain
of corporations ending with the employer corporation, where, at each link of the
chain, the corporation and the link above owns at least 50 percent of the
combined total voting power of all classes of the stock in the corporation in
the link below.
"PLAN" shall mean this stock option plan for Rural/Metro Corporation.
"PLAN ADMINISTRATOR" shall mean (a) either the Board, the Senior
Committee, or any other committee, whichever is applicable, with respect to the
administration of the Discretionary Grant Program as it relates to Affiliates
and (b) either the Board, the Employee Committee, or any other
20
<PAGE> 45
committee, whichever is applicable, with respect to the administration of the
Discretionary Grant Program as it relates to Non-Affiliates and with respect to
the Automatic Grant Program.
"SAR" shall mean stock appreciation rights granted pursuant to Section
2.4 hereunder.
"SENIOR COMMITTEE" shall mean that committee appointed by the Board to
administer the Discretionary Grant Program with respect to the Affiliates and
comprised of two or more Non- Employee Directors.
"SERVICE" shall have the meaning set forth in Section 2.2(n) hereof.
"STOCK" shall mean shares of the Company's common stock, $.01 par value
per share, which may be unissued or treasury shares, as the Board may from time
to time determine.
"STOCK AWARDS" shall mean Stock directly granted under the
Discretionary Grant Program.
"SUBSIDIARY CORPORATION" shall mean any corporation in the unbroken
chain of corporations starting with the employer corporation, where, at each
link of the chain, the corporation and the link above owns at least 50 percent
of the combined voting power of all classes of stock in the corporation below.
EXECUTED as of the 6th day of September, 1996.
RURAL/METRO CORPORATION
By: /s/ Warren S. Rustand
---------------------------------
Name: Warren S. Rustand
--------------------------------
Its: Chief Executive Officer
---------------------------------
ATTESTED BY:
/s/ Louis G. Jekel
- - ------------------------------
Secretary
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<PAGE> 46
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
RURAL/METRO CORPORATION
1996 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of RURAL/METRO CORPORATION, a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement of the Company, each dated October 15, 1996,
and hereby appoints James H. Bolin and Louis G. Jekel, and each of them, proxies
and attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1996 Annual
Meeting of Stockholders of the Company, to be held on November 21, 1996, at
10:00 a.m., local time, at the offices of the Company, 8401 East Indian School
Road, Scottsdale, Arizona, and at any adjournment or adjournments thereof, and
to vote all shares of Common Stock that the undersigned would be entitled to
vote if then and there personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
[CAPTION]
<TABLE>
<S> <C>
/ / FOR the three nominees listed below, except as indicated
/ / WITHHOLD AUTHORITY to vote for the three nominees listed below
</TABLE>
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below:
James H. Bolin, Louis G. Jekel and William C. Turner
2. PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE 1992 STOCK OPTION
PLAN (THE "1992 PLAN") AND TO APPROVE AN AMENDMENT TO THE EMPLOYEE STOCK
PURCHASE PLAN (THE "ESPP") TO (A) MAKE REVISIONS TO COMPLY WITH THE
PROVISIONS OF THE RECENTLY ADOPTED SECTION 16 RULES (THE "RULES") UNDER THE
SECURITIES EXCHANGE ACT OF 1934 (THE "1934 ACT") THAT DO NOT REQUIRE
STOCKHOLDER APPROVAL; (B) REMOVE THE PROHIBITION ON PARTICIPATION BY SENIOR
COMMITTEE MEMBERS IN THE DISCRETIONARY GRANT PROGRAM UNDER THE 1992 PLAN AND
BY MEMBERS OF THE COMMITTEE IN THE ESPP AS PERMITTED BY THE RULES; AND (C)
PROVIDE FOR THE DISCRETION OF THE PLAN ADMINISTRATOR OF THE 1992 PLAN TO
DETERMINE THE EXERCISE PERIOD FOR NONQUALIFIED OPTIONS UPON TERMINATION OF
SERVICE.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE ESPP TO EXTEND THE TERM OF THE PLAN
FOR A PERIOD OF AN ADDITIONAL SEVEN YEARS.
/ / FOR / / AGAINST / / ABSTAIN
(Continued on reverse side)
<PAGE> 47
(Continued from reverse side)
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 1997.
/ / FOR / / AGAINST / / ABSTAIN
and upon such other matters that may properly come before the meeting or any
adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
FOR THE ELECTION OF DIRECTORS; FOR THE AMENDMENTS AND RESTATEMENT OF THE
COMPANY'S 1992 STOCK OPTION PLAN; FOR THE AMENDMENT TO THE COMPANY'S EMPLOYEE
STOCK PURCHASE PLAN; FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN
LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY; AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
A majority of such attorneys or
substitutes as shall be present and shall
act at said meeting or any adjournment or
adjournments thereof (or if only one
shall be present and act, then that one)
shall have and may exercise all of the
powers of said attorneys-in-fact
hereunder.
Date: -----------------------------, 1996
-----------------------------------------
Signature
-----------------------------------------
Signature
(This Proxy should be dated, signed by
the stockholder(s) exactly as his or her
name appears hereon, and returned
promptly in the enclosed envelope.
Persons signing in a fiduciary capacity
should so indicate. If shares are held by
joint tenants or as community property,
both stockholders should sign.)
