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
Rock Bottom Restaurants, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No filing fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] 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 number,
or the Form of 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>
April 21, 1998
TO THE STOCKHOLDERS OF
ROCK BOTTOM RESTAURANTS, INC.:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Rock Bottom Restaurants, Inc. to be held on Friday, May 29, 1998, at the
Courtyard Marriott, Louisville, Colorado, at 10:00 a.m., Mountain Daylight Time,
for the purposes of electing directors, considering and voting on a proposal to
amend the Rock Bottom Restaurants, Inc. Equity Incentive Plan to increase the
number of shares of the Company's common stock authorized for issuance under
such plan by 300,000 shares, and ratifying the appointment of Arthur Andersen
LLP as the Company's independent auditors for the current year.
Enclosed is a Notice of the Annual Meeting, the Proxy Statement and a proxy
card. You are urged to read the Proxy Statement carefully. Please complete,
sign, date and return the proxy card promptly. If you attend the Annual Meeting,
you may vote your shares personally, whether or not you have previously
submitted a proxy card.
Your Board of Directors strongly supports and recommends these actions.
Accordingly, we request that you vote in favor of all proposals. We also urge
you to make plans if at all possible to attend the meeting in person. Thank you
for your consideration.
FOR THE BOARD OF DIRECTORS,
Frank B. Day
Chairman of the Board, President and
Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND SIGN THE
ENCLOSED PROXY, RETURNING IT PROMPTLY TO ENSURE THAT YOUR SHARES ARE VOTED.
A BUSINESS REPLY ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF YOU MAIL THIS PROXY FROM ANYWHERE IN THE UNITED STATES.
LOGO
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 29, 1998
TO THE STOCKHOLDERS OF
ROCK BOTTOM RESTAURANTS, INC.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of Rock
Bottom Restaurants, Inc., a Delaware corporation (the "Company"), will be held
at the Courtyard Marriott, 948 West Dillon Road, Louisville, Colorado, at 10:00
a.m., Mountain Daylight Time, on Friday, May 29, 1998, for the following
purposes:
1. To elect two directors to Class III to serve until
the Annual Meeting of Stockholders in the year 2001.
2. To consider and vote upon a proposal to amend the
Rock Bottom Restaurants, Inc. Equity Incentive Plan
(the "Equity Plan") to increase the number of shares
of the Company's common stock authorized for issuance
under the Equity Plan by 300,000 shares.
3. To ratify the appointment of Arthur Andersen LLP as
the Company's independent auditors for the current
fiscal year.
4. To transact such other business as may properly come
before the Annual Meeting or any adjournment(s) or
postponement (s) thereof.
The Board of Directors of the Company has fixed the close of business on
Tuesday, April 14, 1998, as the record date for the determination of
stockholders entitled to notice of and to vote at this meeting. The Company's
stock transfer books will not be closed, and all stockholders are cordially
invited to attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS:
Robert D. Greenlee
Secretary
Louisville, Colorado
April 21, 1998
LOGO
<PAGE>
ROCK BOTTOM RESTAURANTS, INC.
248 Centennial Parkway, Suite 100
Louisville, Colorado 80027
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 29, 1998
GENERAL INFORMATION
This proxy statement is furnished in connection with a solicitation of
proxies by the Board of Directors of Rock Bottom Restaurants, Inc. (the
"Company") for use at the 1998 Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Friday, May 29, 1998, at 10:00 a.m., Mountain Daylight
Time, at the Courtyard Marriott, 948 West Dillon Road, Louisville, Colorado, and
at any adjournment or postponement thereof. Proxies so given may be revoked at
any time before being voted by submitting a written revocation to the Secretary
of the Company, by executing another valid proxy bearing a later date, or by
attending the meeting and voting in person.
Stockholders of the Company represented at the Annual Meeting will consider
and vote upon (i) the election of two directors to Class III to serve until the
Annual Meeting of Stockholders in the year 2001, (ii) an amendment to the Rock
Bottom Restaurants, Inc. Equity Incentive Plan (the "Equity Plan") to increase
the number of shares of common stock, par value $.01 per share (the "Common
Stock"), authorized to be issued under the Equity Plan by 300,000 shares, (iii)
the ratification of the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 27, 1998 and (iv) such
other business as may properly come before the Annual Meeting. The Company is
not aware of any other business to be presented for consideration at the Annual
Meeting. The approximate date of mailing these proxy materials is April 22,
1998.
VOTING AND SOLICITATION OF PROXIES
Only holders of record of shares of Common Stock at the close of business
on April 14, 1998, the record date determined by the Board of Directors, may
vote at the Annual Meeting. On that date, the Company had outstanding and
entitled to vote 8,056,086 shares of Common Stock. Each share of Common Stock is
entitled to one vote on each of the matters listed in the Notice of Annual
Meeting. A quorum of one-third of the shares outstanding and entitled to vote is
required to vote on matters before the Annual Meeting. A majority of the votes
present in person or by proxy is required for the election of each of the
directors and to pass each other issue brought before the stockholders.
Abstentions and broker non-votes will not be counted as votes cast for or
against a proposal and, thus, have the same effect as a negative vote.
Properly executed and dated proxies received by 5:00 p.m. May 28, 1998,
unless such proxies have previously been revoked, will be voted at the Annual
Meeting in accordance with the instructions therein. If no instructions are
given with respect to the matters to be acted upon, the shares represented by
the proxy will be voted FOR the election of each of the nominees for director,
FOR the amendment of the Equity Plan and FOR the ratification of Arthur Andersen
LLP as the Company's independent auditors as listed in this Proxy Statement. The
persons named in the proxies will have discretionary authority to vote all
proxies with respect to additional matters that are presented properly for
action at the Annual Meeting.
<PAGE>
The Company intends to request banks, brokerage houses, custodians,
nominees and other fiduciaries to forward copies of these proxy materials to
those persons for whom they hold shares. In addition to solicitation by mail,
certain officers and employees of the Company, who will receive no compensation
for their services other than their regular salaries, may solicit proxies in
person or by telephone. The cost of preparing, assembling, mailing and
soliciting proxies and other miscellaneous expenses related thereto will be
borne by the Company.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
provide that the Board of Directors shall be divided into three classes, each
class consisting, as nearly as possible, of one-third of the total number of
directors. At the Annual Meeting, Class III directors shall be elected to serve
until the Annual Meeting of Stockholders in the year 2001, and, at each
successive annual meeting of stockholders, successors to the class of directors
whose terms expired at that annual meeting shall be elected for a three-year
term. Vacancies on the Board may be filled by the affirmative vote of a majority
of the remaining directors then in office. A director elected to fill a vacancy
(including a vacancy created by an increase in the Board of Directors) shall
serve for the remainder of the full term of the new directorship or of the class
of directors in which the vacancy occurred.
The shares represented by the proxy card will be voted in favor of the
election of the persons named below unless authorization to do so is withheld in
the proxy. If any of the nominees is unavailable to serve as director, which is
not presently anticipated, persons named in the proxy card intend to cast votes
for which they hold proxies in favor of the election of such other person or
persons as the Board of Directors may designate.
The Board of Directors presently comprises seven members. Each of the
nominees for election is currently a director of the Company. The nominees for
election as directors to Class III to serve for a three-year term expiring at
the Annual Meeting of Stockholders in the year 2001 are Frank B. Day and Duncan
H. Cocroft. See "DIRECTORS AND EXECUTIVE OFFICERS" for biographical information
for each person nominated as a director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF EACH DIRECTOR NOMINEE
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the
Company's directors and executive officers:
<TABLE>
<CAPTION>
Class and Year
in Which Term
Name Age Position Will Expire
---- --- -------- -----------
<S> <C> <C> <C>
Frank B. Day 65 Chairman of the Board, President and Chief Executive Class III/1998 *
Officer
Duncan H. Cocroft 54 Director Class III/1998 *
Robert D. Greenlee 56 Director and Secretary Class II/2000
Mary C. Hacking 50 Director Class I/1999
Gerald A. Hornbeck 51 Director Class I/1999
David M. Lux 47 Director Class II/2000
Arthur Wong 65 Director Class II/2000
William S. Hoppe 53 Executive Vice President, Chief Financial Officer, N/A
and Chief Administrative Officer
William R. Edmiston 48 Executive Vice President and Chief Development Officer N/A
Ned R. Lidvall 44 Executive Vice President and Chief Operating Officer N/A
Theresa D. Shelton 35 Vice President - Finance , Treasurer and Assistant N/A
Secretary
</TABLE>
- ------------------------
* Director Nominees
All executive officers hold office at the discretion of the Board of
Directors.
Frank B. Day. Mr. Day created the Rock Bottom Restaurant & Brewery and Old
Chicago concepts and has supervised the operation of the Company since the
opening of the first Old Chicago restaurant in Boulder, Colorado in 1976. Mr.Day
has served as the Company's Chairman of the Board since the Company's inception.
In December 1997, Mr. Day was re-elected President and Chief Executive Officer,
having previously served as Chief Executive Officer from the Company's inception
to December 1995. Mr. Day has more than 25 years of entrepreneurial experience
in the restaurant and hospitality industry. In addition to the Company's 60
restaurants, Mr. Day has ownership interests in 14 restaurants, two hotels and
two casinos. Mr. Day serves as a director and officer of Black Hawk Gaming and
Development, Inc. ("Black Hawk"), a public company that operates a casino in
Black Hawk, Colorado. Mr. Day holds a B.A. and an M.B.A. from Harvard
University.
Duncan H. Cocroft. Mr. Cocroft has been a director of the Company since
February 1996. Since September 1997, Mr. Cocroft has served as Senior Vice
President and Chief Administrative Officer of Kos Pharmaceuticals, Inc. From
1990 to 1997, Mr. Cocroft was Vice President of Finance and Chief Financial
Officer of International Multifoods Corporation. From 1987 to 1990, Mr. Cocroft
was Vice President and Treasurer of Smithkline Beckman (now Smithkline Beecham),
a large pharmaceutical company. Mr. Cocroft received a B.S. in economics from
the University of Pennsylvania, Wharton School of Finance and Commerce.
<PAGE>
Robert D. Greenlee. Mr. Greenlee has been Secretary and a director of the
Company since inception, and has served as the Mayor of Boulder, Colorado, since
November 1997. Since 1988, Mr. Greenlee has served as President of Centennial
Investment & Management Company, Inc., a private investment and consulting firm
and, since 1991, has served as Chairman of the Board, Chief Executive Officer
and President of Black Hawk. From 1975 to 1988, Mr. Greenlee owned and was Chief
Executive Officer of Centennial Wireless, Inc., operator of KBCO (FM), Boulder,
Colorado. Mr. Greenlee holds a B.A. in radio and television broadcasting and an
M.A. in journalism and mass communications from Iowa State University, and is
currently a candidate for the U.S. Congress in Colorado's Second District.
Mary C. Hacking. Ms. Hacking has been a director of the Company since
September 1994. Since March 1995, Ms. Hacking has served as President, and is
the majority stockholder, of Think Communications, Inc., a full service
marketing and advertising firm. Ms. Hacking served as President of Barnhart
Advertising, Marketing and Public Relations, Inc. from 1990 to February 1995.
From 1984 to 1990, Ms. Hacking was Vice President Marketing for VICORP
Restaurants, Inc. Ms. Hacking holds a B.A. from the University of Wisconsin
(Madison) and an M.A. from Fordham University.
Gerald A. Hornbeck. Mr. Hornbeck has been a director of the Company since
September 1994. Mr. Hornbeck has over 25 years of restaurant management
experience, including the responsibility for and opening of over 70 specialty
restaurants. Mr. Hornbeck founded Concept Management, Inc. ("CMI"), a strategic
planning and organizational development consulting company in 1990 and serves as
its President. In 1984, Mr. Hornbeck founded the Cooker Restaurant Corporation
concept, which operates casual dining restaurants, and served as its Executive
Vice President and as a director from 1984 to 1989. Mr. Hornbeck holds a B.S.
from the University of Arizona.
David M. Lux. Mr. Lux is a founder and developer, with Mr. Day, of the Old
Chicago concept, and has been a director of the Company since inception. Since
1982, Mr. Lux has been a director and executive officer of Concept Restaurant
Management C.S., Inc. ("CRMCS"), a restaurant management services company that
operates three restaurants in Colorado Springs, Colorado. CRMCS is an
unaffiliated company to CMI. Mr. Lux holds a B.S. in business administration
from the University of Colorado.
Arthur Wong. Mr. Wong was one of the founders of the Company, and has been
a director of the Company since April 1995. Mr. Wong is the President of Arthur
Wong & Associates, a venture capital firm. Mr. Wong was president of HWP
Associates, Inc., which was the general partner of 4900 S. Lake Shore Drive
L.P., a partnership which owned and operated a 300 room Ramada Inn in Chicago,
Illinois and was liquidated under a bankruptcy proceeding in January 1994. Mr.
Wong is also a principal in numerous private companies, which include computer
software, hospitality, real estate, health care, retail, recreation and
financial services. He received his B.A. from Ripon College.
William S. Hoppe. Mr. Hoppe was elected Chief Administrative Officer in
December 1997 in addition to his positions of Executive Vice President and Chief
Financial Officer. Mr. Hoppe joined the Company in May 1996 as Chief Financial
Officer, Vice President and Treasurer, and was subsequently named Executive Vice
President in November 1996. From 1993 to 1996, Mr. Hoppe was Executive Vice
President and Chief Financial Officer for ZuZu, Inc., a restaurant company
specializing in hand made mexican food. From 1983 to 1993, Mr. Hoppe was
managing partner of Hoppe, Watson, and Company, a certified public accounting
and consulting firm. During that time, Mr. Hoppe served as President of Chili's
Beverage Company, a Brinker International affiliate, and President of Sfuzzi
Beverage Company. Previously, Mr. Hoppe served as Controller and Chief
Accounting Officer for Hunt International Resources Corporation, then franchisor
of Shakey's Pizza Parlors. Mr. Hoppe is a Certified Public Accountant and holds
a B.S. in accounting from Southern Illinois University and an M.B.A from
Pepperdine University. Mr. Hoppe serves on the Board of Directors of the
Colorado Restaurant Association.
<PAGE>
William R. Edmiston. Mr. Edmiston was elected Executive Vice President and
Chief Development Officer in December 1997. Mr. Edmiston served as Executive
Vice President - Old Chicago Operations from November 1996 to November 1997, and
from July 1995 to October 1996, Mr. Edmiston served as the Company's Vice
President Development. From 1994 to June 1995, Mr. Edmiston served as Director
of Special Projects for Boston Chicken, Inc., where he was responsible for
international operations. From 1988 to 1994, Mr. Edmiston worked for Blockbuster
Entertainment Corporation, most recently as Director of International
Development and Operations, where he expanded operations to 17 countries. From
1986 to 1988, Mr. Edmiston served as Vice President of Operations for a private
restaurant holding company. From 1984 to 1986, Mr. Edmiston was the Director of
New Concepts for S&A Restaurant Corporation, and prior to that owned and
operated two restaurants in northern Colorado. Mr. Edmiston holds a B.A. in mass
communications from the University of Houston.
Ned R. Lidvall. Mr. Lidvall was elected Executive Vice President and Chief
Operating Officer in December 1997. Mr. Lidvall served as Executive Vice
President - Brewery Operations from November 1996 to November 1997, and from
October 1995 to October 1996, Mr. Lidvall served as the Company's Vice President
- - Operations. From May 1994 until September 1995, Mr. Lidvall was Vice President
of Operations for On the Border Cafes Corporation, a division of Brinker
International. From September 1991 until April 1994, Mr. Lidvall was President
and Chief Operating Officer of On The Border Cafes Corporation, which was sold
to Brinker International in May 1994. From January 1991 to September 1991, Mr.
Lidvall served as Vice President of Food & Beverage / Purchasing for Chi-Chi's
Mexican Restaurants. From 1988 to 1991, Mr. Lidvall was Vice President of
Operations at Western Sizzlin, Inc. From 1980 to 1988, Mr. Lidvall moved from
Mid-Atlantic Director of Service and Beverage to Vice President of Franchise
Operations for Chi-Chi's Mexican Restaurants. Mr. Lidvall attended the
University of Kentucky.
Theresa D. Shelton. Ms. Shelton was elected Treasurer in December 1997 in
addition to her postions of Vice President - Finance and Assistant Secretary.
Ms. Shelton joined the Company in October 1994 as Controller, and was elected
Vice President - Finance in June 1996. From September 1985 to September 1994,
Ms. Shelton was an audit manager with Arthur Andersen LLP, where she specialized
in the hospitality, real estate and oil and gas industries. Ms. Shelton is a
Certified Public Accountant and holds a B.S. in accounting from Colorado State
University. She is a member of the American Institute of Certified Public
Accountants and the Colorado Society of Certified Public Accountants.
Board Meetings and Committees
During the 1997 fiscal year, the Board of Directors held eight meetings. No
director attended fewer than 75 percent of (i) the number of meetings of the
Board of Directors held during the period he or she served on the Board of
Directors and (ii) the number of meetings of committees of the Board of
Directors held during the period he or she served on such committees. During
1997, the Board had a Compensation Committee, an Audit Committee, a Nominating
Committee and a Finance Committee.
Compensation Committee. The Compensation Committee is responsible for
creating a competitive compensation structure to attract and retain key
employees, and ensuring the integrity of the Company's compensation and benefit
practices. The committee is also responsible for reviewing and reporting to the
Board on compensation and personnel policies and programs. The Compensation
Committee comprises David M. Lux, Chairman, Duncan H. Cocroft and Arthur Wong.
The Compensation Committee held five meetings during the 1997 fiscal year.
<PAGE>
Audit Committee. The Audit Committee is responsible for providing the Board
an independent and thorough review of financial, legal and ethical practices as
well as any relevant rulings by the Securities and Exchange Commission (the
"Commission"), the Internal Revenue Service and other regulatory bodies. The
committee also provides the Board assurance that the financial statements are
being prepared according to generally accepted accounting principles and makes
the Board aware of the status of the Company's internal control procedures,
matters of corporate conduct, conflicts of interest or any improprieties. The
Audit Committee also recommends to the Board of Directors the appointment of the
Company's independent auditors. The Audit Committee comprises Robert D.
Greenlee, Chairman, Mary C. Hacking, Gerald A. Hornbeck and Arthur Wong. The
Audit Committee held three meetings during the 1997 fiscal year.
Nominating Committee. The Nominating Committee is responsible for ensuring
that there is an appropriate structure for management succession and development
and an effective process for director selection and tenure. The Nominating
Committee comprises Frank B. Day, Chairman, and Gerald A. Hornbeck, and also
included Thomas A. Moxcey prior to his resignation in December 1997. The
Nominating Committee held no meetings during fiscal 1997. Any stockholder
entitled to vote in the election of directors generally may nominate one or more
persons for election as directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to the
secretary of the Company no later than (i) with respect to an election to be
held at an annual meeting of stockholders, ninety days prior to the anniversary
date of the immediately preceding annual meeting and (ii) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders. Each such notice shall
set forth: (a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) representation that
the stockholder is a holder of record of stock of the Company entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination is to be made by the stockholder; (d) such other information
regarding the nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Commission; and (e) the consent of each nominee to serve as a director of the
Company if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
Finance Committee. The Finance Committee is responsible for reviewing and
reporting to the Board on matters regarding the Company's investment strategies,
capital investments, credit facilities, annual budgets and quarterly Company
performance. The Finance Committee comprises Duncan H. Cocroft, Chairman, Frank
B. Day, Robert D. Greenlee, and Arthur Wong. The committee held one meeting
during fiscal 1997.
Compliance with Section 16(a) of the Securities and Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who beneficially own greater than 10% of a registered class of the
Company's equity securities to file initial reports of ownership and changes in
ownership with the Commission and The Nasdaq Stock MarketSM. Based solely upon
its review of copies of the Section 16(a) reports and the written
representations the Company has received, the Company believes that during its
fiscal year ended December 28, 1997, all of its directors, executive officers
and greater than 10% beneficial owners were in compliance with their filing
requirements.
<PAGE>
Compensation of Directors
The Company has adopted compensation and incentive benefit plans to enhance
its ability to continue to attract, retain and motivate qualified persons to
serve as nonemployee directors of the Company. The Company has six nonemployee
directors. The Company pays its nonemployee directors $1,000 for each meeting
attended and reimburses each nonemployee director for reasonable expenses in
attending Company meetings. Under the Nonemployee Directors' Stock Option Plan
(the "Directors' Plan"), nonemployee directors of the Company receive stock
options. Only directors who are not also employees of the Company or any of its
subsidiaries are eligible to participate in the Directors' Plan.
The Directors' Plan provides for an automatic grant of an option to
purchase 7,500 shares of Common Stock to each nonemployee director at the
commencement of his or her initial term of service on the Board, which option
will become exercisable at the rate of 3,750 shares on the first anniversary and
3,750 shares on the second anniversary of the initial date of grant. In
addition, each nonemployee director will receive an automatic grant of an option
to purchase 3,000 shares of Common Stock on each anniversary of the commencement
of his or her initial term of service on the Board, which options vest one year
from the date of grant. Upon the termination of a director's status following a
change in control of the Company, options outstanding under the Directors' Plan
will immediately become fully vested and exercisable for a period of three
months.
Each option granted under the Directors' Plan expires ten years from the
date of grant. The option exercise price must be equal to 100% of the fair
market value of the Common Stock on the date of grant of the option. Options
granted to directors under the Directors' Plan will be treated as non-statutory
stock options under the Internal Revenue Code of 1986, as amended ("the Code").
As of March 29, 1998, the Company had granted options to purchase 64,780 shares
of Common Stock under the Directors' Plan at a weighted average exercise price
of $7.00 per share. Such amount outstanding and average exercise price reflects
an exchange of the Company's outstanding stock options during fiscal 1998. See
"Compensation Committee Report on Executive Compensation Equity Plan".
The Board of Directors may amend the Directors' Plan at any time or may
terminate such plan without the approval of the stockholders. However,
stockholder approval is required for any amendment which materially increases
the number of shares for which options may be granted, or changes in any
material respect the benefits accruing to participants or the requirements as to
eligibility in the plan.
Prior to resuming his position as President and Chief Executive Officer in
December 1997, Mr. Day provided consulting services to the Company primarily in
the areas of new restaurant site selection and design. During 1997, the Company
paid FBD Management Corp., a company owned 100% by Mr. Day, $100,000 for such
consulting services (see "Compensation Committee Report on Executive
Compensation - Compensation of the Chief Executive Officer"). Mr. Hornbeck also
provides consulting services to the Company on an as required basis at the
Company's discretion. During 1997, the Company paid $24,413 to CMI, a company
owned 100% by Mr. Hornbeck, for strategic planning and development services
provided to the Company.
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer and the four most highly compensated executive officers,
other than the Chief Executive Officer, whose individual salary and bonus
exceeded $100,000 during the fiscal year ended December 28, 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term
Compensation Awards
------------------------------------ ----------------------
Other Restricted
Annual Stock Securities All Other
Compensation Award(s) Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) ($)(2)(3)(4) Options(#) (5)
- --------------------------- ---- --------- ------- ------ --------- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Frank B. Day .................. 1997 100,000(6) --- --- --- 23,000 ---
President, Chief Executive 1996 100,000(6) --- --- 97,116 32,500 ---
Officer, and Chairman of the 1995 200,000 10,000 --- --- 25,000 ---
Board
William S. Hoppe ............. 1997 145,000 --- --- 253,000 20,000 ---
Executive Vice President, Chief 1996 83,077 --- 56,967 101,289 40,000 ---
Financial Officer and Chief
Administrative Officer
William S. Edmiston............ 1997 145,000 --- --- 253,000 20,000 ---
Executive Vice President and 1996 135,000 --- --- 95,173 --- ---
Chief Development Officer 1995 50,481 --- --- --- 60,000 ---
Ned R. Lidvall ................ 1997 130,000 --- 43,287 253,000 20,000 ---
Executive Vice President and 1996 135,000 --- --- 98,430 --- ---
Chief Operating Officer 1995 22,500 --- --- --- 40,000 ---
Thomas A. Moxcey (7)........... 1997 225,000 --- --- 385,000 40,000 531,730
Former President, Chief Executive 1996 185,000 --- --- 179,663 --- ---
Officer and Chief Operating 1995 165,000 10,000 --- --- 65,000 ---
Officer
Timothy Trapp (8).............. 1997 135,000 35,000 --- --- 15,000 135,000
Senior Vice President - 1996 123,462 29,333 --- 50,496 --- ---
Design & Architecture 1995 71,923 --- --- --- 40,000 ---
</TABLE>
- --------------------------
(1) Other Annual Compensation includes $47,425 and $29,219 for reimbursement of
Mr. Hoppe's and Mr.Lidvall's relocation expenses, respectively, and $12,390
for Mr. Lidvall's car allowance.
(2) Fiscal 1996 includes restricted stock awards made in February 1997 but
earned in 1996 pursuant to the 1996 Executive Bonus Plan (see below): Mr.
Day - 10,499 shares, Mr. Hoppe - 9,921 shares, Mr. Edmiston - 10,289
shares, Mr. Lidvall - 9,554 shares, Mr. Moxcey - 19,423 shares and Mr.
Trapp - 5,459 shares. The closing sale price for a share of Common Stock on
the date of grant was $9.25 per share.
(3) Fiscal 1997 includes restricted stock awards made pursuant to a Long Term
Incentive Plan agreement (see below): Mr. Hoppe - 23,000 shares, Mr.
Edmiston - 23,000 shares, Mr. Lidvall - 23,000 shares and Mr. Moxcey -
35,000 shares. The closing sale price for a share of Common Stock on the
date of grant was $11.00 per share.
(4) The total number of restricted stock awards outstanding, valued as of
December 26, 1997, was: Mr. Day - 10,499 shares valued at $68,244, Mr.
Hoppe - 32,921 shares valued at $213,987, Mr. Edmiston - 33,289 shares
valued at $216,379, Mr. Lidvall - 32,554 shares valued at $211,600, Mr.
Moxcey - no shares and Mr. Trapp - 5,459 shares valued at $35,484. Holders
of restricted stock are eligible to receive dividends, if any.
(5) Includes severance amounts payable to Messrs. Moxcey and Trapp.
(6) Amounts represent payments to FBD Management Corp. for consulting services.
(7) Mr. Moxcey resigned his positions with the Company effective December 12,
1997.
(8) Due to the downsizing of the Company, Mr.Trapp was terminated without cause
effective January 1, 1998.
<PAGE>
Restricted Stock Awards
The Company's 1996 bonus program for executive officers ("Executive Bonus
Plan") was designed to provide direct financial incentives in the form of
restricted stock to executives to achieve specified Company goals. Under the
Executive Bonus Plan, the Compensation Committee, based on recommendations from
the Chief Executive Officer, established target financial goals. The Company
achieved the target financial goals during 1996, and in February 1997 awarded
65,145 shares of restricted stock to the named executive officers. The
restricted common stock shall vest, and trading restrictions on those shares
shall lapse, three years from the date of issuance, provided the executive
continues to be an employee of the Company. In the event of a change of control,
as defined, the Compensation Committee has the sole discretion to eliminate all
restrictions on these shares. In January 1998, the Board amended the Executive
Bonus Plan to eliminate all restrictions on these shares in two years from the
date of issuance if certain fiscal 1998 earnings targets are achieved, and in
the event of a change of control.
During 1997, the Company executed Long-Term Incentive Plan ("LTIP")
agreements with Messrs. Hoppe, Edmiston and Lidvall. The agreements provide for
restricted stock grants as an incentive to continually improve the financial
performance of the Company. The restricted shares vest on December 31, 2006
provided the executive continues to be an employee of the Company. Vesting on
such shares may be accelerated to December 31, 1999 if cumulative target
financial goals for the three years ending December 31, 1999 are achieved. In
the event of a change of control, as defined in the LTIP agreements,
restrictions on 50% of the shares awarded to the executives lapse immediately.
The Company also had a LTIP agreement with Mr. Moxcey which was cancelled
effective with his resignation (see "Compensation Committee Report on Executive
Compensation - Compensation of the Chief Executive Officer").
Management Employment Agreements
The Company has management employment agreements (the "Management
Agreements") with Messrs. Hoppe, Edmiston and Lidvall which were entered into in
July 1997 and amended in January 1998. The Management Agreements provide for,
among other things, initial base salaries, plus such salary increases approved
by the Board of Directors or the Compensation Committee, and annual cash
bonuses. If an employee is terminated without cause, as defined, the Management
Agreements provide for continued base salary payments for twelve months. If an
employee is terminated following a change of control, as defined, the number of
periods for which base salary continues increases to 18 months. The Management
Agreements expire on June 30, 1998, unless terminated earlier, and are
automatically renewed for successive one-year periods unless the employee or the
Company notifies the other party in writing. The Company also had a Management
Agreement with Mr. Moxcey which was cancelled effective with his resignation
(see "Compensation Committee Report on Executive Compensation - Compensation of
the Chief Executive Officer").
Equity Plan
The purpose of the Equity Plan is to provide long-term incentives to the
Company's key employees and consultants. The Board of Directors has approved an
amendment to the Equity Plan to increase the number of shares authorized for
issuance by 300,000 shares, and this amendment to the Employee's Plan is being
submitted to the Company's stockholders for their approval at the Annual
Meeting. For a discussion of the Equity Plan and the proposed amendment, see
"PROPOSAL 2 - AMENDMENT TO THE EQUITY PLAN."
<PAGE>
The following table sets forth information as to the stock options granted
to the named executive officers during the 1997 fiscal year. No stock
appreciation rights were awarded during fiscal 1997.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realized Value at
Number of Percentage of Assumed Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to Exercise for Option Term ($)(1)
Options Employees in Price Expiration -----------------------
Name Granted(#) Fiscal Year ($ / share) Date 5% 10%
- --------------- ---------- ------------- ----------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Frank B. Day 20,000 (2) 8.5% 11.73 4/30/2002 123,757 336,023
3,000 (3) 1.3% 9.35 7/28/2007 13,487 38,090
William S. Hoppe 10,000 (2) 4.3% 10.93 12/30/2006 61,734 163,043
10,000 (2) 4.3% 10.66 4/30/2007 72,578 178,712
William S. Edmiston 10,000 (2) 4.3% 10.93 12/30/2006 61,734 163,043
10,000 (2) 4.3% 10.66 4/30/2007 72,578 178,712
Ned R. Lidvall 10,000 (2) 4.3% 10.93 12/30/2006 61,734 163,043
10,000 (2) 4.3% 10.66 4/30/2007 72,578 178,712
Thomas A. Moxcey (4) 20,000 (2) 8.5% 10.93 12/30/2006 123,468 326,086
20,000 (2) 8.5% 10.66 4/30/2007 145,157 357,423
Timothy Trapp (4) 7,500 (2) 3.2% 10.93 12/30/2006 46,300 122,282
7,500 (2) 3.2% 10.66 4/30/2007 54,434 134,034
</TABLE>
- -------------------------------
(1) Assumed annual appreciation rates are set by the Commission and are not a
forecast of future appreciation. The amounts shown are pre-tax and assume
the options will be held throughout the entire term. Actual gains, if any,
are dependent upon the future performance of the Common Stock as well as
continued employment of the option holder through the vesting period.
(2) Options granted are exercisable in three equal annual installments.
All options have a 10 year term, except for Mr. Day's options which have a
five year term.
(3) Option was granted pursuant to the Directors' Plan for the period in which
Mr. Day was a nonemployee director. Such option vests on the first
anniversary following the date of grant, and has a 10 year term.
(4) All options issued were cancelled upon Messrs. Moxcey and Trapp's departure
from the Company on December 12, 1997 and January 1, 1998, respectively.
<PAGE>
The following information is furnished for the Company's 1997 fiscal year
with respect to the named executive officers for stock option exercises which
occurred during fiscal 1997:
<TABLE>
<CAPTION>
Aggregated Option Exercises In Last
Fiscal Year and Fiscal Year-End Option Values
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Shares Options at Fiscal Year End(#) Fiscal Year-End($)(1)
Acquired on Value ----------------------------- ---------------------------
Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ----- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank B. Day 0 0 12,083 43,417 0 0
William S. Hoppe 0 0 13,332 46,668 0 0
William S. Edmiston 0 0 19,999 60,001 0 0
Ned R. Lidvall 0 0 13,333 46,667 0 0
Thomas A. Moxcey 25,000 60,800 147,332 (2) 0 0 0
Timothy Trapp 0 0 13,333 (3) 41,667 (3) 0 0
</TABLE>
- -------------------------------
(1) Based on the difference between the option exercise prices (ranging from
$8.00 to $20.55) and the closing sale price ($6.50) of a share of Common
Stock as reported on the The Nasdaq Stock Market on December 26, 1997, the
last trading day prior to the close of the Company's 1997 fiscal year.
(2) Mr. Moxcey's exercisable options of 147,332 expire on June 12, 1999.
(3) Mr. Trapp's unexcercisable options of 41,667 were cancelled when he left
the Company on January 1, 1998. Exercisable options of 13,333 expired on
April 1, 1998.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee comprises David M. Lux, Duncan H.
Cocroft, and Arthur Wong.
The Company leases the Old Chicago restaurants located on Tejon Street and
Commerce Drive in Colorado Springs, Colorado from partnerships owned in part by
Mr. Lux. The Company also leases the Old Chicago restaurants in Fort Collins,
Colorado, and Bettendorf, Iowa, and the Rock Bottom Restaurant & Brewery
restaurant in Englewood, Colorado from corporations owned in part by Mr. Wong
and/or his affiliates. Pursuant to these leases, the Company paid $256,977 and
$233,919, respectively, in the year ended December 28, 1997. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Affiliated Leases".
<PAGE>
Compensation Committee Report on Executive Compensation
The Company's executive compensation program is administered by the
Compensation Committee of the Board, which is composed of three members who are
nonemployee directors. The Compensation Committee recommends to the Board for
approval all compensation arrangements of the executive officers of the Company.
In reviewing the compensation of individual executive officers, the Compensation
Committee considers published industry compensation surveys, compensation paid
to executive officers at other competitive restaurant companies, current market
conditions and the recommendations of management.
Compensation Philosophy
The Company's compensation philosophy is to (i) provide a compensation
program that will be able to attract, select and retain high caliber managerial
talent, (ii) provide compensation opportunities that are competitive with those
provided by other restaurant companies, and (iii) create a balance between
short-term performance measures and long-term strategic decisions through
incentive programs which are linked to stockholder value. Available forms of
executive compensation include base salary, cash bonus, restricted stock awards
and stock options.
Base Salary
Base salaries for Messrs. Hoppe, Edmiston and Lidvall are provided for in
the Management Agreements. Such salaries, as well as base salaries for other
executive officers, are determined in the same manner as that of other salaried
employees. Specifically, salary guidelines are established by comparing the
responsibilities of the individual's position in relation to similar positions
in comparable companies. Individual salaries are determined considering the
person's performance against personal objectives for the year, as well as the
Company's performance against certain corporate objectives, such as new
restaurant expansion, comparisons of budgeted amounts to actual amounts and
overall profitability of the Company.
Cash Bonus
The cash bonus component of executive compensation is provided as a
short-term incentive for achieving certain corporate financial goals established
by the Compensation Committee. All executive officers, except Mr. Day, are
eligible for a cash bonus equal to a percentage of their salary for meeting the
target financial goals. Such percentage can be increased by as much as 50% for
exceeding the targeted financial goals, or decreased by as much as 75% for
achieving less than the targeted financial goals. Messrs. Hoppe, Edmiston,
Lidvall and Trapp are eligible to receive 40% of their respective salary for
achieving the targeted financial goals. No cash bonuses were awarded during 1997
as the targeted financial goals were not achieved.
Long-term Incentive Plan Agreements
The LTIP agreements are intended to align the interests of the Company's
executives with the long-term interests of stockholders by rewarding management
for building share price over time, and encouraging Company stock ownership and
capital accumulation. Pursuant to the LTIP agreements, the Company awarded
23,000 shares of restricted stock to each of Messrs. Hoppe, Edmiston and Lidvall
during 1997.
<PAGE>
Equity Plan
The Equity Plan authorizes the Compensation Committee, or its designee, to
grant incentive or non-statutory stock options to purchase shares of Common
Stock, and to issue restricted stock to eligible officers and employees of the
Company. The purpose of the Equity Plan is to enable the Company to attract,
retain and motivate its employees and to enable employees to participate in the
long-term growth of the Company by providing for or increasing the proprietary
interest of such employees in the Company. Grants to executive officers under
the Equity Plan are designed to align a portion of the executive's compensation
with the long-term interests of the Company's stockholders. Upon recommendation
from the Compensation Committee, the named executive officers were granted
77,500 stock options in April 1997 at an exercise price of $10.66 per share.
Additionally, stock options for 57,500 shares were granted to the named
executive officers, other than Mr. Day, in January 1997 as a portion of the
executives' 1996 total compensation.
In January 1998, the Board of Directors, upon recommendation of the
Compensation Committee, offered all current employees and directors the
opportunity to exchange all of their outstanding options for a lesser number of
new options with a $7.00 exercise price. The value of the new options obtainable
in the exchange was the same as the value of the outstanding options based on a
Black-Sholes option valuation model. Thus, each option holder had the ability to
obtain a reduced number of options with the same value, based on the
Black-Sholes model, in exchange for all of the holder's outstanding options.
Substantially all option holders agreed to exchange their options and to forego
exercising any options for six months. Prior to the exchange, options for
931,752 shares with a weighted average exercise price of $11.97 were
outstanding, and thereafter options to purchase 809,330 shares with a weighted
average market price of $8.26 were outstanding. The Compensation Committee and
the Board believed the offer to exchange options was necessary to serve the
plans' objectives in light of average option exercise prices significantly
exceeding market prices, and that the offer to exchange options of equal value
with previously granted options was in the best interests of the Company and its
stockholders.
<PAGE>
Compensation of the Chief Executive Officer
Mr. Moxcey's performance was reviewed annually by the Compensation
Committee and the Board of Directors. In establishing the base salary in Mr.
Moxcey's Management Agreement, the Compensation Committee considered the
salaries paid to chief executive officers at other restaurant companies, as well
as Mr. Moxcey's performance as Chief Operating Officer. In establishing the
other components of his total compensation, the Compensation Committee reviewed
other compensation arrangements for executives of the Company's peers in the
restaurant industry, taking into consideration experience level and scope of
responsibilities. Based on these factors, and the Company's overall future
business objectives, Mr. Moxcey's base salary was established at $225,000, a
level below the median salary level for chief executive officers of other
restaurant companies. Mr. Moxcey also received additional incentive compensation
including eligibility for a cash bonus, restricted stock awards of 35,000 shares
pursuant to his LTIP agreement (described above), and an option to purchase
20,000 shares of Common Stock at an exercise price of $10.66. Mr. Moxcey's cash
bonus potential was equal to 50% of his salary, however, no bonus was awarded
during 1997 as the targeted financial goals were not achieved.
Effective December 12, 1997, Mr. Moxcey resigned his positions with the
Company. In connection with his resignation, Mr. Moxcey agreed to the
cancellation of his Management Agreement and LTIP agreement, forfeited his
restricted stock awards for 54,423 shares and unvested stock options to purchase
61,668 shares, and received the right to severance payments totaling $531,730.
Upon Mr. Moxcey's resignation, Frank B. Day was elected President and Chief
Executive Officer. Mr. Day was currently receiving annual compensation from the
Company of $100,000 for consulting services. The Board determined, upon
recommendation of the Compensation Committee, that such payments, together with
20,000 stock options granted to Mr. Day in April 1997 at an exercise price of
$11.73 per share, were sufficient compensation for Mr. Day in his capacity as
Chief Executive Officer and President for the remainder of fiscal 1997, and set
a salary of $200,000 for fiscal 1998.
Section 162(m)
Under Section 162(m) of the Code, federal income tax deductions of publicly
traded companies may be limited to the extent total compensation (including base
salary, annual bonus, restricted stock awards, stock options exercises and
non-qualified benefits) for certain executive officers exceeds $1 million in any
one year. The Compensation Committee intends to design the Company's
compensation programs so that the total compensation paid to any employee will
not exceed $1 million in any one year.
Compensation Committee Members
David M. Lux
Duncan H. Cocroft
Arthur Wong
<PAGE>
Performance Graph
The following graph compares the yearly percentage change in the Company's
cumulative total stockholder return on Common Stock over the period since the
Company's initial public offering on July 21, 1994 with the cumulative total
return on the published Standard & Poor's 400 Midcap Restaurant Index and the
Nasdaq Composite (US).
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON 7/21/94)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ROCK BOTTOM S&P 400 MIDCAP NASDAQ COMPOSITE
(FISCAL YEAR COVERED) RESTAURANTS, INC. RESTAURANT INDEX (US)
<S> <C> <C> <C>
7/21/94 100.00 100.00 100.00
12/25/94 231.25 83.71 104.89
12/31/95 162.50 83.53 148.34
12/29/96 129.69 80.12 182.46
12/28/97 78.90 90.73 223.95
</TABLE>
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership
of Common Stock as of March 29, 1998, except as otherwise indicated: (i) by each
person known by the Company to own beneficially 5% or more of the outstanding
shares of Common Stock, (ii) each executive officer named in the Summary
Compensation Table and each director, and (iii) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Number of Percentage of
Name Shares Common Stock (%)
- ---------------------------------------------------------- ----------------- ------------------
<S> <C> <C>
ICM Asset Management, Inc. (1)............................ 1,165,550 14.5
601 W. Main Ave., Suite 600
Spokane, WA 99201
Wellington Management Company, LLP (1).................... 555,500 6.9
75 State Street
Boston, MA 02109
Frank B. Day (2).......................................... 1,348,629 16.7
Duncan H. Cocroft (3)..................................... 9,564 *
Robert D. Greenlee (3).................................... 545,244 6.8
Mary C. Hacking (3)....................................... 10,824 *
Gerald A. Hornbeck (3).................................... 23,308 *
David M. Lux (4) ......................................... 192,574 2.4
Arthur Wong (3)........................................... 225,976 2.8
William S. Hoppe (3)(5)................................... 62,889 *
William R. Edmiston (3)(5)................................ 69,727 *
Ned R. Lidvall (3)(5)..................................... 59,877 *
Thomas A. Moxcey (3)...................................... 153,854 1.9
Timothy Trapp (6)......................................... 2,253 *
All directors and executive officers as a group
(11 persons) (7).......................................... 2,569,160 31.2
</TABLE>
- ---------------------------------
* Amount is less than one percent.
(1) Ownership interests are as of December 31, 1997.
(2) Includes 680,635 shares held in trusts of which Mr. Day is trustee, 10,499
shares of restricted stock and 14,857 shares subject to stock options
exercisable currently or within 60 days.
(3) Includes shares subject to stock options exercisable currently or within 60
days: Mr. Cocroft - 9,564 shares, Mr. Greenlee- 11,108 shares, Ms. Hacking
- 10,824 shares, Mr. Hornbeck - 23,308 shares, Mr. Wong - 9,776 shares, Mr.
Hoppe - 29,016 shares, Mr. Edmiston - 36,438 shares, Mr. Lidvall - 26,236
shares and Mr. Moxcey - 147,332 shares.
(4) Includes 8,850 shares held in the David M. Lux Irrevocable Grantor Trust of
which Mr. Lux is trustee, 3,000 shares held by DT Lux Ltd. of which Mr. Lux
is the general partner, and 4,009 shares subject to stock options
exercisable currently or within 60 days.
(5) Includes the following restricted stock awards: Mr. Hoppe - 32,921 shares,
Mr. Edmiston -33,289 shares and Mr. Lidvall -32,554 shares.
(6) Includes 1,337 shares held in the Trapp Retirment Trust of which Mr. Trapp
is the sole trustee, and 916 shares held by Trapp Associates Ltd., of which
Mr. Trapp is President.
(7) Includes a total of 193,484 shares subject to stock options exercisable
currently or within 60 days, and 109,263 shares of restricted stock.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of transactions entered into during the
last fiscal year between the Company and certain of its stockholders, officers
and directors, and corporations or other organizations affiliated with such
stockholders, officers and directors.
Affiliated Leases
The Company leases the Old Chicago restaurant in Fort Collins, Colorado
from C. B. Partnership, a partnership that is 50% owned by 141 College
Partnership. Messrs. Wong and Day own 12% and 10%, respectively, of 141 College
Partnership. The lease term was renewed in June 1997 and will expire in May
2012. The annual base rent for 1997 was $96,000 and increases $2,400 annually.
The Company pays additional rent based on the difference between the base rent
and 6% of gross sales. Pursuant to this lease, the Company paid $101,226 (which
included additional rent of $5,226) in the year ended December 28, 1997.
The Company subleases the Old Chicago restaurant on Tejon Street, Colorado
Springs, Colorado from Old Chicago Colorado Springs Limited Partnership, a
partnership owned by Messrs. Day, Wong and Lux. The restaurant sublease, which
was revised and renewed on April 1, 1995, expires in March 2005. The initial
base rent for years one through four under the sublease is $120,000, and
increases to $128,350 for years five through ten of the sublease. The Company
pays additional rent based on the difference between the base rent and 6% of
gross sales. Pursuant to this lease, the Company paid $123,000 (which included
additional rent of $3,000) in the year ended December 28, 1997.
The Company leases the Old Chicago restaurant on Commerce Center Drive in
Colorado Springs, Colorado from Lux/Day Northport Ltd., a partnership that is
94% owned by Messrs. Day and Lux. The lease term commenced in 1986, terminates
in 2006 and provides for a monthly payment of $11,000 or 6% of sales, whichever
is higher. Pursuant to this lease, the Company paid $133,977 (which included
additional rent of $1,977) in the year ended December 28, 1997.
The Company leases the Old Chicago restaurant in Bettendorf, Iowa, from
Dulcet, LLC, an Iowa limited liability corporation in which Mr. Wong and his
wife have a 33% ownership interest. The lease commenced in June 1996, terminates
in 2011 and provides for a monthly payment of $6,250. The monthly payment
increases to $7,078 in years six through ten and to $8,016 in years ten through
fifteen. Pursuant to this lease, the Company paid $75,000 in the year ended
December 28, 1997.
The Company leases the brewery restaurant in Boulder, Colorado, from The
1123 Walnut Corporation, a corporation owned by Messrs. Greenlee and Day. The
lease will expire in 1999 and provides for an annual base rent of $84,000. From
and after 1990, the base rent increases annually based on increases in the
Consumer Price Index. The Company also pays additional rent based on the
difference between the base rent and 6% of gross restaurant sales. Pursuant to
the lease, the Company paid $105,443 (which included additional rent of $21,443)
in the year ended December 28, 1997.
The Company leases the brewery restaurant in Englewood, Colorado, from
Zymotic, LLC, a Colorado limited liability company in which Mr. Wong and/or his
affiliates own 34%. The lease commenced in July 1997, and terminates in June
2012, with the option to renew for four terms of 60 months each. The initial
base rent for years one through five under the lease is $230,775, increases to
$261,353 for years six through ten, and increases to $295,982 for years eleven
through fifteen. Pursuant to this lease, the Company paid $57,693 in the year
ended December 28, 1997.
<PAGE>
Management believes the terms of these leases are no less favorable to the
Company than those that could be obtained from unaffiliated third parties. All
transactions with affiliated lessors or any other affiliate are subject to the
approval of the Company's disinterested directors and are on terms believed by
such directors to be no less favorable to the Company than those available from
unaffiliated third parties.
Other Arrangements with Affiliates
The Company purchases certain of its pasta products used in the Old Chicago
restaurants from Pasta Fresca Inc., a Colorado corporation owned 39% by Mr. Day.
During 1997, the Company paid approximately $464,000 to this company for such
products.
Conflicts of Interest
Certain of the above transactions will continue in effect and may result in
conflicts of interest between the Company and such individuals. In addition, Mr.
Day, the Company's President and Chief Executive Officer, owns interests in 14
other casual dining restaurants, two hotels and two casinos and serves in
various capacities with other companies. Mr. Lux, a director of the Company,
owns interests in several of the restaurants in which Mr. Day owns an interest.
The restaurants in which Mssrs. Day and Lux own interests may be considered to
compete with the Company's restaurants. The Company's conflicts of interest
policy, revised in May 1997, requires that all directors who are presented with
an opportunity that is in the same line of business as that of the Company may
pursue such opportunity only after it is offered to the Company, and the
disinterested directors conclude that the Company should not pursue such
opportunity. Although Messrs. Day and Lux may owe fiduciary duties to the
Company and its stockholders, there can be no assurance that conflicts of
interest always will be resolved in a manner favorable to the Company. In
addition, under certain circumstances, the Company is obligated to indemnify its
officers and directors.
PROPOSAL 2 - AMENDMENT TO THE EQUITY PLAN
Equity Plan Summary
To ensure the continued availability of the Equity Plan to attract,
motivate and retain employees, on March 18, 1997, the Board of Directors, upon
the recommendation of the Compensation Committee, approved an amendment to the
Equity Plan, subject to stockholder approval at the Annual Meeting, to increase
the number of shares of Common Stock authorized for issuance under the Equity
Plan by 300,000 shares (subject to an annual adjustment).
The Equity Plan is intended to advance the interests of the Company by
providing long-term incentives to the Company's key employees and consultants
(currently 125 people). The Equity Plan became effective upon consummation of
the Company's initial public offering in July 1994 and terminates June 3, 2004.
The Equity Plan currently provides for the issuance of 1,615,472 shares of
Common Stock. The Equity Plan also provides that the number of shares authorized
for issuance under the Equity Plan automatically is increased annually by an
amount equal to the number of shares equal to one-half of one percent of the
Company's then issued and outstanding shares (cumulative increases of 115,472
shares as of March 29, 1998). As of the date of this Proxy Statement, and based
on the current capitalization of the Company, the Company anticipates an
increase of 40,280 shares in July 1998. The additional shares may be divided
among the various Equity Plan components, but currently no more than 1,615,472
shares are available for the grant of incentive stock options ("ISOs"). Under
the Equity Plan, the Company may grant to employees and consultants awards of
restricted stock, stock options, and supplemental bonuses or any combination
thereof.
<PAGE>
The Equity Plan is administered by the Compensation Committee with respect
to grants to executive officers, and by Mr. Day for all other grants. Subject to
the terms of the Equity Plan, the Compensation Committee or Mr. Day determines
the persons to whom awards are granted, the type of award granted, the number of
shares granted, the vesting schedule, the type of consideration to be paid to
the Company upon exercise of options and the terms of any option. The Equity
Plan as originally adopted provided that in the event of a change of control, as
defined, options outstanding under the Equity Plan would become fully vested
only if the Compensation Committee, in its sole discretion, elected to
accelerate the vesting. In January 1998, and upon recommendation of the
Compensation Committee, the Board amended the Equity Plan to permit full vesting
of all outstanding options in the event of a change of control.
Under the Equity Plan, the Company may grant both ISOs intended to qualify
under Section 422 of the Code, and options which are not qualified as incentive
stock options ("non-statutory stock options"). Incentive stock options may be
granted only to persons who are employees of the Company.
ISOs may not be granted at an exercise price of less than the fair market
value of the Common Stock on the date of grant. The exercise price of
non-statutory stock options granted under the Equity Plan may be less than the
fair market value of the Common Stock on the date of grant, such exercise price
to be determined by the Compensation Committee. The exercise price of ISOs
granted to holders who own more than 10% of the total combined voting power of
all classes of stock of the Company or any parent or subsidiary corporation of
the Company must be at least 110% of the fair market value of the Common Stock
on the date of grant, and the term of these options cannot exceed five years. In
all other cases, the terms of the options cannot exceed 10 years from the date
of grant.
Under the performance award component of the Equity Plan, participants may
be granted an award denominated in shares of Common Stock or in dollars.
Achievement of the performance targets, or multiple performance targets
established by the Compensation Committee relating to corporate, group, unit or
individual performance, based upon standards set by the Compensation Committee,
will entitle the participant to payment at the full amount specified with
respect to the award, subject to adjustment at the discretion of the
Compensation Committee in the event of performance exceeding the minimum
performance target, but below the maximum performance target applicable to such
award. Payment may be made in cash, Common Stock or any combination thereof, as
determined by the Compensation Committee, and will be adjusted in the event the
participant ceases to be an employee of the Company before the end of a
performance cycle by reason of death, disability or retirement. The Equity Plan
provides for cancellation of all outstanding awards upon a participant's
termination of employment for any other reason during a performance cycle.
Under the restricted stock component of the Equity Plan, the Company may,
in selected cases, issue to a plan participant a given number of shares of
restricted stock. Restricted stock under the Equity Plan is Common Stock
restricted as to sale, pending fulfillment of such vesting schedule and
employment requirements as the Compensation Committee determines. Prior to the
lifting of the restrictions, the participant is entitled to receive
distributions in liquidation and dividends on, and to vote the shares of, the
restricted stock. The Equity Plan provides for forfeiture of restricted stock
for breach of the conditions of grant. Upon a participant's death, disability or
retirement, all employment period and other applicable restrictions will lapse
and such shares will be fully nonforfeitable.
<PAGE>
As of March 29, 1998, options to purchase a total of 735,541 shares at a
weighted average exercise price of $8.90 per share were outstanding under the
Equity Plan. Additionally, restricted shares totaling 111,302 were awarded under
the Equity Plan to (i) executive officers in connection with the 1996 Executive
Bonus Plan and 1997 LTIP agreements, and (ii) Messrs. Lidvall and Hoppe as
incentives for employment.
The Board of Directors may amend the Equity Plan at any time or may
terminate such plan without the approval of the stockholders. However,
stockholder approval is required for any amendment which increases the number of
shares for which options may be granted, changes the designation of the class of
persons eligible to participate or changes in any material respect the
limitation or provisions of the options subject to the plans. However, no action
by the Board of Directors or stockholders may alter or impair any award
previously granted without the consent of the award holder.
The grants and awards that will be received by or allocated to those
participating in the Equity Plan during 1998 are shown below.
<TABLE>
<CAPTION>
New Plan Benefits
Stock Options
Name and Position Number of Units (1)(2)
--------------------------------- ----------------------
<S> <C>
Frank B. Day................................ 20,000
President, Chief Executive Officer and
Chairman of the Board
William S. Hoppe............................ 10,000
Executive Vice President, Chief Financial
Officer and Treasurer
William S. Edmiston......................... 10,000
Executive Vice President - Old Chicago
Operations
Ned R. Lidvall.............................. 10,000
Executive Vice President - Brewery Operations
Executive Group............................. 55,000
Non-Executive Director Group................ -
Non-Executive Officer Employee Group........ 252,000
</TABLE>
(1) Stock options for 307,000 shares were issued in March 1998 at an exercise
price of $7.00, which was greater than the closing sale price for a share
of Common Stock as of March 26, 1998 of $5.875 per share.
(2) Excluded from the above amounts is the net reduction in options outstanding
as a result of the option exchange in January 1998 (see "Compensation
Committee Report on Executive Compensation - Equity Plan"). The following
options were surrendered and received in connection with the exchange: Mr.
Day - 45,000 shares surrendered and 35,824 shares received, Mr. Hoppe -
60,000 shares surrendered and 52,270 shares received, Mr. Edmiston - 80,000
shares surrendered and 63,402 shares received, Mr. Lidvall - 60,000 shares
surrendered and 48,100 shares received, Executive Group - 282,000 shares
surrendered and 229,855 shares received, Non-Executive Director Group -
30,000 shares surrendered and 20,274 shares received, and Non-Executive
Officer Employee Group - 366,754 shares surrendered and 320,676 shares
received.
Federal Income Tax Consequences of the Equity Plan
The following is a general summary of the federal income tax consequences
that may apply to recipients of options, restricted stock, performance shares
and performance units under the Equity Plan. Because the application of tax laws
may vary according to individual circumstances, a participant should seek
professional tax advice concerning the tax consequences to him of participating
in the Equity Plan, including the potential application and effect of state,
local and foreign tax laws and estate and gift tax considerations.
<PAGE>
Incentive Stock Options ("ISO")
A participant who is granted an ISO recognizes no taxable income when the
ISO is granted. Generally, no taxable income is recognized upon exercise of an
ISO unless the alternative minimum tax applies as described below. Instead, a
participant who exercises an ISO recognizes taxable gain or loss when he sells
his shares. Any gain or loss recognized on the sale of shares acquired upon
exercise of an ISO is taxed as long-term capital gain or loss if the shares have
been held for more than one year after the option was exercised and for more
than two years after the option was granted. In this event, the Company receives
no deduction with respect to the ISO shares. Long-term capital gains of
individuals presently may be taxed at lower rates than ordinary income, but the
deductibility of capital losses remains subject to limitation.
If the participant disposes of the shares within one year after the option
was exercised or within two years after the option was granted (a "disqualifying
disposition"), he recognizes ordinary income on disposition of the shares, to
the extent of the difference between the fair market value of the shares on the
date of exercise (or potentially up to six months thereafter if the participant
is subject to Section 16(b) of the Exchange Act) and the option price; provided,
however, that in the case of a disposition where a loss, if sustained, would be
recognized for tax purposes, the ordinary income recognized shall not exceed the
net gain upon such disposition. Any additional gain will be taxed as capital
gain. Any loss will be taxed as a capital loss. The Company generally receives a
corresponding deduction in the year of disposition equal to the amount of
ordinary income recognized by the participant.
Effect of Alternative Minimum Tax
Certain taxpayers who have significant tax preferences (and other items
allowed favorable treatment for regular tax purposes) may be subject to the
alternative minimum tax ("AMT"). The AMT is payable only if and to the extent
that it exceeds the taxpayer's regular tax liability, and any AMT paid generally
may be credited against subsequent regular tax liability. For purposes of the
AMT, an ISO is treated as if it were an NSO (see below). Thus, the difference
between fair market value of the shares on the date of exercise (or potentially
up to six months thereafter) and the option price is included in income for AMT
purposes, and the taxpayer receives a basis equal to such fair market value for
subsequent AMT purposes. However, regular tax treatment (see above) will apply
for AMT purposes if a disqualifying disposition, where a loss, if sustained,
would be recognized, occurs in the same taxable year as the options are
exercised.
Non-Statutory Stock Options("NSO")
The tax treatment of NSOs differs significantly from the tax treatment of
ISOs. No taxable income is recognized when an NSO is granted, but upon the
exercise of an NSO, the difference between the fair market value of the shares
on the date of exercise and the option price is taxable as ordinary income and
generally is deductible by the Company. If the participant is subject to Section
16(b) of the Exchange Act, the date for measuring taxable income potentially may
be deferred for up to six months after the date of exercise (unless the optionee
makes an election under Section 83(b) of the Code within 30 days after
exercise), in which case the participant will be taxed currently upon exercise
of the NSO in an amount equal to the excess, if any, of fair market value of the
shares at that time over the option price. Any future appreciation in the shares
after the date of exercise will be treated as capital gain upon the sale or
exchange of the shares.
<PAGE>
Restricted Stock
In general, a participant will not recognize taxable income upon the
receipt of Restricted Stock, because such stock will be subject to restrictions
which constitute a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code (including, for this purpose, any restriction under
Section 16(b) of the Exchange Act of 1934). Rather, the participant will
recognize ordinary income at such time as the restrictions no longer apply, in
an amount equal to the fair market value of the stock at that time over the
amount, if any, paid for the stock . However, a participant may elect to be
taxed currently upon receipt of the stock (without regard to such restrictions)
by making an election under Section 83(b) of the Code within 30 days of receipt
of the restricted stock. In this event, the participant will recognize ordinary
income at the time of the receipt of the stock in an amount equal to the excess,
if any, of the fair market value of the stock at that time over the amount, if
any, paid for the stock. However, if the shares are later forfeited, the
participant will not be entitled to any loss (except for any amount actually
paid for the stock). Any future appreciation in the stock after the restrictions
no longer apply or the filing of a Section 83(b) election will be treated as
capital gain upon the sale or exchange of the stock. The amount of compensation
income to the participant generally is deductible by the Company. Any dividends
paid to the participant on Restricted Stock before the stock is taken into
income are ordinary compensation income to the participant and generally are
deductible by the Company.
Performance Shares
A participant will recognize taxable income upon the receipt of stock in
payment of performance shares in an amount equal to the fair market value of the
stock at such time. If the participant is subject to Section 16(b) of the
Exchange Act, the date of taxation potentially may be deferred for up to six
months (unless the participant makes an election under Section 83(b) of the Code
within 30 days after receipt). The amount of income recognized by the
participant generally is deductible by the Company.
Performance Units
A participant will recognize ordinary compensation income on the receipt of
cash in payment of performance units. This amount generally is deductible by the
Company.
Withholding
The Company may withhold any taxes required by any law or regulation of any
governmental authority, whether federal, state or local, in connection with any
stock option or other award under the Equity Plan, including, but not limited to
withholding of any portion of any payment or withholding from other compensation
payable to the participant, unless such person reimburses the Company for such
amount.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AND IN FAVOR OF APPROVAL OF
THE AMENDMENT TO THE EQUITY PLAN
<PAGE>
PROPOSAL 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee recommended and the Board of Directors approved the
selection of Arthur Andersen LLP as the independent auditors of the Company for
fiscal 1998. Arthur Andersen LLP, independent certified public accountants, has
audited the financial statements of the Company since fiscal 1991. A
representative of Arthur Andersen LLP will be present at the Annual Meeting,
will have the opportunity to make a statement if he or she so desires and will
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AND IN
FAVOR OF THE RATIFICATION OF SUCH APPOINTMENT
STOCKHOLDER PROPOSALS
Stockholders who intend to present proposals at the 1999 Annual Meeting of
Stockholders, which the Company currently expects to hold in May 1999, must
deliver them to the Company at its principal executive offices at least 120 days
prior to the meeting or by December 23, 1998, whichever is earlier, for
inclusion in the proxy statement and form of proxy relating to that meeting. All
proposals must comply with the applicable requirements of the federal securities
laws and the Company's Bylaws.
ANNUAL REPORT TO STOCKHOLDERS
The Company is also mailing with this Proxy Statement its Annual Report to
Stockholders for the year ended December 28, 1997. The Company will furnish a
copy of its Annual Report on Form 10-K (the "10-K") for the year ended December
28, 1997, as filed with the Commission, free of charge, and will furnish a copy
of any exhibit to the 10-K upon payment of the Company's reasonable expenses in
furnishing such exhibit. Interested parties may request in writing a copy of the
10-K or any exhibit thereto from Theresa D. Shelton, Assistant Secretary of the
Company, or by accessing the Company's web site at www.rockbottom.com.
OTHER MATTERS
The Company knows of no business which will be presented for consideration
at the Annual Meeting other than that described above. However, if any other
business should come before the Annual Meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the proxies in respect of
any such business in accordance with their best judgment.
By Order of the Board of Directors
Robert D. Greenlee
Secretary
Louisville, Colorado
April 21, 1998
<PAGE>
APPENDIX A
- -------------------------------------------------------------------------------
PROXY
Rock Bottom Restaurants, Inc.
248 Centennial Parkway
Suite 100
Louisville, Colorado 80027
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Frank B. Day and William S. Hoppe, and each
of them, as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent, and to vote as designated on the reverse side, all
the shares of Common Stock of Rock Bottom Restaurants, Inc. held of record by
the undersigned on April 14, 1998 at the Annual Meeting of Stockholders to be
held on May 29, 1998 or any adjournment or postponement thereof upon the
following matters, as set forth in the Notice of Annual Meeting and Proxy
Statement, dated April 21, 1998, copies of which have been received by the
undersigned.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, FOR THE PROPOSED AMENDMENT
TO THE ROCK BOTTOM RESTAURANTS, INC. EQUITY INCENTIVE PLAN ("EQUITY PLAN"), AND
FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
AUDITORS OF THE COMPANY.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
The election of director-nominees below, the amendment of the Company's Equity
Plan and the ratification of the appointment of Arthur Andersen LLP as
independent auditors of the Company are proposed by the Board of Directors.
1. ELECTION OF DIRECTORS:
[ ] FOR the nominees listed below (except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for the nominees listed below
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, CHECK THE "FOR" BOX
ABOVE AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Frank B. Day, Class III Duncan H. Cocroft, Class III
2. Proposal to amend the Company's Equity Plan to increase the number of shares
of Common Stock authorized for issuance under the Equity Plan by 300,000 shares:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
matters as may be incidental to the conduct of the meeting.
[ ] MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT
Please sign exactly as your name appears on
this proxy. If the shares represented by
this proxy are held by joint tenants, both
must sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such.
If stockholder is a corporation, please
sign in full corporate name by President
or other authorized officer. If
stockholder is a partnership, please sign
in partnership name by authorized person.
Signature: Date:
--------------------------------- -----------
Signature: Date:
--------------------------------- -----------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPLTY USING THE
ENCLOSED POSTAGE PRE-PAID ENVELOPE
- -------------------------------------------------------------------------------
<PAGE>
APPENDIX B
ROCK BOTTOM RESTAURANTS, INC.
EQUITY INCENTIVE PLAN
EFFECTIVE JUNE 3, 1994
(as amended through January 23, 1998)
<PAGE>
ROCK BOTTOM RESTAURANTS, INC.
EQUITY INCENTIVE PLAN
SECTION
INTRODUCTION
1.1 Establishment. Rock Bottom Restaurants, Inc., a Delaware
corporation (hereinafter referred to, together with its Affiliated Corporations
(as defined in subsection 2.1(a)) as the "Company" except where the context
otherwise requires), hereby establishes the Rock Bottom Restaurants, Inc. Equity
Incentive Plan (the "Plan") for certain key employees of the Company.
1.2 Purposes. The purposes of the Plan are to provide the
key employees selected for participation in the Plan with added incentives to
continue in the long-term service of the Company and to create in such employees
a more direct interest in the future success of the operations of the Company by
relating incentive compensation to increases in stockholder value, so that the
income of the key employees is more closely aligned with the income of the
Company's stockholders. The Plan is also designed to attract key employees and
to retain and motivate participating employees by providing an opportunity for
investment in the Company.
SECTION
DEFINITIONS
2.1 Definitions. The following terms shall have the
meanings set forth below:
(a) "Affiliated Corporation" means any corporation
or other entity (including but not limited to a partnership) which is affiliated
with Rock Bottom Restaurants, Inc. through stock ownership or otherwise
and is treated as a common employer under the provisions of Sections 414(b)
and (c) of the Internal Revenue Code.
(b) "Award" means a grant made under this Plan in the
form of Stock, Options, Restricted Stock,
Performance Shares, or Performance Units.
(c) "Board" means the Board of Directors of the
Company.
(d) "Effective Date" means the effective date of the
Plan, June 3, 1994.
(e) "Eligible Employees" means full-time employees
(including, without limitation, officers and directors who are also employees)
of the Company or any Affiliated Corporation or any division thereof, upon whose
judgment, initiative and efforts the Company is, or will be, important to the
successful conduct of its business.
<PAGE>
(f) "Employee Committee" means a committee composed
of at least one member of the Board of Directors who may, but need not be, a
disinterested person as that term is defined in Rule 16b-3 under the Securities
Exchange Act of 1934 ("1934 Act"). The Employee Committee is empowered hereunder
to grant Awards to Eligible Employees who are not directors or "officers" of the
Company as that term is defined in Rule 16a-1(f), promulgated under the 1934
Act, and to establish the terms of such Awards at the time of grant, but shall
have no other authority with respect to the Plan or outstanding Awards except as
expressly granted by the Plan.
(g) "Fair Market Value" means the officially quoted
closing price of the Stock on the NASDAQ National Market System on a particular
date. If there are no Stock transactions on such date, the Fair Market Value
shall be determined as of the immediately preceding date on which there were
Stock transactions. If no such prices are reported on the NASDAQ National Market
System, then Fair Market Value shall mean the average of the high and low sale
prices for the Stock (or if no sales prices are reported, the average of the
high and low bid prices) as reported by the principal regional stock exchange,
or if not so reported, as reported by NASDAQ or a quotation system of general
circulation to brokers and dealers. If the Stock is not publicly traded, the
Fair Market Value of the Stock on any date shall be determined in good faith by
the Compensation Committee after such consultation with outside legal,
accounting and other experts as the Compensation Committee may deem advisable,
and the Committee shall maintain a written record of its method of determining
such value.
(h) "Compensation Committee" means a committee
consisting of at least two disinterested members of the Board, who are empowered
hereunder to take all actions required in the administration of the Plan and the
grant and administration of Awards hereunder. The Compensation Committee shall
be so constituted at all times as to permit the Plan to comply with Rule 16b-3
or any successor rule promulgated under the 1934 Act. Members of the
Compensation Committee shall be appointed from time to time by the Board, shall
serve at the pleasure of the Board, and may resign at any time upon written
notice to the Board.
(i) "Incentive Stock Option" means any Option
designated as such and granted in accordance with the requirements of Section
422 of the Internal Revenue Code.
(j) "Internal Revenue Code" means the Internal
Revenue Code of 1986, as it may be amended from time
to time.
(k) "Non-Statutory Option" means any Option other
than an Incentive Stock Option.
<PAGE>
(l) "Option" means a right to purchase Stock at a
stated price for a specified period of time.
(m) "Option Price" means the price at which shares of
Stock subject to an Option may be purchased,
determined in accordance with subsection 7.2(b).
(n) "Participant" means an Eligible Employee or
consultant to the Company designated by the Compensation Committee from time to
time during the term of the Plan to receive one or more Awards under the Plan.
(o) "Performance Cycle" means the period of time as
specified by the Compensation Committee over which Performance Share or
Performance Units are to be earned.
(p) "Performance Shares" means an Award made pursuant
to Section 9 which entitles a Participant to receive Shares, their cash
equivalent or a combination thereof based on the achievement of performance
targets during a Performance Cycle.
(q) "Performance Units" means an Award made pursuant
to Section 9 which entitles a Participant to receive cash, Stock or a
combination thereof based on the achievement of performance targets during a
Performance Cycle.
(r) "Plan Year" means the period beginning on the
Monday following the fifty-second Sunday of each year and ending on the
fifty-second Sunday of each year, except that for the first year of the Plan it
shall begin on the Effective Date and extend to the fifty-second Sunday of that
year.
(s) "Restricted Stock" means Stock granted under
Section 8 that is subject to restrictions imposed pursuant to said Section.
(t) "Share" means a share of Stock.
(u) "Stock" means the common stock, $.01 par value,
of the Company.
2.2 Gender and Number. Except when otherwise indicated
by the context, the masculine gender shall also include the feminine gender, and
the definition of any term herein in the singular shall also include the plural.
<PAGE>
SECTION 3
PLAN ADMINISTRATION
The Plan shall be administered by the Compensation Committee. References
herein to the "Committee" shall mean the Employee Committee and/or Compensation
Committee, as applicable. References herein to the Compensation Committee refer
solely to the Compensation Committee.
In accordance with the provisions of the Plan, the Committee shall, in its
sole discretion, select Participants from among the Eligible Employees and
consultants to whom Awards will be granted, the form of each Award, the amount
of each Award and any other terms and conditions of each Award as the Committee
may deem necessary or desirable and consistent with the terms of the Plan. The
Compensation Committee shall determine the form or forms of the agreements with
participants which shall evidence the particular provisions, terms, conditions,
rights and duties of the Company and the Participants with respect to Awards
granted pursuant to the Plan, which provisions need not be identical except as
may be provided herein.
The Compensation Committee may from time to time adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Compensation Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan, and the
Compensation Committee may correct, supply any omission or reconcile any
inconsistency in any agreement entered into hereunder in the manner and to the
extent it shall deem expedient and it shall be the sole and final judge of such
expediency. No member of the Committee shall be liable for any action or
determination made in good faith, and all members of the Committee shall, in
addition to their rights as directors, be fully protected by the Company with
respect to any such action, determination or interpretation. The determination,
interpretations and other actions of the Committee pursuant to the provisions of
the Plan shall be binding and conclusive for all purposes and on all persons.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. As of January 23, 1998, 1,615,472
Shares are authorized for issuance under the Plan in accordance with the
provisions of the Plan and subject to such restrictions or other provisions as
the Compensation Committee may from time to time deem necessary. This
authorization shall be increased automatically on each succeeding annual
anniversary of the Effective Date after April 20, 1998 by an amount equal to
that number of Shares equal to one-half of one percent of the Company's then
issued and outstanding Shares. The Shares may be divided among the various Plan
components as the Compensation Committee shall determine, except that no more
<PAGE>
than 1,615,472 Shares shall be issued as Incentive Stock Options under the Plan.
Any portion of the Shares added on each succeeding anniversary of the Effective
Date which are unused during the Plan Year beginning on such anniversary date
shall be carried forward and be available for grant and issuance in subsequent
Plan Years, while up to 100% of the Shares to be added in the next succeeding
Plan Year (calculated on the basis of the current Plan Year's allocation) may be
borrowed for use in the current Plan Year. Shares which may be issued upon the
exercise of Options shall be applied to reduce the maximum number of Shares
remaining available for use under the Plan. The Company shall at all times
during the term of the Plan and while any Options are outstanding retain as
authorized and unissued Stock, or as treasury Stock, at least the number of
Shares from time to time required under the provisions of the Plan, or otherwise
assure itself of its ability to perform its obligations hereunder.
4.2 Unused and Forfeited Stock. Any Shares that are subject
to an Award under this Plan which are not issued because the terms and
conditions of the Award are not met, including any Shares that are subject to an
Option which expires or is terminated for any reason, shall become automatically
available for use under the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the
Company shall at any time increase or decrease the number of its outstanding
Shares of Stock or change in any way the rights and privileges of such Shares by
means of the payment of a stock dividend or any other distribution upon such
Shares payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, or other
event that results in a change in the number or the kind of outstanding shares
of Stock or of any stock or other securities into which the Stock shall be
changed or for which it shall have been exchanged, then in relation to the Stock
that is affected by one or more of the above events, the numbers, rights and
privileges of the following shall be increased, decreased or changed in like
manner as if they had been issued and outstanding, fully paid and nonassessable
at the time of such occurrence: (i) the shares of Stock as to which Awards may
be granted under the Plan; (ii) the Shares of Stock then included in each
outstanding Option, Performance Share or Performance Unit granted hereunder; and
(iii) the Shares of stock which have been reserved for issuance pursuant to the
Plan.
4.4 Dividend Payable in Stock of Another Corporation, Etc.
If the Company shall at any time pay or make any dividend or other distribution
upon the Stock payable in securities of another corporation or other property
(except money or Stock), a proportionate part of such securities or other
property shall be set aside and delivered to any Participant then holding an
Award for the particular type of Stock for which the dividend or other
distribution was made, upon exercise thereof in the case of Options, and the
vesting thereof in the case of other Awards. Prior to the time that any such
securities or other property are delivered to a Participant in accordance with
the foregoing, the Company shall be the owner of such securities or other
property and shall have the right to vote the securities, receive any dividends
payable on such securities, and in all other respects shall be treated as the
owner. If securities or other property which have been set aside by the Company
in accordance with this Section are not delivered to a Participant because an
Award is not exercised or otherwise vested, then such securities or other
property shall remain the property of the Company and shall be dealt with by the
Company as it shall determine in its sole discretion.
<PAGE>
4.5 Rights to Subscribe. If the Company shall at any time
grant to the holders of its Stock rights to subscribe pro rata for additional
shares thereof or for any other securities of the Company or of any other
corporation, there shall be reserved with respect to the Shares then subject to
an Award held by any Participant of the particular class of Stock involved, the
Stock or other securities which the Participant would have been entitled to
subscribe for if immediately prior to such grant the Participant had exercised
his entire Option, or otherwise vested in his entire Award. If, upon exercise of
any such Option or the vesting of any other Award, the Participant subscribes
for the additional Stock or other securities, the Participant shall pay to the
Company the price that is payable by the Participant in respect of the rights to
subscribe for such Stock or other securities.
4.6 General Adjustment Rules. If any adjustment or
substitution provided for in this Section 4 shall result in the creation of a
fractional Share under any Award, the Company shall, in lieu of selling or
otherwise issuing such fractional Share, pay to the Participant a cash sum in an
amount equal to the product of such fraction multiplied by the Fair Market Value
of a Share on the date the fractional Share would otherwise have been issued. In
the case of any such substitution or adjustment affecting an Option, the total
Option Price for the shares of Stock then subject to an Option shall remain
unchanged but the Option Price per shall under each such Option shall be
equitably adjusted by the Compensation Committee to reflect the greater or
lesser number of shares of Stock or other securities into which the Stock
subject to the Option may have been changed.
4.7 Determination by Compensation Committee, Etc. Adjustments
under this Section 4 shall be made by the Compensation Committee, whose
determinations with regard thereto shall be final and binding upon all parties
thereto.
SECTION 5
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification or
change of outstanding Shares), or if all or substantially all of the assets or
more than 50% of the outstanding voting stock of the Company is acquired by any
other corporation, business entity or person (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company), or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
10 do not apply, the Compensation Committee, or the board of directors of any
corporation assuming the obligations of the Company, shall, have the power and
discretion to prescribe the terms and conditions for the exercise of, or
modification of, any outstanding Awards granted hereunder. By way of
illustration, and not by way of limitation, the Compensation Committee may
provide for the complete or partial acceleration of the dates of exercise of the
Options, or may provide that such Options will be exchanged or converted into
options to acquire securities of the surviving or acquiring corporation, or may
provide for a payment or distribution in respect of outstanding Options (or the
portion thereof that is currently exercisable) in cancellation thereof. The
<PAGE>
Compensation Committee may remove restrictions on Restricted Stock and may
modify the performance requirements for any other Awards. The Compensation
Committee may provide that Stock or other Awards granted hereunder must be
exercised in connection with the closing of such transaction, and that if not so
exercised such Awards will expire. Any such determinations by the Compensation
Committee may be made generally with respect to all Participants, or may be made
on a case-by-case basis with respect to particular Participants. The provisions
of this Section 5 shall not apply to any transaction undertaken for the purpose
of reincorporating the Company under the laws of another jurisdiction, if such
transaction does not materially affect the beneficial ownership of the Company's
capital stock.
SECTION 6
PARTICIPATION
Participants in the Plan shall be those Eligible Employees or consultants
who, in the judgment of the Committee, are performing, or during the term of
their incentive arrangement will perform, important services in the management,
operation and development of the Company, and significantly contribute, or are
expected to significantly contribute, to the achievement of long-term corporate
economic objectives. Participants may be granted from time to time one or more
Awards; provided, however, that the grant of each such Award shall be separately
approved by the Committee and receipt of one such Award shall not result in
automatic receipt of any other Award. Written notice shall be given to such
person, specifying the terms, conditions, rights and duties related thereto.
Incentive Stock Options shall not be granted to consultants, or to Eligible
Employees of any partnership which is included within the definition of an
Affiliated Corporation but whose employees are not permitted to receive
Incentive Stock Options under the Internal Revenue Code. Each Participant shall
enter into an agreement with the Company, in such form as the Compensation
Committee shall determine and which is consistent with the provisions of the
Plan, specifying such terms, conditions, rights and duties. Awards shall be
deemed to be granted as of the date specified in the grant resolution of the
Committee, which date shall be the date of any related agreement with the
Participant. In the event of any inconsistency between the provisions of the
Plan and any such agreement entered into hereunder, the provisions of the Plan
shall govern.
SECTION 7
STOCK OPTIONS
7.1 Grant of Options. Coincident with the following
designation for participation in the Plan, a Participant may be granted one or
more Options. The Committee in its sole discretion shall designate whether an
Option is to be considered an Incentive Stock Option or a Non-Statutory Option.
The Committee may grant both an Incentive Stock Option and a Non-Statutory
Option to the same Participant at the same time or at different times. Incentive
Stock Options and Non-Statutory Options, whether granted at the same or
different times, shall be deemed to have been awarded in separate grants, shall
be clearly identified, and in no event shall the exercise of one Option affect
the right to exercise any other Option or affect the number of Shares for which
any other Option may be exercised.
<PAGE>
7.2 Option Agreements. Each Option granted under the
Plan shall be evidenced by a written stock option agreement which shall be
entered into by the Company and the Participant to whom the Option is granted
(the "Option Holder"), and which shall contain the following terms and
conditions, as well as such other terms and conditions not inconsistent
therewith, as the Committee may consider appropriate in each case.
(a) Number of Shares. Each stock option agreement
shall state that it covers a specified number of Shares, as determined by the
Committee. Notwithstanding any other provision of the Plan, the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Option Holder in any calendar year, under
the Plan or otherwise, shall not exceed $100,000. For this purpose, the Fair
Market Value of the Shares shall be determined as of the time an Option is
granted.
(b) Price. The price at which each Share covered by
an Option may be purchased shall be determined in each case by the Committee and
set forth in the stock option agreement, but in no event shall the Option Price
for each Share covered by an Incentive Stock Option be less than the Fair Market
Value of the Stock on the date the Option is granted. The Option Price for each
Share covered by a Non-Statutory Option may be less than Fair Market Value, in
the sole discretion of the Committee. In addition, the Option Price for each
Share covered by an Incentive Stock Option granted to an Eligible Employee who
then owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any parent or subsidiary corporation of
the Company must be at least 110% of the Fair Market Value of the Stock subject
to the Incentive Stock Option on the date the Option is granted.
(c) Duration of Options. Each stock option agreement
shall state the period of time, determined by the Committee within which the
Option may be exercised by the Option Holder (the "Option Period"). The Option
Period must expire, in all cases, not more than ten years from the date an
Option is granted; provided, however, that the Option Period of an Option
granted to an Eligible Employee or consultant who then owns stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company must expire not
more than five years from the date such an Option is granted. Each stock option
agreement shall also state the periods of time, if any, as determined by the
Committee when incremental portions of each Option shall vest. Except as
provided in Sections 5 and 10, no portion of any Option shall vest before six
months after the date of grant of the Option.
(d) Termination of Employment, Death, Disability,
Etc. Except as otherwise determined by the Committee, each stock option
agreement shall provide as follows with respect to the exercise of the Option
upon termination of the employment or the death of the Option Holder:
<PAGE>
(i) If the employment of the Option
Holder is terminated within the Option Period for cause, as determined by the
Company, the Option shall thereafter be void for all purposes. As used in this
subsection 7.2(d), "cause" shall mean a gross violation, as determined by the
Company, of the Company's established policies and procedures. The effect of
this subsection 7.2(d)(i) shall be limited to determining the consequences of a
termination, and nothing in this subsection 7.2(d)(i) shall restrict or
otherwise interfere with the Company's discretion with respect to the
termination of any employee.
(ii) If the Option Holder terminates
his employment with the Company in a manner determined by the Board, in its sole
discretion, to constitute retirement (which determination shall be communicated
to the Option Holder within 10 days of such termination), the Option may be
exercised by the Option Holder, or in the case of death by the persons specified
in subsection (iii) of this subsection 7.2(d), within three months following his
or her retirement if the Option is an Incentive Stock Option or within twelve
months following his or her retirement if the Option is a Non-Statutory Stock
Option (provided that in each case that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become exercisable on
or before the date of the Option Holder's termination of employment.
(iii) If the Option Holder dies, or if
the Option Holder becomes disabled (within the meaning of Section 22(e) of the
Internal Revenue Code), during the Option Period while still employed, or with
respect to a Non-Statutory Stock Option if the Option Holder dies within the
three-month period referred to in (iv) below or within the three or twelve-month
period referred to in (ii) above, the Option may be exercised by those entitled
to do so under the Option Holder's will or by the laws of descent and
distribution within twelve months following the Option Holder's death or
disability (provided that in each case such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become exercisable on
or before the date of the Option Holder's death or disability.
(iv) If the employment of the Option
Holder by the Company is terminated (which for this purpose means that the
Option Holder is no longer employed by the Company or by an Affiliated
Corporation) within the Option Period for any reason other than cause,
retirement as provided in (ii) above, disability or the Option Holder's death,
the Option may be exercised by the Option Holder within three months following
the date of such termination (provided that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become exercisable on
or before the date of termination of employment.
(e) Transferability. Each stock option agreement
shall provide that the Option granted therein is not transferable by the Option
Holder except by will or pursuant to the laws of descent and distribution, and
that such Option is exercisable during the Option Holder's lifetime only by him
or her, or in the event of disability or incapacity, by his or her guardian or
legal representative.
<PAGE>
(f) Exercise, Payments, Etc.
(i) Each stock option agreement shall
provide that the method for exercising the Option granted therein shall be by
delivery to the Corporate Secretary of the Company of written notice specifying
the number of Shares with respect to which such Option is exercised (which must
be in an amount evenly divisible by 100) and payment of the Option Price. Such
notice shall be in a form satisfactory to the Compensation Committee and shall
specify the particular Option (or portion thereof) which is being exercised and
the number of Shares with respect to which the Option is being exercised. The
exercise of the Option shall be deemed effective upon receipt of such notice by
the Corporate Secretary and payment to the Company. The purchase of such Stock
shall take place at the principal offices of the Company upon delivery of such
notice, at which time the purchase price of the Stock shall be paid in full by
any of the methods or any combination of the methods set forth in (ii) below. A
properly executed certificate or certificates representing the Stock shall be
issued by the Company and delivered to the Option Holder. If certificates
representing Stock are used to pay all or part of the Option Price, separate
certificates for the same number of shares of Stock shall be issued by the
Company and delivered to the Option Holder representing each certificate used to
pay the Option Price, and an additional certificate shall be issued by the
Company and delivered to the Option Holder representing the additional shares,
in excess of the Option Price, to which the Option Holder is entitled as a
result of the exercise of the Option.
(ii) The exercise price shall be paid
by any of the following methods or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable
to the order of the Company;
(C) by delivery to the Company
of certificates representing the number of Shares then owned by the Option
Holder, the Fair Market Value of which equals the purchase price of the Stock
purchased pursuant to the Option, properly endorsed for transfer to the Company;
provided however, that Shares used for this purpose must have been held by the
Option Holder for such minimum period of time as may be established from time to
time by the Compensation Committee; for purposes of this Plan, the Fair Market
Value of any Shares delivered in payment of the purchase price upon exercise of
the Option shall be the Fair Market Value as of the exercise date; the exercise
date shall be the day the delivery of the certificates for the Stock used as
payment of the Option Price; or
(D) by delivery to the Company
of a properly executed notice of exercise together with irrevocable instructions
to a broker to deliver to the Company promptly the amount of the proceeds of the
sale of all or a portion of the Stock or of a loan from the broker to the Option
Holder necessary to pay the exercise price.
<PAGE>
(iii) In the discretion of the
Compensation Committee, the Company may guaranty a third-party loan obtained by
a Participant to pay part or all of the Option Price of the Shares provided that
such loan or the Company's guaranty is secured by the Shares.
(g) Date of Grant. An option shall be considered as
having been granted on the date specified in the grant resolution of the
Committee.
(h) Withholding. Each stock option agreement covering
Non- Statutory Options shall provide that, upon exercise of the Option, the
Option Holder shall make appropriate arrangements with the Company to provide
for the amount of additional withholding required by applicable federal and
state income tax laws, including payment of such taxes through delivery of Stock
or by withholding Stock to be issued under the Option, as provided in Section
15.
(i) Adjustment of Options. Subject to the limitations
contained in Sections 7 and 14, the Compensation Committee may make any
adjustment in the Option Price, the number of shares subject to, or the terms
of, an outstanding Option and a subsequent granting of an Option by amendment or
by substitution of an outstanding Option. Such amendment, substitution, or
re-grant may result in terms and conditions (including Option Price, number of
shares covered, vesting schedule or exercise period) that differ from the terms
and conditions of the original Option. The Compensation Committee may not,
however, adversely affect the rights of any Participant to previously granted
Options without the consent of such Participant. If such action is affected by
amendment, the effective date of such amendment shall be the date of the
original grant.
7.3 Stockholder Privileges. No Option Holder shall have any
rights as a stockholder with respect to any Shares covered by an Option until
the Option Holder becomes the holder of record of such Stock, and no adjustments
shall be made for dividends or other distributions or other rights as to which
there is a record date preceding the date such Option Holder becomes the holder
of record of such Stock, except as provided in Section 4.
SECTION 8
RESTRICTED STOCK AWARDS
8.1 Awards Granted. Coincident with or following designation
for participation in the Plan, a Participant may be granted one or more
Restricted Stock Awards consisting of Shares. The number of Shares granted as a
Restricted Stock Award shall be determined by the Committee.
<PAGE>
8.2 Restrictions. A Participant's right to retain a
Restricted Stock Award granted to him under Section 8.1 shall be subject to such
restrictions, including but not limited to his continuous employment by the
Company for a restriction period specified by the Committee or the attainment of
specified performance goals and objectives, as may be established by the
Committee with respect to such award. The Committee may in its sole discretion
require different periods of employment or different performance goals and
objectives with respect to different Participants, to different Restricted Stock
Awards or to separate, designated portions of the Shares constituting a
Restricted Stock Award.
8.3 Privileges of a Stockholder, Transferability. A
Participant shall have all voting, dividend, liquidation and other rights with
respect to Stock in accordance with its terms received by him as a Restricted
Stock Award under this Section 8 upon his becoming the holder of record of such
Stock; provided, however, that the Participant's right to sell, encumber or
otherwise transfer such Stock shall be subject to the limitations of Section
11.2 hereof.
8.4 Enforcement of Restrictions. The Committee may in its
sole discretion require one or more of the following methods of enforcing the
restrictions referred to in Section 8.2 and 8.3:
(a) Placing a legend on the stock certificates
referring to the restrictions;
(b) Requiring the Participant to keep the stock
certificates, duly endorsed, in the custody of the Company while the
restrictions remain in effect; or
(c) Requiring that the stock certificates, duly
endorsed, be held in the custody of a third party while the restrictions remain
in effect.
8.5 Termination of Employment, Death, Disability, Etc. In
the event of the death or disability (within the meaning of Section 22(e) of the
Internal Revenue Code) of a Participant, or the retirement of a Participant as
provided in Section 7.2(d)(ii), all employment period and other restrictions
applicable to Restricted Stock Awards then held by him shall lapse, and such
awards shall become fully nonforfeitable. Subject to Sections 5 and 10, in the
event of a Participant's termination of employment for any other reason, any
Restricted Stock Awards as to which the employment period or other restrictions
have not been satisfied shall be forfeited.
SECTION 9
PERFORMANCE SHARES AND PERFORMANCE UNITS
9.1 Awards Granted. Coincident with or following designation
for participation in the Plan, a Participant may be granted Performance Shares
or Performance Units.
9.2 Amount of Award. The Committee shall establish a maximum
amount of a Participant's Award, which amount shall be denominated in Shares in
the case of Performance Shares or in dollars in the case of Performance Units.
<PAGE>
9.3 Communication of Award. Written notice of the maximum
amount of a Participant's Award and the Performance Cycle determined by the
Committee shall be given to a Participant as soon as practicable after approval
of the Award by the Committee.
9.4 Amount of Award Payable. The Committee shall establish
maximum and minimum performance targets to be achieved during the applicable
Performance Cycle. Performance targets established by the Committee shall relate
to corporate, group, unit or individual performance and may be established in
terms of earnings, growth in earnings, ratios of earnings to equity or assets,
or such other measures or standards determined by the Committee. Multiple
performance targets may be used and the components of multiple performance
targets may be given the same or different weights in determining the amount of
an Award earned, and may relate to absolute performance or relative performance
measured against other groups, units, individuals or entities. Achievement of
the maximum performance target shall entitle the Participant to payment (subject
to Section 9.6) at the full or maximum amount specified with respect to the
Award; provided, however, that notwithstanding any other provisions of this
Plan, in the case of an Award of Performance Shares the Committee, in its
discretion may establish an upper limit on the amount payable (whether in cash
or Stock) as a result of the achievement of the maximum performance target. The
Committee may also establish that a portion of a full or maximum amount of a
Participant's Award will be paid (subject to Section 9.6) for performance which
exceeds the minimum performance target but falls below the maximum performance
target applicable to such Award.
9.5 Adjustments. At any time prior to payment of a
Performance Share or Performance Unit Award, the Compensation Committee may
adjust previously established performance targets or other terms and conditions
to reflect events such as changes in laws, regulations, or accounting practice,
or mergers, acquisitions or divestitures.
9.6 Payments of Awards. Following the conclusion of each
Performance Cycle, the Committee shall determine the extent to which performance
targets have been attained, and the satisfaction of any other terms and
conditions with respect to an Award relating to such Performance Cycle. The
Committee shall determine what, if any, payment is due with respect to an Award
and whether such payment shall be made in cash, Stock or some combination.
Payment shall be made in a lump sum or installments, as determined by the
Committee, and be made as promptly as practicable following the end of the
applicable Performance Cycle, subject to such terms and conditions and in such
form as may be prescribed by the Committee.
9.7 Termination of Employment. If a Participant ceases to be
a Employee before the end of a Performance Cycle by reason of his death,
permanent disability or retirement as provided in Section 7.2(d)(ii), the
Performance Cycle for such Participant for the purpose of determining the amount
of the Award payable shall end at the end of the calendar quarter immediately
preceding the date on which such Participant ceased to be an Employee. The
amount of an Award payable to a Participant to whom the preceding sentence is
applicable shall be paid at the end of the Performance Cycle and shall be that
fraction of the Award computed pursuant to the preceding sentence the numerator
of which is the number of calendar quarters during the Performance Cycle during
all of which said Participant was an Employee and the denominator of which is
the number of full calendar quarters in the Performance Cycle. Upon any other
termination of employment of a Participant during a Performance Cycle,
participation in the Plan shall cease and all outstanding Awards of Performance
Shares or Performance Units to such Participant shall be cancelled.
<PAGE>
SECTION 10
CHANGE IN CONTROL
10.1 Options, Restricted Stock. In the event of a Change
in Control of the Company as defined in Section 10.3, (i) the vesting of all
outstanding Options shall be automatically accelerated, so that all Options
outstanding at the time of such Change of Control will be exercisable
immediately and (ii) all restrictions with respect to Restricted Stock shall be
eliminated, and the Compensation Committee shall deliver Shares free of
restrictive legends to any Participant, except that the elimination of
restrictions on shares of Restricted Stock granted under long term incentive
agreements shall be governed by the terms of such agreements.
10.2 Performance Shares and Performance Units. Under the
circumstances described in Section 10.1, the Compensation Committee may, in its
sole discretion, and without obtaining stockholder approval, to the extent
permitted in Section 14, provide for payment of outstanding Performance Shares
and Performance Units at the maximum award level or any percentage thereof.
10.3 Definition. For purposes of the Plan, a "change in
control" shall be deemed to have occurred if (a) any "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the 1934 Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or Mr. Frank B. Day is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the 1934 Act), directly or indirectly, of more than 33-1/3
of the then outstanding voting stock of the Company; or (b) at any time during
any period of three consecutive years (not including any period prior to the
Effective Date), individuals who at the beginning of such period constitute the
Board (and any new director whose election by the Board or whose nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority thereof;
or (c) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 80% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
<PAGE>
SECTION 11
RIGHTS OF EMPLOYEES; PARTICIPANTS
11.1 Employment. Nothing contained in the Plan or in any
Award granted under the Plan shall confer upon any Participant any right with
respect to the continuation of his or her employment by the Company, or
interfere in any way with the right of the Company, subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the Participant from
the rate in existence at the time of the grant of an Award. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute a termination of employment shall be determined by the Compensation
Committee at the time.
11.2 Nontransferability. No right or interest of any
Participant in an Award granted pursuant to the Plan shall be assignable or
transferable during the lifetime of the Participant, either voluntarily or
involuntarily, or be subjected to any lien, directly or indirectly, by operation
of law, or otherwise, including execution, levy, garnishment, attachment, pledge
or bankruptcy. In the event or a Participant's death, a Participant's rights and
interests in Options shall, to the extent provided in Section 7, be transferable
by testamentary will or the laws of descent and distribution, and payment of any
amounts due under the Plan shall be made to, and exercise of any Options may be
made by, the Participant's legal representatives, heirs or legatees. If in the
opinion of the Compensation Committee a person entitled to payments or to
exercise rights with respect to the Plan is disabled from caring for his affairs
because of mental condition, physical condition or age, payment due such person
may be made to, and such rights shall be exercised by, such person's guardian,
conservator or other legal personal representative upon furnishing the
Compensation Committee with evidence satisfactory to the Compensation Committee
of such status.
SECTION 12
GENERAL RESTRICTIONS
12.1 Investment Representations. The Company may require any
person to whom an Option or other Award is granted, as a condition of exercising
such Option or receiving Stock under the Award, to give written assurances in
substance and form satisfactory to the Company and its counsel to the effect
that such person is acquiring the Stock subject to the Option or the Award for
his own account for investment and not with any present intention or selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws. Legends evidencing such restrictions may be placed on the
certificates evidencing the Stock.
<PAGE>
12.2 Compliance with Securities Laws. Each Award shall be
subject to the requirement that, if at any time counsel to the Company shall
determine that the listing, registration or qualification of the Shares subject
to such Award upon any securities exchange or under any state or federal law, or
the consent or approval of any governmental or regulatory body, is necessary as
a condition of, or in connection with, the issuance or purchase of Shares
thereunder, such Award may not be accepted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained on conditions acceptable to the Compensation
Committee. Nothing herein shall be deemed to require the Company to apply for or
to obtain such listing, registration or qualification.
12.3 Stock Restriction Agreement. The Committee may provide
that shares of Stock issuable upon the exercise of an Option shall, under
certain conditions, be subject to restrictions whereby the Company has a right
of first refusal with respect to such shares or a right or obligation to
repurchase all or a portion of such shares, which restrictions may survive a
Participant's term of employment with the Company. The acceleration of time or
times at which an Option becomes exercisable may be conditioned upon the
Participant's agreement to such restrictions.
SECTION 13
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or the grant or vesting of any other Award
shall not constitute "earnings" with respect to which any other employee
benefits of such employee are determined, including without limitation benefits
under any pension, profit sharing, life insurance or salary continuation plan.
SECTION 14
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time-to-time may amend or
modify, the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the stockholders
if stockholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if the Company, on the advice of
counsel, determines that stockholder approval is otherwise necessary or
desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Awards theretofore granted under the Plan, without the
consent of the Participant holding such Awards.
<PAGE>
SECTION 15
WITHHOLDING
15.1 Withholding Requirement. The Company's obligations to
deliver Shares upon the exercise of an Option, or upon the vesting of any other
Award, shall be subject to the Participant's satisfaction of all applicable
federal, state and local income and other tax withholding requirements.
15.2 Withholding With Stock. At the time the Committee
grants an Award, it may, in its sole discretion, grant the Participant an
election to pay all such amounts of tax withholding, or any part thereof, by
electing to transfer to the Company, or to have the Company withhold from Shares
otherwise issuable to the Participant, Shares having a value equal to the amount
required to be withheld or such lesser amount as may be elected by the
Participant. All elections shall be subject to the approval or disapproval of
the Committee. The value of Shares to be withheld shall be based on the Fair
Market Value of the Stock on the date that the amount of tax to be withheld is
to be determined (the "Tax Date"). Any such elections by Participants to have
Shares withheld for this purpose will be subject to the following restrictions:
(a) All elections must be made prior to the Tax
Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer or director
of the Company within the meaning of Section 16 of the 1934 Act ("Section 16"),
the Participant must satisfy the requirements of such Section 16 and any
applicable rules thereunder with respect to the use of Stock to satisfy such tax
withholding obligation.
SECTION 16
BROKERAGE ARRANGEMENTS
The Compensation Committee, in its discretion, may cause the Company to
enter into arrangements with one or more banks, brokers or other financial
institutions to facilitate the disposition of shares acquired upon exercise of
Stock Options, including, without limitation, arrangements for the simultaneous
exercise of Stock Options and sale of the Shares acquired upon such exercise.
SECTION 17
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of employees,
which the Company or any Affiliated Corporation now has lawfully put into
effect, including, without limitation, any retirement, pension, savings and
stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
<PAGE>
SECTION 18
REQUIREMENTS OF LAW
18.1 Requirements of Law. The issuance of stock and the
payment of cash pursuant to the Plan shall be subject to all applicable laws,
rules and regulations.
18.2 Federal Securities Law Requirements. If a Participant
is an officer or director of the Company within the meaning of Section 16 of the
1934 Act, Awards granted hereunder shall be subject to all conditions required
under Rule 16b-3, or any successor rule promulgated under the 1934 Act, to
qualify the Award for any exception from the provisions of Section 16(b) of the
1934 Act available under that Rule. Such conditions are hereby incorporated
herein by reference and may be set forth in the agreement with the Participant
which describes the Award.
18.3 Governing Law. The Plan and all agreements hereunder
shall be construed in accordance with and governed by the laws of the State of
Delaware.
SECTION 19
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board of
Directors, and no Award shall be granted after such termination. If not sooner
terminated under the preceding sentence, the Plan shall fully cease and expire
at midnight on June 3, 2004. Awards outstanding at the time of the Plan
termination may continue to be exercised or earned in accordance with their
terms.
