UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
PIERCING PAGODA, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] $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:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price of 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):
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any party of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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Piercing Pagoda, Inc.
Piercing Pagoda, Inc.
3910 Adler Place
Bethlehem, PA 18017
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on Wednesday, September 18, 1996
The Annual Meeting of Stockholders of Piercing Pagoda, Inc. (the "Company")
will be held on Wednesday, September 18, 1996, at 10:00 a.m., at the Hotel
Bethlehem, 437 Main Street, Bethlehem, Pennsylvania for the following purposes:
1. To elect one director to hold office until the 1999 Annual Meeting of
Stockholders.
2. To approve the Piercing Pagoda, Inc. Employee Stock Purchase Plan.
3. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the 1997 fiscal year.
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on July 22, 1996 as
the record date for the meeting. Only stockholders of record at that time are
entitled to notice of and to vote at the meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the attached proxy statement for further information with
respect to the business to be transacted at the meeting.
You are cordially invited to attend the meeting in person. The Board of
Directors urges you to sign, date and return the enclosed proxy promptly. The
return of the enclosed proxy will not affect your right to vote in person if you
do attend the meeting.
John F. Eureyecko
Secretary
August 5, 1996
<PAGE>
Piercing Pagoda, Inc.
3910 Adler Place
Bethlehem, PA 18017
---------------------------
PROXY STATEMENT
for
Annual Meeting of Stockholders
September 18, 1996
---------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Piercing Pagoda, Inc., a Delaware
corporation (the "Company"), for use at the Company's Annual Meeting of
Stockholders (the "Meeting"), which will be held on Wednesday, September 18,
1996, at 10:00 a.m. at the Hotel Bethlehem, 437 Main Street, Bethlehem,
Pennsylvania, and any adjournment or postponement thereof. This proxy statement,
the foregoing notice and the enclosed proxy are first being sent to stockholders
of the Company (the "Stockholders") on or about August 5, 1996.
The Board of Directors does not intend to bring any matter before the
Meeting except as specifically indicated in the notice and does not know of
anyone else who intends to do so. If any other matters properly come before the
Meeting, however, the persons named in the enclosed proxy, or their duly
constituted substitutes acting at the Meeting, will be authorized to vote or
otherwise act thereon in accordance with their judgment on such matters. If the
enclosed proxy is properly executed and returned prior to voting at the Meeting,
the shares represented thereby will be voted in accordance with the instructions
marked thereon. In the absence of instructions, the shares will be voted "FOR"
the nominee of the Board of Directors in the election of the one director whose
term of office will extend until the 1999 Annual Meeting of Stockholders and
until his successor is duly elected and qualified, "FOR" the approval of the
Piercing Pagoda, Inc. Employee Stock Purchase Plan and "FOR" the approval of
KPMG Peat Marwick LLP as the Company's independent auditors for the current
fiscal year ending March 31, 1997.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary in writing, by delivering a duly executed proxy bearing a later date,
or by attending the Meeting and voting in person.
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VOTING SECURITIES AND SECURITY OWNERSHIP
Voting Securities
At the close of business on July 22, 1996, the record date, there were
5,251,016 shares of the Company's common stock (the "Common Stock") outstanding.
Only Stockholders of record at the close of business on that date are entitled
to vote at the Meeting. At the Meeting, such Stockholders will be entitled to
one vote for each share of Common Stock owned at the record date. There is no
other class of voting securities outstanding. The presence at the Meeting, in
person or by proxy, of persons entitled to cast the votes of a majority of such
outstanding shares of Common Stock will constitute a quorum for consideration of
the matters expected to be voted on at the Meeting. In the election of
directors, Stockholders entitled to vote will not have cumulative voting rights.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of July 22, 1996
respecting the beneficial share holdings of the Common Stock of: (i) each person
who was known to the Company to be the owner of more than 5% of the Common
Stock; (ii) each director and nominee for director of the Company and each
executive officer named in the Summary Compensation Table; and (iii) all
directors and executive officers of the Company as a group. Each of the persons
named in the table below as beneficially owning the shares set forth therein has
sole voting power and sole investment power with respect to such shares, unless
otherwise indicated.
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership(1) Common Stock(1)
Richard H. Penske 3,236,086(2) 61.6%
Piercing Pagoda, Inc.
3910 Adler Place
P.O. Box 25007
Lehigh Valley, PA 18002-5007
John F. Eureyecko 97,393 1.8%
Barry R. Clauser 43,409(3) *
Sharon J. Zondag 43,209 *
Alan R. Hoefer 63,556(4) 1.2%
Mark A. Randol 20,824 *
All executive officers
and directors as a group
(7 persons) 3,520,493(2)(3)(4) 66.3%
------------------
* Less than 1%.
1. Shares issuable pursuant to options exercisable within 60 days of July 22,
1996 are deemed to be beneficially owned by the option holder; accordingly,
information includes the following number of shares of Common Stock
underlying options held by the following individuals, and all directors and
executive officers as a group: Mr. John F. Eureyecko, 20,000 shares; Mr.
Barry R. Clauser and Ms. Sharon J. Zondag, 15,000 shares each; Messrs. Alan
R. Hoefer and Mark A. Randol, 4,000 shares each; and all directors and
executive officers as a group, 62,800 shares.
2. Includes an aggregate of 135,594 shares held by annuity trusts of which Mr.
Penske is a beneficiary and an aggregate of 135,594 shares held by annuity
trusts of which Mr. Penske's wife is a beneficiary.
3. Includes 200 shares held by Mr. Clauser as custodian for his children, as
to which shares he disclaims beneficial ownership.
4. Includes 4,000 shares held by a trust for the benefit of one of Mr.
Hoefer's children of which he is the trustee, 300 shares held by his wife
and 11,000 shares held by a charitable foundation of which Mr. Hoefer is a
trustee, as to all of which shares he disclaims beneficial ownership.
2
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Compliance with Section 16 (a) of the Securities Exchange Act of 1934.
Section 16 (a) of the Securities Exchange Act of 1934, and the regulations
thereunder, requires the Company's officers and directors and persons who own
more than ten percent of a registered class of the Company's equity securities
(collectively, the "reporting persons") to file reports of ownership and changes
in ownership with the Securities and Exchange Commission and to furnish the
Company with copies of these reports. Based on the Company's review of the
copies of these reports received by it, and written representations received
from reporting persons, the Company believes that all filings required to be
made by the reporting persons during the 1996 fiscal year were made on a timely
basis, except that John F. Eureyecko, Sharon J. Zondag and Barry R. Clauser each
filed one late report relating to purchases at the end of two offering periods
under the Company's Employee Stock Purchase Plan and Alan R. Hoefer filed three
late reports; one report relating to one purchase of shares by each of two
trusts for the benefit of his children and of which he is the trustee and two
reports which each relate to a distribution of shares by a trust for the benefit
of his children and of which he was the trustee.
PROPOSAL ONE
ELECTION OF DIRECTOR
At the meeting, the Stockholders will elect one director to hold office
until the 1999 Annual Meeting of Stockholders and until his successor has been
duly elected and qualified. The Company's Board of Directors is divided into
three classes serving staggered three-year terms, with the term of one class of
directors expiring each year. The director whose term of office expires at the
Meeting is Mr. John F. Eureyecko.
The Board of Directors has nominated Mr. John F. Eureyecko to serve as a
director until the 1999 Annual Meeting of Stockholders and until his successor
has been duly elected and qualified. Such nominee has indicated a willingness to
continue to serve as a director. Should the nominee become unavailable to accept
election as a director, the persons named in the enclosed proxy will vote the
shares which such proxy represents for the election of such other person as the
Board of Directors may recommend. Unless contrary instructions are given on the
proxy, the shares represented by a properly executed proxy will be voted "FOR"
the election of Mr. John F. Eureyecko.
The nominee for election as the director to be elected at the Meeting and
the directors whose terms of office continue after the Meeting, together with
certain information about them, are set forth below:
Director Term
Name Age Since Expires Positions with Company
John F. Eureyecko 47 1994 1996 President, Chief Operating Officer,
Secretary and Director
Richard H. Penske 53 1978 1997 Chairman of the Board and Chief
Executive Officer
Alan R. Hoefer 62 1994 1997 Director +
Mark A. Randol 61 1994 1998 Director +
+ Member of the Audit and Compensation Committees.
3
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John F. Eureyecko joined the Company in October 1991 and has served as
President and Chief Operating Officer since June 1996. Mr. Eureyecko had
previously served as Executive Vice President from January 1992 to June 1996 and
as Chief Financial Officer from February 1994 to June 1996. Mr. Eureyecko was
elected as Secretary in January 1992 and as a director in March 1994. Mr.
Eureyecko came to the Company with 18 years experience at Triangle Building
Supplies and Lumber Co., a building materials retailer, where he last served as
Senior Vice President and General Manager.
Richard H. Penske has served the Company and its predecessor in various
capacities for more that 23 years, including 16 years as President. Mr. Penske
has served as the Chief Executive Officer since 1986 and as a director of the
Company since 1978.
Alan R. Hoefer has served as a director of the Company since March 1994.
Since August 1988, Mr. Hoefer has operated Alan Hoefer & Co., a private
investment banking firm.
Mark A. Randol has served as a director of the Company since March 1994.
Since 1979, Mr. Randol has been the President of Forest City Management, Inc., a
real estate development company.
Meetings and Committees of the Board of Directors
The Board of Directors has an Audit Committee and a Compensation Committee.
Messrs. Hoefer and Randol serve as members of both the Audit Committee and
the Compensation Committee. The functions of the Audit Committee, which held
three formal meetings during fiscal 1996, include reviewing the scope and
results of the annual audit, internal accounting procedures and certain other
questions of accounting policy. The function of the Compensation Committee,
which held one formal meeting during fiscal 1996 is to consider and determine
all compensation matters relating to the Company's executive officers.
The Board of Directors held one formal meeting during fiscal 1996 and also
acted by unanimous consent in writing. Each director attended at least 75% of
the aggregate number of meetings of the Board of Directors and committees on
which the Director served.
Compensation of Directors
Members of the Board of Directors who are not employees of the Company are
compensated at the annual rate of $8,000. Non-employee directors receive $1,000
for each meeting of the Board of Directors which they attend and if, but only
if, not held in conjunction with a Board meeting, a fee of $1,000 for each
meeting of a committee of the Board of Directors which they attend. The Company
also reimburses all directors for their expenses in connection with their
activities as directors of the Company. Directors who are also employees of the
Company do not receive any compensation for serving on the Board of Directors.
Pursuant to the Company's 1994 Stock Option Plan, each director who is a
member of the Compensation Committee also receives an annual grant of ten year
options to purchase 2,000 shares of Common Stock at the fair market value on the
date of grant becoming exercisable on the first anniversary of the date of
grant.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" THE NOMINEE FOR DIRECTOR
4
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PROPOSAL TWO
APPROVAL OF THE PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
On October 12, 1995, the Company's Board of Directors adopted, effective
November 1, 1995, subject to the approval of the Stockholders, the Piercing
Pagoda, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"). The Stock
Purchase Plan has been proposed to provide employees of the Company and its
subsidiaries with a method to acquire an equity interest in the Company through
the purchase of shares of the Company's Common Stock, at discounted prices,
using payroll deductions. Although the Stock Purchase Plan is an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended (the "Code"), the Stock Purchase Plan is not a "qualified
deferred compensation plan" under Section 401 (a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
Although the following summary of the Stock Purchase Plan does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to the text of the Stock Purchase Plan, the material features of the Stock
Purchase Plan are as follows:
1. Number of Shares. The aggregate maximum number of shares reserved for
issuance under the Stock Purchase Plan is 96,000 shares, subject to adjustment
upon the occurrence of stock dividends, stock splits, recapitalization or
certain other capital adjustments that cause an increase or decrease in the
number of issued and outstanding shares of Common Stock. No more than 6,000
shares of Common Stock will be available for purchase under the Stock Purchase
Plan during each three-month offering period.
2. Administration and Operation. The Stock Purchase Plan is currently
administered by the Compensation Committee of the Company's Board of Directors,
but may be hereafter administered by such other subcommittee of the Board
designated by the Board or by the Board itself, as determined from time to time
at the discretion of the Board. All determinations, interpretations and
constructions made by the Compensation Committee of the Board or any other
committee appointed to administer the Stock Purchase Plan or the Board in its
capacity as administrator of the Stock Purchase Plan (all referred to hereafter
as the "Committee") with respect to the Stock Purchase Plan are final and
conclusive.
The Stock Purchase Plan is based on three-month offering periods that begin
January 1, April 1, July 1 and October 1 of each year. The first offering
period, however, was from November 1, 1995 to December 31, 1995. An eligible
employee may authorize payroll deductions in an amount between one and five
percent of their compensation. However, payroll deductions during any single
offering period may not exceed $2,000 for any participant. At the end of each
three-month offering period, the deductions are applied to purchase shares of
Common Stock. The employee need not participate in any offering period, but may
not join in the current offering period after the enrollment date has passed.
3. Eligibility. All employees of the Company (as well as employees of those
subsidiaries which participate in the Stock Purchase Plan at the discretion of
the Committee) are eligible to participate in the Stock Purchase Plan except:
(1) employees who have been employed by the Company for less than one year as of
the first day of the preceding offering period; (2) employees who own 5% or more
of the total combined voting power or value of all classes of stock of the
Company or a subsidiary; (3) employees whose customary employment is 20 hours or
less per week; and (4) employees who have not attained age 21. As of November 1,
1995, 504 employees of the Company would have been eligible to participate in
the Stock Purchase Plan.
4. Term of Plan. The Stock Purchase Plan provides that no shares may be
purchased under it after December 31, 1999.
5
<PAGE>
5. Purchase Price. The purchase price per share of Common Stock will be
equal to 85% of the fair market value of the Common Stock on either the first or
last day of the offering period, whichever is lower. Fair market value is the
last reported sale price for the Company's Common Stock as reported on The
Nasdaq Stock Market National Market on the day in question, or if there is no
closing price reported, then the fair market value shall mean the average
between the reported closing bid and asked prices for the shares on the day in
question. No fractional shares will be purchased and any remaining cash will
automatically stay in an employee's account until the next offering period
(unless the employee withdraws from the Stock Purchase Plan, in which case the
cash will be returned to the employee).
6. Restriction of Shares. Employees are generally not permitted to obtain
share certificates or to sell or transfer any shares until the end of a
restricted period (the "Restricted Period") which runs for one year measured
from the last day of the relevant offering period. The Restricted Period ends,
however, with respect to all shares owned by an employee if the employee
terminates employment by reason of death, disability or retirement. If an
employee terminates his or her employment with the Company or any subsidiary for
any reason other than the employee's death, disability or retirement, the
Company has the right but not the obligation to purchase the employee's shares
that are within the Restricted Period for the lesser of the original purchase
price paid for the shares or their fair market value at the time of the
employee's termination.
7. Statutory Limits on Purchase of Shares. No employee may be granted a
right to purchase shares under the Stock Purchase Plan if immediately following
such grant, such employee would have rights to purchase equity securities under
all plans of the Company and subsidiaries, that are intended to meet the
requirements of section 423 of the Code, that accrue at a rate in excess of
$25,000 (determined by reference to the fair market value of the shares at the
time the rights are granted) for each calendar year in which such rights to
purchase shares are outstanding at any time. In addition, no employee will be
permitted to purchase any shares of Common Stock if the purchase would result in
the employee owning 5% or more of the total combined voting power or value of
all classes of stock of the Company or a subsidiary.
8. Payment. An employee makes payment for the shares purchased under the
Stock Purchase Plan by making contributions through payroll deductions, of an
amount, between one and five percent of their compensation (defined to include
all forms of payment for services), subject to an over-all limit of $2,000 in
contributions during each three-month offering period. The employee must be
employed on the purchase date to purchase shares of Common Stock and if
employment terminates for any reason, including retirement or death, the
employee will be withdrawn from the Stock Purchase Plan immediately and the
payroll deduction credited to the employee's account will be returned to the
employee.
9. Increasing and Decreasing Deductions; Withdrawal; Restriction on
Transferability. An employee may decrease, but not increase, the rate of payroll
deductions at any time during an offering period by submitting a new
subscription agreement. In general, a change in payroll deductions can only be
made once during each offering period. During the two week period immediately
preceding the start of a new offering period, an employee may increase or
decrease the rate of payroll deductions effective as of the next offering
period. An employee may withdraw from the Stock Purchase Plan at any time by
completing a notice of withdrawal and submitting it to the Company prior to the
end of an offering period. Upon notice of withdrawal, the entire balance
accumulated in the employee's account will be paid to the employee as soon as
practicable and no additional payroll deductions will be made under the Stock
Purchase Plan. If an employee withdraws, the employee cannot rejoin until the
next offering period, by submitting a new subscription agreement. Partial
withdrawals are not permitted. The employee's rights to purchase shares with
payroll deductions under the Stock Purchase Plan are not transferable to any
other person.
10. Stock Certificates. The shares purchased by an employee under the Stock
Purchase Plan will be held in an investment account, with the employee having
the right at any time after the Restricted Period ends to withdraw all or any
portion of the shares credited to the employee's account by giving written
notice to the Company. If, however, the shares remain in the employee's
investment account, all cash dividends paid with respect to the shares, if any,
will be retained and used to purchase additional shares under the Stock Purchase
Plan, subject to the provisions and limitations of the Stock Purchase Plan.
6
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11. Amendments to the Plan. Subject to the provisions of the Stock Purchase
Plan, the Board of Directors may amend or terminate the Stock Purchase Plan,
except that certain amendments require approval of the Company's Stockholders.
12. Tax Aspects of the Plan. The ability of employees to purchase stock
under a stock purchase plan is treated as a type of stock option right, where
the option is viewed as granted at the beginning of an offering period, and
where the exercise of the option occurs on the date the stock is purchased under
the terms of the plan. The federal income tax consequences of the grant and
exercise of stock options under an employee stock purchase plan (as defined in
Section 423 of the Code) and the subsequent disposition of shares acquired under
such options, are summarized below.
The employee is not taxed at the time of the grant of his/her stock options
or when shares are purchased pursuant to the exercise of the options under the
Stock Purchase Plan.
If shares acquired under the Stock Purchase Plan are held beyond the
statutory holding period (the "Statutory Holding Period") which, pursuant to the
Code, ends with respect to shares acquired during any particular offering period
on the later of two years after the first day of the offering period or one year
after the date the shares were actually acquired, and which in the case of the
Stock Purchase Plan will always be the end of the two year period measured from
the first day of the offering period, the employee will have to include in his
or her ordinary taxable income at time of sale or other taxable disposition of
the shares (or upon the employee's death while still holding the stock) the
lesser of (i) 15% of the fair market value of the shares on the first day of the
offering period, or (ii) the amount, if any, by which the shares' fair market
value at the time of such disposition or death exceeds the purchase price. Any
gain in excess of such amount will be taxable as long-term capital gain. A sale
of the shares for less than the purchase price after the Statutory Holding
Period will result in long-term capital loss.
If the shares are disposed of prior to the completion of the Statutory
Holding Period (a "disqualifying disposition"), the employee will be required to
include in his or her ordinary income for the year in which the "disqualifying
disposition" occurs the excess of the fair market value of the shares as of
their purchase date (i.e. the last day of the offering period) over the purchase
price. Depending on whether the disposition occurs at a price above or below the
fair market value of the shares as of the purchase date, the employee will have
to report a capital gain or capital loss on the transaction in addition to an
amount of ordinary income as described above.
In addition, if the Statutory Holding Period requirements are not met, the
Company will be entitled to a tax deduction equal to the difference between the
price paid by the employee and the market value of the shares at the date of
purchase. If the Statutory Holding Period requirements are met, the Company will
not be entitled to such a deduction.
7
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Stock Purchase Plan Benefits
The following tables sets forth the benefits or amounts that would have
been received by or allocated to the persons listed below under the Stock
Purchase Plan for the Company's last completed fiscal year if the Stock Purchase
Plan had then been in effect for the entire year and such persons had
participated to the fullest extent possible. The number of shares that would
have been obtained are calculated based upon a 15% discount applied to the lower
of the fair market value of the Common Stock on the first or last day of each
offering period (which periods correspond to each calendar quarter). The dollar
value is calculated by multiplying the per share discount amounts by the number
of shares which would have been purchased.
Name and Position Dollar Value No. of Shares
Richard H. Penske
President and Chief Executive Officer * *
John F. Eureyecko
Executive Vice President and $10,613.92 1,111
Chief Financial Officer
Barry R. Clauser
Senior Vice President-- $ 5,623.31 583
Merchandise Operations
Sharon J. Zondag
Senior Vice President-- $ 6,007.56 625
Store Operations
Non-Executive Director Group * *
Executive Group $26,283.44 2,738
Non-Executive Officer Employee Group(1) $246,660.00 24,000
* Not eligible to participate in the Stock Purchase Plan.
1. Assuming members of the executive group did not participate in the plan.
The affirmative vote of the holders of a majority of the Company's Common
Stock present at the meeting in person or by proxy is required to approve the
Stock Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" THE PROPOSAL TO APPROVE
THE STOCK PURCHASE PLAN
PROPOSAL THREE
APPROVAL OF THE COMPANY'S INDEPENDENT AUDITORS
The Company's Board of Directors recommends that the Stockholders consider
and approve a proposal to select KPMG Peat Marwick LLP, which served as the
Company's independent public auditors for the last fiscal year, to serve as the
Company's independent public auditors for the current fiscal year. If the
Stockholders fail to approve the selection of such auditors, the Board of
Directors will reconsider the selection.
A representative of KPMG Peat Marwick LLP is expected to be present at the
Meeting. Such representative will have the opportunity to make a statement if he
desires to do so and will be available to respond to appropriate questions of
Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" THE PROPOSAL TO APPROVE
KPMG PEAT MARWICK LLP AS THE
COMPANY'S INDEPENDENT AUDITORS
8
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning compensation
paid or accrued by the Company for services rendered in all capacities during
the fiscal year ended March 31, 1996 to the Chief Executive Officer of the
Company and each of the other executive officers of the Company whose total
annual salary and bonus for the fiscal year ended March 31, 1996 exceeded
$100,000:
Annual Compensation
Name and Principal Position Fiscal All Other
Year Salary($) Bonus ($) Compensation ($)
Richard H. Penske 1996 157,308 60,000 48,764(3)
Chief Executive Officer 1995 150,000 50,000 47,072(3)
1994 153,462 -- 54,707(3)
John F. Eureyecko(1) 1996 157,308 55,000 4,995(4)
Executive Vice President 1995 136,154 36,500 5,164(5)
and Chief Financial Officer 1994 129,039 240,170(2) 5,455(6)
Sharon J. Zondag 1996 98,269 22,000 3,393(4)
Senior Vice President-- 1995 79,106 12,000 2,601(4)
Store Operations 1994 86,313 58,500(2) 1,880(4)
Barry R. Clauser 1996 97,692 15,000 3,425(4)
Senior Vice President-- 1995 87,115 7,500 3,121(7)
Merchandise Operations 1994 76,857 53,800(2) 1,798(7)
(1) Mr. Eureyecko was promoted to President and Chief Operating Officer in June
1996.
(2) The compensation reported includes a bonus applied to the purchase of
shares of Common Stock under the Company's 1994 Restricted Stock Plan in
the amount of approximately $1.78 per share. The aggregate amount of the
bonus payable by the Company and applied to the purchase of shares by Mr.
Eureyecko, Ms. Zondag and Mr. Clauser was $150,000, $50,000 and $50,000,
respectively.
(3) The compensation reported represents: (i) the Company's contribution and
matching payments under the Company's Retirement and Savings Plan in the
aggregate amounts of $4,590 in 1996, $4,027 in 1995 and $3,265 in 1994;
(ii) the premiums on a life insurance policy on the life of Mr. Penske, of
which Mr. Penske's wife is the sole beneficiary, which were $2,803 in 1996,
$1,570 in 1995 and $1,882 in 1994; (iii) the amount, on a term loan
approach, of the benefit of the whole-life portion of the premiums for a
split dollar life insurance policy paid by the Company projected on an
actuarial basis which was $41,371 in 1996, $41,475 in 1995 and $41,538 in
1994; and (iv) in 1994, the value of the below market interest rates on
loans made by the Company to Mr. Penske plus the value, on a pro rata basis
based on his percentage ownership, of below market interest rates on loans
made by the Company to entities controlled by Messrs. Penske and Eureyecko
which was $8,022.
(4) The compensation reported represents the Company's contribution and
matching payments under the Company's Retirement and Savings Plan.
(5) The compensation reported represents: (i) the Company's contribution and
matching payments under the Company's Retirement and Savings Plan in the
aggregate amount of $4,066; and (ii) $1,098 which is the value of an
interest free loan made by the Company to Mr. Eureyecko.
(6) The compensation reported represents: (i) the Company's contribution and
matching payments in the aggregate amount of $3,148 under the Company's
Retirement and Savings Plan; and (ii) $2,307 which is the value of below
market interest rates on loans made by the Company to Mr. Eureyecko plus
the value, on a pro rata basis based on his percentage ownership, of below
market interest rates on loans made by the Company to entities controlled
by Messrs. Eureyecko and Penske.
(7) The compensation reported represents: (i) the Company's contribution and
matching payments under the Company's Retirement and Savings Plan in the
aggregate amounts of $2,985 in 1995 and $1,610 in 1994; and (ii) $136 in
1995 and $188 in 1994 which each equals one-half the premium on a term life
insurance policy on the life of Mr. Clauser of which Mr. Clauser's wife was
a 50% beneficiary.
9
<PAGE>
Stock Option Exercises and Holdings
The following table provides information related to options exercised
during fiscal 1996 by each of the named executive officers and the number and
value of options held at March 31, 1996 by such individuals. No stock options
were granted to the named executive officers during fiscal 1996.
Aggregated Option Exercises in Fiscal 1996
and Option Values at March 31, 1996
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Options Value of Unexercised
at In-the-Money Options at
March 31, 1996 (#) March 31, 1996 ($)
Shares Value
Name Acquired on Realized($) Exercisable Unexercisable Exercisable Unexercisable
Exercise(#)
<S> <C> <C> <C> <C> <C> <C>
Richard H. Penske -- -- -- -- -- --
John F. Eureyecko -- -- 10,000 15,000 72,500 108,750
Shares Shares
Sharon J. Zondag -- -- 10,000 15,000 72,500 108,750
Shares Shares
Barry R. Clauser -- -- 10,000 15,000 72,500 108,750
Shares Shares
</TABLE>
Compensation Committee Interlocks and Insider Participation
Alan R. Hoefer and Mark A. Randol, the members of the Compensation
Committee of the Company's Board of Directors are each parties to the Tax
Indemnification Agreement (as defined below) which was entered into between the
Company and the stockholders of the Company prior to its initial public offering
in connection with the Company's change in status, immediately prior to the
initial public offering, to a C Corporation subject to corporate income
taxation. See "Certain Relationships and Related Transactions." Pursuant to that
Tax Indemnification Agreement, during fiscal 1996 Messrs. Hoefer and Randol
received $18,462 and $7,898, respectively, from the Company.
Report of the Compensation Committee
The Compensation Committee of the Board of Directors, consisting entirely
of non-employee directors, is responsible for reviewing and approving the
Company's compensation policies and the compensation paid to executive officers.
The Company's compensation policies are structured to enable the Company to
attract, retain and motivate highly qualified executive officers to contribute
to the Company's goals and objectives and its overall financial success. In
determining executive compensation, the Compensation Committee reviews and
evaluates information supplied by management and bases decisions both on the
Company's performance and on the individual's contribution and performance. The
compensation of executive officers includes salary and incentive compensation.
10
<PAGE>
Salary
The Compensation Committee reviews the salary of each executive officer in
relation to the previous salaries and with regard to general industry conditions
or trends. The salaries are set at levels intended to reward achievement of
individual and company goals and to motivate and retain highly qualified
executives whom the Compensation Committee believe are important to the
continued success of the Company. While the Compensation Committee's decisions
are in part subjective rather than based on formulas, the Compensation Committee
does consider various measures of the financial condition of the Company in
absolute terms and in relation to internal performance goals.
Incentive Compensation
The Compensation Committee believes that incorporating annual incentive
compensation into the total compensation of executive officers encourages the
executives to have the common goal of achieving the Company's economic and
strategic objectives. As with salary considerations, the Compensation Committee
bases its decisions regarding incentive compensation, which may take the form of
cash bonuses or grants of stock options, on both corporate and individual
performance. During the last fiscal year, all incentive compensation paid to the
executive officers was in the form of cash bonuses. The Compensation Committee
believes that the stock options awarded during fiscal 1995, the year in which
the Company completed its initial public offer, provided substantial stock
incentives. Such awards which were determined with consideration given to the
executives' performance prior to the Company going public, provide for the
options to become exercisable over a five year period and terminate shortly
after termination of employment. As a result, the executives have incentive to
remain in the employ of the Company for a substantial period of time and their
interests are aligned with outside Stockholders. Given the executive officers'
relatively substantial holdings in the form of stock and stock options and,
particularly in the case of Richard H. Penske who held the position of President
and Chief Executive Officer during the last fiscal year, the desire for asset
diversification, the Compensation Committee decided that the incentive
compensation component for this past year was most appropriately paid solely in
the form of cash bonuses.
Summary
As described above, the Compensation Committee believes that its policies
and actions have, and will continue to, motivate and reward the executive
officers who contribute to the Company's financial performance and increase the
Company's value to Stockholders.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Alan R. Hoefer
Mark A. Randol
11
<PAGE>
Stock Performance Graph
The following graph compares the percentage change in the cumulative total
Stockholder return on the Common Stock from the commencement of public trading
of the Common Stock on October 13, 1994 through March 31, 1996, the cumulative
total return on the S & P 500 Index and the S & P Specialty Retail Index during
such period. The comparison assumes $100 was invested on October 13, 1994 in
Common Stock and in each of the foregoing indices and assumes the reinvestment
of any dividends.
(The Performance Graph appears here. See the table below for plot points.)
<TABLE>
<CAPTION>
10/13/94 12/31/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96
<S> <C> <C> <C> <C> <C> <C> <C>
S&P 500 .................... 100 98.18 107.04 116.46 124.94 131.67 138.00
S&P Specialty Retail Index . 100 93.49 92.54 90.24 90.12 90.13 98.23
Piercing Pagoda ............ 100 96.59 77.27 96.59 127.27 163.64 138.64
</TABLE>
Certain Relationships and Related Transactions
Prior to the Company's initial public offering in October 1994, the Company
was a corporation (an "S Corporation") subject to taxation under Subchapter S of
the Internal Revenue Code of 1986, as amended. Historically, the Company paid
distributions to its stockholders to enable them to pay their income tax
liability as a result of the Company's status as an S Corporation. In connection
with the Company's change in status, immediately prior to the initial public
offering, to a C Corporation subject to corporate income taxation, the Company
entered into a Tax Indemnification Agreement (the "Tax Indemnification
Agreement"), with the stockholders of the Company prior to its initial public
offering which provides for: (i) the distribution to Mr. Penske, of cash equal
to the product of the Company's taxable income for fiscal 1994 and the sum of
the highest effective federal and state income tax rates applicable to any
current stockholder (or, in the case of stockholders that are trusts, any
beneficiary of such trust) (the "Applicable Tax Rate"), less any prior
distributions to him to pay taxes for such year end, plus the amount of Mr.
Penske's deferred taxes attributable to the Company's income for fiscal 1993
that were deferred pursuant to the Omnibus Budget Reconciliation Act of 1993,
(ii) the distribution to each stockholder of cash equal to the product of the
Company's taxable income allocable to the period from April 1, 1994 through
October 12, 1994 and the Applicable Tax Rate, and (iii) an indemnification of
such stockholders for any losses or liabilities with respect to any additional
taxes (including interest, penalties and legal fees) resulting from the
Company's operations during the period in which it was an S Corporation. Messrs.
Penske, Eureyecko, Clauser, Lehman and Ms. Zondag received $1,467,278, $39,464,
$13,187, $5,295 and $13,187, respectively, from the Company pursuant to the Tax
Indemnification Agreement during fiscal 1996. Messrs. Hoefer and Randol, the
members of the Compensation Committee of the Board of Directors also received
payments pursuant to the Tax Indemnification Agreement. See "Compensation
Committee Interlocks and Insider Participation."
12
<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1997 Annual Meeting
of Stockholders must be received by the Company at the address appearing on the
first page of this proxy statement by April 7, 1997 in order to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
SOLICITATION OF PROXIES
The enclosed form of proxy is being solicited on behalf of the Company's
Board of Directors. The Company will bear the cost of the solicitation of the
Board of Directors' proxies for the Meeting, including the cost of preparing,
assembling and mailing proxy materials, the handling and tabulation of proxies
received, and charges of brokerage houses and other institutions, nominees and
fiduciaries in forwarding such materials to beneficial owners.
In addition to the mailing of the proxy material, such solicitation may be
made in person or by telephone, telegraph or telecopy by directors, officers or
regular employees of the Company, or by a professional proxy solicitation
organization engaged by the Company.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED BY THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF SUCH PERSON, A COPY
OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL STATEMENTS
AND SCHEDULES THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR
ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO
INVESTOR RELATIONS, AT THE ADDRESS OF THE COMPANY SET FORTH ON THE FIRST PAGE OF
THIS PROXY STATEMENT.
13
<PAGE>
PIERCING PAGODA, INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned stockholder of PIERCING PAGODA, INC. (the "Company") hereby
appoints Richard H. Penske and John F. Eureyecko, or either of then, with full
power of substitution, to act as attorneys and proxies for the undersigned and
to vote all shares of stock of the Company, which the undersigned is entitled to
vote if personally present at the Annual Meeting of Stockholders of the Company,
to be held at the Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania, on
September 18, 1996 at 10:00 a.m., and at any adjournment or postponement
thereof, provided that said proxies are authorized and directed to vote as
indicated with respect to the matters set forth on the opposite side of this
Proxy.
UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED "FOR" THE ELECTION OF THE
NOMINATED DIRECTOR, "FOR" THE APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN AND
"FOR" RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S
INDEPENDENT PUBLIC AUDITORS. This Proxy also delegates discretionary authority
to vote with respect to any other business which may properly come before the
meeting and any adjournment or postponement thereof.
(Please sign and date on Reverse Side)
<PAGE>
[X] Please mark your
votes as in this
example.
FOR WITHHOLD
1. Election of Director /__/ /__/
Nominee: John F. Eureyecko
2. Approval of the Piercing Pagoda, Inc. Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
/__/ /__/ /__/
3. Ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent public auditors for the fiscal year ending March 31, 1997.
FOR AGAINST ABSTAIN
/__/ /__/ /__/
The undersigned hereby acknowledges receipt of Notice of Annual Meeting, Proxy
Statement and Annual Report of Piercing Pagoda, Inc.
PLEASE SIGN, DATE AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
SIGNATURE:__________________________________ DATE:_______________
Note: Please sign exactly as names(s) appears in address. When signing as
attorney-in-fact, executor, administrator, trustee or guardian, please
add your titles as such, and if the signer is a corporation, please sign
with full corporate name by duly authorized officer or officers and affix
the corporate seal. When stock is issued in the name of two or more
persons, all such persons should sign.
<PAGE>
Pursuant to the instructions to Item 10 of Schedule 14A, the following
Piercing Pagoda, Inc. Employee Stock Purchase Plan is being filed with the
Commission as an appendix to the Proxy Statement being filed by Piercing Pagoda,
Inc. (the "Company") but it is not a part of the Proxy Statement and is not
being provided to the Company's stockholders.
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
The purpose of the Piercing Pagoda, Inc. Employee Stock Purchase Plan (the
"Plan") is to assist Piercing Pagoda, Inc., a Delaware corporation (the
"Company"), and its Subsidiaries (as hereinafter defined) in retaining the
employment of employees by offering them a greater stake in the Company's
success and a closer identity with it, and to aid in obtaining the services of
individuals whose employment would be helpful to the Company and would
contribute to its success. This is to be accomplished by providing employees a
continuing opportunity to purchase Shares (as hereinafter defined) from the
Company through periodic offerings.
The Plan is intended to comply with the provisions of section 423 of the
Code (as hereinafter defined), and the Plan shall be administered, interpreted
and construed accordingly. The Plan as adopted by the Company is effective
November 1, 1995, subject to the approval of the Plan by the Company's
stockholders prior to first anniversary of the date the Plan was adopted by the
Board (as hereinafter defined) by any of the following methods: (a) Stockholder
approval may be obtained at the next regularly scheduled stockholders' meeting
in accordance with all applicable provisions of the corporate charter, by-laws
and applicable state law prescribing the method and degree of stockholder
approval required for the issuance of corporate stock or options; (b) If no such
applicable state law exists, stockholder approval may be obtained by vote of a
majority of the votes cast at such meeting provided that a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the approval of the Plan; or (c) Stockholder
approval may be obtained by any other method, provided such approval would be
treated as adequate under applicable state law in the case of an action
requiring stockholder approval.
A-1
<PAGE>
2. Definitions. For purposes of the Plan:
"Account" means the non-interest bearing account which the Company (or
the Subsidiary which employs the Participant) shall establish for each
Participant, to which a Participant's payroll deductions pursuant to the Plan
shall be credited.
"Agent" means the person or persons appointed by the Board in
accordance with Paragraph 3(d).
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee described in Paragraph 3(a).
"Company" means Piercing Pagoda, Inc., a Delaware corporation.
"Compensation" means the total amount of compensation for services
paid to a Participant for an Offering Period by the Company and the Subsidiaries
including, but not limited to, salary, wages, overtime pay, bonuses and
commissions.
"Eligible Employee" means an employee of the Company or Subsidiary who
is described in Paragraph 4.
"Employer" means the Company or Subsidiary for whom an Eligible
Employee is performing services at the time the Eligible Employee becomes a
Participant.
"Fair Market Value" on any date means the last reported sale price for
Shares as reported on The Nasdaq Stock Market National Market on such date, or
if there is no closing price reported, then Fair Market Value of a Share shall
mean the average between the closing bid and asked prices for Shares on such
date as reported. If there are no sales reports or bid or asked quotations, as
the case may be, for a given date, the closest preceding date on which there
were sales reports or bid or asked quotations shall be used. If Shares are not
publicly traded, the Fair Market Value of a Share shall be determined by the
Committee.
"Investment Account" means the account established for a Participant
pursuant to Paragraph 9(a) to hold Shares acquired for a Participant pursuant to
the Plan.
"Nasdaq" means the National Association of Security Dealers, Inc.
Automated Quotations System.
"Offering Period" The first Offering Period shall mean the period
which commences on November 1, 1995 and ends on December 31, 1995. Effective
January 1, 1996,
A-2
<PAGE>
"Offering Period" shall mean each of the four three month periods beginning on
January 1, April 1, July 1, and October 1 of each year.
"Participant" means an Eligible Employee who makes an election to
participate in the Plan in accordance with Paragraph 5.
"Plan" means the Piercing Pagoda, Inc. Employee Stock Purchase Plan as
set forth in this document, and as may be amended from time to time.
"Plan Year" means the 12 month period commencing each April 1 and
ending on the subsequent March 31. The first Plan Year shall commence on
November 1, 1995 and end on March 31, 1996.
"Purchase Date" means the last business day of each Offering Period.
"Purchase Price" means with respect to any Offering Period the lesser
of the Specified Percentage of the Fair Market Value of a Share on (i) the first
business day of the Offering Period or (ii) the Purchase Date.
"Restricted Period" means the period applicable to a Share as set
forth in Section 5(c).
"Share" or "Shares" means a share or shares of Common Stock, $0.01 par
value per share, of the Company.
"Specified Percentage" means 85%, provided however, that the Committee
may at its discretion designate prior to the commencement of an Offering Period
a percentage greater than 85% but not more than 100%.
"Subscription Agreement" means the agreement between the Participant
and the Employer pursuant to which the Participant authorizes payroll deductions
to the Account.
"Subsidiary" means any corporation that, at the time in question, is a
subsidiary corporation of the Company, within the meaning of section 424(f) of
the Code.
3. Administration of the Plan. The Plan shall be administered by the
compensation committee of the Board, or by such other committee of the Board as
may be designated by the Board, or by the Board itself, as determined from time
to time at the discretion of the Board. The compensation committee of the Board
or any other committee designated to administer the Plan by the Board, or the
Board in its capacity as administrator of the Plan are all referred to herein as
the "Committee." Subject to the express provisions of the Plan, the Committee
shall have full discretionary authority to interpret the Plan, to issue rules
for administering the Plan, to change, alter, amend or rescind such rules, and
to make all other determinations necessary or
A-3
<PAGE>
appropriate for the administration of the Plan. All determinations,
interpretations and constructions made by the Committee with respect to the Plan
shall be final and conclusive.
(a) Meetings. The Committee shall hold meetings at such times and
places as it may determine, shall keep minutes of its meetings, and shall adopt,
amend and revoke such rules or procedures as it may deem proper; provided,
however, that it may take action only upon the agreement of a majority of the
whole Committee. Any action which the Committee shall take through a written
instrument signed by a majority of its members shall be as effective as though
it had been taken at a meeting duly called and held. The Committee shall report
all actions taken by it to the Board of Directors.
(b) Exculpation. No member of the Board of Directors or the Committee
shall be personally liable for monetary damages for any action taken or any
failure to take any action in connection with the administration of the Plan,
provided that this Subsection 3(b) shall not apply to (i) any breach of such
member's duty of loyalty to the Company, a Subsidiary, or the Company's
stockholders, (ii) acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, (iii) acts or omissions that would
result in liability under Section 174 of the General Corporation Law of the
State of Delaware, as amended, and (iv) any transaction from which the member
derived an improper personal benefit.
(c) Indemnification. For purposes of entitlement to indemnification
from the Company, service on the Committee shall constitute service as a member
of the Board. Each member of the Committee shall be entitled, without further
action on his or her part, to indemnity from the Company and limitation of
liability to the fullest extent provided by applicable law and by the Company's
Certificate of Incorporation and/or By-laws in connection with or arising out of
any action, suit or proceeding with respect to the administration of the Plan or
the granting of options thereunder in which he or she may be involved by reason
of his or her being or having been a member of the Committee, whether or not he
or she continues to be such member of the Committee at the time of the action,
suit or proceeding.
(d) The Committee may engage an Agent to purchase Shares on each
Purchase Date and to perform custodial and record keeping functions for the
Plan, such as holding record title to the Participants' Share certificates,
maintaining an individual Investment Account for each such Participant and
providing periodic account status reports to such Participants.
(e) The Committee shall have full discretionary authority to delegate
ministerial functions to management of the Company.
4. Eligibility. All employees (other than employees whose customary
employment is 20 hours or less per week) of the Company and of such of its
Subsidiaries as may be designated for such purpose from time to time by the
Committee, shall be eligible to participate in the Plan as of the first day of
an Offering Period, provided each of such employees has (A) attained at least
age 21 and (B) been employed by the Company or any of its Subsidiaries for at
A-4
<PAGE>
least one year as of (i) the first day of the Offering Period commencing
November 1, 1995 and (ii) the first day of the preceding Offering Period for
Offering Periods commencing after November 1, 1995.
For purposes of this Paragraph 4, the term "employment" shall be
interpreted in accordance with the provisions of section 1.421-7(h) of the
Treasury Regulations (or any successor regulations).
5. Election to Participate and Terms of Purchases.
(a) Initial Subscription Agreements. Each Eligible Employee may become
a Participant by filing a Subscription Agreement authorizing specified regular
payroll deductions. A Subscription Agreement authorizing specified regular
payroll deductions must specify the date on which such deductions are to
commence, which may not be retroactive. Payroll deductions may be in any amount
not less than one percent (1%) and not in excess of five percent (5%) of an
Eligible Employee's Compensation; provided however, that payroll deductions
during any single Offering Period may not exceed two thousand dollars ($2,000)
for any Participant. All payroll deductions shall be recorded in the Accounts.
All funds recorded in Accounts may be used by the Company and Subsidiaries for
any corporate purpose, subject to the Participant's right to withdraw at any
time an amount equal to the balance accumulated in his or her Account as
described in Paragraph 8 below. Funds credited to Accounts shall not be required
to be segregated from the general funds of the Company or any Subsidiary.
(b) Subsequent Subscription Agreements. Any Participant may file a
Subscription Agreement subsequent to his or her filing an initial Subscription
Agreement changing the terms of his or her participation in accordance with
Section 6 of the Plan.
(c) Restrictions Applicable to Shares. Notwithstanding anything to the
contrary contained herein, all Shares purchased by an Eligible Employee pursuant
to the Plan shall be held in such Eligible Employee's Investment Account until
the end of the Restricted Period (as hereinafter defined) applicable to such
Shares. The Eligible Employee shall have no right to obtain certificates for
Shares during the Restricted Period applicable to such Shares, nor shall such
Eligible Employee have any right to sell, transfer or otherwise dispose of
Shares during the Restricted Period applicable to such Shares. For purposes of
this Section 5(c), the "Restricted Period" applicable to a Share means the
period ending on the one year anniversary of the last day of the Offering Period
during which such Share was purchased. In the event a Participant's employment
with the Company or any Subsidiary terminates for any reason other than death,
disability (as defined in the Code) or retirement, the Company shall have the
right, but not the obligation, to purchase from such Participant any Shares that
are still within the Restricted Period applicable to such Shares for the lesser
of the original Purchase Price of such Shares or the Fair Market Value of such
Shares at the time to the Participant's termination of employment. In the event
a Participant's employment with the Company or any Subsidiary terminates by
reason of death, disability (as defined in the Code) or retirement, all Shares
purchased by such Participant shall cease to be subject to a Restricted Period.
A-5
<PAGE>
6. Subsequent Subscription Agreements and Deduction Changes. A Participant
may at any time decrease his or her payroll deduction by filing a new
Subscription Agreement with the Committee during an Offering Period which will
supersede any prior Subscription Agreement. If administratively practicable, and
at the Committee's discretion, such decrease in a Participant's payroll
deduction shall be effective as of the first day of the payroll period following
the receipt by the Committee of the new Subscription Agreement or as of such
other date no later than thirty (30) days after receipt by the Committee of the
new Subscription Agreement as the Committee determines. Other than as provided
in the case of a termination of participation under Paragraph 8 below, such
change in the rate of regular payroll deductions may not be made more than once
during each Offering Period. During the two week period immediately preceding
the start of each new Offering Period, a Participant may increase or decrease
his or her payroll deduction effective as of the next Offering Period by filing
a new Subscription Agreement with the Committee. If a Participant does not file
a new Subscription Agreement with the Committee, the terms of the previously
submitted Subscription Agreement shall remain in effect for each subsequent
Offering Period. Notwithstanding anything contained herein to the contrary, a
Participant may file a new Subscription Agreement at any time for the sole
purpose of changing his or her designation of beneficiary.
7. Statutory Limit on Purchase of Shares.
(a) No employee may be granted a right to purchase Shares under the
Plan if immediately following such grant, such employee would have rights to
purchase equity securities under all plans of the Company and Subsidiaries, that
are intended to meet the requirements of section 423 of the Code, that accrue at
a rate which exceeds $25,000 of Fair Market Value (determined at the time the
rights are granted) for each calendar year in which such rights to purchase
Shares are outstanding at any time. For purposes of this Paragraph 7:
(i) The right to purchase Shares accrues when the right (or any
portion thereof) first becomes exercisable during the calendar year;
(ii) A right to purchase Shares which has accrued under one grant
of rights under the Plan may not be carried over to any other grant of rights;
and
(iii) The limits of this Paragraph 7 shall be interpreted by the
Committee in accordance with applicable rules and regulations issued under
section 423 of the Code.
(b) No employee may be granted a right to purchase Shares under the
Plan if, immediately following such grant, such employee would own stock
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company or a Subsidiary. In determining stock ownership for
purposes of the preceding sentence, the rules of section 424(d) of the Code
shall apply and stock which the employee may purchase under outstanding options,
including rights to purchase stock under the Plan, shall be treated as stock
owned by the employee.
A-6
<PAGE>
8. Termination of Participation and Withdrawal of Funds. A Participant may
at any time and for any reason, withdraw from participation in the Plan for an
Offering Period by filing a notice of withdrawal form with the Committee prior
to the last day of such Offering Period, in which case the entire balance
accumulated in his or her Account shall be paid to such Participant as soon as
practicable thereafter and no further payroll deductions shall be made pursuant
to the Plan. Partial withdrawals shall not be permitted. A Participant may
recommence participation in the Plan by submitting a new Subscription Agreement
to the Committee, which will be effective as of the next Offering Period which
commences after the date on which the Committee receives such Subscription
Agreement.
9. Method of Purchase and Investment Accounts.
(a) Exercise of Option for Shares. Each Participant having funds
credited to an Account on a Purchase Date shall be deemed, without any further
action, to have exercised on such Purchase Date, the option to purchase the
number of whole Shares which the funds in such Account would purchase at the
Purchase Price for the Offering Period, subject to the limit:
(i) on the aggregate number of Shares that may be made available
for purchase to all Participants under the Plan during each Offering Period and
for the term of the Plan, as set forth in Paragraph 10; and
(ii) on the number of Shares that may be made available for
purchase to any individual Participant, as set forth in Paragraph 7.
Such option shall be deemed exercised if the Participant does not withdraw such
funds before the Purchase Date. All Shares so purchased shall be credited to a
separate Investment Account established by the Committee or Agent for each
Participant. The Committee or Agent shall hold in its name or the name of its
nominee all certificates for Shares purchased until such Shares are withdrawn by
a Participant pursuant to Paragraph 11. No purchases of fractional Shares shall
be made pursuant to the Plan. Any funds left in a Participant's Account
following a Purchase Date shall be applied to the purchase of Shares on the next
Purchase Date, along with any additional funds added to such Participant's
Account as a result of subsequent payroll deductions, subject to Participants'
withdrawal rights against Accounts and the other limits of the Plan.
(b) Dividends on Shares Held in Investment Accounts. All cash
dividends paid with respect to the Shares credited to a Participant's Investment
Account shall, unless otherwise directed by the Committee, be credited to his or
her Account and used, in the same manner as other funds credited to Accounts, to
purchase additional Shares under the Plan on the next Purchase Date, subject to
Participants' withdrawal rights against Accounts and the other limits of the
Plan.
(c) Adjustment of Shares on Application of Aggregate Limits. If the
total number of Shares that would be purchased pursuant to Paragraph 9(a) but
for the limits described in Paragraph 9(a)(i) exceeds the number of Shares
available for purchase under the
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Plan, then the number of available Shares shall be allocated among the
Investment Accounts of Participants in the ratio that the amount credited to a
Participant's Account as of the Purchase Date bears to the total amount credited
to all Participants' Accounts as of the Purchase Date. The cash balance not
applied to the purchase of Shares shall be held in Participants' Accounts
subject to the terms and conditions of the Plan.
10. Shares Subject to Plan. The aggregate maximum number of Shares that may
be issued pursuant to the Plan is ninety-six thousand (96,000), subject to
adjustment as provided in Paragraph 18 of the Plan. In addition, the aggregate
maximum number of Shares that may be issued pursuant to the Plan during any
single Offering Period is six thousand (6,000), subject to adjustment as
provided in Paragraph 18 of the Plan. The Shares delivered pursuant to the Plan
may, at the option of the Company, be Shares purchased specifically for purposes
of the Plan, shares otherwise held in treasury or Shares originally issued by
the Company for such purpose.
11. Withdrawal of Certificates. At any time there are Shares held in an
Investment Account for the benefit of a Participant to which the Restricted
Period and the restrictions and Company repurchase rights, as described in
Section 5(c) above, are no longer applicable, such Participant shall be entitled
to withdraw a certificate or certificates for all or a portion of such Shares by
giving written notice to the Company, provided, however, that (a) no such
request may be made more frequently than once per Offering Period and (b) no
Participant shall be entitled to receive a certificate for any fractional Share.
12. Registration of Certificates. Each certificate withdrawn by a
Participating Employee may be registered only in the name of the Participant,
or, if the Participant so indicated on the Participant's Account, in the
Participant's name jointly with a member of the Participant's family, with right
of survivorship. A Participant who is a resident of a jurisdiction which does
not recognize such a joint tenancy may have certificates registered in the
Participant's name as tenant in common or as community property with a member of
the Participant's family without right of survivorship.
13. Voting. The Committee or Agent shall vote all Shares held in an
Investment Account in accordance with the Participant's instructions.
14. Rights on Retirement, Death or Other Termination of Employment. In the
event of a Participant's retirement, death or other termination of employment,
or in the event that a Participant otherwise ceases to be an Eligible Employee,
(a) no payroll deduction shall be taken from any pay due and owing to the
Participant thereafter, and the balance in the Participant's Account shall be
paid to the Participant or, in the event of the Participant's death, to the
person or persons designated as the Participant's beneficiary on Participant's
most recently filed Subscription Agreement, or if no beneficiary has been
designated, to the person to whom the Participant's rights shall have passed
under the laws of descent and distribution, and (b) a certificate for the Shares
credited to the Participant's Investment Account will be forwarded to the
Participant (or, in the event of the Participant's death, to the person or
persons designated as the Participant's beneficiary on Participant's most
recently filed Subscription Agreement, or if no
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beneficiary has been designated, to the person to whom the Participant's rights
shall have passed under the laws of descent and distribution). Notwithstanding
the foregoing, a Participant's rights to a certificate for Shares held in the
Participant's Investment Account shall be subject to the restrictions and the
right of the Company to repurchase such Shares pursuant to Section 5(c) above.
15. Rights Not Transferable. Except as permitted by Paragraph 14, rights
under the Plan are not transferable by a Participant and are exercisable during
the employee's lifetime only by the employee.
16. No Right to Continued Employment. Neither the Plan nor any right
granted under the Plan shall confer upon any Participant any right to
continuance of employment with the Company or any Subsidiary, or interfere in
any way with the right of the Company or Subsidiary to terminate the employment
of such Participant.
17. Adjustments in Case of Changes Affecting Shares. In the event of a
subdivision of outstanding Shares, or the payment of a stock dividend, the Share
limit set forth in Paragraph 10 shall be adjusted proportionately, and such
other adjustments shall be made as may be deemed equitable by the Committee. In
the event of any other change affecting Shares (including any event described in
section 424(a) of the Code), such adjustment, if any, shall be made as may be
deemed equitable by the Committee to give proper effect to such event, subject
to the limitations of section 424 of the Code.
18. Amendment of the Plan. The Board of Directors of the Company may at any
time, or from time to time, amend the Plan in such manner as it may deem
advisable. Nevertheless, the Board of Directors of the Company may not (i)
increase the maximum number of shares that may be issued pursuant to the Plan
(ii) materially increase the benefits accruing to Participants under the Plan,
or (iii) modify the requirements as to eligibility for participation in the Plan
without obtaining approval, within twelve months before or after such action, of
the Company's stockholders in accordance with all applicable provisions of the
corporate charter, by-laws and applicable state law prescribing the method and
degree of stockholder approval required for the issuance of corporate stock or
options, provided, that if no such applicable state law exists, the approval
must be by vote of a majority of the votes cast at a duly held meeting of the
stockholders at which a quorum representing a majority of all outstanding voting
stock of the Company is, either in person or by proxy, present and voting on the
matter or by a method and in a degree that would be treated as adequate under
applicable state law in the case of an action requiring stockholder approval.
19. Termination of the Plan. The Plan and all rights of employees under any
offering hereunder shall terminate on December 31, 1999 or at any earlier time
at the discretion of the Board of Directors. Upon termination of this Plan, (i)
all amounts in the Accounts of Participants shall be carried forward into the
Participant's Account under a successor plan, if any, or promptly refunded, and
(ii) all certificates for the Shares credited to a Participant's Investment
Account shall be forwarded to him or her.
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20. Governmental Regulations.
(a) Anything contained in this Plan to the contrary notwithstanding,
the Company shall not be obligated to sell or deliver any Shares certificates
under this Plan unless and until the Company is satisfied that such sale or
delivery complies with (i) all applicable requirements of the governing body of
the principal market in which such Shares are traded, (ii) all applicable
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder and (iii) all other laws or regulations by which the
Company is bound or to which the Company is subject.
(b) The Company (or a Subsidiary) may make such provisions as it may
deem appropriate for the withholding of any taxes or payment of any taxes which
it determines it may be required to withhold or pay in connection with any
Shares. The obligation of the Company to deliver certificates under this Plan is
conditioned upon the satisfaction of the provisions set forth in the preceding
sentence.
21. Section 16 Restrictions for Officers and Directors. Notwithstanding any
other provision of the Plan, each officer (for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), and director
of the Company shall be subject to such restrictions as are required so that
transactions under the Plan by such officer or director shall be exempt from
Section 16(b) of the Exchange Act.
22. Repurchase of Shares. The Company shall not be required to repurchase
from any Participant any Shares which such Participant acquires under the Plan.
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