United States Securities and Exchange Commission
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXHANGE 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 Rule 14a-12
SHARPS COMPLIANCE CORP.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: ____________
(2) Aggregate number of securities to which transaction applies:________________
(3) Per unity price or other underlying value of transaction computed pursuant
to Exhange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined: ________________________________
(4) Proposed maximum aggregate value of transaction: ___________________________
(5) Total fee paid: ____________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ____________________________________________
(2) Form, Schedule or Registration Statement No.: ___________________________
(3) Filing Party: ______________________________________________________
(4) Date Filed: ________________________________________________________
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[SHARPS COMPANY LOGO]
October 14, 2005
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the 2005
Annual Meeting of Stockholders of Sharps Compliance Corp. The Annual Meeting
will be held on Thursday, November 17th at 10:00 a.m. in the Windsor Salon of
the Omni Hotel, Four Riverway, Houston, Texas, 77056. The formal Notice of the
Annual Meeting is set forth in the enclosed materials.
This year, you are being asked to act upon the election of six (6) Directors.
These matters are discussed in greater detail in the attached Notice of Annual
Meeting of Stockholders and Proxy Statement.
Regardless of the number of shares you own and whether or not you expect to be
present at the meeting, please mark, sign, date, and promptly return the
enclosed Proxy Card in the envelope provided. Returning the Proxy Card will not
deprive you of your right to attend the meeting and vote your shares in person.
If you attend the meeting, you may withdraw your Proxy and vote your own shares.
On behalf of the Board of Directors, I would like to express our appreciation
for your continued support of our Company. We look forward to seeing you at the
Annual Meeting.
Sincerely,
/s/ Dr. Burton J. Kunik
-----------------------
Dr. Burton J. Kunik
Chairman of the Board
Chief Executive Officer and President
2
SHARPS COMPLIANCE CORP.
9350 Kirby Drive, Suite 300
Houston, Texas 77054
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 2005
NOTICE IS HEREBY GIVEN that the 2005 Annual Meeting of
Stockholders (the "Annual Meeting") of Sharps Compliance Corp., a Delaware
corporation (the "Company"), will be held on Thursday, November 17, 2005 at
10:00 a.m. local time in the Windsor Salon of the Omni Hotel, Four Riverway,
Houston, Texas, 77056, for the purpose of considering and voting upon the
following:
1) the election of six directors to hold office until the next Annual
Meeting of Stockholders or until the election and qualification of
their respective successors;
2) amendment to the 1993 Stock Plan of the Company; and
3) such other business as properly may come before the Annual Meeting or
any adjournment(s) thereof. The Board of Directors is presently unaware
of any other business to be presented to a vote of the stockholders at
the Annual Meeting.
The Board of Directors has fixed September 29, 2005 as the
record date (the "Record Date") for the determination of stockholders entitled
to notice of and to vote at the Annual Meeting or any adjournment(s) or
postponement(s) thereof. Only stockholders of record at the close of business on
the Record Date are entitled to notice of and to vote at the Annual Meeting. The
stock transfer books will not be closed. A list of stockholders entitled to vote
at the Annual Meeting will be available for examination at the offices of the
Company for ten days prior to the Annual Meeting.
By Order of the Board of Directors
/s/ David P. Tusa
------------------
David P. Tusa
Corporate Secretary
Houston, Texas
October 14, 2005
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER,
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED
TO PROMPTLY MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED,
SELF-ADDRESSED, STAMPED ENVELOPE SO THAT YOUR SHARES OF STOCK MAY BE REPRESENTED
AND VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT THE PRESENCE OF A
QUORUM MAY BE ASSURED AT THE ANNUAL MEETING. YOUR PROXY WILL BE RETURNED TO YOU
IF YOU SHOULD BE PRESENT AT THE ANNUAL MEETING AND SHOULD REQUEST SUCH RETURN OR
IF YOU SHOULD REQUEST SUCH RETURN IN THE MANNER PROVIDED FOR REVOCATION OF
PROXIES ON THE INITIAL PAGES OF THE ENCLOSED PROXY STATEMENT. PROMPT RESPONSE BY
OUR STOCKHOLDERS WILL REDUCE THE TIME AND EXPENSE OF SOLICITATION.
3
SHARPS COMPLIANCE CORP.
9350 Kirby Drive, Suite 300
Houston, Texas 77054
-----------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 2005
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement (the "Proxy Statement") and the
accompanying materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Sharps Compliance Corp., a Delaware
corporation (the "Company"), to be used at the Annual Meeting of Stockholders of
the Company to be held on November 17, 2005 (the "Annual Meeting") at the time
and place and for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders and adjournment(s) or postponement(s) thereof.
The accompanying proxy is designed to permit each holder of
the Company's common stock, par value $0.01 per share (the "Common Stock"), to
vote for or withhold voting for, (i) the nominees for election as directors of
the Company set forth under the Proposals, (ii) the proposed amendment to the
1993 Stock Plan increasing the number of shares available under the plan by
500,000, and (iii) to authorize the proxies to vote in their discretion with
respect to any other proposal brought before the Annual Meeting. When a
stockholder's executed proxy card specifies a choice with respect to a voting
matter, the shares will be voted accordingly. If no such specifications are
made, the Proxies for the Common Stock will be voted by those persons named in
the Proxies at the Annual Meeting FOR the election of the nominees specified
under the caption "Election of Directors". If any other matters properly come
before the Annual Meeting, the Proxies will vote upon such matters according to
their judgment.
The Company encourages the personal attendance of its
stockholders at the Annual Meeting, and execution of the accompanying proxy will
not affect a stockholder's right to attend the Annual Meeting and to vote his or
her shares in person. Any stockholder giving a proxy has the right to revoke it
by giving written notice of revocation to David P. Tusa, Corporate Secretary,
Sharps Compliance Corp., at the Company's executive office, 9350 Kirby Drive,
Suite 300, Houston, Texas 77054, at any time before the proxy is voted, by
executing and delivering a later-dated proxy, or by attending the Annual Meeting
and voting his or her shares in person. No such notice of revocation or
later-dated proxy will be effective, however, until received by the Company at
or prior to the Annual Meeting. Such revocation will not affect a vote on any
matters taken prior to the receipt of such revocation. Mere attendance at the
Annual Meeting will not of itself revoke the proxy.
All expenses of the Company in connection with the
solicitation will be borne by the Company. In addition to the solicitation of
proxies by use of the mail, officers, directors and regular employees of the
Company may solicit the return of proxies by personal interview, mail, telephone
and/or facsimile. Such persons will not be additionally compensated, but will be
reimbursed for out-of-pocket expenses. The Company also will request brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
material to the beneficial owners of shares held of record by such persons and
will reimburse such persons and their transfer agents for their reasonable
out-of-pocket expense in forwarding such material.
This Proxy Statement, Proxy Card and the Company's Annual
Report covering the Company's fiscal year ended June 30, 2005, including audited
financial statements, are being mailed to the stockholders of the Company on or
about October 14, 2005.
4
The date of this Proxy Statement is October 14, 2005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report for the fiscal year ended June 30, 2005 is
incorporated by reference in this Proxy Statement. A copy of such Annual Report
is enclosed with this Proxy Statement. In the event this Proxy Statement was
delivered without a copy of such Annual Report, the Company will, upon written
or oral request, provide within one business day of such request without charge,
a copy of such Annual Report (other than exhibits to such document, unless such
exhibits are specifically incorporated by reference into such document).
Requests should be directed to Sharps Compliance Corp., 9350 Kirby Drive, Suite
300, Houston, Texas 77054, Attention: David P. Tusa, Executive Vice President,
Chief Financial Officer and Business Development, telephone (713) 660-3514.
INDEPENDENT PUBLIC ACCOUNTANTS
UHY Mann Frankfort Stein & Lipp has been engaged by the Audit Committee
of the Board of Directors of the Company as its independent registered public
since January 8, 2002. Management expects that a representative of UHY Mann
Frankfort Stein & Lipp will be present at the Annual Meeting to make a statement
if he or she desires to do so and to be available to answer appropriate
questions posed by stockholders.
The Company's independent registered public accountants have not
directly or indirectly operated or supervised the Company's information system
or local area network. Additionally, the Company's independent registered public
accountants have not designed or implemented hardware or software used by the
Company to prepare the Company's financial statement information.
AUDIT FEES
The aggregate fees and expenses billed to the Company by its
independent registered public accountants for audit services including the
quarterly reviews were $57,440 and $50,109 for the fiscal years ended June 30,
2005 and 2004, respectively.
AUDIT - RELATED FEES
The aggregate fees and expenses billed to the Company by its
independent registered public accountants for audit-related services were -0-
for the fiscal years ended June 30, 2005 and 2004.
TAX FEES
The aggregate fees and expenses billed to the Company by its
independent registered public accountants for tax related services were -0- for
the fiscal years ended June 30, 2005 and 2004.
ALL OTHER FEES
There were no fees billed to the Company by its independent registered
public accountants for other services for the fiscal years ended June 30, 2005
and 2004, respectively.
All of the above noted services performed by the Company's independent
registered public accountants were approved in compliance with the Company's
Audit Committee Charter. All of the hours expended by the Company's independent
public accountants during the audit engagements noted above were performed by
the accounting firm's full-time permanent employees.
5
The Board of Directors has adopted corporate governance guidelines that
provide that security holders of the Company and other interested parties may
communicate with one or more of the Company's directors by mail in care of:
David P. Tusa, Corporate Secretary, Sharps Compliance Corp., 9350 Kirby Dr.,
Suite 300, Houston, Texas 77054. Such communications should specify the intended
recipient or recipients. All such communications, other than unsolicited
commercial solicitations, will be forwarded to the appropriate director or
directors for review.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
General
The Board has fixed the close of business on September 29, 2005 as the
record date (the "Record Date") for the Annual Meeting. Only holders of record
of the outstanding shares of Common Stock at the close of business on the Record
Date are entitled to notice of and to vote at the Annual Meeting and any
adjournment(s) thereof. At the close of business on September 29, 2005, there
were 10,547,311 shares of Common Stock outstanding and entitled to be voted at
the Annual Meeting. The Common Stock is the only class of stock entitled to vote
at the Annual Meeting. Each share of Common Stock is entitled to one vote on
each matter presented to the stockholders. Cumulative voting is not permitted by
Common Stock shareholders of the Company.
Quorum and Vote Required
The presence, in person or by proxy, of a majority of the total shares
of Common Stock issued and outstanding at the close of business on the Record
Date is necessary to constitute a quorum for transaction of business at the
Annual Meeting. Assuming the existence of a quorum, the affirmative vote of a
plurality of the shares of Common Stock present, either in person or represented
by proxy, and entitled to vote at the Annual Meeting is required to elect
directors, and the affirmative vote of a majority of the shares of Common Stock
present, either in person or represented by proxy, and entitled to vote at the
Annual Meeting is required to decide any other questions brought before such
meeting, unless the question is one upon which, by express provision of a
statute or the certificate of incorporation of the Company, a different vote is
required, in which case such express provision shall govern and control the
decision in question. If a quorum is not present in person or by proxy, the
Annual Meeting may be adjourned until a quorum is obtained.
Abstentions are counted toward the calculation of a quorum and will
have the same effect as a vote against a proposal. Broker non-votes will be
counted toward the calculation of a quorum but will have no effect on the voting
outcome of a proposal.
6
Security Ownership of Management and Certain Beneficial Owners
The following table and notes thereto set forth certain information
with respect to the shares of Common Stock beneficially owned by (i) each
director and nominee for director of the Company, (ii) all executive officers of
the Company, including those listed in the Summary Compensation Table set forth
under the caption "Executive Compensation" below, (iii) all directors and
executive officers of the Company as a group and (iv) each person known by the
Company to be the beneficial owner of 5% or more of the outstanding Common
Stock, as of the Record Date:
Common Stock
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Name of Beneficial Owner Amount and Nature of Percent of Class
Beneficial Ownership (1) Owned Beneficially (2)
------------------------------------- --------------------------------------- -------------------------------------
Directors:
Dr. Burton J. Kunik (3) 2,818,666(4) 26.72%
Ramsay Gillman 427,500((5)) 4.05%
John R. Grow - *
Parris H. Holmes, Jr. ((6)) 1,323,714((7)) 12.55%
F. Gardner Parker 116,667(8) 1.11%
Philip C. Zerrillo 174,999((9)) 1.66%
Officers:
David P. Tusa 380,000(1(0)) 3.60%
Michael D. Archer 83,333(1(1)) *
*
Mike L. Iske 31,666(12)
Others:
John W. Dalton(13) 1,620,000(1(4)) 15.4%
Herb Schneider (15) 800,000 7.58%
All executive officers and 5,356,545(16) 50.79%
directors as a group
(8 individuals)
* Represents less than 1% of the issued and outstanding shares of Common Stock.
(1) Each of the persons named in the table has sole voting and investment power
with respect to the shares reported, subject to community property laws
where applicable and the information contained in this table and these
notes.
(2) The percentages indicated are based on outstanding stock options
exercisable within 60 days for each individual and 10,547,311 shares of
Common Stock issued and outstanding on the Record Date.
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(3) Dr. Kunik's address is 9350 Kirby Drive, Suite 300, Houston, Texas 77054.
(4) Included 246,666 shares that Dr. Kunik has the right to acquire upon the
exercise of stock options.
(5) Includes 55,000 shares that Mr. Gillman has the right to acquire upon the
exercise of stock options.
(6) Mr. Holmes' address is P.O. Box 461127, San Antonio, Texas 78246.
(7) Includes 368,268 shares that Mr. Holmes has the right to acquire upon the
exercise of stock options.
Includes 66,667 shares that Mr. Parker has the right to acquire upon exercise of
stock options.
(9) Includes 129,999 shares that Mr. Zerrillo has the right to acquire upon the
exercise of stock options.
(10) Includes 355,000 shares that Mr. Tusa has the right to acquire upon the
exercise of stock options. Under a divorce decree dated October 2004, Ms.
Elaine K. Colvard has the right to require Mr. Tusa to exercise 127,000 of
the above noted 355,000 stock options on her behalf.
(11) Represents 83,333 shares that Mr. Archer has the right to acquire upon the
exercise of stock options.
(12) Represents 31,666 shares that Mr. Iske has the right to acquire upon the
exercise of stock options.
(13) Mr. Dalton's address is 9258 Elizabeth, Houston, Texas 77055.
(14) Includes 520,000 shares that Mr. Dalton has the right to acquire upon the
exercise of stock options. This amount does not include 272,000 shares
owned by Mr. Dalton's adult children, of which Mr. Dalton disclaims
beneficial ownership.
(15) Mr. Schneider's address is 4027 Sunridge Road, Pebble Beach, California
93953.
(16) Includes 1,336,599 shares that all directors and executive officers have
the right to acquire upon the exercise of stock options.
ITEM 1
ELECTION OF DIRECTORS
Nominees
The Bylaws of the Company provide that the Board of Directors shall
consist of not fewer than three nor more than fifteen members and that the
number of directors, within such limits, shall be determined by resolution of
the Board of Directors at any meeting or by the stockholders at the Annual
Meeting. The Board of Directors of the Company has set the number of directors
comprising the Board of Directors at five.
The Company does not have a standing nominating committee as the
nominating actions have been undertaken by the Board of Directors. The Board of
Directors has nominated for director the individuals named below to be elected
at the Annual Meeting. Each of the nominees has agreed to stand for election as
a director of the Company, to serve until the 2006 Annual Meeting or until their
respective successors have been duly elected and qualified.
The table below sets forth the names and ages of the nominees for
director and the year each nominee first became a director of the Company. Each
of the nominees is presently serving as a director of the Company. Biographical
information on the nominees is set forth below under "Management."
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Year first became a
Name and Age Director of the Company
------------ -----------------------
Ramsay Gillman (61) 2002
John R. Grow (56) 2005
Parris H. Holmes, Jr. (61) 1998
Dr. Burton J. Kunik (67) 1998
F. Gardner Parker (63) 2003
Philip C. Zerrillo (47) 1999
Unless otherwise indicated on any duly executed and dated proxy, the
persons named in the enclosed proxy intend to vote the shares that it represents
for the election of the nominees listed in the table above for the term
specified. Although the Company does not anticipate that the above-named
nominees will refuse or be unable to accept or serve as directors of the Company
for the term specified, the persons named in the enclosed form of proxy intend,
if either of such nominees is unable or unwilling to serve as a director, to
vote the shares represented by the proxy for the election of such other person
as may be nominated or designated by management, unless they are directed by the
proxy to do otherwise.
Assuming the presence of a quorum, the affirmative vote of the holders
of a plurality of the shares of Common Stock, represented in person or by proxy
at the Annual Meeting, is required for the election of directors. Assuming the
receipt by each such nominee of the affirmative vote of at least a plurality of
the shares of Common Stock represented at the Annual Meeting, such nominees will
be elected as directors. Proxies will be voted in accordance with the
specifications marked thereon, and if no specification is made, will be voted
"FOR" the nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
ELECTION OF EACH OF THE INDIVIDUALS NOMINATED
FOR ELECTION AS DIRECTORS.
ITEM 2
APPROVAL OF AMENDMENT TO THE 1993 STOCK PLAN
Effective November 16, 1993, the stockholders of the Company approved
the Sharps Compliance Corp. 1993 Stock Plan, which was subsequently amended and
extended, (the "Stock Plan"), the text of which is attached as Annex A to this
Proxy Statement. The Board of Directors now proposes to increase the number of
shares of Common Stock available under the plan by 500,000 shares of Common
Stock for a total of 3.5 million shares of Common Stock. The material features
of the Plan are discussed below, but the description is subject to and is
qualified in its entirety by the full text of the Plan.
General. Under the Stock Plan, (a) employees of the Company and any
subsidiary of the Company may be awarded incentive stock options ("ISOs"), as
defined in Section 422A(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), and (b) employees, consultants and affiliates or any other person or
entity, as determined by the Administrator to be in the best interests of the
Company, may be granted (i) stock options which do not qualify as ISOs
("Non-qualified Options"), (ii) awards of stock in the Company ("Awards"), (iii)
stock appreciation rights ("SARs") in conjunction with, or independently of,
options granted thereunder, (iv) performance awards in the form of units
("Units") representing phantom shares of stock, (v) non-employee director
options and (vi) opportunities to make direct purchases of stock in the Company
("Purchases"). ISOs and Non-qualified Options are collectively referred to as
"Options," and together with Awards, SARs, Units, Purchases and non-employee
director options are collectively referred to as "Stock Rights."
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Shares Subject to the Stock Plan. The Stock Plan currently authorizes
the issuance of up to 3,000,000 shares of Common Stock. If any Stock Right
granted under the Stock Plan terminates, expires or is surrendered, new Stock
Rights may thereafter be granted covering such shares of Common Stock.
Administration. The Stock Plan is administered by the Board of
Directors (the "Administrator"). Subject to the terms of the Stock Plan, the
Administrator has the authority to determine the persons to whom Stock Rights
(except non-employee director options) shall be granted, the number of shares of
Common Stock covered by each such grant, the exercise or purchase price per
share, the time or times at which Stock Rights shall be granted, whether each
option granted shall be an ISO or a Non-qualified Option, whether restrictions
such as repurchase options are to be imposed on shares of Common Stock subject
to Stock Rights and the nature of such restrictions, if any. The interpretation
or construction by the Administrator of the Stock Plan or with respect to any
Stock Rights granted thereunder shall, unless otherwise determined by the Board
of Directors, be final. The option price for ISOs may not be less than 100% of
the fair market value of the Common Stock on the date of grant, or 110% of the
fair market value with respect to any ISO issued to a holder of 10% or more of
the Company's shares of Common Stock. There is no price requirement for
Non-qualified Stock Options.
In no event may the aggregate fair market value (determined on the date
of the grant of an ISO) of Common Stock for which ISOs granted to any employee
under the Stock Plan are exercisable for the first time by such employee during
any calendar year exceed $100,000. The Stock Plan further directs the
Administrator to set forth provisions in Option agreements regarding the
exercise and expiration of Options according to stated criteria. The
Administrator oversees the methods of exercise of Options, with attention being
given to compliance with appropriate securities laws and regulations. The Stock
Plan permits the use of already owned Common Stock as payment for the exercise
price of Stock Rights.
Eligibility for Granting of Stock Rights. ISOs may be granted under the
Stock Plan only to employees of the Company. Non-qualified Options, SARs and
Units may be granted to any officer, employee, consultant or affiliate of the
Company, or any other person or entity, as determined by the Administrator to be
in the best interests of the Company.
Non-employee Director Options. Each Non-Employee Director ("Director")
of the Company is entitled to an annual stock option grant of 30,000 shares. The
option will be granted, in advance, to each Director within thirty (30) days
prior or subsequent to the respective year of service. The exercise price of the
stock options will be consistent with the closing market price one day prior to
such date of grant. In addition to the above, the Chairman of the Audit
Committee, Audit Committee Members and the Chairman of the Compensation
Committee are entitled to the following additional annual grants:
o Chairman of Audit Committee, 20,000 stock options;
o Other Audit Committee Members, 10,000 stock options; and
o Chairman of Compensation Committee, 10,000 stock options
The stock option grants are awarded for services to be performed during the
prospective fiscal year period.
Awards. Restricted stock awards may be granted under the Stock Plan at
the discretion of the Administrator. The grantee purchases the number of shares
of Common Stock subject to the Award, usually for a nominal price such as the
par value. The shares of Common Stock, however, are held in escrow and may not
be sold until they are vested in accordance with the terms of the grant, such as
continued employment for a specific period of time, accomplishment by the
Company of certain goals, or a combination of criteria. Upon termination of the
Award, all unvested shares of Common Stock are repurchased by the Company for
the same nominal purchase price originally paid for the Common Stock. As of
September 29, 2005, the Company had not granted any Awards under the Stock Plan.
10
Stock Appreciation Rights. Options (except non-employee director
options) granted under the Stock Plan may be granted in tandem with SARs
("tandem SARs") or independently of and not in tandem with an Option ("naked
SARs"). SARs will become exercisable at such time or times, and on such
conditions, as specified in the grant. Any tandem SAR granted with an ISO may be
granted only at the date of grant of such ISO. Any tandem SAR granted with a
Non-qualified Option may be granted either at or after the time such Option is
granted. As of September 29, 2005, the Company had not granted any SARs under
the Stock Plan.
A tandem SAR is the right of an optionee, without payment to the
Company (except for applicable withholding taxes), to receive the excess of the
fair market value per share of Common Stock on the date which such SAR is
exercised over the option price per share of Common Stock as provided in the
related underlying Option. A tandem SAR granted with an Option shall pertain to,
and be exercised only in conjunction with, the related underlying Option granted
under the Stock Plan and shall be exercisable and exercised only to the extent
that the underlying Option is exercisable. The tandem SAR shall become either
fully or partially non-exercisable and shall then be fully or partially
unexercisable and fully or partially forfeited if the exercisable portion, or
any part thereof, of the underlying Option is exercised, and vice versa.
A naked SAR may be granted irrespective of whether the recipient holds,
is being granted or has been granted any Options under any stock plan of the
Company. A naked SAR may be granted irrespective of whether the recipient holds,
is being granted or has been granted any tandem SARs. A naked SAR may be made
exercisable without regard to the exercisability of any Option.
Units. The Stock Plan provides that performance awards in the form of
Units may be granted either independently of, or in tandem with, a Stock Right,
except that such Units shall not be granted in tandem with ISOs. Units granted
shall be based on various performance factors and have such other terms and
conditions at the discretion of the Administrator. As of September 29, 2005, the
Company had not granted any Units under the Stock Plan.
Termination and Amendment of the Stock Plan. Currently, the Plan
terminates on November 12, 2008. Further, the Board of Directors may terminate
or amend the Stock Plan in any respect or at any time, except that no amendment
requiring stockholder approval under the provisions of the Code and related
regulations relating to ISOs or under Rule16b-3 will be effective without
approval of stockholders as required and within the times set by such rules.
The Board of Directors believes that the Plan is instrumental in
attracting and retaining qualified employees and senior management and has the
effect of more significantly aligning the interests of the officers and
directors with the Company stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" AN
INCREASE OF THE NUMBER OF SHARES AVAILABLE UNDER THE PLAN
ITEM 3
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
As of the date of this Proxy Statement, management does not
intend to present any other items of business and is not aware of any matters to
be presented for action at the Annual Meeting other than that described above.
However, if any other matters should come before the Annual Meeting, it is the
intention of the persons named as proxies in the accompanying proxy card to vote
in accordance with their best judgment on such matters.
11
MANAGEMENT
Set forth below is information with respect to each director
and executive officer of the Company as of September 29, 2005. The executive
officers are elected by the Board of Directors and serve at the discretion of
the Board. There are no family relationships between any two directors or
executive officers.
Name Age Position
------------------------------- ------ -------------------------------------------------------------------------
Directors:
Dr. Burton J. Kunik 67 Chairman of the Board, Chief Executive Officer and President
Ramsay Gillman ((1)) 61 Director
John R. Grow 56 Director
Parris H. Holmes, Jr. ((1)) 61 Director
F. Gardner Parker ((2)) 63 Director
Philip C. Zerrillo ((2)) 47 Director
Officers:
David P. Tusa 45 Executive Vice President, CFO & Business Development
Michael D. Archer 59 Senior Vice President of Sales and Marketing
Mark L. Iske 41 Senior Vice President of Operations
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
The following is a description of the biographies of the Company's
executive officers and directors and nominees for director for the past five
years.
Dr. Burton J. Kunik has been a director, Chairman of the Board, Chief
Executive Officer and President of the Company since July 1998. He founded
Sharps Compliance, Inc., now a wholly owned subsidiary of the Company, in May
1994 and has served as a director and Chief Executive Officer of Sharps
Compliance, Inc. since that time. Dr. Kunik has 24 years of experience as an
endodontist, including management experience of three successful start-up
companies in the medical waste and insurance industries. Previously, Dr. Kunik
spent five years with 3CI Complete Compliance Corporation, which he co-founded.
Its successor, American 3CI currently is engaged in the business of medical
waste services in the southeastern and southwestern United States. Other
previous business experience includes management roles in real estate, oil and
gas, cattle ranching and the travel industry. Dr. Kunik has been very active in
the medical waste industry for ten years. He served as Chairman of the Medical
Waste Institute in 1992 and has served on the board of the Environmental
Industry Association.
Ramsay Gillman has served as a director of the Company since July 2002.
He also served as the Director of the South Texas region for the National
Automobile Dealers Association (NADA) from 1989 through 1999 and was elected
President of NADA in 1997. Currently, Mr. Gillman serves as a Trustee for the
NADA Charitable Foundation and for the NADA Dealers Election Action Committee.
He has also served as President of the Houston Automobile Dealer's Association,
Vice President of the Texas Automobile Dealer's Association and was appointed
Vice Chairman of the Texas Motor Vehicle Commission from 1984 through 1987 by
the then Governor of Texas.
12
John R. Grow has served as a director of the Company since September
2005. Mr. Grow was one of the founding members (1990) and President of Accredo
Health, Inc., a provider of specialty biopharmaceuticals and services. Under his
leadership, Accredo grew to a $1.5 billion company since going public in 1999
until his retirement in 2004. Prior to his career with Accredo Health, Mr. Grow
was a Vice President with Caremark Homecare (home infusion services) from 1984
through 1988 and American Hospital Supply (medical surgical manufacturing and
distribution) from 1973 through 1984. Mr. Grow is currently a private investor
and also involved in various charitable organizations.
Parris H. Holmes, Jr. has been a director of the Company since July
1998. He previously served on the Company's Board of Directors from March 1992
until April 1996. Mr. Holmes served as Chairman of the Board and Chief Executive
Officer of New Century from May 1996 to June 2004. Mr. Holmes served as both
Chairman of the Board and Chief Executive Officer of USLD Communications Corp.,
formerly U.S. Long Distance Corp. ("USLD"), from September 1986 until August
1996, and served as Chairman of the Board of USLD until June 2, 1997. Prior to
March 1993, Mr. Holmes also served as President of USLD. Mr. Holmes was a member
of the Board of Directors of Princeton eCom Corporation ("Princeton"), a leading
provider of electronic bill presentment and payment services, from September
1998 until March 2004. Mr. Holmes served on the Board of Tanisys, but resigned
as Chairman of the Board and a Board member in January 2002.
F. Gardner Parker has been a director of the Company since
February 2003. Mr. Parker has served on the board of directors of four other
public companies, Camden Property Trust, Crown Resources Corporation, Blue
Dolphin Energy Company and Carrizo Oil & Gas. Mr. Parker serves as a director of
Gillman Automobile Dealerships, Net Near U Communications, MCS Technologies,
Camp Longhorn, Inc., nii communications, inc., Sherwood Healthcare Inc.,
Overpar, Inc., Norton Ditto, Pinnacle, Butler Online, and Arena Power. Mr.
Parker was previously with Ernst & Ernst (now Ernst &Young LLP) for 14 years,
seven of which he served as a partner.
Philip C. Zerrillo, Ph.D., has been a director of the Company since
September 1999. Dr. Zerrillo has served as Associate Dean of The University of
Texas Graduate School of Business since September 1999 and is a member of the
faculty of The University of Texas. He has been a visiting professor at several
universities, including Thommasat University (Thailand) and Northwestern
University's J.L. Kellogg Graduate School of Management, since 1991, and is the
author of numerous published articles in the fields of distribution channel
management and business system innovation.
David P. Tusa, CPA, Executive Vice President, Chief Financial Officer
and Business Development joined the Company in February 2003. Mr. Tusa was the
Executive Vice President, Chief Financial Officer of New Century Equity Holdings
Corp. ("New Century") from August 1999 until June 2004. Prior to New Century,
Mr. Tusa was Executive Vice President and Chief Financial Officer of U.S. Legal
Support, a provider of litigation support services, during the period from
September 1997 to August 1999. Mr. Tusa also served as Senior Vice President and
Chief Financial Officer of Serv-Tech, Inc., a publicly-held provider of
specialty services to industrial customers in multiple industries, from April
1994 through August 1997. Additionally, Mr. Tusa was with CRSS, Inc., a
publicly-held diversified services company from May 1990 through April 1994. Mr.
Tusa served on the Board of Directors of Tanisys Technology, Inc., a developer
and marketer of semiconductor testing equipment from August 2001 to March 2003.
Mr. Tusa served as a member of the Board of Directors of Princeton eCom, a
leading application service provider for electronic and Internet bill
presentment and payment solutions from December 2001 to June 2002. Mr. Tusa
served as an Advisor to the Board of Directors of the Company from October 2001
to February 2003.
Michael D. Archer, Senior Vice President of Sales and Marketing joined
the Company in July 2003. Mr. Archer was previously the Vice President of Sales
and Marketing of Tartan Textile Services from 2001 to 2003. Mr. Archer was the
Vice President of Sales and Marketing for Heartland Information Services from
2000 to 2001 and Vice President of Sales and Marketing for Stericycle during
13
1999 and 2000. Additionally, Mr. Archer was a Director of Sales and Marketing
for the Healthcare division of Browning Ferris Industries from 1995 to1999.
Mark L. Iske joined the Company in January 2003 as Vice President of
Operations. Mr. Iske was previously Vice President of International Operations
of Lukens Medical Corp. from 1989 until 1995. Subsequent to Lukens Medical
Corp., Mr. Iske was Vice President of Operations for Futura Medical Corp. until
2002. Mr. Iske was promoted to Senior Vice President of Operations of the
Company in February 25, 2005.
Committees, Meetings and Board Compensation
Audit Committee Report. The information contained in this report shall
not be deemed to be "soliciting material" or "filed" or incorporated by
reference in future filings with the SEC, or subject to liabilities of Section
18 of the Exchange Act, except to the extent that we specifically request that
the information be treated as soliciting material or specifically incorporates
it by reference into a document filed under the Securities Act of 1933, as
amended, or the Exchange Act.
The Audit Committee's purpose is to assist the Board of Directors in
its oversight of the Company's internal controls and financial statements and
the audit process. The Board of Directors, in its business judgment, has
determined that all members of the Audit Committee are "independent," as
required by applicable standards of the SEC. The Audit Committee operates
pursuant to a written charter adopted by the Board of Directors which included
herein as Annex B. Messrs. Zerrillo and Parker are the current members of the
Audit Committee, with Dr. Zerrillo serving as the Chairman. The Company's Board
has determined that Mr. Parker is an independent director who qualifies as an
audit committee accounting expert, as that term is defined in Item 401(h) of
Regulation S-K under the Securities Act of 1933, as amended. The Audit Committee
is responsible for pre-approving all services provided by the Company's
independent registered public accounting firm, UHY Mann Frankfort Stein & Lipp
LLP ("UHY").
Management is responsible for the preparation, presentation and
integrity of the Company's financial statements, accounting and financial
reporting principles and internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations. The
Company's independent registered public accounting firm, UHY, is responsible for
performing an audit of the consolidated financial statements in accordance with
generally accepted auditing standards and of the effectiveness of the Company's
internal controls over financial reporting. In performing its oversight role,
the Audit Committee has reviewed and discussed the audited financial statements
with management and the independent registered public accounting firm. The Audit
Committee has also discussed with the independent registered public accounting
firm the matters required to be discussed by Statement on Auditing Standards
(SAS) No. 61, Communication with Audit Committees, SAS No. 89, Audit
Adjustments, and SAS No. 90, Audit Committee Communications, as amended and
currently in effect. The Audit Committee has received the written disclosures
and the letter from the independent registered public accounting firm required
by Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees, as currently in effect. The Audit Committee has also
considered whether the provision of non-audit services by the independent
registered public accounting firm is compatible with maintaining its
independence and has discussed with the registered public accounting firm its
independence.
In overseeing the preparation of the Company's financial statements,
the Audit Committee met with both management and UHY to review and discuss all
financial statements prior to their issuance and to discuss significant
accounting issues. Based on the reports and discussions described in this
report, and subject to the limitations on the role and responsibilities of the
Audit Committee referred to above and in the Audit Committee Charter, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 2005.
14
The Audit Committee: F. Gardner Parker and Philip C. Zerrillo.
Compensation Committee. The Compensation Committee has
furnished the following report on the Company's executive compensation policies.
This report describes the Compensation Committee's policies applicable to the
compensation of the Company's Executive Officers and provides specific
information regarding the compensation of the Company's CEO. The information
contained in this "Compensation Committee Report on Executive Compensation"
shall not be deemed to be "soliciting material" or to be "filed" with the
Commission, nor shall such information be incorporated by reference into any
future filings under the Securities Act of 1933, as amended, or the Exchange
Act, except to the extent that the Company specifically incorporates it by
reference into such filing.
The Compensation Committee currently is comprised of two outside
Directors, Messrs. Gillman and Holmes, and administers and oversees all aspects
of the Company's Executive Compensation Policy and reports its determinations to
the Board of Directors. The Compensation Committee's overall goal is to develop
executive compensation policies that are consistent with, and linked to,
strategic business objectives and Company values. The Compensation Committee
approves the design of, assesses the effectiveness of and administers executive
compensation programs in support of the Company's compensation policies. The
Compensation Committee also reviews and approves all salary arrangements and
other remuneration for executives, evaluates executive performance and considers
related matters.
Compensation Philosophy. The Company's executive compensation policies
have four primary objectives: to attract and retain highly competent executives
to manage the Company's business, to offer executives appropriate incentives for
accomplishment of the Company's business objectives and strategy, to encourage
stock ownership by executives to enhance mutuality of interest with stockholders
and to maximize long-term stockholder value.
Elements of Compensation. The key elements of the Company's executive
compensation are base salary, annual incentive and long-term incentive. These
key elements are addressed separately below. In determining compensation, the
Compensation Committee considers all elements of an executive's total
compensation package.
Base Salary. Base salaries for executives are determined initially by
evaluating the executive's level of responsibility, prior experience, breadth of
knowledge, internal equity issues and external pay practices.
Increases to base salaries are driven primarily by individual
performance. Individual performance is evaluated based on sustained levels of
individual contribution to the Company. When evaluating individual performance,
the Compensation Committee considers the executive's efforts in promoting
Company values, continuing educational and management training, improving
product quality, developing relationships with customers and vendors and
demonstrating leadership abilities among co-workers.
Annual Incentive. Each year, the Compensation Committee evaluates the
performance of the Company as a whole, as well as the performance of each
individual executive. Factors considered include Company performance versus
expectations, as well as individual accomplishments. The Compensation Committee
does not utilize formalized mathematical formulae, nor does it assign weightings
to these factors. The Compensation Committee, in its sole discretion, determines
the amount, if any, of incentive payments to each executive. The Compensation
Committee believes that the Company's performance versus expectations and
individual accomplishments require subjectivity on the part of the Committee
when determining incentive payments.
Long-Term Incentive. The Company's long-term compensation philosophy
provides that long-term incentives should relate to improvement in stockholder
value, thereby creating a mutuality of interests between executives and
stockholders. Additionally, the Compensation Committee believes that the
long-term security of executives is critical for the perpetuation of the
15
Company. Long-term incentives are provided to executives through the Company's
1993 Stock Plan, in the form of stock options and restricted stock awards.
Stock Options. Stock options generally are granted at an option price
not less than the fair market value of the Common Stock on the date of grant.
Accordingly, stock options have value only if the price of the Common Stock
appreciates after the date the options are granted. The design focuses
executives on the creation of stockholder value over the long-term and
encourages equity ownership in the Company. The Compensation Committee met two
times during the fiscal year ended June 30, 2005. The Board of Directors
accepted the Compensation Committee's recommendations made during the fiscal
year ended June 30, 2005 which included the following policy established on June
28, 2005 related to future employee stock options grants:
No further annual employee stock option grants will be approved by the
Compensation Committee of the Board of Directors until the achievement, by the
Company, of the following financial results: (i) fiscal year revenue of $12.5
million or higher and (ii) fiscal year earnings of $1.0 million or higher.
Should the Company achieve only one of the above goals, then stock option grants
up to 1.5% of the outstanding common shares of the Company may be authorized by
the Compensation Committee of the Board of Directors. Should the Company achieve
both of the above noted goals, then the Compensation Committee of the Board of
Directors may authorize the issuance of employee stock options, at its sole
discretion, and consistent with the Company and the individual employee
performance.
The above does not apply to new employee stock option grants. The above is also
subject to the further policies and discretion of the Compensation Committee of
the Board of Directors.
The Compensation Committee: Ramsay Gillman and Parris H. Holmes, Jr.
Board of Director and Committee Meetings. The Board of
Directors met seven times during the fiscal year ended June 30, 2005. During the
fiscal year, each of the directors of the Company attended at least 75% of the
aggregate meetings the Board of Directors and committees of which such director
was a member. All of the members of the Board of Directors attended last year's
annual meeting.
Compensation of Directors
Meeting Fees. The Company does not pay cash compensation to
its Directors. The Company does reimburse its directors for travel and
out-of-pocket expenses incurred in conjunction with attending Board meetings.
Stock Options. Beginning June 2004, the Company grants annual
stock options to its non-employee Directors under the Company's 1993 Stock Plan
as follows:
o 30,000 stock options to each non-employee Director;
o an additional 20,000 stock options to the Chairman of the Audit
Committee;
o an additional 10,000 stock options to the Chairman of the Compensation
Committee; and
o an additional 10,000 stock options to the other Audit Committee
members.
In accordance with the policy, 170,000 stock options, with an exercise price of
$0.85, were granted on June 30, 2005 to the four non-employee Directors. This
grant represents compensation for director services to be performed over the
fiscal year 2006.
16
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation of the Company's Chief Executive Officer, Senior Vice President and
Chief Financial Officer, Senior Vice President of Sales and Marketing, and
Senior Vice President of Operations for fiscal year 2005.
Summary Compensation Table
Long -Term
Compensation Awards
--------------------------------
Annual Compensation Restricted Securities All
Name and Principal Fiscal --------------------------- Other Annual Stock Underlying Other
Position Year Salary ($) Bonus ($) Compensation($) Awards ($) Options (#) Comp($)
-------- ---- ---------- --------- --------------- ---------- ----------- -------
Dr. Burton J. Kunik 2005 $200,000 $20,000 $29,180((1)) - - -
Chairman of the Board, 2004 $200,000 - $27,988(2) - - -
President and Chief 2003 $190,000 $80,000 $30,717(3) - 250,000 -
Executive Officer
David P. Tusa 2005 $225,000 $5,000 $4,302(4) - 150,000 -
Exec.Vice President,CFO 2004 $173,750(5) - - - 150,000 -
& Business Development 2003 $40,000 - - - 150,000 -
Michael D. Archer 2005 $150,000 - $10,680(4) - 50,000 -
Sr. Vice President 2004 $142,008 - $9,402(4) - 150,000 -
Sales and Marketing 2003 - - - - - -
Mark Iske 2005 $106,904 - $2,310(4) - 50,000 -
Sr. Vice President 2004 $92,500 - - - 35,000 -
Operations 2003 $42,500 - - - 25,000 -
(1) Amount represents $15,948 in Company paid medical-related insurance
premiums and $13,240 in Company paid vehicle-related expenses.
(2) Amount represents $19,440 in Company paid medical-related insurance
premiums and $8,548 in Company paid vehicle-related expenses.
(3) Amount represents $20,043 in Company paid medical-related insurance
premiums and $10,674 in Company paid vehicle-related expenses.
(4) Amount represents Company paid medical-related insurance premiums.
(5) Mr. Tusa's salary was paid to New Century Equity Holdings via a salary
allocation agreement through June 2004. This amount includes a salary
allocation of $147,500 and benefits reimbursement of $26,250.
Stock Option Grants in Fiscal 2005
The following table provides certain information related to options
granted to the named executive officers during fiscal 2005 pursuant to the 1993
Stock Plan. The Company has never granted stock appreciation rights.
Individual Grants
-----------------------------------------------------
Number of Securities % of Total Options
Underlying Options Granted to Employees in Exercise or Base
Name Granted (#) Fiscal 2005 Price ($/Sh) Expiration Date
--------------------- ----------------------- -------------------------- ----------------- ---------------
David P. Tusa 150,000 48.2% $0.95 10/08/2011
Michael D. Archer 50,000 16.1% $0.85 06/30/2012
Mark Iske 50,000 16.1% $0.85 06/30/2012
17
Aggregated Option Exercises in Fiscal 2005 and Fiscal Year-end Option Values
There were no option exercises by the named executive officers
during the 2005 fiscal year. The following table provides the number and value
of options held at fiscal year end. The Company does not have any outstanding
stock appreciation rights.
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
Upon Options at FY End Options at FY End($)(1)
Option Value ----------------------------- ----------------------------
Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
------------------ --------- ----------- ----------- -------------- ----------- -------------
Dr. Burton J. Kunik - N/A 246,666 83,334 $20,233 $4,167
David P. Tusa - N/A 355,000(2) 150,000 $1,500 -
Michael Archer - N/A 50,000 150,000 $2,783 $5,666
Mark Iske - N/A 31,666 78,334 $2,166 $2,986
(1) Market value of the underlying securities as determined by reference to the
closing price of the Common Stock on the NASD OTC Bulletin Board on June
30, 2005 ($0.85) minus the exercise price.
(2) Under a divorce decree dated October 2004, Ms. Elaine K. Colvard has the
right to require Mr. Tusa to exercise 127,000 of the above noted 355,000
stock options on her behalf.
Employee Benefit Plans
Sharps Compliance Corp. 1993 Stock Plan
General. Effective November 16, 1993, the stockholders of
the Company approved the Stock Plan. Under the Stock Plan, (a) employees of the
Company and any subsidiary of the Company may be awarded incentive stock
options ("ISOs"), as defined in Section 422A(b) of the Internal Revenue Code of
1986, as amended (the "Code"), and (b) employees, consultants and affiliates or
any other person or entity, as determined by the Administrator to be in the best
interests of the Company, may be granted (i) stock options which do not qualify
as ISOs ("Non-qualified Options"), (ii) awards of stock in the Company
("Awards"), (iii) stock appreciation rights ("SARs") in conjunction with, or
independently of, options granted thereunder, (iv) performance awards in the
form of units ("Units") representing phantom shares of stock, (v) non-employee
director options and (vi) opportunities to make direct purchases of stock in the
Company ("Purchases"). ISOs and Non-qualified Options are collectively referred
to as "Options," and together with Awards, SARs, Units, Purchases and
non-employee director options are collectively referred to as "Stock Rights."
Shares Subject to the Stock Plan. The Stock Plan currently
authorizes the issuance of up to 3,000,000
shares. At September 29, 2005, options to purchase 2,819,890 shares had been
granted under the Stock Plan. If any Stock Right granted under the Stock Plan
terminates, expires or is surrendered, new Stock Rights may thereafter be
granted covering such shares.
Administration. The Stock Plan is administered by the Board
of Directors (the "Administrator"). Subject to the terms of the Stock Plan, the
Administrator has the authority to determine the persons to whom Stock Rights
(except non-employee director options) shall be granted, the number of shares
covered by each such grant, the exercise or purchase price per share, the time
or times at which Stock Rights shall be granted, whether each option granted
shall be an ISO or a Non-qualified Option, whether restrictions such as
repurchase options are to be imposed on shares subject to Stock Rights and the
nature of such restrictions, if any. The interpretation or construction by the
Administrator of the Stock Plan or with respect to any Stock Rights granted
thereunder shall, unless otherwise determined by the Board of Directors, be
final. The option price for ISOs may not be less than 100% of the fair market
value of the Common Stock on the date of grant, or 110% of the fair market value
18
with respect to any ISO issued to a holder of 10% or more of the Company's
shares. There is no price requirement for Non-qualified Stock Options. In no
event may the aggregate fair market value (determined on the date of the grant
of an ISO) of Common Stock for which ISOs granted to any employee under the
Stock Plan are exercisable for the first time by such employee during any
calendar year exceed $100,000. The Stock Plan further directs the Administrator
to set forth provisions in Option agreements regarding the exercise and
expiration of Options according to stated criteria. The Administrator oversees
the methods of exercise of Options, with attention being given to compliance
with appropriate securities laws and regulations. The Stock Plan permits the use
of already owned Common Stock as payment for the exercise price of Stock Rights.
Eligibility for Granting of Stock Rights. ISOs may be granted
under the Stock Plan only to employees of the Company. Non-qualified Options,
SARs and Units may be granted to any officer, employee, consultant or affiliate
of the Company, or any other person or entity, as determined by the
Administrator to be in the best interests of the Company.
Awards. Restricted stock awards may be granted under the Stock
Plan at the discretion of the Administrator. The grantee purchases the number of
shares subject to the Award, usually for a nominal price such as the par value.
The shares, however, are held in escrow and may not be sold until they are
vested in accordance with the terms of the grant, such as continued employment
for a specific period of time, accomplishment by the Company of certain goals,
or a combination of criteria. Upon termination of the Award, all unvested shares
are repurchased by the Company for the same nominal purchase price originally
paid for the stock. As of September 29, 2005, the Company had not granted any
Awards under the Stock Plan.
Stock Appreciation Rights. Options (except non-employee
director options) granted under the Stock Plan may be granted in tandem with
SARs ("tandem SARs") or independently of and not in tandem with an Option
("naked SARs"). SARs will become exercisable at such time or times, and on such
conditions, as specified in the grant. Any tandem SAR granted with an ISO may be
granted only at the date of grant of such ISO. Any tandem SAR granted with a
Non-qualified Option may be granted either at or after the time such Option is
granted. As of September 29, 2005, the Company had not granted any SARs under
the Stock Plan.
A tandem SAR is the right of an optionee, without payment to
the Company (except for applicable withholding taxes), to receive the excess of
the fair market value per share on the date which such SAR is exercised over the
option price per share as provided in the related underlying Option. A tandem
SAR granted with an Option shall pertain to, and be exercised only in
conjunction with, the related underlying Option granted under the Stock Plan and
shall be exercisable and exercised only to the extent that the underlying Option
is exercisable. The tandem SAR shall become either fully or partially
non-exercisable and shall then be fully or partially unexercisable and fully or
partially forfeited if the exercisable portion, or any part thereof, of the
underlying Option is exercised, and vice versa.
A naked SAR may be granted irrespective of whether the
recipient holds, is being granted or has been granted any Options under any
stock plan of the Company. A naked SAR may be granted irrespective of whether
the recipient holds, is being granted or has been granted any tandem SARs. A
naked SAR may be made exercisable without regard to the exercisability of any
Option.
Units. The Stock Plan provides that performance awards in the
form of Units may be granted either independently of or in tandem with a Stock
Right, except that such Units shall not be granted in tandem with ISOs. Units
granted shall be based on various performance factors and have such other terms
and conditions at the discretion of the Administrator. As of September 29, 2005,
the Company had not granted any Units under the Stock Plan.
19
Termination and Amendment of the Stock Plan. The Board of Directors may
terminate or amend the Stock Plan in any respect or at any time, except that no
amendment requiring stockholder approval under the provisions of the Code and
related regulations relating to ISOs or under Rule16b-3 will be effective
without approval of stockholders as required and within the times set by such
rules.
Employment Agreements
The Company entered into an employment agreement with Dr.
Burton J. Kunik on December 11, 2002 and (effective January 1, 2003). This
agreement provided for a two-year term, unless terminated as provided therein,
an annual salary of $200,000 and an incentive bonus at the discretion of the
Compensation Committee. In conjunction with the execution of the Agreement in
December 2002, Mr. Kunik received a cash bonus in the amount of $80,000. The
Company entered into a new employment agreement with Dr. Kunik on November 29,
2004 (effective December 1, 2004). This agreement superseded the agreement dated
December 11, 2002 noted above. This agreement provides for a three-year term,
unless terminated as provided therein, an annual salary of $200,000 and an
incentive bonus at the discretion of the Compensation Committee.
The employment agreement with Dr. Kunik provides that if he is
terminated without "cause" (as defined in the employment agreement) he shall
continue to be paid by the Company at his then effective base salary for a full
twelve (12) month period. Additionally, any outstanding stock options held by
Dr. Kunik would become fully vested and exercisable.
The employment agreement with Dr. Kunik also provides that if,
at any time within twenty-four (24) months of a change of control (as defined in
the employment agreement), the employee ceases to be an employee by reason of,
(i) termination by the employer without "cause" (as defined in the employment
agreement) or (ii) voluntary termination by the employee for "good reason" (as
defined in the employment agreement), Dr. Kunik would be entitled to, at his
sole option, to either (i) his then effective base salary through the remaining
term of the employment agreement or (ii) a lump-sum payment equal to his then
effective base salary for a twenty-four (24) month period. Additionally, any
outstanding stock options held by Dr. Kunik would become fully vested and
exercisable.
The Company entered into an employment agreement with its
Executive Vice President and Chief Financial Officer and Business Development,
David P. Tusa, on July 14, 2003. The employment agreement was amended effective
June 21, 2004 to reflect an increase in the annual base salary to $225,000. The
agreement expires one year from its effective date, subject to automatic annual
extensions, unless the Company notifies employee of its intent to terminate the
employment agreement at least thirty (30) days prior to the anniversary date.
The employment agreement automatically renewed on July 14, 2004 and 2005. The
employment agreement further provides that if the Company terminates the
employment without cause during the term, Mr. Tusa would be entitled to twelve
month's salary, plus a pro-rata portion of any earned bonus. Additionally, Mr.
Tusa would be entitled to continuation of benefits until the earlier of the end
of the severance period or employment with another organization. Mr. Tusa is
also entitled to participate in a Board of Director approved incentive
compensation plan.
On August 19, 2005, the Compensation Committee of the Board of
Directors approved a change in the compensation and employment arrangement of
the Company's Chief Financial Officer, David P. Tusa, as follows, (i) increase
in the annual base salary from $225,000 to $250,000, (ii) cash bonus of $25,000,
(iii) cash bonus of $20,000 to be paid on June 30, 2007 (assuming Mr. Tusa
remains in the employment of the Company through June 30, 2007), (iv) additional
cash bonus of, (a) $5,000 should the Company generate $13.0 million in billings
for the year ended June 30, 2007, (b) $10,000 should the Company generate $13.5
million in billings for the year ended June 30, 2007, or (c) $15,000 should the
Company generate $14.0 million in billings for the year ended June 30, 2007
20
(assuming Mr. Tusa remains in the employment of the Company through June 30,
2007), (v) grant of 50,000 options to purchase the Company's common stock
(issued under the Company's 1993 Stock Plan), vesting 100% at June 30, 2007 with
a strike price consistent with the ending market price on date of grant ($0.60
per share) and (vi) change in title from Senior Vice President and Chief
Financial Officer to Executive Vice President, Chief Financial Officer and
Business Development.
The Company entered into an employment agreement with its
Senior Vice President of Sales and Marketing, Michael D. Archer on July 14,
2003. On June 28, 2005, Mr. Archer's base salary increased to $175,000. The
agreement expires one year from its effective date, subject to automatic annual
extensions, unless the Company notifies employee of its intent to terminate the
employment agreement at least thirty (30) days prior to the anniversary date.
The employment agreement automatically renewed on July 14, 2004 and 2005. The
employment agreement further provides that if the Company terminates the
employment without cause during the term, Mr. Archer would be entitled to six
month's salary, plus a pro-rata portion of any earned bonus. Additionally, Mr.
Archer would be entitled to continuation of benefits until the earlier of the
end of the severance period or employment with another organization. Mr. Archer
is also entitled to participate in a Board of Director approved incentive
compensation plan.
The Company entered into an employment agreement its Senior
Vice President of Operations, Mark L. Iske, on February 25, 2005. The agreement
provides for an annual salary of $120,000. The agreement expires one year from
its effective date, subject to automatic annual extensions, unless the Company
notifies employee of its intent to terminate the employment agreement at least
thirty (30) days prior to the anniversary date. The employment agreement further
provides that if the Company terminates the employment without cause during the
term, Mr. Iske would be entitled to six month's salary, plus a pro-rata portion
of any earned bonus. Additionally, Mr. Iske would be entitled to continuation of
benefits until the earlier of the end of the severance period or employment with
another organization. Mr. Iske is also entitled to participate in a Board of
Director approved incentive compensation plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Burton J. Kunik, a director of the Company and nominee for
election as a director of the Company, Chairman of the Board, Chief Executive
Officer and President of the Company, owns 2,572,000 shares of Common Stock of
the Company and holds options to acquire 330,000 additional shares of Common
Stock of the Company. Parris H. Holmes, Jr., a director of the Company, a
nominee for election as a director of the Company beneficially owns 955,446
shares of Common Stock of the Company and beneficially holds options to acquire
454,902 additional shares of Common Stock of the Company. John W. Dalton owns
1,100,000 shares of Common Stock of the Company and holds options to acquire
270,000 additional shares of Common Stock of the Company. Mr. Dalton was issued
125,000 fully vested non-Stock Plan options with an exercise price of $0.80 per
share, for services performed in conjunction with the September 24, 2003 Private
Placement of 625,000 common shares of the Company.
SECTION 16(a) REPORTING
Paragraph 16(a) of the Securities Exchange Act of 1934, as
amended, requires that the Company's directors, executive officers and persons
who beneficially own more than 10% of a registered class of the Company's equity
securities file with the Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Directors, executive officers and greater than 10% stockholders are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company's knowledge, based solely on a review of the
copies of the Section 16(a) reports furnished to the Company during the fiscal
year ended June 30, 2005, all Section 16(a) filing requirements applicable to
its directors, executive officers and greater than 10% beneficial owners were
complied with.
21
STOCKHOLDERS' PROPOSALS FOR 2006 ANNUAL MEETING
Any proposals of holders of Common Stock intended to be
presented pursuant to Rule 14a-8 under the Exchange Act ("Rule 14a-8") at the
Annual Meeting of Stockholders to be held in 2006 must be received by the
Company, addressed to the Corporate Secretary of the Company at 9350 Kirby
Drive, Suite 300, Houston, Texas 77054, by June 13, 2006 to be considered for
inclusion in the Company's proxy statement and form of proxy related to such
meeting. After June 13, 2006, notice to the Company of a stockholder proposal
submitted otherwise than pursuant to Rule 14a-8 will be considered untimely, and
the person named in proxies solicited by the Board of Directors of the Company
for its 2006 Annual Meeting of Stockholders may exercise discretionary authority
voting power with respect to any such proposal as to which the Company does not
receive timely notice.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Individuals may communicate with our Board by submitting a letter
addressed to the member or members of the Board to whom the communication is
directed, care of the Company's Corporate Secretary, Sharps Compliance Corp.,
9350 Kirby Drive, Suite 300, Houston, Texas 77054. All such communications,
other than unsolicited commercial solicitations or communications will be
forwarded to the appropriate director or directors for review.
OTHER MATTERS
As of the date of this Proxy Statement, management does not intend to
present any other items of business and is not aware of any matters to be
presented for action at the Annual Meeting other than those described above.
However, if any other matters should come before the Annual Meeting, it is the
intention of the persons named as proxies in the accompanying Proxy Card to vote
in accordance with their best judgment on such matters.
Incorporation by Reference
The 1993 Stock Plan, incorporating the proposed amendment, is attached
as Annex A and incorporated herein by reference.
Expenses of Solicitation
The cost of preparing, assembling and mailing this proxy-soliciting
material is paid by the Company. In addition to solicitation by mail, the
Company's directors, officers and employees may solicit proxies by telephone or
other means of communication. Arrangements will also be made with brokerage
firms and other custodians, nominees and fiduciaries that hold the voting
securities of record, for the forwarding of solicitation materials to be
beneficial owners thereof. The Company will reimburse such brokers, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith.
By order of the Board of Directors
/s/ David P. Tusa
-----------------
David P. Tusa
Corporate Secretary
Houston, Texas
October 14, 2005
22
ANNEX A
SHARPS COMPLIANCE CORP.
1993 STOCK PLAN
(Incorporating Proposed Amendment)
1. Purpose. This 1993 Stock Plan (the "Plan") is intended to provide
incentives (a) to key employees of Sharps Compliance Corp., a Delaware
corporation (the "Company"), its parent (if any) and any present or future
subsidiaries of the Company (collectively, "Related Corporations") by
providing them with opportunities to purchase stock in the Company pursuant
to options granted hereunder which qualify as "incentive stock options"
under Section 422A(b) of the Internal Revenue Code of 1986, as amended (the
"Code") ("ISO" or "ISOs"); (b) to officers, key employees, consultants and
affiliates of the Company or any Related Corporation, or any other person
or entity, by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to officers, key
employees, consultants and affiliates of the Company or any Related
Corporation, or any other person or entity, by providing them with awards
of stock in the Company ("Awards"); (d) to officers, key employees,
consultants and affiliates of the Company or any Related Corporation, or
any other person or entity, by providing them with Stock Appreciation
Rights ("SAR" or "SARs") in tandem with, or independently of, options
granted hereunder; (e) to officers, key employees, consultants and
affiliates of the Company or any Related Corporation, or any other person
or entity, by providing them with performance awards in the form of units
("Units") representing phantom shares of stock ("Phantom Stock"), each Unit
representing one share; (f) to officers, key employees, consultants and
affiliates of the Company or any Related Corporation, or any other person
or entity, by providing them with opportunities to make direct purchases of
stock in the Company ("Purchases"); and (g) to non-employee directors by
providing them with options upon joining the Company's Board of Directors
("Non-Employee Director Options"). The Plan is intended to advance the best
interest of the Company by providing such persons, who have substantial
responsibility for its management, success and growth, with additional
incentive and by increasing their proprietary interest in the success of
the Company--thereby encouraging them to remain in its employ or service.
Anything in this Plan to the contrary notwithstanding, individuals who are
administrators of a benefit plan of the Company shall not be eligible to
receive benefits under the Plan if such eligibility would cause such
individual not to be a "disinterested person" for purposes of Rule 16b-3,
or any successor or amended rule ("Rule 16b-3") promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended (the "1934 Act"), in circumstances where the Company must
satisfy Subsection (c)(2), or any successor or amended subsection, of Rule
16b-3 in order for such other benefit plan to comply with Rule 16b-3. The
Company is of the opinion that the Plan complies with the Employee
Retirement Income Security Act of 1974 ("ERISA") as applicable.
ISOs, Non-Qualified Options and Non-Employee Director Options are
referred to hereafter individually as an "Option" and collectively as
"Options." Options, Awards, SARs, Units and authorizations to make
Purchases are referred to hereafter collectively as "Stock Rights."
Recipients of such Stock Rights are hereafter referred to individually as a
"Grantee" and collectively as "Grantees." As used herein, the terms
"parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 425 of
the Code.
2. Administration of the Plan. The Plan shall be administered by the Board of
Directors of the Company (the "Board') or a committee to be appointed by
the Board (such committee or the Board acting as such committee is herein
referred to as the "Committee"); and all questions of interpretation and
application of the Plan, or of Stock Rights granted, awarded or sold
hereunder, shall be subject to the determination, which shall be final and
binding, of a majority of the whole Committee. The Committee shall consist
of not fewer than two members of the Board. Meetings shall be held at such
times and places as shall be determined by the Committee. A majority of the
23
members of the Committee shall constitute a quorum for the transaction of
business, and the vote of a majority of those members present at any
meeting shall decide any questions brought before that meeting. In
addition, the Committee may take any action otherwise proper under the Plan
by the unanimous written consent of its members. To expand, and not to
limit, the foregoing, and subject to terms of the Plan, the Committee shall
have the authority to (i) determine the employees of the Company or any
Related Corporation to whom ISOs may be granted and to determine
individuals and other entities to whom Non Qualified Options, Awards, SARs,
Phantom Stock Units and Purchases may be granted, awarded or sold; (ii)
determine the time or times at which Options, Awards, SARs, Phantom Stock
Units or Purchases may be granted, awarded or sold; (iii) determine the
number of shares and the option price of shares subject to each Option
(subject to the requirements of Section 4 with respect to ISOs); (iv)
determine the number of shares, the vesting schedule and conditions and the
requirements and restrictions with respect to each Award; (v) determine the
number of shares and the exercise price of shares subject to each SAR; (vi)
determine the number of shares and the vesting schedule and conditions of
Phantom Stock Units; (vii) determine the number of shares and the purchase
price of shares subject to each Purchase; (viii) determine whether each
Option granted shall be an ISO or a Non-Qualified Option; (ix) determine
the time or times when each Option and SAR shall become exercisable and the
duration of the exercise period (subject to Section 4 with respect to ISOs
and Section 5 with respect to Non Qualified Options); and (x) determine
whether restrictions and conditions, such as repurchase options, are to be
imposed on shares subject to Stock Rights and the nature of such
restrictions and conditions, if any. No member of the Committee shall be
liable for any act or omission of any other member of the Committee or for
any act or omission on his or her own part, including but not limited to
the exercise of any power or discretion given to him or her under the Plan,
except those resulting from his or her own gross negligence or willful
misconduct. Once a Committee is appointed by the Board, none of the members
of the Committee shall be, nor at any time within one (1) year prior to
becoming a member of the Committee shall have been, granted or awarded
Stock Rights pursuant to the Plan. With respect to persons subject to
Section 16 of the 1934 Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3. To the extent any
provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee. Please contact Gary L Shell at 713-432-0300 for
any further questions regarding this Plan
3. Stock. The stock subject to the Stock Rights shall be authorized but
unissued shares of the Company's Common Stock, $0.01 par value (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner.
The aggregate number of shares of Common Stock that may be issued pursuant
to the Plan is 3,500,000. The number of shares authorized for the grant of
Stock Rights under the Plan shall be subject to adjustment as provided in
Section 11. If any Option or any other Stock Right granted under the Plan
shall expire or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole on in part,
or if the Company shall reacquire any unvested shares issued pursuant to
any Stock Right, the unpurchased shares subject to such Options or Stock
Rights and any unvested shares so reacquired by the Company shall again be
available for grants of Stock Rights under the Plan to the extent permitted
by Rule 16b-3.
4. ISO Provisions. The following provisions shall apply to ISOs granted
pursuant to the Plan. Subsections B, C, D, E, H and I hereunder shall have
force and effect to the extent necessary for Options issued as ISOs to
qualify as ISOs pursuant to the Code and the regulations promulgated
thereunder or to satisfy the requirements of Rule 16b-3.
A. Grant of ISO. All ISOs shall be granted under the Plan within ten
(10) years of the date of the Plan's adoption by the Board or the
date the Plan receives the requisite stockholder approval,
whichever is earlier.
B. Minimum Option Price for ISOs.
24
(i) The price per share specified in the agreement relating to
each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of
such grant. In the case of an ISO to be granted to an
employee owning stock representing more than ten percent of
the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share
specified in the agreement relating to such ISO shall not be
less than 110 percent of the fair market value per share of
Common Stock on the date of grant.
(ii) In no event shall the aggregate fair market value (determined
at the time an ISO is granted) of Common Stock for which ISOs
granted to any employee are exercisable for the first time by
such employee during any calendar year (under all stock
option plans of the Company and any Related Corporation)
exceed $100,000.
(iii) The term "fair market value" on any day shall mean such
amount last determined in good faith by the Board or, in
absence of a determination by the Board, by the Committee;
provided, however, that if the Common Stock is listed on an
established U.S. stock exchange, fair market value shall be
deemed to be the closing price of the Common Stock on the
date of grant of such Stock Right as reported on any national
securities exchange on which the Common Stock may be listed.
If the Common Stock is not listed on a national securities
exchange but is publicly traded on the Nasdaq Stock Market's
National Market or on another automated quotation system, the
fair market value shall be the closing price of the Common
Stock on the date of grant, or if traded on the Nasdaq Small
Cap or Nasdaq Over-The-Counter market, the fair market value
shall be the mean between the closing bid and ask prices on
any such system or market. If the Common Stock was not traded
on the date of grant of such Stock Right, the nearest
preceding date on which there was a trade shall be
substituted. Notwithstanding the foregoing, however, fair
market value shall be determined consistent with Code Section
422(b)(4) or any successor provisions. The Committee may
permit the exercise price of the Stock Right to be payable by
transfer to the Company of Common Stock owned by the Optionee
with a fair market value at the time of the exercise equal to
the exercise price of the Stock Right.
C. Duration of ISOs. Subject to earlier termination as provided in
Subsections F and G hereunder, each ISO shall expire on the date
specified by the Committee, but not more than (i) ten (10) years
from the date of grant in the case of ISOs generally and (ii)
five (5) years from the date of grant in the case of ISOs granted
to an employee owning stock possessing more than ten percent of
the total combined voting power of all classes of stock of the
Company or any Related Corporation. Subject to the foregoing
provisions and such earlier termination as provided in said
Subsections F and G below, the term of each ISO shall be the term
set forth in the original instrument granting such ISO, except
with respect to any part of such ISO that is converted into a
Non-Qualified Option pursuant to Subsection K below.
D. Eligible Employees. ISOs may be granted to any key employee of
the Company or any Related Corporation. Those officers and
directors of the Company who are not employees may not be granted
ISOs under the Plan.
E. Acceleration of Exercise of ISOs. The Committee shall not,
without the consent of the Grantee, accelerate the exercise date
of any installment of any ISO granted to any employee (and not
previously converted into a Non-Qualified Option pursuant to
Subsection K hereunder) if such acceleration would violate the
annual vesting limitation contained in Section 422A(d) of the
Code, as described in Subsection B (ii) above.
F. Effect of Termination of Employment on ISOs. If an ISO Grantee
ceases to be employed by the Company or any Related Corporation
other than by reason of death or disability (as such term is
25
defined in Subsection G hereunder), any ISO granted to such
Grantee within the six-month period immediately preceding such
termination shall be canceled forthwith. With respect to any ISOs
granted to such Grantee more than six (6) months prior to such
termination, no further installments of such ISOs shall become
exercisable and such ISOs shall terminate after the passage of
sixty (60) days from the date of termination of employment, but
in no event later than on their specified expiration dates,
except to the extent that such ISOs (or unexercised installments
thereof) have been converted into Non-Qualified Options pursuant
to Subsection K hereunder. Leave of absence with the written
approval of the Committee shall not be considered a termination
of employment under the Plan, provided that such written approval
contractually obligates the Company or any Related Corporation to
continue the employment of the employee after the approved period
of absence. Employment also shall be considered as continuing
uninterrupted during any other bona fide leave of absence (such
as those attributable to illness, military obligations or
governmental service), provided that the period of such leave
does not exceed ninety (90) days or, if longer, any period during
which such Grantee's right to reemployment is guaranteed by
statute. ISOs granted under the Plan shall not be affected by any
change of employment within or among the Company, or any Related
Corporation, so long as the Grantee continues to be an employee
of the Company or any Related Corporation.
G. Effect of Death or Disability on ISOs. If a Grantee ceases to be
employed by the Company or any Related Corporation by reason of
his or her death, any ISO of his or hers may be exercised, to the
extent of the number of shares with respect to which he or she
could have exercised it on the date of death, by his or her
estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, at
any time prior to the earlier of the date specified in the ISO
agreement, the ISO's specified expiration date or one (1) year
from the death of the Grantee.
If a Grantee ceases to be employed by the Company or any
Related Corporation by reason of his or her disability, he
or she shall have the right to exercise any ISO held by him
or her on the date of termination of employment, to the
extent of the number of shares with respect to which he or
she could have exercised it on that date, at any time prior
to the earlier of the date specified in the ISO agreement,
the ISO's specified expiration date or one (1) year from the
date of the termination of the Grantee's employment. For the
purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section
22(e)(3) of the Code or successor statute.
H. Adjustments. Any adjustment made pursuant to section 11 with
respect to ISOs shall be made only after the Committee, after
consulting with counsel for the Company, determines whether such
adjustments would constitute a "modification" of such ISOs (as
that term is defined in Section 425 of the Code) or would cause
any adverse consequences for the holders of such ISOs. If the
Committee determines that such adjustments made with respect to
ISOs would constitute a modification of such ISOs, it may refrain
from making such adjustments.
I. Notice to Company of Disqualifying Dispositions. Each employee
who receives an ISO must agree to notify the Company in writing
immediately after the employee makes a "disqualifying
disposition" of any Common Stock acquired pursuant to the
exercise of an ISO. A "disqualifying disposition" is any
disposition (including any sale) of such Common Stock before the
later of (a) two (2) years after the date the employee was
granted the ISO or (b) one (1) year after the date the employee
acquired Common Stock by exercising the ISO. If the employee has
died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur
thereafter.
26
J. Other Requirements. ISOs shall be issued subject to such
additional requirements as may be imposed from time to time by
the Committee or the Code and the regulations promulgated
thereunder.
K. Conversion of ISOs into Non-Qualified Options, Termination of
ISOs. The Committee, at the written request of any Grantee, may
in its discretion take such actions as may be necessary to
convert such Grantee's ISOs (or any installments or portions of
installments thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the Grantee is an
employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but not be limited to,
extending the exercise period or reducing the exercise price of
the appropriate installments of such Options. At the time of such
conversion, the Committee may impose such conditions on the
exercise of the resulting Non-Qualified Options as the Committee
in its discretion may determine, provided that such conditions
shall not be inconsistent with the provisions of Section 5 or any
other section of the Plan. Nothing in the Plan shall be deemed to
give any Grantee the right to have such Grantee's ISOs converted
into NonQualified Options, and no such conversion shall occur
until and unless the Committee takes appropriate action. The
Committee, with the consent of the Grantee, also may terminate
any portion of any ISO that has not been exercised at the time of
such termination.
5. Non-Qualified Options. The following provisions shall apply to
Non-Qualified Options granted pursuant to the Plan.
A. Minimum Option Price. The price per share of each Non-Qualified
Option shall be set at the discretion of the Committee.
B. Duration of Non-Qualified Options. Each Non-Qualified Option
shall expire on the date specified by the Committee, but not more
than ten (10) years from the date of grant.
C. Effect of Termination of Employment. If a Grantee ceases to be
employed by, a consultant of or affiliated with the Company or
any Related Corporation other than by reason of death or
disability (as such term is defined in Subsection 4.G hereof), no
further installments of such Grantee's Non-Qualified Options
shall become exercisable and such Option shall terminate after
the passage of sixty (60) days from the date of termination of
employment, consulting relationship or affiliation, as the case
may be, or within such other time as the Committee shall
authorize, but in no event may the Grantee exercise his
Non-Qualified Option after ten (10) years from the date of grant
thereof (or such lesser period as may be specified in the Option
agreement), except to the extent provided below. The provisions
of Subsection 4.F hereof, concerning determining termination of
employment, shall apply to this Subsection C. In addition, in the
event a Grantee changes his or her relationship with or among the
Company or any Related Corporation, but continues to be an
employee, consultant or affiliate of the Company or any Related
Corporation, then the Option previously granted shall continue in
full force and effect, unless the Committee in its discretion
elects to terminate or modify the Option in whole or in part.
D. Effect of Death or Disability. If a Grantee ceases to be employed
by, a consultant of or affiliated with the Company or any Related
Corporation by reason of his or her death, any Non-Qualified
Option of his or hers may be exercised, to the extent of the
number of shares with respect to which he or she could have
exercised it on the date of death, by his or her estate, personal
representative or beneficiary who has acquired the Non-Qualified
Option by will or by the laws of descent and distribution, at any
time prior to the earlier of the date specified in the Option
agreement, the Option's specified expiration date or one (1) year
from the death of the Grantee.
27
If a Grantee ceases to be employed by, a consultant of or
affiliated with the Company or any Related Corporation by
reason of his or her disability, he or she shall have the
right to exercise any Option held by him or her on the date
of such cessation, to the extent of the number of shares
with respect to which he or she could have exercised it on
that date, at any time prior to the earlier of the date
specified in the Option agreement, the Option's specified
expiration date or one (1) year from the date of such
cessation.
6. Awards. The following provisions shall apply to Awards awarded pursuant to
the Plan.
A. Award. Upon delivery to a Grantee of an Award agreement, the
Grantee shall pay to the Company the par value of the shares of
stock covered by the Award or such greater amount as the
Committee shall determine. Upon payment by the Grantee, the
Company shall issue a certificate in the name of the Grantee for
the number of shares covered by the Award and deliver it to the
Secretary of the Company (or other person designated by the
Committee) to be held in escrow until such shares shall have
vested in accordance with the Plan and the Award agreement. Upon
termination of the Award, all of such shares that have not vested
shall be forfeited and automatically transferred to and
reacquired by the Company for a cash consideration per share
equal to the amount originally paid by the Grantee pursuant to
this subsection A.
B. Duration of Awards. Each Award shall expire on the date specified
by the Committee, but not more than ten (10) years from the date
of grant.
C. Vesting. Awards shall vest at such time or times and on such
terms and conditions as the Committee may determine. Upon
vesting, the Company shall cause the certificate representing
such vested shares to be delivered to the Grantee.
D. Rights as Stockholder. Commencing upon the date the Company
receives the consideration required by subsection A hereunder,
the Grantee shall have all the rights of a stockholder with
respect to the shares covered by an Award, including the right to
vote the shares and receive all dividends, or other distributions
paid or made with respect to such shares. If a Grantee receives
rights or warrants with respect to any shares covered by an Award
such rights or warrants or any securities acquired by the
exercise of such rights or warrants may be held, exercised, sold
or otherwise disposed of by the Grantee free and clear of the
restrictions and obligations provided in the Plan.
E. Effect of Termination of Employment. If a Grantee ceases to be
employed by, a consultant of or affiliated with the Company or
any Related Corporation for any reason, including death or
disability (as such term is defined in Subsection 4.G hereof),
such Grantee's Awards shall terminate effective the date of
termination of employment, consulting relationship or
affiliation, as the case may be. The provisions of Subsection 4.F
hereof concerning determining termination of employment shall
apply to this Subsection E. In addition, in the event a Grantee
changes his or her relationship with or among the Company or any
Related Corporation, but continues to be an employee, consultant
or affiliate of the Company or any Related Corporation, then the
Award previously granted shall continue in full force and effect,
unless the Committee in its discretion elects to terminate or
modify the Award in whole or in part.
7. Stock Appreciation Rights. At the discretion of the Committee, Options
granted under this Plan may be granted in tandem with SARs ("tandem SARs"),
or SARs may be granted independently of and not in tandem with any Option
("naked SARs"). SARs will become exercisable at such time or times, and on
such conditions, as the Committee may specify; the Committee may impose
conditions upon the grant or exercise of any SAR, which conditions may
include a condition that the SAR may be exercised only in accordance with
rules and regulations adopted by the Committee from time to time.
28
Such rules and regulations may govern the right to exercise the SAR granted
prior to the adoption or amendment of such rules and regulations as well as SAR
rights granted thereafter.
A. Tandem SARs.
(i) Any tandem SAR granted with an ISO may be granted only at
the date of grant of such ISO. Any tandem SAR granted with a
Non-Qualified Option may be granted either at or after the
time such Option is granted. A tandem SAR is the right of a
Grantee, without payment to the Company (except for
applicable withholding taxes), to receive the excess of the
fair market value (as defined in Subsection 4.B(iii)) per
share on the date on which such SAR is exercised over the
option price per share as provided in the relating
underlying Option. A tandem SAR granted with an ISO may be
exercised only when the fair market value (as defined in
Subsection 4.B(iii)) per share of the Common Stock subject
to the ISO exceeds the per share exercise price of the ISO.
A tandem SAR granted with an Option shall pertain to, and be
exercised only in conjunction with, the related underlying
Option granted under this Plan and shall be exercisable and
exercised only to the extent that the underlying Option is
exercisable and exercised. The number of shares of Common
Stock subject to such tandem SAR shall be equal to all or
part of the shares subject to such Option as determined by
the Committee. The tandem SAR shall become either fully or
partially non-exercisable and shall then be fully or
partially forfeited if the exercisable portion, or any part
thereof, of the underlying Option is exercised without the
SAR being concurrently exercised.
(ii) Subject to any restrictions or conditions imposed by the
Committee, a tandem SAR may be exercised by the Grantee as
to a number of shares of Common Stock under its related
Option only upon the surrender of the then exercisable
portion of the related Option covering a like number of
shares of Common Stock. Upon the exercise of a tandem SAR
and the surrender of the exercisable portion of the related
Option, the Grantee shall be awarded cash, shares of Common
Stock or a combination of shares and cash at the discretion
of the Committee. The award shall have a total value equal
to the product obtained by multiplying (1) the excess of the
fair market value per share on the date on which such tandem
SAR is exercised over the Option price per share by (2) the
number of shares subject to the exercisable portion of the
related Option so surrendered.
B. Naked SARs.
(i) A naked SAR may be granted irrespective of whether the
recipient holds, is being granted or has been granted any
options under any stock plan of the Company. A naked SAR may
be granted irrespective of whether the recipient holds, is
being granted or has been granted any tandem SARs. A naked
SAR may be made exercisable without regard to the
exercisability of any Option.
(ii) With respect to the exercise of any naked SAR, the term
"Spread" as used in this Section 7 shall mean an amount
equal to the product computed by multiplying (1) the excess
of (A) the fair market value per share of Common Stock of
the Company on the date such naked SAR is exercised over (B)
the price designated by the Committee (the "Award Price") by
(2) the number of shares with respect to which such naked
SAR is being exercised.
(iii) If a Grantee ceases to be employed by, a consultant of or
affiliated with the Company or any Related Corporation other
than by reason of death or disability (as such term is
defined in Subsection 4.G hereof), no further installments
of such Grantee's SARs shall become exercisable and such SAR
shall terminate after the passage of sixty (60) days from
the date of termination of employment, consulting
29
relationship or affiliation, as the case may be, but in no
event later than on the specified expiration dates, except
to the extent provided below. The provisions of Subsection
4.F hereof, concerning determining termination of
employment, shall apply to this Subsection B. In addition,
in the event a Grantee changes his or her relationship with
or among the Company or any Related Corporation, but
continues to be an employee, consultant or affiliate of the
Company or any Related Corporation, then the SAR previously
granted shall continue in full force and effect, unless the
Committee in its discretion elects to terminate or modify
the SAR in whole or in part.
(iv) If a Grantee ceases to be employed by, a consultant of or
affiliated with the Company or any Related Corporation by
reason of his or her death, any SAR of his or hers may be
exercised, to the extent of the number of shares with
respect to which he or she could have exercised it on the
date of death, by his or her estate, personal representative
or beneficiary who has acquired the SAR by will or by the
laws of descent and distribution, at any time prior to the
earlier of the date specified in the SAR agreement, the
SAR's specified expiration date or one (1) year from the
death of the Grantee.
If a Grantee ceases to be employed by, a consultant of or
affiliated with the Company or any Related Corporation
by reason of his or her disability, he or she shall
have the right to exercise any SAR held by him or her
on the date of such cessation, to the extent of the
number of shares with respect to which he or she could
have exercised it on that date, at any time prior to
the earlier of the date specified in the SAR agreement,
the SAR's specified expiration date or one (1) year
from the date of such cessation.
C. General Provisions.
(i) The Committee may specify that a SAR shall be exercisable
for cash or shares, for a combination of cash or shares or
in cash or shares at the holder's option. On the exercise of
a SAR, the holder thereof, except as provided in subsections
C (ii) and C (iii) below, shall be entitled to receive
either:
(a) if the exercise is for shares, a number of
shares equal to the quotient computed by dividing the
Spread by the fair market value per share on the date
of exercise of the SAR; provided, however, that in
lieu of fractional shares, the Company shall pay cash
equal to the same fraction of the fair market value
per share on the date of exercise of the SAR; or
(b) if the exercise is for cash, an amount in cash equal to
the Spread; or
(c) if the exercise is partly for cash and partly for
shares, a combination of cash in the amount specified
in such SAR holder's notice of exercise, and a number
of shares calculated as provided in clause (a) of this
Subsection (i), after reducing the Spread by such cash
amount, plus cash in lieu of any fractional share as
provided above.
(ii) Notwithstanding the provisions of Subsection C (i) above,
the Committee shall have sole discretion to consent to or
disapprove, in whole or in part, any permitted election or
the right without election of a holder of a SAR to receive
cash upon the exercise of a SAR ("Cash Election"). Such
consent or disapproval may be given at any time after the
Cash Election to which it relates. If the Committee shall
disapprove a Cash Election, in lieu of paying the cash (or
any portion thereof) specified in such Cash Election, the
Committee shall determine the amount of cash, if any, to be
paid pursuant to such Cash Election and shall issue a number
of shares calculated as provided in clause (a) of Subsection
C(i) above, after reducing the Spread by such cash to be
paid plus cash in lieu of any fractional share.
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(iii) SARs granted or to be granted to officers of the Company
under the Plan shall be subject to the following additional
provisions: (a) no SAR shall be exercised unless and until
the Company has been subject to the reporting requirements
of Section 13(a) of the 1934 Act for at least a year and
has filed all reports and statements required to be filed
pursuant to such Section for that year; (b) a Cash Election
may be made only during the period beginning on the third
business day following the date of release for publication
of the quarterly and annual summary statements of sales and
earnings of the Company and ending on the twelfth business
day following such date; and (c) no Cash Election may be
made (and no related Option exercised) during the six (6)
months after grant, except in the event of the death or
disability of the holder. The Company intends that this
Subsection (iii) shall comply with the requirements of Rule
16b3. Should any provision of this Subsection (iii) be
unnecessary to comply with the requirements of the said
Rule 16b-3, the Board may amend this Plan to add to or
modify the provisions of this Plan accordingly.
8. Phantom Stock. The following provisions shall apply to Phantom Stock
Units granted pursuant to the Plan.
A. Phantom Stock Units. At the discretion of the Committee,
performance awards in the form of Phantom Stock Units may be
granted either independently of or in tandem with a Stock Right
granted hereunder, to such extent as determined by the Committee,
except that such Units shall not be granted in tandem with ISOs
granted under the Plan. Units granted hereunder may be based on
such factors as changes in the market price for shares of Common
Stock of the Company, personal performance of the recipient of
such Units or of his or her division or department, the
performance of the Related Corporation by which he or she is
employed, or any other factors or criteria set by the Committee.
B. Duration of Phantom Stock Unit. Each Phantom Stock Unit shall
expire on the date specified by the Committee, but not more than
ten (10) years from the date of grant.
C. Effect of Termination of Employment. If a Grantee ceases to be
employed by, a consultant of or affiliated with the Company or
any Related Corporation for any reason, including death or
disability (as such term is defined in Subsection 4.G hereof),
such Grantee's Phantom Stock Unit shall terminate effective the
date of termination of employment, consulting relationship or
affiliation, as the case may be. The provisions of Subsection
4.17 hereof concerning determining termination of employment
shall apply to this Subsection C. In addition, in the event a
Grantee changes his or her relationship with or among the Company
or any Related Corporation, but continues to be an employee,
consultant or affiliate of the Company or any Related
Corporation, then the Phantom Stock Unit previously granted shall
continue in full force and effect, unless the Committee in its
discretion elects to terminate or modify the Unit in whole or in
part.
9. Purchases. The following provisions shall apply to the authorization to
make Purchases granted pursuant to the Plan.
A. Purchase Grants. Upon delivery to a Grantee of an authorization
to make a Purchase, the Grantee shall pay to the Company the
purchase price in the form and at the date specified by the
Committee.
B. Duration of Authorization to Make Purchases. Each authorization
to make a Purchase shall expire on the date specified by the
Committee.
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C. Effect of Termination of Employment. If a Grantee ceases to be
employed by, a consultant of or affiliated with the Company or
any Related Corporation for any reason, including death or
disability (as such term is defined in Subsection 4.G hereof),
such Grantee's authorization to make Purchases shall terminate
effective the date of termination of employment, consulting
relationship or affiliation, as the case may be. The provisions
of Subsection 4.F hereof, concerning termination of employment,
shall apply to this Subsection C. In addition, in the event a
Grantee changes his or her relationship with or among the Company
or any Related Corporation, but continues to be an employee,
consultant or affiliate of the Company or any Related
Corporation, then the authorization to make Purchases previously
granted shall continue in full force and effect, unless the
Committee in its discretion elects to terminate or modify the
authorization to make Purchases in whole or in part.
10. Non-Employee Director Options. The following provisions shall apply to
Options granted to non-employee directors of the Company pursuant to the
Plan.
A. Automatic Grants. Non-Employee Director Options shall be
automatically granted as follows:
(i) Each Non-Employee Director ("Director") of the Company will
be entitled to an annual stock option grant of 30,000
shares. The option will be granted, in advance, to each
Director within thirty (30) days prior or subsequent to the
respective year of service. The exercise price of the stock
options will be consistent with the closing market price one
day prior to such date of grant. In addition to the above,
the Chairman of the Audit Committee, Audit Committee Members
and the Chairman of the Compensation Committee are entitled
to the following additional annual grants:
o Chairman of Audit Committee, 20,000 stock options;
o Other Audit Committee Members, 10,000 stock options; and
o Chairman of Compensation Committee, 10,000 stock options
The stock option grants are awarded for services to be
performed during the prospective fiscal year period.
B. Discretionary Grants. In addition to the Non-Employee Director
Options automatically granted pursuant to Subsection A of this
Section 10, the Committee may grant Options at any time during
the term of this Plan to any Director who is not an officer or
full-time employee of the Company or a Related Corporation.
Subject only to the applicable limitations set forth in this Plan
and applicable law, the number of shares to be covered by an
Option granted pursuant to this Subsection I O.B shall be as
determined by the Committee. Each Option granted pursuant to this
Subsection I O.B shall be evidenced by an Option agreement and
shall contain such terms as are not inconsistent with this Plan
or any applicable law.
C. Option Price. The exercise price per share for any Non-Employee
Director Option granted hereunder shall be equal to the fair
market value of the Common Stock on the date of grant.
D. Termination of Option Period. The unexercised portion of a
Non-Employee Director Option shall automatically and without
notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) with respect to Options granted automatically pursuant to
Subsection I O.A or Options granted pursuant to Subsection
103, sixty (60) days after the date that a Grantee ceases to
be a Director regardless of the reason therefore other than
as a result of such termination by death of the Grantee, but
in no event later than on the specified expiration dates of
the Options; provided,
32
however, in the event a Grantee continues to be an employee,
consultant or affiliate of the Company or any Related
Corporation, then the Non-Employee Director Options
previously granted shall continue in full force and effect,
unless the Committee in its discretion elects to terminate
or modify the Options in whole or in part;
(ii) with respect to Options granted automatically pursuant to
Section I O.A, (y) one (1) year after the date than a
Grantee ceases to be a Director by reason of death or
disability (as such term is defined in Subsection 4.G
hereof) of the Grantee or (z) six (6) months after the
Grantee shall die if that shall occur during the thirty-day
period described in Subsection 10.1)(i), but in either
event, not later than on the specified expiration dates of
the Options; or
(iii) the seventh (7th) anniversary of the date of grant of the
Non-Employee Director Option.
11. Adjustments. Upon the happening of any of the following described events, a
Grantee's rights with respect to Options granted hereunder and a Grantee's
rights with respect to Common Stock to be acquired (or used for measurement
purposes) pursuant to the exercise of SARs or Phantom Stock Units shall be
adjusted as hereinafter provided, unless otherwise specifically provided,
in addition or to the contrary, in the written agreement between the
recipient and the Company relating to such Stock Right.
A. Certain Corporate Events. In the event shares of Common Stock
shall be subdivided or combined into a greater or smaller number
of shares or if, upon a merger, consolidation, reorganization,
split-up, liquidation, combination, recapitalization or the like
of the Company, the shares of Common Stock shall be exchanged for
other securities of the Company or of another corporation, each
Grantee of a Stock Right shall be entitled, subject to the
conditions herein stated, to purchase (or have used for
measurement purposes) such number of shares of Common Stock or
amount of other securities of the Company or such other
corporation as were exchangeable for the number of shares of
Common Stock which such Grantee would have been entitled to
purchase (or have used for measurement purposes) except for such
action, and appropriate adjustments shall be made in the exercise
or purchase price per share to reflect such subdivision,
combination or exchange.
B. Stock Dividends. In the event the Company shall issue any of its
equity securities as a stock dividend upon or with respect to the
shares of stock of the class which at the time shall be subject
to a Stock Right hereunder, each Grantee upon exercising or
vesting of a Stock Right shall be entitled to receive (for the
exercise or purchase price paid, in the case of an exercise) (or
have used for measurement purposes) the share or other
consideration as to which he or she is exercising his or her
Stock Right and, in addition thereto (at no additional cost),
such number of shares of the class or classes in which such stock
dividend or dividends were declared or paid, and such amount of
cash in lieu fractional shares, or other consideration, as he or
she would have received if he or she had been the holder of the
shares as to which he or she is exercising or vesting (or which
are used for measurement in connection with) his or her Stock
Right at all times between the date of grant and of such Stock
Right and the date of its exercise or vesting.
C. New Securities. If any person or entity owning restricted Common
Stock obtained pursuant to Stock Rights granted hereunder
receives new or additional or different shares or securities
("New Securities") in connection with a corporate transaction
described in Subsection A hereunder or a stock dividend described
in Subsection B hereunder as a result of owning such restricted
Common Stock, such New Securities shall be subject to all of the
conditions and restrictions applicable to the restricted Common
Stock with respect to which such New Securities were issued.
33
D. Cash Securities. No adjustments shall be made for dividends paid
in cash or in property other than equity securities of the
Company, unless specified to the contrary by the Committee in the
instrument evidencing such Stock Right or specified to the
contrary by the Board in the corporate resolutions declaring such
dividend.
E. Fractional Shares. No fractional shares shall be issued under the
Plan. Any fractional shares which, but for this Subsection E,
would have been issued to a Grantee pursuant to a Stock Right
shall be deemed to have been issued and immediately sold to the
Company for their fair market value, and the Grantee shall
receive from the Company cash in lieu of such fractional shares.
F. Adjustments. Upon the happening of any of the foregoing events
described in Subsections A or B hereunder, the class and
aggregate number of shares set forth in Section 3 hereof that are
subject to Stock Rights that previously have been or subsequently
may be granted, awarded or sold under the Plan also shall be
appropriately adjusted to reflect the events described in such
subsections. The Board shall determine the specific adjustments
to be made under this Section 11, and subject to Subsection 4.H,
its determination shall be conclusive.
G. No Restriction on Company Action. Notwithstanding the foregoing,
the existence of outstanding Stock Rights shall not affect in any
way the right or power of the Company or its stockholders to make
or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
12. Means of Exercising Stock Rights. Options, SARs, Phantom Stock Units and
Purchases shall be exercised or purchased, as the case may be, by the
delivery of written notice to the Company setting forth the number of
shares with respect to which the Stock Right is to be exercised or
purchased and specifying the address to which the certificates for such
shares are to be mailed, together with full payment of the exercise or
purchase price of such shares and such other items as may be required
pursuant to Section 14 hereof "Full payment" shall mean (i) the full
exercise or purchase price in cash, certified check, bank draft or postal
or express money order payable to the order of the Company; (ii) with prior
written approval of, and pursuant to terms and conditions set forth by the
Board, a promissory note in principal amount equal to all or a portion of
the full exercise or purchase price in excess of the par value of the
shares being acquired and the remainder of the full exercise or purchase
price in cash, certified check, bank draft or postal or express money order
payable to the order of the Company; or (iii) with prior written approval
of the Committee, the full exercise or purchase price in previously
acquired shares of Common Stock owned by the Grantee with an aggregate fair
market value (as defined in Subsection 4.B(iii) hereof) equal to or less
than the full exercise or purchase price and the remainder of the full
exercise or purchase price, if any, in cash, certified check, bank draft or
postal or express money order payable to the order of the Company, provided
that shares so delivered shall be legally and beneficially owned by the
Grantee, free of all liens, claims, and encumbrances of every kind, and
accompanied by stock powers duly endorsed in blank by the record holder of
the shares with, if required by the Committee, signature guaranteed by a
commercial bank or trust company or a brokerage firm having a membership on
a registered national stock exchange. As promptly as practicable after
receipt of such written notification and payment, the Company shall deliver
to the Grantee certificates for the number of shares with respect to which
such Stock Right has been so exercised or purchased, issued in the
Grantee's name, provided that such delivery shall be deemed effected for
all purposes when a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to the
Grantee, at the address specified pursuant to this Section 12. The delivery
34
of certificates upon the exercise of Stock Rights may, in the discretion of
the Committee, be conditioned upon payment to the Company by the person
exercising or purchasing such Stock Right of the amount, determined by the
Company, of any liability of the Company resulting from such exercise,
including, but not limited to, employment taxes required to be withheld.
13. Transferability of Stock Rights. Except as otherwise provided in the Plan,
no Stock Right granted or awarded under the Plan shall be transferable by a
Grantee other than by (i) will or the laws of descent and distribution or
(ii) pursuant to a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder. No shares covered by an Award shall be liable for the
debts, contracts or engagements of the Grantee or his or her successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means, whether
such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof
shall be null and void and of no effect; provided, however, that nothing in
this section shall prevent transfers by will or by the applicable laws of
descent and distribution.
14. Requirements of Law.
A. The Company shall not be required to sell or issue any shares
pursuant to any Stock Right if the issuance of such shares shall
constitute a violation by the Grantee or the Company of any
provisions of any law or regulation of any governmental
authority. If a registration statement under the Securities Act
of 1933, as amended, and any applicable state securities or Blue
Sky laws (the "Securities Laws") is not in effect with respect to
the shares of Common Stock issuable pursuant to any Stock Right,
the Company may require the Grantee to make certain
representations and may require an opinion of counsel
satisfactory to the Company to the effect that such registration
is not required. Any determination in this connection by the
Committee shall be final, binding and conclusive.
B. Upon exercise, award or purchase of any Stock Right, the Company
shall not be required to issue such shares unless the Committee
has received evidence satisfactory to it to the effect that the
holder of such Stock Right will not transfer such shares except
pursuant to a registration statement in effect under the
Securities Laws or unless an opinion of counsel satisfactory to
the Company has been received by the Company to the effect that
such registration is not required. Any determination in this
connection by the Committee shall be final, binding and
conclusive.
C. In the event the shares issuable on exercise, award or purchase
of a Stock Right are not registered under the Securities Laws,
the Company may imprint the following legend or any other legend
that counsel for the Company considers necessary or advisable to
comply with the Securities Laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT'), OR THE
APPLICABLE STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" WITHIN THE
MEANING OF RULE 144 PROMULGATED UNDER THE 1933 ACT. THE SECURMIES MAY NOT BE
SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144, IN THE ABSENCE OF EFFECTIVE
REGISTRATION UNDER THE 1933 ACT OR OTHER COMPLIANCE UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITY LAWS.
D. The restriction imposed by this Section 14 shall remain in effect
after the end of any vesting period and after the termination of
the Plan.
E. The Company may, but shall in no event be obligated to, register
any securities covered hereby pursuant to the Securities Laws,
and in the event any shares are so registered, the Company may
35
remove any legend on certificates representing such shares. The
Company shall not be obligated to take any other affirmative
action in order to cause the exercise, award or sale of a Stock
Right, or the issuance of shares pursuant thereto, to comply with
any law or regulation of any governmental authority.
15. Termination, Amendment. The Board may terminate or amend the Plan in any
respect at any time, except that no amendment requiring stockholder
approval under provisions of the Code and related regulations relating to
ISOs or under Rule 16b-3 will be effective without stockholder approval as
required and within the times set by such rules.
16. Allocation of Funds. The proceeds received by the Company from the sale of
shares pursuant to Stock Rights authorized under the Plan shall be used for
general corporate purposes.
17. Indemnification of Committee. The Company shall indemnify each present and
future member of the Committee against, and each member of the Committee
shall be entitled without further act on his or her part to indemnity from
the Company for all expenses (including the amount of judgments and the
amount of approved settlements made with a view to the curtailment of costs
of litigation, other than amounts paid to the Company) reasonably incurred
by him or her in connection with or arising out of any action, suit or
proceeding 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 incurring such
expenses; provided, however, that such indemnity shall not include any
expenses incurred by any such member of the Committee (i) in respect of
matters as to which he or she shall be finally adjudged in any such action,
suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his or her duty as such member of the
Committee or (ii) in respect of any matter in which any settlement is
effected, to an amount in excess of the amount approved by the Company on
the advice of its legal counsel; and provided further, that no right of
indemnification under the provisions set forth herein shall be available to
or enforceable by any such member of the Committee unless, within sixty
(60) days after institution of any such action, suit or proceeding, he or
she shall have offered the Company, in writing, the opportunity to handle
and defend same at its own expense. The foregoing right of indemnification
shall inure to the benefit of the heirs, executors or administrators of
each such member of the Committee and shall be in addition to all other
rights to which such member of the Committee may be entitled as a matter of
law, contract or otherwise.
18. Withholding of Additional Income Taxes. Upon the sale of Common Stock
pursuant to a Non-Qualified Option, SAR or Purchase for less than its fair
market value, the making of a Disqualifying Disposition (as defined in
Subsection 4.1), the payment of a performance award pursuant to a Phantom
Stock Unit, or the vesting of restricted Common Stock acquired pursuant to
an Award, the Company, in accordance with Section 3402(a) of the Code, may
require the Grantee to pay additional withholding taxes in respect of the
amount that is considered compensation includable in such person's gross
income.
19. Governing Law, Construction. The validity and construction of the Plan, and
the instruments evidencing Stock Rights, shall be governed by the laws of
the State of Texas. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine and neuter,
unless the context otherwise requires.
20. No Rights as Stockholder. No Grantee shall have rights as a stockholder
with respect to shares covered by his or her Option, SAR or Phantom Stock
Unit until the date of issuance of a stock certificate for such shares; no
adjustment for dividends (other than stock dividends under Section 11) or
otherwise shall be made if the record date therefore is prior to the date
of issuance of such certificate.
21. Employment Obligations. The granting of any Stock Rights shall not impose
upon the Company any obligation to employ or continue to employ any
36
Grantee, and the right of the Company to terminate the employment of any
officer or other employee shall not be diminished or affected by reason of
the fact that a Stock Right has been granted to him or her.
22. Written Agreements. Stock Rights shall be evidenced by instruments, (which
need not be identical), in such forms as the Committee may from time to
time approve. Such instruments shall conform to such terms, conditions and
provisions as are applicable hereunder and may contain such other terms,
conditions and provisions as the Committee deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of
Common Stock issuable upon exercise, award or sale of Stock Rights. A Stock
Right may provide for acceleration of exercise in the event of a change in
control of the Company, in the discretion of and as defined by the
Committee. The Committee may from time to time confer authority and
responsibility on one or more of its own members or one or more officers of
the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action
necessary or advisable from time to time to carry out the terms of such
instruments.
23. Term of the Plan. This Plan was adopted by the Board on October 4, 1993,
and was approved by the holders of a majority of the outstanding shares of
the Company on November 12, 1993 (the "Effective Date") and shall terminate
fifteen (15) years after the Effective Date.
37
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE ANNUAL MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED
TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY OR PROXIES IN THE SELF-ADDRESSED
ENVELOPE.
38