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SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
EPL TECHNOLOGIES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(a) Title of each class of securities to which transaction applies:
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(b) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
(4) Date Filed:
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EPL TECHNOLOGIES, INC.
2 INTERNATIONAL PLAZA, SUITE 245
PHILADELPHIA, PA 19113-1507
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders (the "Annual Meeting") of EPL
Technologies, Inc. (the "Company") will be held on Monday, August 24, 1998, at
9:30 A.M. (local time) at the Top of the Tower, 1717 Arch Street, Philadelphia,
Pennsylvania for the following purposes:
1. to elect three directors to serve for the ensuing year and until
their respective successors shall have been duly elected and
qualified;
2. to consider and act upon a proposal to approve and adopt that
Company's 1998 Stock Incentive Plan;
3. to transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on July 24,
1998 as the record date for the Annual Meeting. Only holders of record at that
time of the Company's Common Stock, par value $0.001 per share and Series A
Preferred Stock, par value $1.00 per share, are entitled to notice of, and are
entitled to vote at, the Annual Meeting and any adjournment or postponement
thereof. A complete list of shareholders entitled to vote at the Annual Meeting
will be available, upon written demand, for inspection during normal business
hours by any shareholder of the Company prior to the Annual Meeting at the
Company's address shown above.
A copy of the Company's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1997, a copy of its report on Form 10-Q for the quarter
ended March 31, 1998, a letter from the Company's Chief Executive Officer, a
Proxy Statement and a proxy accompany this notice. It is expected that these
materials are first being sent to shareholders on or about August 4, 1998.
The right to vote your stock at the Annual Meeting is an important
shareholder right and should be exercised by you in person or by proxy
regardless of the number of shares held. The Board of Directors sincerely hopes
you will be able to be present at the Annual Meeting but requests in any event
that you SIGN and DATE your proxy and mail it in the enclosed envelope
promptly. The return of the enclosed proxy will not affect your right to vote
in person at the Annual Meeting. The prompt return of your proxy will eliminate
the need for further solicitation with its attendant expense to the Company.
Timothy B. Owen
Secretary
August 4, 1998
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EPL TECHNOLOGIES, INC.
2 International Plaza, Suite 245
Philadelphia, PA 19113
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held August 24, 1998
This Proxy Statement and the accompanying proxy are being furnished
in connection with the solicitation of proxies by the Board of Directors (the
"Board") of EPL Technologies, Inc. (the "Company"), to be voted at its Annual
Meeting of Shareholders (the "Annual Meeting") which will be held at 9:30 A.M.
(local time) on August 24, 1998 at the Top of the Tower, 1717 Arch Street,
Philadelphia, Pennsylvania and at any adjournment or postponement thereof, for
the purposes set forth in the accompanying notice of the Annual Meeting. It is
expected that this Proxy Statement, the foregoing notice and the enclosed proxy
are to be first mailed to shareholders entitled to vote on or about August 4,
1998. Such mailing also includes the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1997 ("1997"), its report on Form 10-Q for the
quarter ended March 31, 1998 and a letter from the Company's Chief Executive
Officer. The Annual Report and such other materials are not to be considered a
part of the Company's proxy solicitation materials.
PURPOSE OF ANNUAL MEETING
At the Annual Meeting, shareholders will be asked: (i) to elect three
directors to serve for the ensuing year and until their respective successors
shall have been duly elected and qualified; (ii) to adopt and approve the
Company's new 1998 Stock Incentive Plan (the "1998 Plan") and (iii) to transact
such other business as may properly come before the Annual Meeting or any
adjournment or postponement thereof. The Board recommends a vote in favor of
(i.e., "FOR") the three persons nominated to serve as directors and described in
this Proxy Statement and "FOR" the adoption and approval of the 1998 Plan.
QUORUM AND VOTING RIGHTS
The presence in person or by proxy of the holders of a majority of
the votes entitled to be cast by the holders of the outstanding shares of Common
Stock, $0.001 par value per share (the "Common Stock") and the shares of Series
A 10% Cumulative Convertible Preferred Stock, $1.00 par value per share (the "A
Preferred Stock"), is necessary to constitute a quorum for consideration of the
matters to be voted upon at the Annual Meeting.
Only holders of record of shares of Common Stock and A Preferred
Stock at the close of business on July 24, 1998 (the "Record Date") will be
entitled to notice of, and to vote at, the Annual Meeting. As of the Record
Date, there were outstanding 11,454,370 shares of the
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Company's Common Stock and 65,000 shares of A Preferred Stock. Each share of A
Preferred Stock is convertible into 0.667 shares of Common Stock and holders of
A Preferred Stock are entitled to one vote per share for each share of Common
Stock into which such A Preferred Stock is convertible. Thus, as of the Record
Date, there were a total of 11,497,703 votes entitled to be cast by holders of
the Company's capital stock. The holders as of the Record Date of the Company's
Common Stock and the A Preferred Stock will vote together as a class on all
matters presented at the Annual Meeting. All share numbers are on a post-split
basis, reflecting the 1-for-2 reverse split approved by shareholders in March
1998.
VOTING AND SOLICITATION OF PROXIES
A shareholder who submits a proxy may revoke it at any time before
the proxy is exercised. A proxy may be revoked prior to exercise by (a) filing
with the Company a written revocation of the proxy, (b) appearing at the Annual
Meeting and casting a vote contrary to that indicated on the proxy or (c)
submitting a duly executed proxy bearing a later date. Returning a signed proxy
will not affect a shareholder's right to attend the Annual Meeting and vote in
person. When a proxy is returned properly signed, the shares represented will be
voted in accordance with the instructions provided therein. Broker non-votes
will not be counted as votes cast and will have no effect on the results of a
vote, although they will count towards the presence of a quorum. Abstentions
will have the effect of a "no" vote, and will count towards the presence of
quorum. In the absence of instructions, the shares represented at the Annual
Meeting by proxy will be voted "FOR" the nominees of the Board in the election
of directors and "FOR" the 1998 Plan.
The expense of this proxy solicitation will be borne by the Company.
In addition to solicitation by mail, proxies may be solicited in person or by
telephone or facsimile by officers or other regular employees of the Company who
will not receive any additional compensation for such efforts. The Company will
reimburse reasonable expenses incurred by record holders of Common Stock or A
Preferred Stock who are brokers, dealers, banks, voting trustees or other
nominees for mailing proxy materials to any beneficial owners of such stock,
upon request of such record holders.
VOTE REQUIRED FOR ELECTION OF DIRECTORS
AND APPROVAL OF OTHER PROPOSALS
To be elected a director, a nominee for election must receive the
favorable vote of a majority of the shares of Common Stock and A Preferred Stock
(on an as-converted basis), voting together as a class, represented in person or
by proxy at the Annual Meeting. Shareholders entitled to vote will not have
cumulative voting rights. Approval of the proposal to adopt the Plan requires
the favorable vote of a majority of the shares of Common Stock and A Preferred
Stock (on an as-converted basis), voting together as a class, represented in
person or by proxy and entitled to vote at the Annual Meeting.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Board of Directors, the size of which the Board sets from time to
time at between three (3) and seven (7) members, currently consists of three (3)
members: Paul L. Devine, Robert D. Mattei and A. S. Clausi. The Board proposes
that the three current directors, listed below as
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nominees, be re-elected as directors of the Company, to hold office until the
next annual meeting of shareholders and until such director's successor is duly
elected and qualified. The Board may determine to increase the size of the board
hereafter. Each nominee has consented to be named as a nominee and, to the
present knowledge of the Company, is willing to serve as a director, if elected.
Should any of the nominees not remain a candidate at the end of the Annual
Meeting (a situation which is not expected), proxies with respect to which no
contrary direction is made will be voted in favor of those who remain as
candidates and may be voted for substitute nominees.
The nominees, their ages at the Record Date and certain other
information about them is set forth below:
Position(s) with
Name Age the Company Director Since
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Paul L. Devine 43 Chairman of the Board, 1992
President and Chief Executive Officer
Robert D. Mattei 59 Director 1988
A. S. Clausi 76 Director 1998
PAUL L. DEVINE - Mr. Devine was appointed Chairman, President and
Chief Executive Officer of the Company in March 1992. From 1989 to 1992, Mr.
Devine was involved as a business consultant in the identification and targeting
of acquisitions for various public companies. During this time, he also served
as a director and chief executive officer of various companies, including three
United Kingdom (U.K.) subsidiaries of Abbey Home Healthcare, Inc., a U.S. public
health care group. He is a graduate of London University and holds Bachelors and
Masters degrees in curriculum research. Throughout his business career, he has
been intimately involved in the design and implementation of new product
strategies, both in financial services and health/hygiene services.
ROBERT D. MATTEI - Mr. Mattei is an investor and entrepreneur. Mr.
Mattei has been self-employed in various aspects of the food service industry
for over 20 years. As a restaurateur, Mr. Mattei has developed, operated and
sold many successful operations. Mr. Mattei currently owns three restaurants and
acts as an industry consultant, involved primarily in the development of
restaurant concepts. Mr. Mattei has been a member of the Board of the Company
since February 1988, was Secretary of the Company from February 1988 to March
1993 and is also a member of the Audit, Compensation and 1994 Stock Incentive
Plan Administrative Committees of the Board of Directors.
A. S. CLAUSI - Mr. Clausi was elected to the Board of Directors in
March 1998. For more than five years, Mr. Clausi has served as a consultant and
adviser to the food industry. He was Senior Vice President and Chief Research
Officer of General Foods Corporation worldwide, prior to his retirement. Mr.
Clausi is a past President of the Institute of Food Technologists (IFT), past
Chairman of the IFT Foundation and past Chairman of the Food Safety Council. He
has a chemistry
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degree from Brooklyn College and has done graduate work at Stevens Institute of
Technology. Mr. Clausi is the holder of 13 patents, has authored chapters in
food technology texts and has delivered numerous papers on various aspects of
the management of food science and technology. Mr. Clausi is currently a
director of Opta Food Ingredients, Inc. and also serves as a member of the
Technical Advisory Board of Goodman Fielder, Ltd. He served on the Technical
Advisory Board of Martek Biosciences, Inc. from 1990 to 1997. Mr. Clausi also
serves as a director and a member of Technical Advisory Boards of a number of
private companies as well as being a member of the Audit, Compensation and 1994
Stock Incentive Plan Administrative Committees of the Board of Directors.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board held two meetings during 1997 and also acted by unanimous
written consent. The Board currently has an Audit Committee, a Compensation
Committee and the 1994 Stock Incentive Plan Administration Committee, but does
not have a nominating committee. If the 1998 Plan is approved and adopted, the
Board of Directors will serve as the administrative committee under the 1998
Plan. During 1997, the Audit Committee was comprised of Mr. Mattei and a former
director, Dr. Rainer Bichlbauer. Following Dr. Bichlbauer's resignation from the
Board in May 1997, a former director, Ronald W.Cantwell, was appointed to the
Audit Committee. During 1997 the Compensation Committee and the 1994 Stock
Incentive Plan Administrative Committee was comprised of Mr. Mattei and Mr.
Cantwell. Mr. Cantwell resigned from the Board in May 1998. The Audit Committee,
the Compensation Committee and the 1994 Stock Incentive Plan Administration
Committee each held one meeting in 1997 and also acted by unanimous written
consent. Each incumbent director who served on the Board during the full 1997
fiscal year attended over 75% of the aggregate number of meetings of the Board
and of the committees on which and during the periods in which such director
served.
The Audit Committee has authority to recommend the appointment of the
Company's independent auditors and review the results and scope of audits,
internal accounting controls and tax and other accounting-related matters. The
Compensation Committee sets compensation policies applicable to executive
officers and approves salaries, bonuses and other compensation matters for
executive officers of the Company. The 1994 Stock Incentive Plan Administrative
Committee administers the Plan. The Board as a whole administers the Company's
1993 Non-Qualified Stock Option Plan. The Board is to serve as the
administrative committee for the 1998 Plan, if approved.
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COMPENSATION OF DIRECTORS
With the exception of Mr. Devine in his capacity as an officer of the
Company, no cash compensation was paid to any director of the Company during the
year ended December 31, 1997. In May 1997, in accordance with the terms of the
Company's 1994 Stock Incentive Plan, Robert D. Mattei and former director Dr.
Rainer G. Bichlbauer were each granted an option to acquire 7,500 shares of
Common Stock at an exercise price of $10.50 per share, for their services as
members of the Audit and Compensation Committees. In May 1998, Mr. Mattei and
Mr. Cantwell were each granted an option to acquire 7,500 shares of Common Stock
at an exercise price of $12.875 per share for their services as members of such
committees. Because Mr. Clausi has served only for part of 1998, in May 1998 he
was granted an option to acquire 625 shares of Common Stock at an exercise price
of $12.875 per share for his services as a member of such committees. These
options are exercisable for five-year terms and have exercise prices equal to
the fair market value of such shares on the date of grant.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE NOMINEES PRESENTED.
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SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information, as of the Record
Date, regarding the beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1933, as amended) of (i) each director, (ii) each of
the executive officers named in the summary compensation table, (iii) all
executive officers and directors of the Company as a group and (iv) each person
known to the Company to be a beneficial owner of more than 5% of the Company's
outstanding Common Stock and/or A Preferred Stock (information regarding the A
Preferred Stock is presented both on an as-converted basis and as a separate
class of voting securities). The Convertible Series D Preferred Stock is not a
class of voting securities. Except as set forth below, the shareholders named
below have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
COMMON STOCK SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED (1) COMMON
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Lancer Partners, L.P. 1,788,505(2) 15.60%
Trilon Dominion Partners, L.L.C. 1,100,000(3) 9.60%
Paul L. Devine 770,416(4) 6.50%
Robert D. Mattei 221,982(5) 1.94%
Timothy B. Owen 187,500(6) 1.61%
Dr. William Romig 180,000(7) 1.55%
Derrick W. Lyon 100,000(7) *
Antony E. Kendall 75,000(7) *
A. S. Clausi 625 (7) *
Directors and executive officers
as a group (11 persons) 1,793,274(8) 14.14%
Total number of shares outstanding 11,454,370 100.00%
* Less than one percent.
(1) Unissued shares of Common Stock of each owner subject to currently
exercisable options or other rights to acquire securities exercisable
within 60 days of the date hereof are included in the totals listed
and are deemed to be outstanding for the purpose of computing the
percentage of Common Stock owned by such person, but are not deemed
to be outstanding for the purpose of computing the percentage of the
class owned by any other person. The effect of this calculation is to
increase the stated total ownership percentage currently controlled.
Information in the table is based solely upon information contained
in current filings with the Securities and Exchange Commission,
pursuant to sections 13(d) and 13(g) of the Securities Exchange Act
of 1934, as amended, as of the mailing date of this Proxy Statement,
and the records of the Company.
(2) Includes shares of Common Stock held by funds other than Lancer
Partners, L.P., but which are commonly managed in a group that
includes Lancer Partners, L.P. The address for Lancer Partners, L.P.
is 375 Park Avenue, Suite 2006, New York, NY 10017.
(3) The address for Trilon Dominion Partners, L.L.C. is 245 Park Avenue,
Suite 2820, New York, NY 10017.
(4) Includes 400,000 shares of Common Stock that may be acquired by
exercising currently vested and exercisable options. The address for
Mr. Devine is c/o the Company, 2 International Plaza, Suite 245,
Philadelphia, PA 19113-1507.
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(5) Includes 47,500 shares of Common Stock that may be acquired by
exercising currently vested and exercisable options to acquire 47,500
shares of Common Stock and 10,000 shares of Common Stock owned by Mr.
Mattei's wife, as to which he disclaims beneficial ownership.
(6) Includes 170,000 shares of Common Stock that may be acquired by
exercising currently vested and exercisable
options.
(7) Amount shown represents only shares of Common Stock that may be
acquired by exercising currently vested and exercisable options.
(8) Includes 1,230,000 shares of Common Stock that may be acquired by
exercising currently vested and exercisable options.
A PREFERRED STOCK SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED A PREFERRED
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Dr Joe H. Cherry 50,000(1) 76.9%
J. Matthew Dalton 5,000(2) 7.7%
John Randolph 5,000(3) 7.7%
Verne Scazzero 5,000(4) 7.7%
Directors and executive officers
as a group (11 persons) 0 0%
Total number of shares outstanding 65,000 100.00%
(1) The address for Joe H. Cherry is 320 Cardinal Heights, Dadeville, AL
(2) The address for J. Matthew Dalton is 1232 W. George Street,
Chicago, IL 60657
(3) The address for John Randolph is 14 Elvaston Place,
London SW7 5QF, England
(4) The address for Verne Scazzero is 1414 South Prairie Av.,
Chicago, IL 60605
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EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation (cash and
non-cash, plan and non-plan) paid by the Company during 1997 for services
rendered in all capacities to the Chief Executive Officer and each of the other
four most highly compensated executive officers (collectively "Named Executive
Officers").
LONG-TERM COMPENSATION
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ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ------------------------------------------------
ALL
RESTRICTED OTHER
OTHER STOCK OPTIONS/ LTIPC COMPEN-
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
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Paul L. Devine 1997 275,000 225,000 0 100,000 0 0
Chairman, President 1996 225,000 210,978 0 0 250,000 0 0
and Chief Executive 1995 56,250 100,000 120,000(3) 0 100,000 0 0
Officer
Derrick W. Lyon 1997 0 0 148,500(1) 0 0 0 0
CEO--EPL 1996 0 0 184,000(1) 0 50,000 0 0
Technologies 1995 0 0 36,000(1) 0 50,000 0 0
(Europe) Ltd
Antony E. Kendall 1997 125,470 8,200 13,089(2) 0 25,000 0 0
Chief Executive 1996 47,839 0 2,470(2) 0 50,000 0 0
EPL Flexible 1995 0 0 0 0 0 0 0
Packaging Ltd
Timothy B. Owen 1997 105,000 40,000 0 0 50,000 0 0
Treasurer and 1996 90,000 0 0 0 57,500 0 0
Secretary 1995 60,000 0 30,000(3) 0 62,500 0 0
William R. Romig 1997 105,750 14,075 1,634 0 75,000 0 0
Vice President, 1996 94,089 5,000 0 0 87,500 0 0
Research & 1995 85,000 0 0 0 17,500 0 0
Development
(1) includes payments made to DWL Associates Limited, an entity
controlled by Mr. Lyon, for the provision of consulting and
advisory services. Amounts assume an exchange rate in
1995/6 of pound sterling:$1.60 and pound sterling:$1.65 in 1997.
(2) assumes an exchange rate of pound sterling:$1.65.
(3) represents monies paid to the executive officer or to an
entity controlled by such officer as an independent contractor.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual
grants of stock options made by the Company during 1997 to each of the Named
Executive Officers.
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL REALIZABLE VALUE AT
% OF ASSUMED ANNUAL RATES OF
SHARES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(5 YEARS)(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 0% 5% 10%
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Paul L. Devine 100,000 19.2% $14.00 11/14/2002 0 $386,794 $854,714
Derrick W. Lyon 0 0 0 N/A N/A N/A N/A
Antony E. Kendall 25,000 4.8 14.00 11/14/2002 0 96,699 213,679
Timothy B. Owen 50,000 9.6 14.00 11/14/2002 0 193,397 427,357
William R. Romig 75,000 14.4 14.00 11/14/2002 0 290,096 641,036
(1) The dollar amounts under these columns are the result of calculations
at 0%, 5% and 10% annual growth rates set by the Securities and
Exchange Commission, compounded annually by the five year terms of
the options and therefore are not intended to forecast possible future
appreciation, if any, of the price of the Common Stock. All such
options were granted pursuant to the 1994 Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES(1)
The following table sets forth certain information concerning
exercises of stock options during fiscal 1997 and the value of unexercised stock
options at December 31, 1997 for Named Executive Officers.
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS OPTIONS AT
AT DECEMBER 31, 1997 DECEMBER 31, 1997(1)
SHARES --------------------------------------------------------
ACQUIRED VALUE UNEXER- UNEXER-
NAME ON EXERCISE REALIZED EXERCISABLE CISABLE EXERCISABLE CISABLE
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Paul L. Devine 200,000(1) $2,212,500(1) 400,000 0 $1,462,500 0
Derrick W. Lyon 0 0 100,000 0 618,750 0
Antony E. Kendall 0 0 75,000 0 109,375 0
Timothy B. Owen 5,000(1) 60,625(1) 170,000 0 669,375 0
William R. Romig 0 0 180,000 0 468,751 0
(1) None of the shares underlying the exercised options had
been sold as at December 31, 1997.
(2) The fair market value of the "in-the-money" options was
calculated on the basis of the difference between the
exercise price of the options held and the closing price of
a share of common stock on the Nasdaq SmallCap Market,
split-adjusted, on December 31, 1997, multiplied by the
number of options held. At December 31, 1997, the
split-adjusted closing price of a share of Common Stock on
the Nasdaq Small Cap Market was $12.25.
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EMPLOYMENT AND CONSULTING CONTRACTS
Mr. Devine and the Company are parties to an employment agreement
dated as of January 1, 1997 which provides that Mr. Devine is to serve as the
Company's Chairman of the Board, President and Chief Executive Officer. The
agreement provides for a rolling three year term. The Agreement provides for a
base salary to be fixed by the Board which, as of January 1, 1997, was $275,000
per year. Pursuant to the agreement the Company will maintain life insurance on
Mr. Devine's life with a face amount equal to at least $1,000,000, for which Mr.
Devine may designate a beneficiary. Under the agreement Mr. Devine also will be
entitled to receive a retirement benefit if he remains continuously employed (as
defined) by the Company until age fifty. Generally, if Mr. Devine retires at age
65, the retirement benefit to be received annually will be equal to 50% of his
average annual base salary and bonus during the final three years of his
employment (less benefits from any other defined benefit pension plan of the
Company). The percentage of Mr. Devine's average annual base salary and bonus
will be reduced or increased by 6% for each year by which Mr. Devine retires and
elects to have such retirement benefit commence earlier or later than his 65th
birthday. The agreement further provides that Mr. Devine is entitled to
participate in all benefit plans and arrangements of the Company and may also
receive bonuses, if any, as determined by the Board of Directors. The agreement
also provides certain disability and death benefits to Mr. Devine, as well as
severance payments approximately equal to Mr. Devine's average salary and bonus
for the previous three years, to continue for three years if Mr. Devine is
terminated under certain conditions. Additionally, Mr. Devine is entitled to
receive a payment of slightly less than three times his "base amount" (as
defined in the Internal Revenue Code of 1986) in the event of a "change of
control" of the Company (as defined in the agreement). This agreement also
contains certain customary provisions regarding confidentiality and
non-competition.
Through its subsidiary, EPL Technologies (Europe) Ltd., the Company
entered into a Consulting Agreement with DWL Associates Ltd., an entity
controlled by Mr. Lyon, for the provision of consulting and advisory services.
The agreement, which was signed as part of the acquisition by the Company of
Bakery Packaging Services Limited ("BPS") (now known as EPL Flexible Packaging
Limited) ("EPL Flexible") in September 1995, had an original term of two years,
expiring September 14, 1997. Under its terms, however, the agreement continues
in effect until terminated by either party serving six months notice. In March
1998, on behalf of DWL Associates Ltd., Mr. Lyon notified the Company of DWL
Associates Ltd.'s intention to terminate the agreement six months thereafter.
Annual fees of (pound)90,000 ($149,000 at an exchange rate of pound sterling
$1.65) are payable under this agreement, plus the reimbursement of directly
incurred expenses. In addition, under the terms of another agreement signed as
part of the acquisition of BPS, the Company's ability to use in the US certain
perforating technology is limited, until Mr. Lyon acquires a 49% interest in a
Company entity to be established to exploit such technology, or rejects the
offer of such an interest. For a discussion see "Certain Relationships and
Related Transactions".
The Company, through EPL Flexible, entered into an employment
agreement with Mr. Kendall commencing on August 1, 1996, which provides that Mr.
Kendall is to serve as Chief Executive of EPL Flexible. The agreement originally
provided for an annual salary of (pound)70,000 ($115,000 at an exchange rate of
pound sterling:$1.65), which salary is reviewable on January 1 annually and has
been increased to (pound)83,000 ($137,000 at an exchange rate of pound
sterling:$1.65) as of July 1, 1997, together with customary benefits, such as
vacation, the provision of an automobile, healthcare coverage and
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contributions into a defined contribution pension scheme. A bonus is also
payable upon the achievement of certain performance targets, as agreed on an
annual basis. After the first twelve months, the contract may be terminated by
either side upon six months' notice. The agreement also contains certain
customary provisions regarding confidentiality and non-competition. The Company
has recently amended the employment agreement with Mr. Kendall to provide that
Mr. Kendall will receive a payment equal to twice his annual salary if a change
of control (as defined) of the Company's UK packaging businesses occurs.
The Company entered into an employment agreement with Dr. Romig
effective September 1, 1994, which provided for a twelve month term, with annual
renewal terms. This was replaced, effective January 1, 1998, by a new agreement,
which runs for an initial term of two years, with annual renewal terms
thereafter. Either party may terminate the contract upon six months' notice. The
initial annual salary is $120,000, with a bonus of up to 25% of the salary based
upon the achievement of agreed-upon objectives. In addition to the customary
provisions on vacation and healthcare coverage, the agreement also provides
that, in the event of a termination of employment by either party due to a
change in control (as defined in the agreement), Dr. Romig would receive a total
payment equal to twice his annual salary plus a bonus equal to his average bonus
earned over the previous twelve months. The agreement also contains certain
customary provisions regarding confidentiality and non-competition.
1994 STOCK INCENTIVE PLAN
The Company's 1994 Stock Incentive Plan (the "1994 Plan") was adopted
by the shareholders on July 21, 1994, and modified by the shareholders to
increase the shares issuable thereunder and to make certain other changes on
July 22, 1996, and again on July 21, 1997. The 1994 Plan expires on May 4, 1999
and no additional awards may be granted thereunder on or after such date. The
1994 Plan is intended as an additional incentive to certain employees, certain
consultants or advisors and non-employee members of the Board of Directors to
enter into or remain in the employ of the Company or to serve on the Board of
Directors by providing them with an additional opportunity to increase their
proprietary interest in the Company and to align their interests with those of
the Company's shareholders generally through the receipt of options to purchase
Common Stock and has been structured to comply with the applicable provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended, and Rule 16b-3
thereunder. The 1994 Plan provides for the grant of "incentive stock options"
within the meaning of the Internal Revenue Code of 1986, as amended, and stock
options not qualifying as incentive stock options and the award of shares of
Common Stock. The particular terms of each option grant or stock award are set
forth in a separate agreement between the Company and the optionee or award
recipient. The 1994 Plan is administered by the 1994 Stock Incentive Plan
Administrative Committee appointed by the Board of Directors, which is currently
comprised of Robert D. Mattei and A.S. Clausi. The committee has the discretion
to determine the number of shares subject to each award, and other applicable
terms and conditions, including a grant's vesting schedule. The term of an
option may not be more than five years from the grant date. Options granted
under the 1994 Plan generally terminate three months after an optionee ceases to
be employed by the Company (twelve months in the case of death or disability).
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1998 STOCK INCENTIVE PLAN
The Board of Directors has adopted the 1998 Plan, subject to
shareholder approval. The terms of the 1998 Plan are described below under
"Proposal No 2 - Approval of the Company's 1998 Stock Incentive Plan." No
options or other awards have been granted under the 1998 Plan.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during 1997 were
Mr. Mattei, who served for the entire year, and Mr. Cantwell, who was elected to
the committee in May 1997. Neither Mr. Mattei nor Mr. Cantwell were officers of
the Company during such period. Except as disclosed under "Certain Relationships
and Related Transactions," neither of the members of the Compensation Committee
nor any of their affiliates entered into any transactions with the Company
during 1997.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee sets compensation policies applicable to
executive officers and has the authority to approve salaries and bonuses and
other compensation matters for the Company's executive officers. The Committee
reviews the overall performance of the Company and its executive officers based
on the Company's financial and operating performance. The Committee's
compensation policy generally reflects the basic principles that compensation
should reflect the financial performance of the Company and a portion of an
executive officer's compensation should provide long-term incentives that will
tie long-term rewards for the executive officers to increases in shareholder
value. Company philosophy regarding base salary is to maintain it at a
competitive level sufficient to recruit individuals possessing the skills
necessary to achieve the Company's vision and mission over the long term. The
Committee monitors salary levels for comparable executives. The Committee, in
its discretion, may award bonuses to employees, based on Company performance and
each employee's performance goals. The intent of a bonus is to motivate and
reward performance of employees measured against specific goals and in light of
the competitive compensation practices of comparable companies. The goals vary
with each employee's responsibilities rather than being fixed by reference to
overall measures of Company performance. Finally, stock options are viewed as a
fundamental element in the total compensation program and, in keeping with the
Company's basic philosophy, emphasize long term Company performance as measured
by the creation and enhancement of shareholder value, fostering a community of
interest between shareholders and employees. The specific determination of the
number of options to be granted, however, is not based upon any specific
criteria. Although options may be granted at any price, options generally have
been granted at the fair market value of the underlying shares on the date of
grant. The Committee also relies on recommendations of management regarding
option grants. The compensation for the Company's Chief Executive Officer is
based on the salary required by the terms of the Company's employment agreement
for the Chief Executive Officer and, with respect to any discretionary bonus the
Committee may award, among other factors, his ability to obtain necessary
financing to fund the Company's operations, expand sales growth opportunities,
integrate various operations and continue to guide the Company in its role in
servicing the fresh-cut produce industry as the same may expand. In evaluating
the performance of the Company's executive officers, including the Chief
Executive Officer, the Committee noted that the Company's 1997 sales increased
by 76% from $11,314,000 to $19,953,000 over 1996 results, total assets grew from
$15,215,400 to $26,200,000, the acquisitions of California Microbiological
Consulting, Inc. and Fabbri Artes Graficas Valencia S.A. ("Fabbri") were
completed, the Company executed a ten-year exclusive trademark license agreement
(subject to extension) and strategic alliance with
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Potandon Produce LLC for the use of the Green Giant Fresh(R) brand on fresh-cut
potato products for the foodservice industry, and the Company entered into a
strategic alliance with Farmington Fresh to license its Apple Fresh(R)
processing aids in connection with the production by Farmington Fresh of certain
varieties of fresh-cut sliced apples. The satisfaction of certain performance
criteria and qualitative criteria, consideration from time to time by the
Committee, without any formulae or strict industry comparisons, including,
management skills and leadership ability, are the bases upon which the committee
evaluates compensation decisions for its executive officers, including the Chief
Executive Officer.
QUALIFYING EXECUTIVE COMPENSATION FOR DEDUCTIBILITY UNDER APPLICABLE PROVISIONS
OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code of 1986, as amended,
provides that a publicly held corporation generally may not deduct compensation
for its chief executive officer or for each of certain other executive officers
to the extent that such compensation exceeds $1,000,000 for the executive or
does not qualify as a "performance based" compensation arrangement. The
Committee currently intends to consider taking such actions as may be
appropriate to qualify compensation received by such executives upon exercise of
options granted under the Company's stock option plans for deductibility under
Section 162(m), although it has not done so in the past. The Committee notes
that base salary and bonus levels are currently expected to remain below the
$1,000,000 limitation.
This report is furnished by the Compensation Committee of the Board of Directors
August 4, 1998
Robert D. Mattei
A. S. Clausi
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STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in cumulative
total stockholder return on the Common Stock since December 30, 1995 to December
31, 1997 (comparing the difference between the price of the Common Stock at the
beginning and end of the measurement period)with the cumulative total return on
the Nasdaq Composite (US) Index and the Nasdaq Industrial Index over the same
period. The comparison assumes $100 was invested on December 30, 1995 in the
Common Stock and in each of the indices and assumes reinvestment of dividends,
if any, from that date to December 31, 1997. The Company has not paid cash
dividends on the Common Stock. Historic stock prices are not indicative of
future stock price performance. (1)
[TOTAL RETURN TO STOCKHOLDER CHART]
Total Return Analysis 12/31/95 12/31/96 12/31/97
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EPL Technologies, Inc. $ 100.00 $ 156.45 $ 158.06
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Nasdaq Industrial $ 100.00 $ 115.56 $ 127.69
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Nasdaq Composite (US) $ 100.00 $ 122.99 $ 150.93
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Source: Carl Thompson Associates www.ctaonline.com (303) 494-5472. Data from Bloomberg Financial Markets
(1) Since May 1998, the Common Stock has traded on the Nasdaq Stock Market's
National Market. Prior to this, from July 1996 to May 1998, the Common Stock
traded on the Nasdaq Stock Market's Small Cap Market. From September 1995 to
July 1996, the Common Stock traded on the National Association of Securities
Dealers "bulletin board". Prior to September 1995, the Common Stock traded on
the National Association of Securities Dealers "pink sheets."
This Stock Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or under the Securities Exchange Act of 1934 (the "Exchange
Act"), except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under the
Securities Act or the Exchange Act and is not to be deemed to be soliciting
material.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997 Mr Devine and the Company entered into a new employment
contract. For a discussion of the terms of such agreement, see "Employment and
Consulting Contracts."
Effective October 21, 1997, the Company completed a revolving line of
credit agreement with Trilon Dominion Partners LLC ( "Trilon ") (the "Trilon
Line"). In connection with obtaining the Trilon Line, Company paid Trilon a
total transaction fee of $100,000. Under the Trilon Line, Trilon made available
to the Company $2.1 million for working capital purposes. Amounts drawn were
secured by, among other things, a blanket lien on the assets of the Company's
wholly-owned U.S. subsidiaries and on the assets of the Company itself. Interest
was at the "prime rate" (as published in the Wall Street Journal) plus 4% and
payable quarterly in arrears. Part of the proceeds of the placement of the
Series D Preferred Stock and the warrants issued in connection with the Series D
Preferred Stock was used to repay the Trilon Line on November 12, 1997,
whereupon the Trilon Line was cancelled. The Trilon Line therefore is no longer
available for drawings. Mr. Cantwell, a former director of the Company, is the
President of Trilon and President of VC Holdings, the sole managing member of
Trilon.
The Company had a revolving line of credit under an agreement
originally obtained from Dominion Capital, Inc. ("Dominion"), a related party of
Trilon, which was to have expired on March 21, 1998, bearing interest at prime
plus 2.5%. In July 1995, Dominion transferred its interest in this line of
credit to Trilon. On October 2, 1995, Trilon agreed to convert the outstanding
principal amount of $4,050,000 under the line of credit into 1,012,500 shares of
Common Stock and Warrants to purchase 50,000 shares of Common Stock for $8.00
per share. The Company also issued 81,306 shares of Common Stock in settlements
of accrued interest under this facility of $310,164, and 23,250 shares of Common
Stock in settlement of commitment fees.
In May 1998, the Company completed an offering of 2,400,000 shares of
Common Stock, which included 1,590,903 shares sold by Trilon. At the offering
price of $10.00 per share, gross proceeds realized were $15,909,030, with net
proceeds of approximately $13,940,000, after deducting underwriting commissions
and Trilon's pro rata portion of the expenses incurred by the Company in
connection with the offering.
Through its subsidiary, EPL Technologies (Europe) Ltd., the Company
entered into a Consulting Agreement with DWL Associates Ltd., an entity
controlled by Mr. Lyon, for the provision of consulting and advisory services.
The agreement, which was signed as part of the acquisition by the Company of BPS
(now known as EPL Flexible Packaging Limited) ("EPL Flexible") in September
1995, had an original term of two years, expiring September 14, 1997. Under its
terms, however, the agreement continues in effect until terminated by either
party serving six months notice. In March 1998, on behalf of DWL Associates
Ltd., Mr. Lyon notified the Company of DWL Associates Ltd.'s intention to
terminate the agreement six months thereafter. Annual fees of (pound)90,000
($149,000 at an exchange rate of pound sterling:$1.65) are payable under this
agreement, plus the reimbursement of directly incurred expenses. In addition,
under the terms of another agreement signed as part of the acquisition of BPS,
the Company's ability to use in the U.S. certain slit perforating technology,
certain other development stage perforating technology and gas
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perforating technology not previously assigned to BPS under arrangements between
BPS, Mr Lyon and others in or about 1983 (collectively the "Prior Technology"),
is limited until Mr Lyon, a principal former shareholder of BPS, owns or rejects
the offer of 49% of the share capital (on terms and conditions yet to be
finalized) of any Company subsidiary that the Company proposes will use the
Prior Technology in activities in the U.S. (the "Proposed JV"). The Company and
Mr Lyon expect to form the Proposed JV by the end of 1998. In the unlikely event
that Mr Lyon rejects the offer of such equity, the Company will not be limited
in its use of the Prior Technology. The Company believes the arrangement with Mr
Lyon will not have a material adverse effect on the Company's business,
financial condition or results of operations.
PROPOSAL NO. 2 - APPROVAL OF
THE COMPANY'S 1998 STOCK INCENTIVE PLAN
On June 25, 1998, the Company's Board of Directors approved and
recommended to shareholders the Company's 1998 Stock Incentive Plan (the "1998
Plan"), which provides for the granting of options for the cash purchase of an
aggregate of 2,250,000 shares of Common Stock, subject to certain adjustments,
for employees (including employees who are members of the Board) and consultants
or advisors of the Company or any Affiliate (as defined). If the shareholders do
not approve the 1998 Plan, the 1998 Plan will not be effective. For the reasons
set forth below, the Board recommends approval of the 1998 Plan by shareholders.
The purpose of the 1998 Plan is to provide such eligible persons with
additional incentive to devote themselves to the future success of the Company
or an Affiliate and to attract, retain and motivate individuals upon whom the
Company's sustained growth and financial success depend, by providing such
persons with an opportunity to acquire or increase their proprietary interest in
the Company.
The 1998 Plan is intended as an additional incentive to certain
employees, certain consultants or advisors and non-employee members of the Board
of Directors to enter into or remain in the employ of the Company or to serve on
the Board of Directors by providing them with an additional opportunity to
increase their proprietary interest in the Company and to align their interests
with those of the Company's shareholders generally through the receipt of
options to purchase Common Stock and has been structured to comply with the
applicable provisions of Section 16(b) of the Securities Exchange Act of 1934,
as amended and Rule 16b-3 thereunder.
The 1998 Plan is to be administered by the Board of Directors, unless
another committee or committees is established by the Board to perform such
functions, as permitted by the 1998 Plan (collectively the "Plan Committee").
Options granted under the 1998 Plan may be designated by the Plan Committee as
"incentive stock options" ("ISO's") within the meaning of Section 422(b) of the
Internal Revenue Code of 1986, as amended, or may be designated by the Plan
Committee as options not intended to be ISO's ("non-qualified stock options").
Under the 1994 Plan no options can be issued on or after May 4, 1999.
As the 1994 Plan will expire before the date of the next proposed Annual
Meeting, the Board of Directors
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believes that, in light of the Company's recent growth and the increase in
employees eligible to receive options, adoption of the 1998 Plan is appropriate.
The Company has found that the use of options has enabled it to retain talented
and experienced individuals at salary levels below that which might otherwise be
required if options were not offered as part of the compensation package.
Moreover, options provide more or less of an economic benefit to option holders
depending on the market value of the Company's Common Stock, thereby
constituting a particularly effective incentive to option holders to endeavor to
improve the Company's performance. The Board of Directors believes that the
number of shares issuable under the 1998 Plan will provide a sufficient number
of shares for option grants over the next few years. Because grants of options
under the 1998 Plan are within the discretion of the Plan Committee and as such
grants have not been made, the benefits or amounts that any of the Chief
Executive Officer, the other Named Executive Officers, directors and
non-executive officers will receive under the 1998 Plan are not currently
determinable.
The material features of the 1998 Plan are as follows:
1. Number of Shares. The aggregate maximum number of shares for which
options to purchase shares of Common Stock may be granted under the 1998 Plan is
2,250,000 shares, subject to adjustment upon the occurrence of stock dividends,
stock splits, recapitalization or certain other capital adjustments that cause
an increase or decrease in the number of issued and outstanding shares of Common
Stock. As of the Record Date, the aggregate market value of the 2,250,000 shares
of Common Stock for which such options might be granted under the 1998 Plan was
$16,312,500.
2. Administration. The employees and certain consultants or advisors
of the Company to whom options may be granted, the timing of grants for all
eligible recipients and the option price for options granted to such eligible
persons, including non-employee members of the Board of Directors, are as set
forth in the 1998 Plan. Subject to the foregoing and other provisions of the
1998 Plan, the 1998 Plan is administered by the Board of Directors of the
Company. The Board has the option to designate a committee composed of two or
more Non-Employee Directors (as defined) to operate and administer the 1998 Plan
in its stead or designate two committees to operate and administer the 1998 Plan
in its stead: a Non-Employee Directors Committee to operate and administer the
1998 Plan with respect to the Company's Section 16 Officers (as defined), and
another committee composed of two or more directors to operate and administer
the Plan with respect to persons other than Section 16 Officers or directors.
The Board has not established any such committees.
3. Eligibility. Employees, consultants or advisors and directors of
the Company and its Affiliates are eligible to receive options under the 1998
Plan. Non-Employee Directors also receive a defined amount of non-qualified
stock options, with vesting, exercise price and other provisions as described in
Paragraph 11 below. On the Record Date, the number of employees eligible to
participate in the Plan was 277.
4. Term of Plan. The Plan provides that no option may be granted
under it after June 25, 2008.
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5. Term of Option. All options (other than those for Non-Employee
Directors, as further described in Paragraph 11 below) terminate on the earliest
of: (a) expiration of the option term specified in the document granting the
option, which for an ISO shall not exceed (i) ten years from the date of grant
(or such shorter period as the Plan Committee may select) or (ii) ten years from
the date of grant if the optionee owns, directly or by attribution under the
Code, shares possessing more than ten percent of the total combined voting power
of all classes of stock of the Company or of its Affiliates (as defined); (b)
the expiration of three months (or such shorter period as the Plan Committee may
select) from the date an optionee's employment terminates for any reason other
than a "Change of Control", death or disability; (c) a finding by the Plan
Committee that the optionee has breached his employment or service contract with
the Company or has been engaged in any sort of disloyalty to the Company; (d)
the expiration of one year from the date on which the optionee's employment
terminates due to such optionee's disability or death; (e) the date set by the
Plan Committee to be an accelerated expiration date in the event of the
liquidation or dissolution of the Company or other "Change of Control"; and (f)
the date set by the Plan Committee to be an accelerated expiration date in the
event of a change in the financial accounting treatment for options from that in
effect on the date the Plan was adopted adversely affects the Company, or may
adversely affect the Company in the foreseeable future.
Notwithstanding the foregoing, the Plan Committee may extend the
period during which an option may be exercised to a date no later than the date
of expiration of the term specified in the option document.
In addition, the non-qualified stock options granted or to be
granted to Non-Employee Directors and described in Paragraph 11 below have
further limitations on their term, as described in Paragraph 11.
6. Option Price. The option price per share may be equal to or
greater than the fair market value of the Common Stock subject to the option on
the date the option is granted, as the Plan Committee may determine; provided,
however, that the option price per share for an ISO shall be 100% of the fair
market value of the Common Stock on the date the option is granted, and
provided, further, that if an ISO is granted to an optionee who then owns,
directly or by attribution under the Code, shares possessing more than 10% of
the total combined voting power of all classes of stock of the Company or an
Affiliate (as defined), then the option price per share will be at least 110% of
the fair market value of the Common Stock subject to the option on the date the
option is granted. The 1998 Plan defines such fair market value, if the Common
Stock is listed on a national securities exchange or included in the Nasdaq
National Market, as the last reported sales price thereof on the relevant date
or, if not so listed or included, as the mean between the closing "bid" and
"asked" prices or the mean between the highest and lowest quoted selling prices
of the Common Stock, as reported in customary financial reporting services, on
the date the option is granted.
7. Special Rules for Certain Shareholders. If an ISO is granted to an
optionee who then owns, directly or by attribution under the Code, shares
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or an Affiliate, then the term of the option will not
exceed five years and the option price per share will be at least 110% of the
fair market value of the Common Stock subject to the option on the date the
option is granted. Such
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restrictions do not apply to non-qualified stock options granted to such an
optionee, which are governed by the rules described in Paragraphs 5 and 6 above.
8. Payment. An option holder may pay for shares covered by an option
in cash or by certified check or by such other mode of payment as the Plan
Committee may approve, including payment through a broker in accordance with
certain federal laws, or payment in whole or in part of unencumbered shares of
the Company's Common Stock, based on the fair market value of such Common Stock
at the time of payment. Notwithstanding the foregoing, the Board of Directors,
in its sole discretion, may refuse to accept shares of Common Stock in payment
of the option exercise price.
9. Option Document;Transferability. All options will be evidenced by
a written option document containing provisions consistent with the Plan.
Options granted under the 1998 Plan may be transferred, by will or by the laws
of descent and distribution and in other circumstances or pursuant to certain
other laws.
10. Provisions Relating to a "Change of Control". In the event of a
"Change of Control", the Plan Committee may take whatever action with respect to
outstanding options it deems necessary or desirable, including accelerating the
expiration date of the options to a date no earlier than 30 days after notice of
such acceleration is given to holders of options. In addition, in the event of a
Change of Control, all options and other awards granted pursuant to the Plan
will become immediately exercisable in full.
A Change of Control will occur under the Plan upon requisite
shareholder (or, if such approval is not required, Board of Directors) approval
of a plan of liquidation or dissolution or the sale of substantially all of the
assets of the Company. Subject to certain exceptions, a Change of Control will
also occur upon requisite approval by the Company's and the other constituent
corporation's stockholders (or, if such approval is not required, by the
applicable boards of directors) of the merger or consolidation of the Company
with or into such other constituent corporation. In addition, a Change of
Control will occur if certain entities, persons or groups specified in the Plan
(not including persons owning in excess of 20% of the outstanding Common Stock
at the time of the adoption of the Plan by the Board of Directors and the
shareholders) have become beneficial owners of our have obtained voting control
over more than 50% of the Company's outstanding Common Stock, or on the first
date upon which a majority of the Board of Directors consists of persons who
have been members of the Board of Directors for less than 24 months, unless the
nomination for election of each new director who was not a director at the
beginning of such period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period.
11. Special Provisions for Grant of Options to Non-Employee
Directors. In addition to other options that may be granted under the 1998 Plan
to Non-Employee Directors, options will be granted to Non-Employee Directors and
will become exercisable under the Plan in accordance with the following terms:
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A. Each Non-Employee Director will be granted, commencing on
June 25, 1998 and on each June 25th thereafter on which such person remains a
non-employee director, an option to purchase up to 7,500 shares of Common Stock
on a pro rata basis.
B. Each such option granted to a Non-Employee Director will be a
non-qualified stock option, so that the optionee shall have the right to
exercise the option with respect to 100% of the shares covered by such option on
the date of grant. The option exercise price shall be equal to the fair market
value of the underlying shares on the date the option is granted, as determined
by the Plan Committee.
C. Each such option granted to a Non-Employee Director will be
exercisable until the first to occur of (i) expiration of five years from the
date of grant; (ii) expiration of five years from the date the optionee's
service with the Company or its Affiliates (as defined) terminates for any
reason other than death or disability; (iii) expiration of five years from the
date the optionee's service with the Company terminates by reason of death or
disability; and (iv) the date of a "Change of Control."
D. In no event shall (i) the exercise price of the option be less
than the fair market value of the shares subject to the option on the date of
grant; and (ii) payment of the exercise price for the option in whole or in part
in shares of Common Stock held by the optionee for more than one year be
restricted. The option document for such options may contain such other
restrictions and terms as are permitted by and consistent with the Plan and as
the Plan Committee shall determine.
12. Amendments to the Option Document and the Plan. Subject to the
provisions of the 1998 Plan, the Board of Directors may amend an option
document, subject to the optionee's consent if the amendment is not favorable to
the optionee. The Board of Directors may amend the Plan from time to time in
such manner as it may deem advisable. Nevertheless, the Board of Directors may
not, without obtaining approval of a vote of a majority of the outstanding
voting stock of the Company, within twelve months before or after adoption of
the 1998 Plan or any amendment thereto, change the class of individuals eligible
to receive an ISO, extend the expiration date of the Plan, decrease the minimum
exercise price of an ISO granted under the 1998 Plan or increase the maximum
number of shares as to which options may be granted. In addition, the provisions
of the 1998 Plan that determine (i) which Non-Employee Directors shall be
granted options under the provisions applicable to them and described in
paragraph 11 above, (ii) the number of option shares subject to options so
granted and (iii) the exercise price for such options.
13. Tax Aspects of the Plan. The following discussion is intended to
summarize briefly the general principles of Federal income tax law currently
applicable to options granted under the 1998 Plan. A recipient of an ISO will
not recognize taxable income upon either the grant or exercise of the ISO. The
option holder will recognize long-term capital gain or loss on a disposition of
the shares acquired upon exercise of an ISO, provided the option holder does not
dispose of those shares within two years from the date the ISO was granted or
within one year after the shares were transferred to such option holder.
Currently, for regular federal income tax purposes, long-term capital gain is
taxed at a maximum rate of 28% where the holding period is more than 12 months
but less than 18 months, and at a maximum rate of 20% when the holding period is
more than 18
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months, while ordinary income may be subject to a maximum rate of 39.6%. If the
option holder satisfies both of the foregoing holding periods, then the Company
will not be allowed a deduction by reason of the grant or exercise of an ISO.
As a general rule, if the option holder disposes of the shares before
satisfying both holding period requirements (a "disqualifying disposition"), the
gain recognized by the option holder on the disqualifying disposition will be
taxed as ordinary income to the extent of the difference between (a) the lesser
of the fair market value of the shares on the date of exercise or the amount
received for the shares in the disqualifying disposition, and (b) the adjusted
basis of the shares, and the Company will be entitled to a deduction in that
amount. The gain (if any) in excess of the amount recognized as ordinary income
on a disqualifying disposition will be long-term or short-term capital gain,
depending on the length of time the option holder held the shares prior to the
disposition.
The amount by which the fair market value of a share at the time of
exercise exceeds the option price will be included in the computation of such
option holder's "alternative minimum taxable income" in the year the option
holder exercises the ISO. Currently the alternative minimum tax rate is 28%. If
an option holder pays alternative minimum tax with respect to the exercise of an
ISO, then the amount of such tax paid will be allowed as a credit against
regular tax liability in subsequent years. The option holder's basis in the
shares for purposes of the alternative minimum tax will be adjusted when income
is included in alternative minimum taxable income.
A recipient of a non-qualified stock option will not recognize
taxable income at the time of grant, and the Company will not be allowed a
deduction by reason of the grant. Such an option holder will recognize ordinary
income in the taxable year in which the option holder exercises the option, in
an amount equal to the excess of the fair market value of the shares received
upon exercise at the time of exercise of such options over the exercise price of
the option, and the Company will be allowed a deduction in that amount. Upon
disposition of the shares subject to the option, an option holder will recognize
long-term or short-term capital gain or loss, depending upon the length of time
the shares were held prior to disposition, equal to the difference between the
amount realized on disposition and the option holder's basis in the shares
subject to the option (which basis ordinarily is the fair market value of the
shares subject to the option on the date the option was exercised).
Whenever the Company proposes or is required to deliver or transfer
shares in connection with the exercise of an option under the 1998 Plan, the
Company has the right to require the option holder to remit or otherwise make
available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for such shares or to take whatever action it
deems necessary to protect its interests with respect to tax liabilities in
connection with the issuance of such shares.
The Board of Directors believes that the grant of stock options will
provide significant incentives to directors and employees who contribute
materially to the Company's future success.
-22-
25
The votes of shares of Common Stock and A Preferred Stock present in
person or by proxy or entitled to vote at the Annual Meeting, acting as a single
class, in favor of the 1998 Plan must exceed the number of votes cast in
opposition to the 1998 Plan to approve the 1998 Plan, assuming the presence of a
quorum at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO ADOPT AND APPROVE THE 1998 PLAN.
-23-
26
INDEPENDENT AUDITORS
Deloitte & Touche LLP, independent auditors, audited the financial
statements of the Company for the fiscal year ended December 31, 1997.
Representatives of Deloitte & Touche LLP are expected to attend the Annual
Meeting, will have the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions. The Board
has selected Deloitte & Touche LLP as the independent auditors to audit the
Company's financial statements for the fiscal year ending December 31, 1998.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 1934
Section 16(a) of the Exchange Act 1934 requires that the Company's
directors, officers (including a person performing a principal policy-making
function) and persons who own more than 10% of a registered class of the
Company's equity securities ("10% Holders") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and reports of changes
in ownership of Common Stock and other equity securities of the Company.
Directors, officers and 10% Holders are required by SEC regulations to furnish
the Company with copies of all of the Section 16(a) reports they file. Based
solely upon a review of the copies of the forms furnished to the Company and the
representations made by the reporting persons to the Company, the Company
believes that during 1997 its directors, officers and 10% Holders complied with
all filing requirements under Section 16(a) of the Exchange Act.
SHAREHOLDER PROPOSALS - 1999 ANNUAL MEETING
Under Rule 14a-8 of the Exchange Act 1934, as amended ("Rule 14a-8"),
proposals of shareholders intended to be presented at the annual meeting of
shareholders in 1999 must be received by February 28, 1999 in order to be
considered for inclusion in the Company's Proxy Statement and form of proxy
relating to that annual meeting. Alternatively, shareholders who submit a
proposal for consideration by the Company outside of the processes established
by Rule 14a-8 must do so by June 16, 1999 or face the possibility that
management proxies may use their discretionary voting authority if and when any
such proposal is raised at the 1999 Annual Meeting of Shareholders, without any
discussion of the matter at the meeting. If the 1999 Annual Meeting date is more
than 30 days away from the anniversary of the 1998 Annual Meeting date, the
Company will disclose changes in the February 28 and June 16 deadlines above in
its earliest possible report on Form 10-Q. Shareholder proposals should be
directed to the Company's Secretary, at the address of the Company set forth on
the first page of this Proxy Statement.
-24-
27
OTHER MATTERS
The Board knows of no matter, other than as referred to in this Proxy
Statement, which will be presented at the Annual Meeting. However, if other
matters properly come before the Annual Meeting, or any adjournment or
postponement thereof, the person or persons voting the proxies will vote them in
accordance with their judgment in such matters.
-25-
28
ANNUAL REPORT ON FORM 10-K/A
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON SOLICITED BY
THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
FINANCIAL STATEMENTS, EXHIBITS AND SCHEDULES THAT ARE ATTACHED TO THE COMPANY'S
ANNUAL REPORT ON FORM 10-K/A AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD BE
DIRECTED TO THE ATTENTION OF THE COMPANY'S SECRETARY AT THE ADDRESS OF THE
COMPANY APPEARING ON THE FIRST PAGE OF THIS PROXY STATEMENT OR FAXED TO THE
COMPANY AT (610) 521-5985.
By order of the Board of Directors,
Timothy B. Owen
Secretary
August 4, 1998
-26-
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PROXY
EPL TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Paul L. Devine and Timothy B.
Owen, each of them acting individually, as the attorney and proxy of the
undersigned and each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote in the name and stead of the
undersigned as designated below, all the shares of EPL Technologies, Inc. held
of record by the undersigned on JULY 24, 1998, which the undersigned would be
entitled to vote at the Annual Meeting of Shareholders to be held on AUGUST 24,
1998 (the "Meeting"), or any adjournment or postponement thereof, if personally
present.
1 - Election of Directors:
Withhold
Name Vote For Authority to Vote
---- -------- ----------------------
Paul L. Devine
-------- -------
Robert D. Mattei
-------- -------
A. S. Clausi
-------- -------
2 - Proposal to approve and adopt the Company's 1998 Stock Incentive Plan.
For Against Abstain
------- ------- -------
3 - Upon such other matters as may properly come before the Annual Meeting or
any adjournment or postponement thereof.
This Proxy, when properly executed, will be voted in the manner as
directed herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE THREE PERSONS NOMINATED BY THE BAORD OF DIRECTORS
TO SERVE AS DIRECTORS OF THE COMPANY AS SET FORTH ABOVE AND "FOR" THE ADOPTION
OF THE COMPANY'S 1998 STOCK INCENTIVE PLAN. THIS PROXY ALSO DELEGATES
DISCRETIONARY AUTHORITY TO VOTE WITH RESPECT TO ANY OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THIS ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF. THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT OF EPL TECHNOLOGIES, INC. THE BOARD IS NOT CURRENTLY
AWARE OF ANY MATTERS EXPECTED TO COME BEFORE THE MEETING OTHER THAN THE ELECTION
OF DIRECTORS AND CONSIDERATION OF ADOPTION OF THE COMPANY'S 1998 STOCK INCENTIVE
PLAN.
- ---------------------------------- ----------------------------------
PRINT SHAREHOLDER NAME SIGNATURE OF SHAREHOLDER
- ---------------------------------- ----------------------------------
DATE SIGNATURE OF SHAREHOLDER
Please sign your name exactly as it appears on your stock
certificate, date and return this proxy in the enclosed envelope. When signing
as attorney-in-fact, executor, administrator, trustee or guardian, please add
your title as such. When signing as joint tenants, all parties in the joint
tenancy must sign. If shareholder is a corporation, limited liability company
or partnership, please have a duly authorized officer, manager, member or
partner sign in full corporate, limited liability company or partnership name.
Please return this proxy to EPL Technologies, Inc., 2 International
Plaza, Suite 245, Philadelphia, PA, 19113-1507 prior to August 21, 1998 so that
your votes may be counted at the Annual Meeting.
30
EPL TECHNOLOGIES, INC.
1998 STOCK INCENTIVE PLAN
1. Purpose. EPL Technologies, Inc. (the "Company") hereby adopts the
EPL Technologies, Inc. 1998 Stock Incentive Plan (the "Plan"). The Plan is
intended to recognize the contributions made to the Company by all employees
(including employees who are members of the Board of Directors) of the Company
or any Affiliate (as defined below), and certain consultants or advisors to the
Company or an Affiliate, to provide such persons with additional incentive to
devote themselves to the future success of the Company or an Affiliate, and to
improve the ability of the Company or an Affiliate to attract, retain, and
motivate individuals upon whom the Company's sustained growth and financial
success depend, by providing such persons with an opportunity to acquire or
increase their proprietary interest in the Company through receipt of rights to
acquire the Company's Common Stock, par value $0.001 per Share (the "Common
Stock") and through the transfer or issuance of Common Stock subject to
conditions of forfeiture. In addition, the Plan is intended as an additional
incentive to certain directors of the Company who are not employees of the
Company or an Affiliate to serve on the Board of Directors and to devote
themselves to the future success of the Company by providing them with an
opportunity to acquire or increase their proprietary interest in the Company
through the receipt of rights to acquire Common Stock.
2. Definitions. Unless the context clearly indicates otherwise, the
following terms shall have the following meanings:
31
(a) "Affiliate" means a corporation which is a parent
corporation or a subsidiary corporation with respect to the Company within the
meaning of Section 424(e) or (f) of the Code.
(b) "Award" shall mean a transfer of Common Stock subject to
conditions of forfeiture made pursuant to the terms of the Plan.
(c) "Award Agreement" shall mean the agreement between the
Company and a Grantee with respect to an Award made pursuant to the Plan.
(d) "Awardee" shall mean a person to whom an Award has been
granted pursuant to the Plan.
(e) "Board of Directors" means the Board of Directors of the
Company.
(f) "Change of Control" shall have the meaning as set forth in
Section 10 of the Plan.
(g) "Code" means the Internal Revenue Code of 1986, as
amended.
(h) "Committee" shall have the meaning set forth in Section 3
of the Plan.
(i) "Company" means EPL Technologies, Inc., a Colorado
corporation.
(j) "Disability" shall have the meaning set forth in Section
22(e)(3) of the Code.
(k) "Eligible Director" means a member of the Board of
Directors who is not an employee of the Company or any Affiliate.
(l) "Fair Market Value" shall have the meaning set forth in
Subsection 8(b) of the Plan.
(m) "Grantee" shall mean an Awardee or an Optionee.
2
32
(n) "ISO" means an Option granted under the Plan which is
intended to qualify as an "incentive stock option" within the meaning of Section
422(b) of the Code.
(o) "Non-Employee Director" shall mean a member of the Board
of Directors of the Company who is a "non-employee director" within the meaning
of Rule 16b-3.
(p) "Non-qualified Stock Option" means an Option granted under
the Plan which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(q) "Option" means either an ISO or a Non-qualified Stock
Option granted under the Plan.
(r) "Optionee" means a person to whom an Option has been
granted under the Plan, which Option has not been exercised and has not expired
or terminated.
(s) "Option Document" means the document described in Section
8 or Section 9 of the Plan, as applicable, which sets forth the terms and
conditions of each grant of Options.
(t) "Option Price" means the price at which Shares may be
purchased upon exercise of an Option, as calculated pursuant to Subsection 8(b)
or Subsection 9(a) of the Plan.
(u) "Restricted Stock" means Common Stock subject to
conditions of forfeiture and transfer granted to any person pursuant to an Award
under the Plan.
(v) "Rule 16b-3" means Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended.
(w) "Section 16 Officer" means any person who is an "officer"
within the
3
33
meaning of Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934,
as amended, or any successor rule.
(x) "Shares" means the shares of Common Stock of the Company
which are the subject of Options or granted as Awards under the Plan.
3. Administration of the Plan. The Plan shall be administered by the
Board of Directors of the Company; provided, however, that the Board of
Directors may designate a committee or committee(s) of the Board of Directors
composed of two or more Non-Employee Directors to administer the Plan with
respect to the Section 16 Officers, directors, and/or key employees.
Alternatively, the Board of Directors may designate two committees to operate
and administer the Plan in its stead, a committee composed of two or more
Non-Employee Director's to operate and administer the Plan with respect to the
Company's Section 16 Officers and the directors, and another committee composed
of two or more directors (which may include directors who are not Non-Employee
Directors) to operate and administer the Plan with respect to persons other than
Section 16 Officers or directors. Any of such committees designated by the Board
of Directors, and the Board of Directors itself in its administrative capacity
with respect to the Plan, is referred to as the "Committee."
(a) Meetings. The Committee shall hold meetings at such times
and places as it may determine, shall keep minutes of its meetings, and shall
adopt, amend and revoke such rules or procedures as it may deem proper;
provided, however, that it may take action only upon the agreement of a majority
of the whole Committee. Any action which the Committee shall take through a
written instrument signed by a majority of its members shall be
4
34
as effective as though it had been taken at a meeting duly called and held.
The Committee shall report all actions taken by it to the Board of Directors.
(b) Grants and Awards. Except with respect to Options granted
to Eligible Directors pursuant to Section 9, the Committee shall from time to
time at its discretion direct the Company to grant Options or Awards pursuant to
the terms of the Plan. The Committee shall have plenary authority to (i)
determine the persons to whom, the times at which, and the price at which
Options shall be granted, (ii) determine the type of Option to be granted and
the number of Shares subject thereto, (iii) determine the persons to whom, and
the times at which, Awards of Restricted Stock shall be granted, the number of
Shares awarded, and the purchase price per Share, if any, (iv) determine that
Options and Awards granted to Eligible Directors other than pursuant to Section
9 shall be granted only upon unanimous vote of the Committee or of directors not
receiving any such Options or Awards; and (v) approve the form and terms and
conditions of the Option Documents and Award Agreements; all subject, however,
to the express provisions of the Plan. Notwithstanding the foregoing, no person
may be granted Options to acquire more than One Hundred Thousand (100,000)
Shares in any calendar year, subject to adjustment as provided in Section 11 of
the Plan. In making such determinations, the Committee may take into account the
nature of the Grantee's services and responsibilities, the Grantee's present and
potential contribution to the Company's success and such other factors as it may
deem relevant. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option or Award granted under it shall be
final, binding and conclusive.
5
35
(c) Exculpation. No member of the Board of Directors shall be
personally liable for monetary damages for any action taken or any failure to
take any action in connection with the administration of the Plan or the
granting of Options or Awards under the Plan, provided that this Subsection 3(c)
shall not apply to (i) any breach of such member's duty of loyalty to the
Company, or an Affiliate, or the Company's stockholders, (ii) acts or omissions
not in good faith or involving intentional misconduct or a knowing violation of
law, (iii) acts or omissions that would result in liability under applicable
law, and (iv) any transaction from which the member derived an improper personal
benefit.
(d) Indemnification. Service on the Committee shall constitute
service as a member of the Board of Directors of the Company. Each member of the
Committee shall be entitled, without further action on his part, to indemnity
from the Company and limitation of liability to the fullest extent provided by
applicable law and by the Company's Certificate of Incorporation and/or By-laws
in connection with or arising out of any action, suit or proceeding with respect
to the administration of the Plan or the granting of Options and Awards
thereunder in which he or she may be involved by reason of his or her being or
having been a member of the Committee, whether or not he or she continues to be
such member of the Committee at the time of the action, suit or proceeding.
4. Options and Awards under the Plan. Options under the Plan may be in
the form of a Non-qualified Stock Option or an ISO, at the discretion of the
Committee. Awards under the Plan shall be in the form of Restricted Stock.
5. Eligibility. All employees, consultants and advisors, and members of
the Board of Directors shall be eligible to receive Options and Awards
hereunder. Eligible Directors
6
36
may receive Options and Awards in addition to the Options to be granted pursuant
to Section 9.
6. Shares Subject to Plan. The aggregate maximum number of Shares for
which Awards or Options may be granted pursuant to the Plan is Two Million Two
Hundred and Fifty Thousand (2,250,000) Shares, subject to adjustment as provided
in Section 11 of the Plan. The Shares shall be issued from authorized and
unissued Common Stock or Common Stock held in or hereafter acquired for the
treasury of the Company. If an Option terminates or expires without having been
fully exercised for any reason, or if Shares granted pursuant to an Award have
been conveyed back to the Company pursuant to the terms of an Award Agreement,
the Shares for which the Option was not exercised or the Shares that were
conveyed back to the Company may again be the subject of one or more Options or
Awards granted pursuant to the Plan.
7. Term of the Plan. The Plan is effective as of June 25, 1998 , the
date on which it was adopted by the Board of Directors, subject to the approval
of the Plan on or before June 25, 1999 by a majority of the votes cast at a duly
called meeting of the shareholders at which a quorum representing a majority of
all outstanding voting stock of the Company is, either in person or by proxy,
present and voting, by the unanimous consent in writing of the shareholders or
by a method and in a degree that would be treated as adequate under applicable
state law in the case of an action requiring shareholder approval. No Option or
Award may be granted under the Plan after June 25, 2008.
8. Option Documents and Terms. Each Option granted under the Plan shall
be a Non-qualified Stock Option unless the Option shall be specifically
designated at the time of
7
37
grant to be an ISO for federal income tax purposes. To the extent any Option
designated an ISO is determined for any reason not to qualify as an incentive
stock option within the meaning of Section 422 of the Code, such Option shall be
treated as a Non-qualified Stock Option for all purposes under the provisions of
the Plan. Options granted pursuant to the Plan shall be evidenced by the Option
Documents in such form as the Committee shall from time to time approve, which
Option Documents shall comply with and be subject to the following terms and
conditions and such other terms and conditions as the Committee shall from time
to time require which are not inconsistent with the terms of the Plan. However,
the provisions of this Section 8 shall not be applicable to Options granted to
Eligible Directors, except as otherwise provided in Subsection 9(c).
(a) Number of Option Shares. Each Option Document shall state
the number of Shares to which it pertains. An Optionee may receive more than one
Option, which may include Options which are intended to be ISO's and Options
which are not intended to be ISO's, but only on the terms and subject to the
conditions and restrictions of the Plan.
(b) Option Price. Each Option Document shall state the Option
Price which, for a Non-qualified Stock Option, may be equal to or greater than
the Fair Market Value of the Shares on the date the Option is granted and, for
an ISO, shall be at least 100% of the Fair Market Value of the Shares on the
date the Option is granted as determined by the Committee in accordance with
this Subsection 8(b); provided, however, that if an ISO is granted to an
Optionee who then owns, directly or by attribution under Section 424(d) of the
Code, shares possessing more than ten percent of the total combined voting power
of all classes of stock of the Company or an Affiliate, then the Option Price
shall be at least 110% of
8
38
the Fair Market Value of the Shares on the date the Option is granted. If the
Common Stock is traded in a public market, then the Fair Market Value per share
shall be, if the Common Stock is listed on a national securities exchange or
included in the Nasdaq Stock Market's National Market System, the last reported
sale price thereof on the relevant date, or, if the Common Stock is not so
listed or included, the mean between the last reported "bid" and "asked" prices
thereof on the relevant date, as reported on Nasdaq or, if not so reported, as
reported by the National Daily Quotation Bureau, Inc. or as reported in a
customary financial reporting service, as applicable and as the Committee
determines.
(c) Exercise. No Option shall be deemed to have been exercised
prior to the receipt by the Company of written notice of such exercise and of
payment in full of the Option Price for the Shares to be purchased. Each such
notice shall specify the number of Shares to be purchased and shall (unless the
Shares are covered by a then current registration statement or a Notification
under Regulation A under the Securities Act of 1933, as amended (the "Act")),
contain the Optionee's acknowledgment in form and substance satisfactory to the
Company that (a) such Shares are being purchased for investment and not for
distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may be made without violating
the registration provisions of the Act), (b) the Optionee has been advised and
understands that (i) the Shares have not been registered under the Act and are
"restricted securities" within the meaning of Rule 144 under the Act and are
subject to restrictions on transfer and (ii) the Company is under no obligation
to register the Shares under the Act or to take any action which would make
available to the Optionee any exemption from such registration, (c) such Shares
may not be transferred without compliance
9
39
with all applicable federal and state securities laws, and (d) an appropriate
legend referring to the foregoing restrictions on transfer and any other
restrictions imposed under the Option Documents may be endorsed on the
certificates. Notwithstanding the foregoing, if the Company determines that
issuance of Shares should be delayed pending (A) registration under federal or
state securities laws, (B) the receipt of an opinion of counsel satisfactory to
the Company that an appropriate exemption from such registration is available,
(C) the listing or inclusion of the Shares on any securities exchange or an
automated quotation system or (D) the consent or approval of any governmental
regulatory body whose consent or approval is necessary in connection with the
issuance of such Shares, the Company may defer exercise of any Option granted
hereunder until any of the events described in this sentence has occurred.
(d) Medium of Payment. An Optionee shall pay for Shares (i) in
cash, (ii) by certified or cashier's check payable to the order of the Company,
or (iii) by such other mode of payment as the Committee may approve, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. Furthermore, the Committee may provide in an
Option Document that payment may be made in whole or in part in shares of the
Company's Common Stock held by the Optionee. If payment is made in whole or in
part in shares of the Company's Common Stock, then the Optionee shall deliver to
the Company certificates registered in the name of such Optionee representing
the shares owned by such Optionee, free of all liens, claims and encumbrances of
every kind and having an aggregate Fair Market Value on the date of delivery
that is at least as great as the Option Price of the Shares (or relevant portion
thereof) with respect to which such Option is to be exercised by the payment in
shares of Common Stock, endorsed in blank or
10
40
accompanied by stock powers duly endorsed in blank by the Optionee. In the event
that certificates for shares of the Company's Common Stock delivered to the
Company represent a number of shares of Common Stock in excess of the number of
shares of Common Stock required to make payment for the Option Price of the
Shares (or relevant portion thereof) with respect to which such Option is to be
exercised by payment in shares of Common Stock, the stock certificate issued to
the Optionee shall represent (i) the Shares in respect of which payment is made,
and (ii) such excess number of shares of Common Stock. Notwithstanding the
foregoing, the Committee may impose from time to time such limitations and
prohibitions on the use of shares of the Common Stock to exercise an Option as
it deems appropriate.
(e) Termination of Options.
(i) No Option shall be exercisable after the first to
occur of the following:
(A) Expiration of the Option term specified in the
Option Document, which, in the case of an ISO, shall not occur after (1) ten
years from the date of grant, or (2) five years from the date of grant of an ISO
if the Optionee on the date of grant owns, directly or by attribution under
Section 424(d) of the Code, shares possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of an
Affiliate;
(B) Except to the extent otherwise provided in an
Optionee's Option Document, a finding by the Committee, after full consideration
of the facts presented on behalf of both the Company and the Optionee, that the
Optionee has breached his or her employment or service contract with the Company
or an Affiliate, or has been engaged in
11
41
disloyalty to the Company or an Affiliate, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in the course
of his or her employment or service, or has disclosed trade secrets or
confidential information of the Company or an Affiliate. In such event, in
addition to immediate termination of the Option, the Optionee shall
automatically forfeit all Shares for which the Company has not yet delivered the
share certificates upon refund by the Company of the Option Price.
Notwithstanding anything herein to the contrary, the Company may withhold
delivery of share certificates pending the resolution of any inquiry that could
lead to a finding resulting in a forfeiture;
(C) The date, if any, set by the Board of Directors
as an accelerated expiration date in the event of the liquidation or dissolution
of the Company; or
(D) The occurrence of such other event or events as
may be set forth in the Option Document as causing an accelerated expiration of
the Option.
(E) The date, if any, set by the Committee as an
accelerated expiration date in the event of a change in the required financial
accounting treatment for stock options from that in effect on June 25, 1998 that
adversely affects or may adversely affect the Company in the foreseeable future.
(ii) Notwithstanding the foregoing, the Committee may extend
the period during which all or any portion of an Option may be exercised to a
date no later than the Option term specified in the Option Document pursuant to
Subsection 8(e)(i)(A), provided that any change pursuant to this Subsection
8(e)(ii) which would cause an ISO to become a Non-qualified Stock Option may be
made only with the consent of the Optionee.
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42
(iii) Notwithstanding anything to the contrary contained in
the Plan or an Option Document, an ISO shall be treated as a Non-qualified Stock
Option to the extent such ISO is exercised at any time after the expiration of
the time period permitted under the Code for the exercise of an ISO.
(f) Transfers. No Non-qualified Stock Option or Award granted under the
Plan may be transferred, except, in the case of an Award, if all conditions of
forfeiture or restrictions or transfer on the Award or the underlying Restricted
Stock have lapsed and in the case of Options, such Option is a Non-qualified
Stock Option, and in all cases, such transfer is to a "Permitted Transferee."
For purposes of this Plan, "Permitted Transferee" means any of the following:
(i) a person that receives the Award or Non-qualified Stock Option by will or by
the laws of descent and distribution, (ii) a person that receives the Award or
Non-qualified Stock Option pursuant to the terms of a "qualified domestic
relations order," within the meaning of Sections 401(a)(13) and 414(p) of the
Code or within the meaning of Title I of the Employee Retirement Income Security
Act of 1974, as amended and (iii) a person that receives the Award or
Non-qualified Stock Option after the Committee, in the manner established by the
Committee, has issued or amended an Award or Non-qualified Stock Option the
terms of which permit all or a portion of the Award or Non-qualified Stock
Option to be irrevocably transferred by the Awardee or Optionee by bona fide
gift, with no consideration for the transfer, to any of the Awardee or
Optionee's parents, spouse, children or any other person who is a beneficiary
under any insurance policy for which the premiums are paid by the Company, or a
trust for the benefit of any of the foregoing, and the Awardee or Optionee has
made such transfer, so notified the Company, identified the Award and/or the
Non-qualified
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43
Stock Option transferred, the identity of the transferee and the category of
Permitted Transferee in which the transferee belongs.
Such transferred Award or Non-qualified Stock Option, once transferred,
may not again be transferred except by will or by the laws of descent and
distribution and will remain subject to the same terms and conditions of the
Award Agreement or Option Document in effect immediately before the transfer and
any such transferred Non-qualified Stock Option may be exercised only by such
transferee during the transferee's lifetime (if the transferee is not a trust).
No ISO granted under the Plan shall be transferable by the Optionee otherwise
than by will or by the laws of descent and distribution and shall be
exercisable, during the lifetime of the Optionee, only by the Optionee, until
and unless applicable law governing ISO's is amended to permit such transfers of
ISO's and the Committee amends the terms of the Option document thereafter to
permit such transfers.
(g) Limitation on ISO Grants. To the extent that the aggregate
fair market value of stock with respect to which ISOs issued under the Plan and
incentive stock options issued under any other incentive stock option plan of
the Company or its Affiliates are exercisable for the first time by any
individual during any calendar year exceeds $100,000, such ISOs shall be treated
as Non-qualified Stock Options issued under the Plan. For purposes of this
subsection 8(g), the fair market value of stock shall be determined as of the
date of grant of the ISO or other incentive stock option.
(h) Other Provisions. Subject to the provisions of the Plan,
the Option Documents shall contain such other provisions including, without
limitation, provisions authorizing the Committee to accelerate the
exercisability of all or any portion of an Option
14
44
granted pursuant to the Plan, additional restrictions upon the exercise of the
Option or additional limitations upon the term of the Option, as the Committee
shall deem advisable.
(i) Amendment. Subject to the provisions of the Plan, the
Committee shall have the right to amend Option Documents issued to an Optionee,
subject to the Optionee's consent if such amendment is not favorable to the
Optionee, except that the consent of the Optionee shall not be required for any
amendment made pursuant to Subsection 8(e)(i)(E) or Section 10 of the Plan, as
applicable.
9. Special Provisions Relating to Grants of Options to Eligible
Directors. Options granted pursuant to the Plan to Eligible Directors shall be
granted, without any further action by the Committee, in accordance with the
terms and conditions set forth in this Section 9. Options granted pursuant to
this Section 9 shall be evidenced by Option Documents in such form as the
Committee shall from time to time approve, which Option Documents shall comply
with and be subject to the following terms and conditions and such other terms
and conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a) Timing of Grants; Number of Shares Subject to Options;
Exercisability of Options; Option Price. Each Eligible Director shall be granted
annually, commencing on June 25, 1999 and on each June 25th thereafter ("Grant
Date"), an Option to purchase seven thousand five hundred (7,500) Shares. The
initial Option grant under this Section 9 to each person who becomes an Eligible
Director after June 25, 1999, shall be for the purchase of a number of Shares
equal to seven thousand (7,500) times the "Allocation Fraction" (which cannot
exceed one). The numerator of the Allocation Fraction shall be equal to the
number of
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months (a partial month of service shall equal a full month of service) in the
period which commences on the date a person's service as a member of the Board
of Directors commenced and ends on the immediately following Grant Date, and the
denominator shall be twelve (12). Each such Option shall be a Non-qualified
Stock Option, immediately exercisable on the date of grant. The Option Price
shall be equal to the Fair Market Value of the Shares on the date the Option is
granted.
(b) Termination of Options Granted Pursuant to Section 9. All
Options granted pursuant to this Section 9 shall be exercisable until the first
to occur of the following:
(i) Expiration of ten (10) years from the
date of grant;
(ii) Expiration of five (5) years from the
date the Optionee's service as a director terminates for any reason other than
Disability or death;
(iii) Expiration of ten (10) years from the
date of Disability or death; or
(iv) The date of a Change of Control.
(c) Applicability of Provisions of Section 8 to Options
Granted Pursuant to Section 9. The following provisions of Section 8 shall be
applicable to Options granted pursuant to this Section 9: Subsection
8(a)(provided that all Options granted pursuant to this Section 9 shall be
Non-qualified Stock Options); the last sentence of Subsection 8(b); Subsection
8(c); Subsection 8(d) (provided that Option Documents relating to Options
granted pursuant to this Section 9 shall provide that payment may be made in
whole or in part in shares of Company Common Stock); Subsection 8(f); and
Subsection 8(h).
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10. Change of Control. In the event of a Change of Control, the
Committee may take whatever action it deems necessary or desirable with respect
to the Options and Awards outstanding (other than Options granted pursuant to
Section 9), including, without limitation, accelerating the expiration or
termination date in the respective Option Documents to a date no earlier than
thirty (30) days after notice of such acceleration is given to the Optionees. In
addition to the foregoing, in the event of a Change of Control, all Options
granted pursuant to the Plan and held by Optionees at the time of a Change of
Control shall become immediately exercisable in full and the restrictions
applicable to Restricted Stock awarded to Awardees shall immediately lapse and
the Restricted Stock held by the Company shall be delivered to the Grantees. Any
amendment to this Section 10 which diminishes the rights of Optionees, other
than the acceleration of the expiration or termination date to a date no earlier
than thirty (30) days after notice of such acceleration, shall not be effective
with respect to Options outstanding at the time of adoption of such amendment,
whether or not such outstanding Options are then exercisable.
A "Change of Control" shall be deemed to have occurred upon
the earliest to occur of the following events: (i) the date the shareholders of
the Company (or the Board of Directors, if shareholder action is not required)
approve a plan or other arrangement pursuant to which the Company will be
dissolved or liquidated, or (ii) the date the shareholders of the Company (or
the Board of Directors, if shareholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company, or (iii) the date the shareholders of the Company (or the
Board of Directors, if shareholder action is not required) and the shareholders
of the other constituent corporation (or its board of directors
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if shareholder action is not required) have approved a definitive agreement to
merge or consolidate the Company with or into such other corporation, other
than, in either case, a merger or consolidation of the Company in which holders
of shares of the Company's Common Stock immediately prior to the merger or
consolidation will have at least a majority of the ownership of common stock of
the surviving corporation (and, if one class of common stock is not the only
class of voting securities entitled to vote on the election of directors of the
surviving corporation, a majority of the voting power of the surviving
corporation's voting securities) immediately after the merger or consolidation,
which common stock (and, if applicable, voting securities) is to be held in the
same proportion as such holders' ownership of Common Stock of the Company
immediately before the merger or consolidation, or (iv) the date any entity,
person or group, within the meaning of Section 13(d)(3) or Section 14(d)(2) of
the Securities Exchange Act of 1934, as amended, other than the Company or any
of its subsidiaries or any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries shall have become the
beneficial owner of, or shall have obtained voting control over, more than
twenty percent (20%) of the outstanding Shares of the Company's Common Stock, or
(v) the first day after the date this Plan is effective when directors are
elected such that a majority of the members of the Board of Directors shall have
been members of the Board of Directors for less than one (1) year, unless the
nomination for election of each new director who was not a director at the
beginning of such one (1) year period was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period.
11. Adjustments on Changes in Capitalization.
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(a) In the event that the outstanding Shares are changed by
reason of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination or exchange of shares and the like
(not including the issuance of Common Stock on the conversion of other
securities of the Company which are outstanding on the date of grant and which
are convertible into Common Stock) or dividends payable in Shares, an equitable
adjustment shall be made by the Committee in the aggregate number of shares
available under the Plan and in the number of Shares and price per Share subject
to outstanding Options. Unless the Committee makes other provisions for the
equitable settlement of outstanding options, if the Company shall be
reorganized, consolidated, or merged with another corporation, or if all or
substantially all of the assets of the Company shall be sold or exchanged, an
Optionee shall at the time of such corporate event, if the Options held by such
Optionee have not previously terminated, be entitled to receive upon the
exercise of his or her Option the same number and kind of shares of stock or the
same amount of property, cash or securities as he or she would have been
entitled to receive upon the occurrence of any such corporate event as if he or
she had been, immediately prior to such event, the holder of the number of
shares covered by his or her Option.
(b) Any adjustment under this Section 11 in the number of
Shares subject to Options shall apply proportionately to only the unexercised
portion of any Option granted hereunder. If fractions of a Share would result
from any such adjustment, the adjustment shall be revised to the next lower
whole number of Shares.
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(c) The Committee shall have authority to determine the
adjustments to be made under this Section, and any such determination by the
Committee shall be final, binding and conclusive.
12. Terms and Conditions of Awards. Awards granted pursuant to the Plan
shall be evidenced by written Award Agreements in such form as the Committee
shall from time to time approve, which Award Agreements shall comply with and be
subject to the following terms and conditions and such other terms and
conditions which the Committee shall from time to time require which are not
inconsistent with the terms of the Plan. The Committee may, in its sole
discretion, shorten or waive any term or condition with respect to all or any
portion of any Award. Notwithstanding the foregoing, all restrictions shall
lapse or terminate with respect to Restricted Stock upon the death or Disability
of the Awardee or upon a Change of Control.
(a) Number of Shares. Each Award Agreement shall state the
number of shares of Common Stock to which it pertains.
(b) Purchase Price. Each Award Agreement shall specify the
purchase price, if any, which applies to the Award. If the Board specifies a
purchase price, the Awardee shall be required to make payment on or before the
date specified in the Award Agreement. An Awardee shall pay for such Shares (i)
in cash, (ii) by certified check payable to the order of the Company, or (iii)
by such other mode of payment as the Committee may approve.
(c) Date of Transfer. In the case of an Award which provides
for a transfer of Shares without any payment by the Grantee, the transfer shall
take place on the date
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specified in the Award Agreement. In the case of an Award which provides for a
payment, the transfer shall take place on the date the initial payment is
delivered to the Company, unless the Committee or the Award Agreement otherwise
specifies. Stock certificates evidencing Shares transferred pursuant to an Award
shall be issued in the sole name of the Grantee and held in custody by the
Company until all restrictions applicable thereto have lapsed. Notwithstanding
the foregoing, as a precondition to a transfer, the Company may require an
acknowledgment by the Grantee as required with respect to Options under Section
8.
(d) Forfeiture Conditions. The Committee may specify in an
Award Agreement any conditions under which the Grantee of that Award shall be
required to convey to the Company the Shares covered by the Award. Upon the
occurrence of any such specified condition, the Grantee shall forthwith
surrender and deliver to the Company the certificates evidencing such Shares as
well as completely executed instruments of conveyance. Alternatively, the
Committee, in its discretion, may provide that certificates for Shares
transferred pursuant to an Award be held in escrow by the Company's Treasurer,
together with an undated stock power executed by the Awardee until such time as
each and every forfeiture condition has lapsed and that the Grantee be required,
as a condition of the transfer, to deliver to such escrow agent stock powers
covering the transferred Shares duly endorsed by the Awardee. Stock certificates
evidencing Shares subject to forfeiture shall bear a legend to the effect that
the Common Stock evidenced thereby is subject to repurchase or conveyance to the
Company in accordance with an Award made under the Plan and that the Shares may
not be sold or otherwise transferred.
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(e) Lapse of Conditions. Upon termination or lapse of each and
every forfeiture condition, the Company shall cause certificates without the
legend referring to the possibility of forfeiture and other rights of the
Company (and with any other legends that may be appropriate) evidencing the
Shares covered by the Award to be issued to the Awardee upon the Awardee's
surrender of the legended certificates held by the Awardee to the Company.
(f) Rights as Shareholder. Upon payment of the purchase price,
if any, for Shares covered by an Award and compliance with the acknowledgment
requirement of Subsection 12(c), the Awardee shall have all of the rights of a
shareholder with respect to the Shares covered thereby, including the right to
vote the Shares and receive all dividends and other distributions paid or made
with respect thereto, except to the extent otherwise provided by the Committee
or in the Award Agreement.
(g) Lapse of Restrictions. Upon the expiration or termination
of the Restricted Period and the satisfaction of any other conditions prescribed
by the Committee as provided for in the Plan, the restrictions applicable to the
Restricted Stock shall lapse and a stock certificate for the number of shares of
Common Stock with respect to which the restrictions have lapsed shall be
delivered, free of all such restrictions, except any that may be imposed by law
or pursuant to any shareholders agreement then in effect, to the Awardee or the
beneficiary or estate, as the case may be. The Company shall not be required to
deliver any fractional share of Common Stock but will pay, in lieu thereof, the
fair market value (determined as of the date the restrictions lapse) of such
fractional share to the Awardee or the Awardee's beneficiary or estate, as the
case may be. The Award may provide for the lapse of restrictions on transfer and
forfeiture conditions in installments.
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(h) Section 83(b) Elections. An Awardee who files an election
with the Internal Revenue Service to include the fair market value of any
Restricted Stock in gross income while they are still subject to restrictions
and/or forfeiture shall promptly furnish the Company with a copy of such
election together with the amount of any federal, state, local or other taxes
required to be withheld to enable the Company to claim an income tax deduction
with respect to such election.
(i) Forfeiture. Upon a finding by the Committee, after full
consideration of the facts presented on behalf of both the Company and the
Awardee, that the Awardee has breached his or her employment or service contract
with the Company or an Affiliate, or has been engaged in disloyalty to the
Company or an Affiliate, including, without limitation, fraud, embezzlement,
theft, commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company or an Affiliate, Awardee shall automatically forfeit
all Restricted Stock for which (i) the Company has not yet delivered the Share
certificates to the Awardee; (ii) the Restricted Period has not expired or (iii)
any restrictions applicable to the Restricted Stock have not lapsed.
Notwithstanding anything herein to the contrary, the Company may withhold
delivery of Restricted Stock certificates pending the resolution of any inquiry
that could lead to a finding resulting in a forfeiture.
(j) Amendment. Subject to the provisions of the Plan, the
Committee shall have the right to amend Awards issued to an Awardee, subject to
the Awardee's consent if such amendment is not favorable to the Awardee, except
that the consent of the Awardee shall not be required for any amendment made
pursuant to Section 10 of the Plan.
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13. Amendment of the Plan. The Board of Directors of the Company may
amend the Plan from time to time in such manner as it may deem advisable.
Nevertheless, the Board of Directors of the Company may not change the class of
individuals eligible to receive an ISO or increase the maximum number of shares
as to which Options may be granted without obtaining approval, within twelve
months before or after such action, by vote of a majority of the votes cast at a
duly called meeting of the shareholders at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the matter, by the unanimous consent in writing
of the shareholders, or by a method and in a degree that would be treated as
adequate under applicable state law in the case of an action requiring
shareholder approval. No amendment to the Plan shall adversely affect any
outstanding Option or Award, however, without the consent of the Grantee.
14. No Commitment to Retain. The grant of an Option or Award pursuant
to the Plan shall not be construed to imply or to constitute evidence of any
agreement, express or implied, on the part of the Company or any Affiliate to
retain the Grantee in the employ of the Company or an Affiliate and/or as a
member of the Company's Board of Directors or in any other capacity.
15. Withholding of Taxes. Whenever the Company proposes or is required
to deliver or transfer Shares in connection with the exercise of an Option or
Award, the Company shall have the right to (a) require the recipient to remit or
otherwise make available to the Company an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to the delivery
or transfer of any certificate or certificates for such Shares or (b) take
whatever other action it deems necessary to protect its interests with respect
to tax
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liabilities. The Company's obligation to make any delivery or transfer of Shares
shall be conditioned on the Grantee's compliance, to the Company's satisfaction,
with any withholding requirement.
16. Interpretation. The Plan is intended to enable transactions under
the Plan with respect to directors and officers (within the meaning of Section
16(a) under the Securities Exchange Act of 1934, as amended) to satisfy the
conditions of Rule 16b-3; to the extent that any provision of the Plan would
cause a conflict with such conditions or would cause the administration of the
Plan as provided in Section 3 to fail to satisfy the conditions of Rule 16b-3,
such provision shall be deemed null and void to the extent permitted by
applicable law. This section shall not be applicable if no class of the
Company's equity securities is then registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended.
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