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 Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ARISTOTLE CORPORATION
(Name of Registrant as Specified In Its Charter)
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[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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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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[_] Fee previously paid with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
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LOGO
October 1, 1997
Dear Stockholder,
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of The Aristotle Corporation to be held at 2:00 p.m. on Thursday, October 30,
1997 at the New Haven Lawn Club, 193 Whitney Avenue, New Haven, Connecticut.
At the Annual Meeting, you will be asked (i) to elect three persons to the
Board of Directors of the Company; (ii) to approve the Company's 1997 Employee
and Director Stock Plan; and (iii) to ratify the selection of Arthur Andersen
LLP as the Company's independent public accountants. The Board of Directors
recommends the approval of each of these proposals. Such other business will
be transacted as may properly come before the Annual Meeting.
It is very important that your shares of Common Stock and Preferred Stock
be represented at the Annual Meeting. Whether or not you plan to attend the
Annual Meeting, please complete the accompanying form of proxy and return such
form of proxy in the enclosed postage prepaid envelope. If you attend the
Annual Meeting, you may revoke the proxy given on such form and vote in person
if you wish, even if you have previously returned your form of proxy.
I look forward to seeing you at the meeting.
Sincerely,
/s/ Paul McDonald
Paul McDonald
Chief Financial Officer and
Secretary
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
LOGO
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 30, 1997
To the Stockholders of The Aristotle Corporation,
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of the Stockholders
(the "Annual Meeting") of The Aristotle Corporation (the "Company") will be
held at 2:00 p.m. on Thursday, October 30, 1997 at the New Haven Lawn Club,
193 Whitney Avenue, New Haven, Connecticut. The purpose of the Annual Meeting
is:
(1) To elect three directors for three-year terms and until
their successors are duly elected and qualified;
(2) To approve the Company's 1997 Employee and Director Stock
Plan;
(3) To ratify the appointment by the Board of Directors of
Arthur Andersen LLP as independent accountants of the
Company for the fiscal year ending June 30, 1998; and
(4) To consider and take action upon any other matters that
may properly come before the Annual Meeting and any
adjournments or postponements thereof.
It is not anticipated that any other matter will be brought before the 1997
Annual Meeting. If, however, other matters are presented, proxies will be
voted in accordance with the best judgment of the proxy holders.
The Board of Directors has fixed the close of business on September 8, 1997
as the record date for the determination of Stockholders entitled to notice
of, and to vote at, the 1997 Annual Meeting and any adjournments or
postponements thereof.
By Order of the Board of Directors,
/s/ Paul McDonald
Paul McDonald
Chief Financial Officer and
Secretary
October 1, 1997
THE ARISTOTLE CORPORATION
78 OLIVE STEET
NEW HAVEN, CONNECTICUT 06510
(203) 867-4090
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PROXY STATEMENT
---------------------
1997 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
OCTOBER 30, 1997
---------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board of Directors") of The Aristotle Corporation
(the "Company"), a Delaware corporation, of proxies, in the accompanying form,
to be used at the 1997 Annual Meeting of Stockholders to be held at the New
Haven Lawn Club, 193 Whitney Avenue, New Haven, Connecticut on October 30,
1997 at 2:00 p.m., and at any adjournments or postponements thereof (the
"Annual Meeting" or the "Meeting").
Where the Stockholder specifies a choice on the proxy as to how his or her
shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of the three nominees for director named herein, FOR approval of the
Company's 1997 Employee and Director Stock Plan and FOR the ratification of
the appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending June 30, 1998 (collectively, the
"Proposals"). Shares represented by valid proxies in the form enclosed,
received in time for use at the Meeting and not revoked at or prior to the
Meeting, will be voted at the Meeting.
A Stockholder may revoke his or her proxy at any time prior to its use: (i)
by delivering to the Secretary of the Company at or before the Annual Meeting
a signed notice of revocation or a later dated signed proxy; or (ii) by
attending the Annual Meeting, notifying the Secretary, and voting in person.
Attendance at the Annual Meeting will not in itself constitute the revocation
of a proxy.
The presence at the Annual Meeting, in person or by proxy, of the holders
of one-third of the Company's aggregate shares of issued and outstanding
common stock, par value $.01 per share ("Common Stock"), and preferred stock,
par value $.01 per share ("Preferred Stock"), on the Record Date is necessary
to constitute a quorum. All Stockholders who deliver properly executed and
dated proxies to the Company prior to the date of the Annual Meeting will be
deemed present at the Annual Meeting regardless of whether such proxies are
marked to direct the proxy holders to vote for or against, or to abstain from
voting on, the Proposals, or are not marked to indicate any voting direction.
The approval of Proposal 1 requires an affirmative vote of a plurality of the
votes cast by the holders
of Common Stock at the Annual Meeting. The approval of Proposal 2 requires an
affirmative vote of a majority of the votes cast by the holders of the
Preferred Stock and the Common Stock voting as one class and the approval of
Proposal 3 requires the affirmative vote of a majority of the votes cast by
the holders of the Common Stock at the Annual Meeting. With respect to the
tabulation of votes on any matter, abstentions are treated as votes against a
proposal, while broker non-votes have no effect on the vote.
The Board of Directors has fixed the close of business on September 8, 1997
as the record date (the "Record Date") for the determination of holders of
outstanding shares of Common Stock and Preferred Stock entitled to notice of
and to vote at the Annual Meeting. As of the Record Date, there were 1,097,902
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
Each holder of record of Common Stock on the Record Date is entitled to cast
one vote per share of Common Stock, in person or by proxy, on the Proposals.
In addition, as of the Record Date, an aggregate of 195,497 shares of
Preferred Stock were outstanding. The Preferred Stock is divided into Series
A, B, C and D and is entitled to cast one vote per share and to vote with the
Common Stock as one class on all matters other than the election of directors
and the appointment of accountants. The Common Stock and the Preferred Stock
constitute the only outstanding capital stock of the Company.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock and Preferred Stock of the
Company for their expenses in forwarding proxy material to such beneficial
owners. Solicitation of proxies by mail may be supplemented by telephone,
telegram, telex and personal solicitation by the directors, officers or
employees of the Company. No additional compensation will be paid for such
solicitation.
This Proxy Statement and the accompanying proxy are being mailed on or
about October 1, 1997 to all Stockholders entitled to notice of and to vote at
the Meeting.
The Annual Report to Stockholders for the fiscal year ended June 30, 1997
is being mailed to the Stockholders with this Proxy Statement, but does not
constitute a part hereof.
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ELECTION OF DIRECTORS
(PROPOSAL 1)
The Amended Bylaws of the Company provide that the number of directors
shall not be less than eight nor more than 15, as fixed by the Board of
Directors. The Amended and Restated Certificate of Incorporation and the
Amended and Restated Bylaws (the "Amended Bylaws") of the Company provide that
the directors are divided into three classes, as equal in number as possible,
with terms expiring in successive years. Directors are elected for terms of
three years and until their successors are elected and qualified. At the
Annual Meeting, three directors will be elected for three-year terms.
As of the date of the last annual meeting, there were eight (8)
directorships.
Pursuant to a Capital Contribution Agreement (the "Capital Contribution
Agreement") dated November 19, 1993 between the Company, Aristotle Sub, Inc.
("ASI"), The Strouse, Adler Company ("Strouse") and the former shareholders of
Strouse, in which the Company acquired indirect ownership of Strouse (the
"Acquisition"), the Company agreed to appoint Alfred A. Kniberg and John C.
Warfel to the Board of Directors.
INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS
It is the intention of the persons named in the proxy to vote the shares
represented by each properly executed proxy for the election as director of
all of the persons named below as nominees, unless contrary instructions are
given on the proxy. The Board of Directors believes that all of the nominees
will stand for election and will serve if elected. However, if any of the
persons nominated by the Board of Directors fails to stand for election or
becomes unable to accept election, the proxies will be voted for the election
of such other person or persons as a majority of the Board of Directors may
recommend.
The following table sets forth the names of the Board of Directors' three
nominees for election as directors. Also shown is certain other information,
some of which has been obtained from the Company's records and some of which
has been supplied by the nominees and continuing directors, with respect to
each nominee's or director's principal occupation or employment during the
past five years, his or her age at October 1, 1997, the periods during which
he or she has served as a director of the Company and the positions currently
held with the Company.
DIRECTOR OF THE POSITIONS HELD WITH
NOMINEES AGE COMPANY SINCE THE COMPANY
-------- --- --------------- -------------------
Robert L. Fiscus........................ 60 1991 Director
Betsy Henley-Cohn....................... 44 1993 Director
John C. Warfel.......................... 45 1994 Director
ROBERT L. FISCUS is President and Chief Financial Officer of The United
Illuminating Company, a publicly-held electric utility company, where he
previously served as Executive Vice President and Chief Financial Officer. Mr.
Fiscus has been employed by The United Illuminating Company since 1972. Mr.
Fiscus is also a member of the Board of Directors of The United Illuminating
Company.
- 3 -
BETSY HENLEY-COHN is Chairperson of Birmingham Utilities, Inc., a water
utility in Ansonia, Connecticut, and Joseph Cohn & Son, Inc., in New Haven,
Connecticut. Ms. Henley-Cohn has been employed by Birmingham Utilities, Inc.
since 1993 and by Joseph Cohn & Son, Inc. since 1978. She also serves as a
director of The United Illuminating Company and Citizens Bank of Connecticut.
JOHN C. WARFEL has been the Senior Vice President, Administration and
Finance of Starter Corporation, a leading sports apparel manufacturer since
March 1995. He has been employed by Starter Corporation since 1988 and has
previously served as its Chief Financial Officer.
DIRECTOR OF
THE COMPANY POSITIONS HELD WITH
CONTINUING DIRECTORS AGE SINCE THE COMPANY
- -------------------- --- ----------- ---------------------
Directors with terms expiring in 1998:
John J. Crawford......................... 52 1989 Director, President,
Chief Executive
Officer and Chairman
of the Board
Alfred A. Kniberg........................ 54 1994 Director and
President and Chief
Operating Officer of
Strouse
Sharon M. Oster.......................... 49 1992 Director
Directors with terms expiring in 1999:
Barry R. Banducci........................ 61 1993 Director
Daniel J. Miglio......................... 57 1990 Director
BARRY R. BANDUCCI has been self-employed as an investor/consultant since
February 1994, having retired from The Equion Corporation, a manufacturer of
automotive/industrial-related products, in January 1994. Mr. Banducci served
as the President, the Chief Executive Officer and a director of The Equion
Corporation prior to his retirement in 1994. Mr. Banducci serves as the
Chairman of the Board of Directors of TransPro, Inc., a publicly-held
manufacturer of automotive-related products.
JOHN J. CRAWFORD has been President and Chief Executive Officer of the
Company since April 2, 1990 and Chairman of the Board since April 1993. Since
July 1994, Mr. Crawford has served the Company in a part-time capacity. Mr.
Crawford is also the Chief Executive Officer of the Regional Water Authority,
a utility located in New Haven, Connecticut. Mr. Crawford is also a member of
the Board of Directors of Webster Financial Corporation.
ALFRED A. KNIBERG has been the President and Chief Operating Officer of
Strouse since 1989. Prior to joining Strouse, Mr. Kniberg spent 23 years with
Playtex Apparel, Inc. ("Playtex"), serving in various general management,
marketing and sales positions. Immediately prior to joining Strouse, Mr.
Kniberg held positions as Vice President/General Manager of Playtex Westfar
International Division and for U.S. Private Label. In addition to appointing
Mr. Kniberg as a director pursuant to the Capital Contribution Agreement,
pursuant to the terms of an Employment Agreement between Mr. Kniberg and the
Company, the Company has agreed to nominate Mr. Kniberg to the Board of
Directors through the term of his Employment Agreement, currently expiring on
December 31, 1998.
- 4 -
DANIEL J. MIGLIO is the Chairman and Chief Executive Officer of Southern
New England Telecommunications Corporation ("SNET"), a publicly-held
telecommunications company. He has been employed by SNET since 1962 and has
previously served as its President and the Senior Vice President of Finance
and Planning. Mr. Miglio is the Chairman and Chief Executive Officer of
Southern New England Telephone Company, a subsidiary of SNET.
SHARON M. OSTER has been a Professor of Economics at the School of
Organization and Management, Yale University since 1982. Ms. Oster is a
director of two publicly-held companies, Health Care REIT, a real estate
investment company, and TransPro, Inc., a manufacturer of
automotive/industrial-related products.
BOARD OF DIRECTORS' COMMITTEES AND NOMINATIONS BY STOCKHOLDERS
To select nominees for election as directors, the Board of Directors of the
Company has appointed a Nominating Committee which, on August 28, 1997, made
its nominations for the Annual Meeting. The Nominating Committee did not meet
during the year ended June 30, 1997. The members of this committee were
Messrs. Crawford and Kniberg and Ms. Oster. The Company's Amended Bylaws
provide that to be eligible for nomination as a director of the Company, a
person must be a resident of the State of Connecticut or have been previously
a resident for at least three years. The Amended Bylaws further provide that
nominations of persons for election to the Board of Directors may be made by
the Board of Directors, or by any stockholder entitled to vote for the
election of directors at the meeting who provides timely notice in writing to
the Secretary of the Company and who complies with the requirement to set
forth certain information specified in Article III, Section 13 of the Amended
Bylaws concerning each person the stockholder proposes to nominate for
election and the nominating stockholder. To be timely, notice must be
delivered to, or mailed to and received at, the principal executive offices of
the Company not less than 30 days nor more than 90 days prior to the date of
the meeting, provided that at least 45 days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders. Public disclosure
of the date of the Annual Meeting was made by issuance of a press release on
September 16, 1997. No stockholder nominations for directors have been
submitted in connection with the Annual Meeting.
The Board of Directors has appointed a standing Audit Committee, which
during the year ended June 30, 1997 conducted two (2) meetings. The members of
the Audit Committee were Mr. Fiscus, Mr. Warfel and Ms. Oster. The duties of
the Audit Committee include reviewing the financial statements of the Company
and the scope of the independent annual audit and internal audits. It also
reviews the independent accountants' letter to management concerning the
effectiveness of the Company's internal financial and accounting controls, and
reviews and recommends to the Board of Directors the firm to be engaged as the
Company's independent accountants. The Audit Committee may also examine and
consider such other matters relating to the financial affairs and operations
of the Company as it determines to be appropriate.
The Board of Directors of the Company also has appointed a Human Resources
and Stock Option Committee comprised of three directors, which during the year
ended June 30, 1997 conducted one (1) meeting. The Human Resources and Stock
Option Committee reviews the salary structure and policies of the Company,
administers the Company's stock option plan, selects the eligible persons to
whom stock options or stock appreciation rights will be granted, and
prescribes the terms and provisions of each such option or right. The members
of the Human Resources and Option Committee during the year ended June 30,
1997 were Ms. Henley-Cohn and Messrs. Fiscus and Miglio.
- 5 -
During the year ended June 30, 1997, the Board of Directors of the Company
held eight (8) meetings. During fiscal 1997, none of the directors attended
less than 75% of the total number of meetings of the Board of Directors and
committees of which they were members, except for Ms. Oster who attended 70%
of such meetings and Mr. Banducci who attended 69% of such meetings.
COMPENSATION OF DIRECTORS
During each fiscal year, directors of the Company, other than officers,
each receive a retainer of $6,000, payable in Common Stock. The Common Stock
is payable in six month intervals and is valued based on its average market
value during the ten days preceding the payment date. In addition to the
retainer, the Chairman and the members of board committees receive $350 or
$300, respectively, for each committee meeting attended. During the year ended
June 30, 1997, the Company did not pay the retainer. Accordingly, the Company
has accrued a $6,000 retainer for each non-employee director, or an aggregate
of $40,000.
Non-employee directors are eligible to receive grants of stock options
under the Company's 1997 Employee and Director Stock Plan (the "1997 Stock
Plan"). The 1997 Stock Plan provides for the automatic grant of non-qualified
options to non-employee directors of the Company. Each non-employee director,
upon first being elected to the Board of Directors, will receive an option to
purchase 2,500 shares, which will vest after completion of one year of service
on the Board of Directors, and each non-employee director serving on the Board
of Directors on October 30, 1997 will receive an immediately exercisable
option to purchase 2,500 shares. Additionally, the 1997 Stock Plan provides
for a grant to each non-employee director on the date of his or her reelection
(provided that the director has served as a director since his or her initial
election) of an option to purchase 1,000 shares, which vests upon completion
of one year of service on the Board of Directors. See "- Material Features of
the 1997 Stock Plan."
EXECUTIVE OFFICERS
The following table sets forth, as of October 1, 1997, the names of the
Company's current executive officers who are not directors, their ages, and
all positions held with the Company. All executive officers serve at the
discretion of the Board of Directors, subject to Employment Agreements that
the Company has entered into with each of the executive officers other than
Mr. Topf. See "Executive Compensation - Employment Agreements."
Name Age Position With Company
---- --- ---------------------
Joyce I. Baran.......................... 50 Vice President of Merchandising and
Design - Strouse
Paul M. McDonald........................ 44 Chief Financial Officer and
Secretary - the Company; Chief
Financial Officer and Secretary -
Strouse
Barry Topf.............................. 59 Vice President of Manufacturing -
Strouse
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The principal occupations of the executive officers for the last five years
are set forth below.
JOYCE I. BARAN has served as Vice President of Merchandising and Design of
Strouse since 1990. Prior to joining Strouse, Ms. Baran was the Director of
Design and Merchandising for Ithaca Industries, Inc., an intimate apparel
manufacturer, and prior to that spent 20 years with Warnaco Group, Inc., an
apparel manufacturer, in design and other product-related positions.
PAUL M. MCDONALD has been the Chief Financial Officer of the Company since
November 1994. Mr. McDonald has been the Secretary of the Company since April
1994. In addition, Mr. McDonald has been the Chief Financial Officer and a
Director of Strouse since 1989 and the Secretary of Strouse since September
1995. Prior to joining Strouse, Mr. McDonald was the Controller for Playtex's
European operations.
BARRY TOPF has been the Vice President of Manufacturing of Strouse since
October 1996. From April 1994 to October 1966, Mr. Topf was a consultant and
worked on operating and planning projects related to manufacturing for various
companies, including Nantucket ("Guess") Industries and Natori. From September
1991 to April 1994, Mr. Topf was the Senior Vice President of Operations of
Warners, a division of Warnaco, Inc.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the periods
indicated regarding cash and other compensation paid to, earned by, or awarded
to the Company's Chief Executive Officer and certain other executive officers
of the Company (collectively, the "Named Officers") whose salary and bonus
exceeded $100,000 during the fiscal year ended June 30, 1997.
SUMMARY COMPENSATION TABLE/1/
Long Term
Annual Compensation Compensation
---------------------- ------------
Options All Other
Name and Principal Position Year Salary $ Bonus $/2/ Awarded/3/ # Compensation $/4/
- --------------------------- ---- -------- ---------- ------------ -----------------
John J. Crawford........ 1997 $ 60,000/5/ $ 0 0 $ 0
President, Chief 1996 60,000/5/ 0 0 0
Executive Officer and 1995 60,000/5/ 0 20,000 0
Chairman of
the Board - the Company
Alfred A. Kniberg....... 1997 162,816 0 0 2,225
President and Chief 1996 162,816 0 0 2,077
Operating Officer - 1995 162,816 5,634 2,545 1,810
Strouse
Joyce Baran............. 1997 160,000 0 0 2,001
Vice President 1996 131,900 0 0 1,660
Merchandising and 1995 127,952 4,219 1,905 1,775
Design - Strouse
Paul McDonald........... 1997 108,947 20,000/6/ 0 1,408
Chief Financial Officer 1996 108,947 0 0 1,520
and Secretary - the 1995 108,947 3,770 1,703 1,284
Company;
Chief Financial Officer
and Secretary - Strouse
- -------------------
/1/ The Capital Contribution Agreement provides that Messrs. Kniberg and
McDonald and Ms. Baran, as former stockholders of Strouse (together with
others, the "Former Strouse Stockholders"), are entitled to additional
consideration, the amount of which is based upon the future net income
before interest, dividends and income taxes of Strouse ("EBIT") for the
twelve-month periods ended August 31, 1994, August 31, 1995 and August
31, 1996. The Summary Compensation Table does not include such additional
consideration paid in the fiscal year ended June 30, 1995 to the Former
Strouse Stockholders as former stockholders of Strouse. No such
additional consideration was paid to the Former Strouse Stockholders for
the twelve-month periods ended August 31, 1995 and August 31, 1996
because Strouse did not achieve the EBIT targets for such twelve-month
periods.
- 7 -
/2/ Pursuant to the terms of the Employment Agreements, if a specified level
of Strouse Pre-Tax Income (as defined below) was achieved in fiscal 1997,
the Named Officers, excluding Mr. Crawford, could have received bonuses
for fiscal 1997. However, Strouse did not achieve the Strouse Pre-Tax
Income target and such bonuses were not paid. Amounts of bonuses for the
fiscal year ended June 30, 1995 for Messrs. Kniberg and McDonald and for
Ms. Baran reflect bonuses earned for the months of July and August 1994.
See "Executive Compensation - Employment Agreements."
/3/ Options awarded to Mr. Crawford are options to purchase Common Stock.
Options awarded to all other Named Officers are options (the "ASI
Options") to purchase common stock of ASI (the "ASI Common Stock").
Contemporaneously with the award of any ASI Option, the Named Officers
are issued an identical number of warrants by the Company that enable the
Named Officers, after the exercise of the ASI Options, to convert each
share of ASI Common Stock into one share of Common Stock after January 1,
1999 for no additional consideration. ASI Options are awarded in each
fiscal year pursuant to the terms of the Employment Agreements. See
"Executive Compensation - Employment Agreements."
/4/ Other compensation for the Named Officers, excluding Mr. Crawford, is
comprised of the following: in fiscal 1997, $650, $120 and $471 paid for
term life insurance premiums and an estimated $1,575, $1,288 and $1,530
to be paid as a matching contribution pursuant to the Strouse Cash or
Deferral Profit Sharing Plan (the "Plan") for Messrs. Kniberg and
McDonald and Ms. Baran, respectively.
/5/ In fiscal 1997, salary includes $20,000 in shares of Common Stock to be
issued to Mr. Crawford. In fiscal 1996, salary includes $20,000 in shares
of Common Stock to be issued to Mr. Crawford. In fiscal 1995, salary
includes 4,405 treasury shares of Common Stock issued to Mr. Crawford as
salary. The fair market value of the 4,405 shares on the date of grant
was $20,000.
/6/ In fiscal 1997, the Company paid Mr. McDonald a $20,000 bonus in
recognition of certain additional services rendered to the Company by Mr.
McDonald. The payment of this bonus was not pursuant to the terms of Mr.
McDonald's Employment Agreement.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted to the Named Officers during the
Company's last fiscal year.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regarding unexercised
stock options held as of June 30, 1997, by the Named Officers. No stock
options were exercised by the Named Officers during the past fiscal year.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End/1/ (#) at FY-End/2/ ($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ----------- ------------- ----------- -------------
John J. Crawford........... 32,500 0 0 0
Alfred A. Kniberg.......... 2,545 0 0 0
Joyce Baran................ 1,905 0 0 0
Paul McDonald.............. 1,703 0 0 0
- ------------------
/1/ Options awarded to Mr. Crawford are options to purchase Common Stock.
Options awarded to all other Named Officers are ASI Options to purchase ASI
Common Stock. Contemporaneously with the award of any ASI Option, the Named
Officers are issued an identical number of warrants by the Company that
enable the Named Officers, after the exercise of the ASI Options, to
convert each share of ASI Common Stock into one share of Common Stock after
April 12, 1996 for no additional consideration. ASI Options are awarded in
each fiscal year pursuant to the terms of the Employment Agreements. See
"Executive Compensation - Employment Agreements."
/2/ All of the options held by the Named Officers have exercise prices that are
greater than the fair market value of the Common Stock as of June 30, 1997,
which was $3.125 per share. Such options are not "in-the-money" and their
value is, therefore, zero. Since the ASI Common Stock is convertible into
Common Stock for no additional consideration, the closing bid price per
share of the Common Stock on June 30, 1997 has been used as the market
price of the ASI Common Stock on June 30, 1997.
EMPLOYMENT AGREEMENTS
In connection with the Acquisition, the Company entered into Employment
Agreements (the "Employment Agreements") in 1994 with Messrs. Kniberg and
McDonald and Ms. Baran. In 1995 and 1996, the Company agreed to amend Ms.
Baran's Employment Agreement and in 1997 the Company agreed to amend all of
the Employment Agreements. Pursuant to the Employment Agreements, such
officers currently receive base salaries of $172,816, $149,000 and $168,000,
respectively. The Employment Agreements are for five year terms ending in
1999. In addition to providing for base annual salaries, such agreements
provide for an annual cash bonus and stock option to purchase Common Stock of
ASI (the "ASI Common Stock"), if certain levels of pre-tax income for Strouse
("Strouse Pre-Tax Income") are achieved. In fiscal 1997, the minimum and
maximum levels of Strouse Pre-Tax Income required in order for the employees
to receive the minimum and maximum cash bonus and stock option under the
Employment Agreements was $867,487 and $1,156,650, respectively. The annual
bonus increases proportionately from 20% of salary for achieving the minimum
level of Strouse Pre-Tax Income to 50% of salary for achieving the maximum
level of Strouse Pre-Tax Income. The annual stock option increases
proportionately from 4,000 shares of ASI Common Stock for achieving the
minimum level of Strouse Pre-Tax Income to 10,000 shares for achieving the
maximum level of Strouse Pre-Tax Income. The stock options will be exercisable
at the market price on the date that they are granted. The stock options will
be distributed equally among the three employees. Strouse did not achieve the
minimum level of Strouse Pre-Tax Income in fiscal 1997. The Employment
Agreements also provide that if an employee's employment is terminated without
cause, then the Company will pay the employee a severance pay equal to one
year's salary and bonus, payable in twelve monthly installments.
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CERTAIN TRANSACTIONS
New England Resources Limited Partnership, an entity affiliated with David
Howell and Ann-Marie Howell, stockholders owning more than 5% of the Preferred
Stock, leases to Strouse its principal facility located in New Haven,
Connecticut. The rent paid by Strouse under such lease for the fiscal year
ended June 30, 1997 was approximately $442,000 and the average rent under the
lease was $3.76 per square foot. The rent paid by Strouse under such lease for
the fiscal year ended June 30, 1996 was $432,000.
In connection with the Acquisition, Messrs. Kniberg and McDonald (together,
the "Borrowers") borrowed $298,358 and $184,660 (collectively, the "Loans"),
respectively, from the Company. The Borrowers used the Loans to exercise
options to purchase Strouse stock. The current outstanding principal balances
of the Loans are $149,179 and $92,330, respectively, and the largest amounts
outstanding during fiscal 1997 were $149,179 and $92,330, respectively. The
Borrowers pledged to the Company an aggregate of 24,151 shares of preferred
stock of ASI to secure the repayment of the Loans. Interest accrues on the
Loans at a rate of 8.9% per annum, and is payable quarterly. One-half of the
principal balance of the Loans was payable on April 11, 1997 and one-half is
payable on April 11, 1998. However, the April 11, 1997 payments have been
deferred under a provision which permits the Borrowers to request a delay in
payment of the principal amount of the Loans if the Company has not registered
certain shares of its Common Stock under applicable federal and state
securities laws upon the request of the Borrowers. The Company has agreed to
reduce the outstanding principal balances of Messrs. Kniberg and McDonald's
Loans to $92,119 and $57,020, respectively, in exchange for the surrender of
an aggregate of 9,237 shares of ASI preferred stock held by the Borrowers, and
to defer the payment dates such that one-half of the remaining principal
balance of the Loans will be payable on January 1, 1999 and one-half will be
payable on January 1, 2000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and Directors, and persons who beneficially
own more than ten percent (10%) of the Common Stock, to file with the
Securities and Exchange Commission (the "SEC") and any national securities
exchange on which the Company's securities are registered initial reports of
beneficial ownership and reports of changes in beneficial ownership of the
Common Stock or other equity securities of the Company. Executive officers,
Directors and greater than ten percent (10%) beneficial owners are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, all Section 16(a) filing requirements
applicable to its executive officers, Directors and greater than ten percent
(10%) beneficial owners were complied with for the fiscal year ended June 30,
1997, with the exception of the following: Ms. Oster did not timely file one
Form 4 to report one acquisition of Common Stock.
- 10 -
STOCK OWNED BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 24, 1997, certain
information regarding beneficial ownership of the Common Stock and the
Preferred Stock by: (i) each person who is known to the Company to own
beneficially more than 5% of the outstanding shares of either the Common Stock
or the Preferred Stock; (ii) each director of the Company; (iii) each
executive officer of the Company who is a Named Officer; and (iv) all
executive officers and directors of the Company as a group. Unless otherwise
indicated, all persons listed below have sole voting and investment power with
respect to their shares and the address for each such person is The Aristotle
Corporation, 78 Olive Street, New Haven, Connecticut. In preparing the
following table, the Company has relied on information furnished by such
persons.
Number of Shares
of Capital Stock Percent of Class and
Beneficially Owned/1/ Voting Power/2/
------------------------------ ------------------------
5% Stockholders, Directors Common Preferred Common Preferred Voting
and Executive Officers Stock Stock Stock Stock Power
- -------------------------- ----------- ------------ ------ --------- ------
5% Stockholders:
Howell Resource
Partners/3/........... 0 82,237 * % 42.07% 6.36%
David S. Howell......... 1,075/4/ 82,237/5/ * 42.07 6.44
Ann-Marie Howell........ 1,075/6/ 82,237/5/ * 42.07 6.44
Alfred A. Kniberg....... 0 58,274 * 29.81 4.51
Paul McDonald........... 0 19,532/7/ * 9.99 1.51
Directors:
John J. Crawford........ 78,929/8/ 0 6.98 * 5.95
Barry R. Banducci....... 7,260/9/ 0 * * *
Robert L. Fiscus........ 8,560/10/ 0 * * *
Betsy Henley-Cohn....... 29,600/11/ 0 2.69 * 2.29
Daniel J. Miglio........ 8,360/12/ 0 * * *
Sharon M. Oster......... 33,080/13/ 0 3.01 * 2.55
John C. Warfel.......... 5,653/14/ 0 * * *
Named Officers (excluding
Messrs. Crawford,
Kniberg and McDonald):
Joyce Baran............. 0 4,797 * 2.45 *
----------- ---------- ----- ----- -----
All Executive Officers
and Directors as a
group/15/
(10 persons)........... 166,442 82,603 14.64 42.25 18.69
=========== ========== ===== ===== =====
- ----------------
* Less than 1%
/1/ The table does not include warrants (the "Warrants") issued by the Company
to Howell Resource Partners ("HRP"), Alfred A. Kniberg, Paul McDonald, and
Joyce Baran as former stockholders of Strouse in connection with the
Acquisition. The Warrants permit HRP, Messrs. Kniberg and McDonald and Ms.
Baran to exchange the ASI Common Stock and preferred stock of ASI held by
them for an aggregate of 172,382 shares of Common Stock at times between
January 1, 1999 and January 1, 2003. The table includes the $6,000 retainer
that is payable in Common Stock to each of the six (6) non-employee
directors for fiscal 1997. If the retainer for fiscal 1997 were paid on
September 8, 1997, each non-employee director would have received 1,883
shares of Common Stock, or .15% of the total voting power of the Company's
capital stock.
/2/ Percentages are calculated by including as part of the total number of
issued and outstanding shares of Common Stock those stock options which are
currently exercisable by the individual whose share ownership percentage is
being calculated, in accordance with the applicable securities regulations.
/3/ HRP is a general partnership whose general partners are David S. Howell and
Ann-Marie Howell. HRP is the direct beneficial owner of such 82,237 shares.
The address of HRP and Mr. And Mrs. Howell is 151 River Road, Essex,
Connecticut.
/4/ Includes 1,000 shares held by Mr. Howell jointly with his wife, Ann-Marie
Howell; and 75 shares held by Mr. Howell's step-son, Eric M. Hines. Mr.
Howell disclaims beneficial ownership of the 75 shares held by his step-
son.
/5/ Mr. Howell and Mrs. Howell are the general partners of HRP (discussed in
footnote 3 above), and have the power to vote the 82,237 shares. Mr. Howell
and Mrs. Howell therefore share voting and dispositive power with respect
to the 82,237 shares and are indirect beneficial owners of such shares.
/6/ Includes 1,000 shares held by Mrs. Howell jointly with her husband, David
S. Howell; and 75 shares held by Mrs. Howell's son, Eric M. Hines. Mrs.
Howell disclaims beneficial ownership of the 75 shares held by her son.
- 11 -
/7/ Includes 16,659 shares held by Mr. McDonald directly and 2,873 shares held
by Janney Montgomery Scott, Inc. under a custodial agreement for Mr.
McDonald's benefit. Mr. McDonald disclaims beneficial ownership of the
2,873 shares held by Janney Montgomery Scott, Inc.
/8/ Includes 36,799 shares held by Mr. Crawford directly; 5,000 shares held in
trust for which Mr. Crawford serves as custodian with power to vote the
shares; 4,580 shares held in his wife's name; 50 shares held in the name of
his daughter; and stock options, which are currently exercisable, to
purchase 32,500 shares.
/9/ Includes 6,302 shares held by Mr. Banducci directly; and stock options,
which are currently exercisable, to purchase 958 shares.
/10/ Includes 7,123 shares held by Mr. Fiscus directly; and stock options, which
are currently exercisable, to purchase 1,437 shares.
/11/ Includes 6,302 shares held by Ms. Henley-Cohn directly; 14,340 shares held
in trusts in which Mrs. Henley-Cohn has the power to vote the shares; 8,000
shares held equally by Ms. Henley-Cohn's son and daughter, 5,000 of which
are disclosed in footnote 8 above as part of Mr. Crawford's shares held in
trust for which Mr. Crawford serves as custodian with power to vote the
shares; and stock options, which are currently exercisable, to purchase 958
shares.
/12/ Includes 6,923 shares held by Mr. Miglio directly; and stock options, which
are currently exercisable, to purchase 1,437 shares.
/13/ Includes 8,743 shares held by Ms. Oster directly and 22,900 held by Ms.
Oster's husband; and stock options, which are currently exercisable, to
purchase 1,437 shares.
/14/ Includes 5,174 shares held by Mr. Warfel directly; and stock options, which
are currently exercisable, to purchase 479 shares.
/15/ In addition to the foregoing capital stock of the Company, HRP, Messrs.
Kniberg and McDonald and Ms. Baran own 24,446, 18,832, 7,397 and 3,302
shares of ASI Common Stock, respectively (assuming that all of the ASI
Options held by such individuals are exercised). HRP and Mr. Kniberg own
2.1% and 1.6%, respectively, of the ASI Common Stock. None of the other
stockholders owns more than 1% of the ASI Common Stock. HRP, Messrs.
Kniberg and McDonald and Ms. Baran also own 72,784, 45,599, 13,565 and
3,436 shares of preferred stock of ASI, respectively, representing 45.3%,
28.4%, 8.5%, and 2.1%, respectively, of the issued and outstanding
preferred stock of ASI. Pursuant to the Warrants described in footnote 1,
the ASI Common Stock and the ASI Preferred Stock may be exchanged for
Common Stock at various times between January 1, 1999 and January 1, 2003.
Assuming that all of the ASI Preferred Stock and the ASI Common Stock were
converted to Common Stock, as of September 24, 1997 (even though all of
such ASI stock is not currently convertible), HRP, Mr. Howell, Mrs. Howell,
Mr. Kniberg, Mr. McDonald and Ms. Baran would own 10.22%, 10.29%, 10.29%,
5.92%, 2.13%, and .64% of the total voting power of the Company's capital
stock.
THE AFFIRMATIVE VOTE OF A PLURALITY OF THE VOTES CAST BY THE HOLDERS OF THE
COMMON STOCK AT THE ANNUAL MEETING IS REQUIRED TO ELECT THE NOMINEES FOR
DIRECTOR. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR.
- 12 -
APPROVAL OF THE COMPANY'S EMPLOYEE AND DIRECTOR STOCK PLAN
(PROPOSAL 2)
GENERAL
The 1997 Stock Plan was approved by the Company's Board of Directors on
August 28, 1997. The 1997 Stock Plan provides for the issuance of stock
options and stock grants ("Stock Rights") to employees and directors of the
Company. A total of 150,000 shares of Common Stock have been reserved for
issuance under the 1997 Stock Plan. No Stock Rights have been granted under
the 1997 Stock Plan.
The 1997 Stock Plan is administered by the Human Resources and Stock Option
Committee (the "Stock Option Committee") of the Board of Directors. The Stock
Option Committee has the authority to administer the provisions of the 1997
Stock Plan and to determine the persons to whom Stock Rights will be granted,
the number of shares to be covered by each Stock Right and the terms and
conditions upon which a Stock Right may be granted; provided, however, that in
no event may Stock Rights with respect to more than 30,000 shares be granted
to a plan participant in any fiscal year.
The 1997 Stock Plan is being submitted for Stockholder approval at the
Meeting to ensure qualification of the Plan under applicable tax laws. The
Board believes that adoption of the Plan is advisable to give the Company the
flexibility needed to attract, retain and motivate employees, directors and
consultants.
MATERIAL FEATURES OF THE 1997 STOCK PLAN
Stock Grants under the 1997 Stock Plan will be subject to such terms and
conditions as the Stock Option Committee deems to be appropriate and in the
best interest of the Company. These terms may include conditions relating to
the right of the Company to reacquire the shares subject to the Stock Grant,
including the time and events upon which such rights shall accrue and the
purchase price of the shares.
Options granted under the 1997 Stock Plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) non-qualified
stock options. Incentive stock options may be granted to employees of the
Company. Non-qualified stock options may be granted to directors or employees
of the Company. The 1997 Stock Plan also provides for the automatic grant of
non-qualified options to non-employee directors of the Company. Each non-
employee director, upon first being elected to the Board of Directors, will
receive an option to purchase 2,500 shares, which will vest after completion
of one year of service on the Board of Directors, and each non-employee
director serving on the Board of Directors on October 30, 1997 will receive an
immediately exercisable option to purchase 2,500 shares. Additionally, the
1997 Stock Plan provides for a grant to each non-employee director on the date
of his or her reelection (provided that the director has served as a director
since his or her initial election) of an option to purchase 1,000 shares,
which vests upon completion of one year of service on the Board of Directors.
All automatic option grants to non-employee directors will have a term of ten
years and an exercise price equal to the fair market value of the Common Stock
on the date of grant.
- 13 -
The aggregate fair market value (determined on the date of grant) of shares
issuable pursuant to incentive stock options that become exercisable in any
calendar year under any incentive stock plan of the Company may not exceed
$100,000. Incentive stock options granted under the 1997 Stock Plan may not be
granted at a price less than the fair market value of the Common Stock on the
date of grant, or 110% of fair market value in the case of employees holding
10% or more of the voting stock of the Company. Non-qualified stock options
granted under the 1997 Stock Plan may not be granted at an exercise price less
than the par value per share of the Common Stock on the date of the grant.
Incentive stock options granted under the 1997 Stock Plan expire not more than
ten years from the date of grant, or not more than five years from the date of
grant in the case of incentive stock options granted to an employee or officer
holding 10% or more of the voting stock of the Company. An option granted
under the 1997 Stock Plan is not transferable by the optionholder except by
will or by the laws of descent and distribution or as otherwise determined by
the Stock Option Committee and set forth in the applicable option agreement.
An incentive stock option granted under the 1997 Stock Plan may be
exercised after the termination of the optionholder's employment with the
Company (other than by reason of death, disability or termination for "cause"
as defined in the 1997 Stock Plan) to the extent exercisable on the date of
termination, at any time prior to the earlier of the option's specified
expiration date or 90 days after such termination. The Stock Option Committee
may specify the termination or cancellation provisions applicable to a non-
qualified stock option. In the event of the optionholder's death or
disability, both incentive stock options and non-qualified stock options
generally may be exercised, to the extent exercisable on the date of death or
disability, by the optionholder or the optionholder's survivors at any time
prior to the earlier of the option's specified expiration date or one year
from the date of death or disability. Generally, in the event of the
optionholder's termination for cause, all outstanding and unexercised options
are forfeited.
In the event of termination of service other than by reason of death,
disability or termination for cause, except as otherwise provided in the
pertinent stock grant agreement, the Company generally has the right to
repurchase that number of shares subject to a stock grant as to which the
Company's repurchase rights, as set forth in a stock grant agreement, have not
lapsed. In the event of a stock grant holder's death or disability, the
Company's rights of repurchase generally are exercisable, to the extent that
they have not lapsed on the date of death or disability. Generally, in the
event of termination for cause, all shares subject to any stock grant are
immediately subject to repurchase by the Company at the purchase price, if
any.
If the Company is to be consolidated with or acquired by another entity in
a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Stock Option Committee or the board of
directors of any entity assuming the obligations of the Company under the Plan
(the "Successor Board") shall, as to outstanding options under the Plan either
(i) make appropriate provision for the continuation of such options by
substituting on an equitable basis for the shares then subject to such options
the consideration payable with respect to the outstanding shares of Common
Stock in connection with the Acquisition or securities of the successor or
acquiring entity; or (ii) upon written notice to the participants, provide
that all options must be exercised (either to the extent then exercisable or,
at the discretion of the Stock Option Committee, all options being made fully
exercisable for purposes of such transaction) within a specified number of
days of the date of such notice, at the end of which period the options shall
terminate; or (iii) terminate all options in exchange for a cash payment equal
to the excess of the fair market value of the shares subject to each such
option (either to the extent then exercisable or, at the discretion of the
Stock Option Committee,
- 14 -
all options being made fully exercisable for purposes of such transaction)
over the exercise price thereof. In the event of a recapitalization or
reorganization of the Company (other than an Acquisition) pursuant to which
securities of the Company or of another corporation are issued with respect to
the outstanding shares of Common Stock, an optionholder upon exercising an
option under the Plan, shall be entitled to receive for the purchase price
paid upon such exercise the securities he or she would have received if he or
she had exercised such option prior to such recapitalization or
reorganization.
The Plan may be amended by the Stockholders of the Company. The Plan may
also be amended by the Board of Directors or the Stock Option Committee,
provided that any amendment approved by the Board of Directors or the Stock
Option Committee which is of a scope that requires Stockholder approval shall
be subject to obtaining such Stockholder approval.
On September 25, 1997, the closing market price per share of the Company's
Common Stock was $4.25, as reported in the Nasdaq SmallCap Market.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of certain U.S. federal income tax
consequences of the issuance and exercise of options under the 1997 Stock
Plan:
Incentive Stock Options. An incentive stock option does not result in
taxable income to the optionee or deduction to the Company at the time it is
granted or exercised, provided that no disposition is made by the optionee of
the shares acquired pursuant to the option within two years after the date of
grant of the option nor within one year after the date of issuance of shares
to him (the "ISO holding period"). However, the difference between the fair
market value of the shares on the date of exercise and the option price will
be an item of tax preference includible in "alternative minimum taxable
income." Upon disposition of the shares after the expiration of the ISO
holding period, the optionee will generally recognize long term capital gain
or loss based on the difference between the disposition proceeds and the
option price paid for the shares. Such gain will be eligible for the 20
percent maximum rate introduced by the Taxpayer Relief Act of 1997 if the
stock has been held for more than 18 months after option exercise; otherwise
such gain will be eligible for the 28 percent maximum rate. If the shares are
disposed of prior to the expiration of the ISO holding period, the optionee
generally will recognize taxable compensation, and the Company will have a
corresponding deduction, in the year of the disposition, equal to the excess
of the fair market value of the shares on the date of exercise of the option
over the option price. Any additional gain realized on the disposition will
normally constitute capital gain. If the amount realized upon such a
disqualifying disposition is less than fair market value of the shares on the
date of exercise, the amount of compensation income will be limited to the
excess of the amount realized over the optionee's adjusted basis in the
shares.
Non-Qualified Stock Options. The grant of a non-qualified option will not
result in taxable income to the optionee or deduction to the Company at the
time of grant. The optionee will recognize taxable compensation, and the
Company will have a corresponding deduction, at the time of exercise in the
amount of the excess of the then fair market value of the shares acquired over
the option price. Upon disposition of the shares, the optionee will generally
realize capital gain or loss, and his basis for determining gain or loss will
be the sum of the option price paid for the shares plus the amount of
compensation income recognized on exercise of the option.
- 15 -
Stock Grants. With respect to Stock Grants under the 1997 Stock Plan that
result in the issuance of shares that are either not restricted as to
transferability or not subject to a substantial risk of forfeiture, the
grantee must generally recognize ordinary income equal to the fair market
value of shares received. Thus, deferral of the time of issuance will
generally result in the deferral of the time the grantee will be liable for
income taxes with respect to such issuance. The Company generally will be
entitled to a deduction in an amount equal to the ordinary income recognized
by the grantee.
With respect to Stock Grants involving the issuance of shares that are
restricted as to transferability and subject to a substantial risk of
forfeiture, the grantee must generally recognize ordinary income equal to the
fair market value of the shares received at the first time the shares become
transferable or are not subject to a substantial risk of forfeiture, whichever
occurs earlier. A grantee may elect to be taxed at the time of receipt of
shares rather than upon lapse of restrictions on transferability or
substantial risk of forfeiture, but if the grantee subsequently forfeits such
shares, the grantee would not be entitled to any tax deduction, including as a
capital loss, for the value of the shares on which he previously paid tax. The
grantee must file such election with the Internal Revenue Service within 30
days of the receipt of the shares. The Company generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the grantee.
Unless otherwise indicated, properly executed proxies will be voted in
favor of the 1997 Stock Plan.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST BY THE HOLDERS OF THE
PREFERRED STOCK AND THE COMMON STOCK VOTING AS ONE CLASS AT THE ANNUAL MEETING
IS REQUIRED TO APPROVE THE 1997 STOCK PLAN. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE PLAN.
- 16 -
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(PROPOSAL 3)
On June 26, 1997, the Board of Directors re-appointed Arthur Andersen LLP
("Arthur Andersen") to serve as independent accountants for the Company for
the fiscal year ending June 30, 1998. The Board proposes that the Stockholders
ratify this appointment, although such ratification is not required under
Delaware law or the Company's Amended and Restated Certificate of
Incorporation or Amended Bylaws. Arthur Andersen audited the Company's
financial statements for the fiscal year ended June 30, 1997. The Company
expects that representatives of Arthur Andersen will be present at the Annual
Meeting, with the opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions.
In the event that ratification of Arthur Andersen as the independent public
accountants for the Company is not obtained at the Annual Meeting, the Board
of Directors will reconsider its appointment.
Unless otherwise indicated, properly executed proxies will be voted in
favor of ratifying the appointment of Arthur Andersen, independent certified
public accountants, to audit the books and accounts of the Company for the
fiscal year ending June 30, 1998.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST BY THE HOLDERS OF THE
COMMON STOCK AT THE ANNUAL MEETING IS REQUIRED TO RATIFY THE APPOINTMENT OF
THE ACCOUNTANTS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN
AS INDEPENDENT ACCOUNTANTS.
DEADLINE FOR SUBMISSION OF STOCKHOLDER
PROPOSALS TO BE PRESENTED AT 1998
ANNUAL MEETING OF STOCKHOLDERS
Any proposal intended to be presented by any stockholder for action at the
1998 Annual Meeting of stockholders of the Company must be received by the
Secretary of the Company at 78 Olive Street, New Haven, Connecticut 06511, not
later than June 3, 1998, in order for the proposal to be considered for
inclusion in the proxy statement and proxy relating to the 1998 Annual
Meeting. In addition, the Company's Amended Bylaws require that notice of
stockholder proposals and nominations for director be delivered to the
Secretary of the Company not less than thirty (30) days nor more than ninety
(90) days prior to the date of an annual meeting, unless notice or public
disclosure of the date of the meeting occurs less than forty-five (45) days
prior to the date of such meeting, in which event stockholders may deliver
such notice not later than the fifteenth (15th) day following the day on which
notice of the date of the meeting was mailed or public disclosure thereof was
made. Nothing in this paragraph shall be deemed to require the Company to
include in its proxy statement and proxy relating to the 1998 Annual Meeting
any stockholder proposal that does not meet all of the requirements for
inclusion established by the Securities and Exchange Commission in effect at
the time such proposal is received.
- 17 -
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not know of any other matters to be presented for action by the
shareholders at the Annual Meeting. If, however, any other matters not now
known are properly brought before the meeting, the persons named in the
accompanying proxy will vote such proxy in their discretion.
By Order of the Board of Directors
/s/ Paul McDonald
Paul McDonald
Chief Financial Officer and
Secretary October 1, 1997
- 18 -
3840-PS-97
Appendix 1
----------
PROXY
-----
THE ARISTOTLE CORPORATION
78 Olive Street
New Haven, Connecticut 06511
Proxy Solicited by the Board of Directors for the Annual Meeting of Stockholders
October 30, 1997
John J. Crawford and Alfred A. Kniberg, or either of them individually and
each of them with the power of substitution, are hereby appointed Proxies of the
undersigned to vote all stock of The Aristotle Corporation owned on the record
date by the undersigned at the Annual Meeting of Stockholders to be held at the
New Haven Lawn Club, 193 Whitney Avenue, New Haven, Connecticut, at 2:00 p.m.,
on October 30, 1997, or any adjournments or postponements thereof, upon such
business as may properly come before the meeting, including the items on the
reverse side of this form as set forth in the Notice of 1997 Annual Meeting and
the Proxy Statement.
Nominees for Election as Directors: Robert L. Fiscus, Betsy Henley-Cohn and
John C. Warfel.
(Shares cannot be voted unless this proxy form is signed and returned, or
other specific arrangements are made to have the shares represented at the
meeting.)
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
The Company's Directors recommend a vote FOR the proposals numbered 1,2 and
3. This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS NUMBERED 1, 2 AND 3 AND IN THE DISCRETION OF THE PROXIES
AS TO OTHER MATTERS.
1. Election of Directors (see reverse).
[_] FOR [_] WITHHELD
[_]
------------------------------------------------------------------------
For all nominees except as noted above
2. Approve the Company's 1997 Employee and Director Stock Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Ratify Appointment of Accountants.
[_] FOR [_] AGAINST [_] ABSTAIN
Please mark, sign, date and return this proxy promptly in the enclosed
postage prepaid envelope.
- --------------------------------------------------------------------------------
MARK HERE FOR ADDRESS MARK HERE IF YOU PLAN
CHANGE AND NOTE AT LEFT [_] TO ATTEND THE MEETING [_]
- --------------------------------------------------------------------------------
Please sign your name below. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give the full title or capacity. If a corporation, please sign
in corporate name by an authorized officer and give title. If a partnership,
please sign in partnership name by an authorized person.
Signature: Date
--------------------------------- ----------------------------
Signature: Date
--------------------------------- ----------------------------
Appendix 2
----------
THE ARISTOTLE CORPORATION
1997 EMPLOYEE AND DIRECTOR STOCK PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this The Aristotle Corporation 1997 Employee
and Director Stock Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
-------------
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
---------
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
------------------
Code means the United States Internal Revenue Code of 1986, as
----
amended.
Committee means the committee of the Board of Directors to which the
---------
Board of Directors has delegated power to act under or pursuant to
the provisions of the Plan.
Common Stock means shares of the Company's common stock, $.01 par
------------
value per share.
Company means The Aristotle Corporation, a Delaware corporation.
-------
Disability or Disabled means permanent and total disability as
---------- --------
defined in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last price
of the Common Stock on the Composite
Tape or other comparable reporting system for the trading day
immediately preceding the applicable date;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales
prices are not regularly reported for the Common Stock for the
trading day referred to in clause (1), and if bid and asked prices
for the Common Stock are regularly reported, the mean between the
bid and the asked price for the Common Stock at the close of trading
in the over-the-counter market for the trading day on which Common
Stock was traded immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as
the Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
---
under Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as
an officer or director of the Company or of an Affiliate),
designated by the Administrator to be eligible to be granted one or
more Stock Rights under the Plan.
Non-Qualified Option means an option which is not intended to
--------------------
qualify as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
------
Option Agreement means an agreement between the Company and a
----------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means a Key Employee or director to whom one or more
-----------
Stock Rights are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Plan means this The Aristotle Corporation 1997 Employee and Director
----
Stock Plan.
Shares means shares of the Common Stock as to which Stock Rights
------
have been or may be granted under the Plan or any shares of capital
stock into which the Shares are changed or for which they are
exchanged within the provisions of Paragraph 3 of the Plan. The
Shares issued under the Plan may be authorized and unissued shares
or shares held by the Company in its treasury, or both.
Stock Grant means a grant by the Company of Shares under the Plan.
-----------
2
Stock Grant Agreement means an agreement between the Company and a
---------------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Stock Right means a right to Shares of the Company granted pursuant
-----------
to the Plan -- an ISO, a Non-Qualified Option or a Stock Grant.
Survivors means a deceased Participant's legal representatives
---------
and/or any person or persons who acquired the Participant's rights
to a Stock Right by will or by the laws of descent and distribution.
2. PURPOSES OF THE PLAN.
---------------------
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of the Company in order to attract such people, to induce them to work
for the benefit of the Company or of an Affiliate and to provide additional
incentive for them to promote the success of the Company or of an Affiliate. The
Plan provides for the granting of ISOs, Non-Qualified Options and Stock Grants.
3. SHARES SUBJECT TO THE PLAN.
---------------------------
The number of Shares which may be issued from time to time pursuant to this
Plan shall be 150,000 or the equivalent of such number of Shares after the
Administrator, in its sole discretion, has interpreted the effect of any stock
split, stock dividend, combination, recapitalization or similar transaction in
accordance with Paragraph 23 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, or if the
Company shall reacquire any Shares issued pursuant to a Stock Grant, the Shares
which were subject to such Option and any Shares so reacquired by the Company
shall be available for the granting of other Stock Rights under the Plan. Any
Option shall be treated as "outstanding" until such Option is exercised in full,
or terminates or expires under the provisions of the Plan, or by agreement of
the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
---------------------------
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to the Committee, in which
case the Committee shall be the Administrator. Subject to the provisions of the
Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Stock Grant
and to make all rules and determinations which it deems necessary or
advisable for the administration of the Plan;
3
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees and
directors shall be granted Stock Rights;
c. Determine the number of Shares for which a Stock Right or Stock Rights
shall be granted, provided, however, that in no event shall Stock
Rights with respect to more than 30,000 shares be granted to any
Participant in any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
------------------------------
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be a Key Employee or
director of the Company or of an Affiliate at the time a Stock Right is granted.
Notwithstanding the foregoing, the Administrator may authorize the grant of a
Stock Right to a person not then an employee or director of the Company or of an
Affiliate; provided, however, that the actual grant of such Stock Right shall be
conditioned upon such person becoming eligible to become a Participant at or
prior to the time of the delivery of the Agreement evidencing such Stock Right.
ISOs may be granted only to Key Employees. Non-Qualified Options and Stock
Grants may be granted to any Key Employee or director of the Company or an
Affiliate. The granting of any Stock Right to any individual shall neither
entitle that individual to, nor disqualify him or her from, participation in any
other grant of Stock Rights.
6. TERMS AND CONDITIONS OF OPTIONS.
--------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate
including, without limitation, subsequent approval by the shareholders of the
Company of this Plan or any amendments thereto. The Option Agreements shall be
subject to at least the following terms and conditions:
4
A. Non-Qualified Options: Each Option intended to be a Non-Qualified Option
---------------------
shall be subject to the terms and conditions which the Administrator
determines to be appropriate and in the best interest of the Company,
subject to the following minimum standards for any such Non-Qualified
Option:
a. Option Price: Each Option Agreement shall state the option price (per
share) of the Shares covered by each Option, which option price shall be
determined by the Administrator but shall not be less than the par value
per share of Common Stock.
b. Each Option Agreement shall state the number of Shares to which it
pertains;
c. Each Option Agreement shall state the date or dates on which it first is
exercisable and the date after which it may no longer be exercised, and
may provide that the Option rights accrue or become exercisable in
installments over a period of months or years, or upon the occurrence of
certain conditions or the attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to the
Administrator providing for certain protections for the Company and its
other shareholders, including requirements that:
i. The Participant's or the Participant's Survivors' right to sell or
transfer the Shares may be restricted; and
ii. The Participant or the Participant'sSurvivors may be required to
execute letters of investment intent and must also acknowledge that
the Shares will bear legends noting any applicable restrictions.
e. Directors' Options: Each director of the Company who is not an employee
of or consultant to the Company or any Affiliate, upon first being
elected to the Board of Directors, shall be granted a Non-Qualified
Option to purchase 2,500 Shares. Each such Option shall (i) have an
exercise price equal to the Fair Market Value (per share) of the Shares
on the date of grant of the Option, (ii) have a term of ten years, and
(iii) become exercisable in full upon completion of one full year of
service on the Board of Directors after the date of grant.
Any director serving on the Board of Directors on October 30, 1997, who
is not an employee of or consultant to the Company or any Affiliate,
shall be granted a Non-Qualified Option to purchase 2,500 shares as of
such date. Each such Option shall (i) have an exercise price equal to
the Fair
5
Market Value (per share) of the Shares on the date of grant of
the Option, (ii) have a term of ten years, and (iii) be immediately
exercisable in full.
On the date of each reelection to the Board of Directors, provided that
on such dates the director has been in the continued and uninterrupted
service as a director of the Company since his or her initial election
or appointment and is not an employee of or consultant to the Company or
any Affiliate, each director will be granted a Non-Qualified Option to
purchase 1,000 Shares. Each such Option shall (i) have an exercise price
equal to the Fair Market Value (per share) of the Shares on the date of
grant of the Option, (ii) have a term of ten years, and (iii) become
exercisable in full upon completion of one full year of service on the
Board of Directors after the date of grant.
Any director entitled to receive an Option under this subparagraph may
elect to decline the Option.
Except as otherwise provided in the pertinent Option Agreement, if a director
who receives Options pursuant to this subparagraph:
a. ceases to be a member of the Board of Directors for any reason
other than death or Disability, any then unexercised Options
granted to such director may be exercised by the director within a
period of ninety (90) days after the date the director ceases to be
a member of the Board of Directors, but only to the extent of the
number of Shares with respect to which the Options are exercisable
on the date the director ceases to be a member of the Board of
Directors, and in no event later than the expiration date of the
Option; or
b. ceases to be a member of the Board of Directors by reason of his or
her death or Disability, any then unexercised Options granted to
such director may be exercised by the director (or by the
director's personal representative, or the director's Survivors)
within a period of one hundred eighty (180) days after the date the
director ceases to be a member of the Board of Directors, but only
to the extent of the number of Shares with respect to which the
Options are exercisable on the date the director ceases to be a
member of the Board of Directors, and in no event later than the
expiration date of the Option.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
----
Employee and be subject to at least the following terms and conditions,
with such additional restrictions or changes as the Administrator
determines are appropriate but not in
6
conflict with Section 422 of the Code
and relevant regulations and rulings of the Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards required of
Non-Qualified Options, as described in Paragraph 6(A) above, except
clauses (a) and (e) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable attribution
rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting power of
all classes of stock of the Company or an Affiliate, the Option
price per share of the Shares covered by each Option shall not be
less than one hundred percent (100%) of the Fair Market Value per
share of the Shares on the date of the grant of the Option.
ii. More than ten percent (10%) of the total combined voting power of
all classes of stock of the Company an Affiliate, the Option
price per share of the Shares covered by each Option shall not be
less than one hundred ten percent (110%) of the said Fair Market
Value on the date of grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power of
-------
all classes of stock of the Company or an Affiliate, each Option
shall terminate not more than ten (10) years from the date of the
grant or at such earlier time as the Option Agreement may
provide.
ii. More than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or an Affiliate, each Option
shall terminate not more than five (5) years from the date of the
grant or at such earlier time as the Option Agreement may
provide.
d. Limitation on Yearly Exercise: The Option Agreements shall restrict the
amount of Options which may be exercisable in any calendar year (under
this or any other ISO plan of the Company or an Affiliate) so that the
aggregate Fair Market Value (determined at the time each ISO is
granted) of the stock with respect to which ISOs are exercisable for
the first time by the Participant in any calendar year does not exceed
one hundred thousand dollars ($100,000), provided that this
subparagraph (d) shall have no force or effect if its inclusion in the
Plan is not necessary for Options issued as ISOs to qualify as ISOs
pursuant to Section 422(d) of the Code.
7
7. TERMS AND CONDITIONS OF STOCK GRANTS.
-------------------------------------
Each offer of a Stock Grant to a Participant shall state the date prior to
which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per share),
if any, of the Shares covered by each Stock Grant, which purchase price
shall be determined by the Administrator but shall not be less than the
minimum consideration required by the Delaware General Corporation Law
on the date of the grant of the Stock Grant;
(b) Each Stock Grant Agreement shall state the number of Shares to which
the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any right of the
Company to reacquire the Shares subject to the Stock Grant, including
the time and events upon which such rights shall accrue and the
purchase price therefor, if any.
8. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
----------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (e) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator, or (f) at the discretion of the
8
Administrator, by any combination of (a), (b), (c), (d) and (e) above.
Notwithstanding the foregoing, the Administrator shall accept only such payment
on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 26) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Paragraph
6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by the Plan, (ii) any such amendment shall be made only with the consent of the
Participant to whom the Option was granted, or in the event of the death of the
Participant, the Participant's Survivors, if the amendment is adverse to the
Participant, and (iii) any such amendment of any ISO shall be made only after
the Administrator, after consulting the counsel for the Company, determines
whether such amendment would constitute a "modification" of any Option which is
an ISO (as that term is defined in Section 424(h) of the Code) or would cause
any adverse tax consequences for the holder of such ISO.
9. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.
----------------------------------------------
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase price
for the Shares as to which such Stock Grant is being accepted shall be made (a)
in United States dollars in cash or by check, or (b) at the discretion of the
Administrator, through delivery of shares of Common Stock having a fair market
value equal as of the date of acceptance of the Stock Grant to the purchase
price of the Stock Grant determined in good faith by the Administrator, or (c)
at the discretion of the Administrator, by delivery of the grantee's personal
recourse note bearing interest payable not less than annually at no less than
100% of the applicable Federal rate, as defined in
9
Section 1274(d) of the Code,or (d) at the discretion of the Administrator, by
any combination of (a), (b) and (c) above.
The Company shall then reasonably promptly deliver the Shares as to which
such Stock Grant was accepted to the Participant (or to the Participant's
Survivors, as the case may be), subject to any escrow provision set forth in the
Stock Grant Agreement. In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Stock Grant was
made, if the amendment is adverse to the Participant.
10. RIGHTS AS A SHAREHOLDER.
------------------------
No Participant to whom a Stock Right has been granted shall have rights as
a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Option or acceptance of the Stock Grant and tender of
the full purchase price, if any, for the Shares being purchased pursuant to such
exercise or acceptance and registration of the Shares in the Company's share
register in the name of the Participant.
11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
--------------------------------------------------
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than (i) by will or by the laws of descent
and distribution, or (ii) as otherwise determined by the Administrator and set
forth in the applicable Option Agreement or Stock Grant Agreement. The
designation of a beneficiary of a Stock Right by a Participant shall not be
deemed a transfer prohibited by this Paragraph. Except as provided above, a
Stock Right shall only be exercisable or may only be accepted, during the
Participant's lifetime, by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.
10
12. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH
---------------------------------------------------------------------------
OR DISABILITY.
--------------
Except as otherwise provided in the pertinent Option Agreement in the event
of a termination of service (whether as an employee or director ) with the
Company or an Affiliate before the Participant has exercised an Option, the
following rules apply:
a. A Participant who ceases to be an employee or director of the Company
or of an Affiliate (for any reason other than termination "for cause",
Disability, or death for which events there are special rules in
Paragraphs 13, 14, and 15, respectively), may exercise any Option
granted to him or her to the extent that the Option is exercisable on
the date of such termination of service, but only within such term as
the Administrator has designated in the pertinent Option Agreement.
b. Except as provided in subparagraph (c) below, or Paragraph 14 or 15, in
no event may an Option Agreement provide, if an Option is intended to
be an ISO, that the time for exercise be later than three (3) months
after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of Paragraph
14 or 15, shall apply to a Participant who subsequently becomes
Disabled or dies after the termination of employment or director
status, provided, however, in the case of a Participant's Disability or
death within three (3) months after the termination of employment or
director status, the Participant or the Participant's Survivors may
exercise the Option within one (1) year after the date of the
Participant's termination of employment, but in no event after the date
of expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment or termination of director
status, but prior to the exercise of an Option, the Board of Directors
determines that, either prior or subsequent to the Participant's
termination, the Participant engaged in conduct which would constitute
"cause", then such Participant shall forthwith cease to have any right
to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment or director status with the Company or
with an Affiliate, except as the Administrator may otherwise expressly
provide.
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a
11
Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee or
director of the Company or any Affiliate.
13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE "FOR CAUSE".
--------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee or
director ) with the Company or an Affiliate is terminated "for cause" prior to
the time that all his or her outstanding Options have been exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated "for cause" will
immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the existence
of "cause" will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause", then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
-----------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee or director of the Company or of an
Affiliate by reason of Disability may exercise any Option granted to such
Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
12
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date of the Participant's termination of
employment or directorship, as the case may be, notwithstanding that the
Participant might have been able to exercise the Option as to some or all of the
Shares on a later date if the Participant had not become disabled and had
continued to be an employee or director or, if earlier, within the originally
prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
15. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE OR DIRECTOR.
---------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is an employee or
director of the Company or of an Affiliate, such Option may be exercised by the
Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee or director or, if
earlier, within the originally prescribed term of the Option.
13
16. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS.
-------------------------------------------------
In the event of a termination of service (whether as an employee or
director) with the Company or an Affiliate for any reason before the Participant
has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to
whom a Stock Grant has been offered under the Plan who is absent from work with
the Company or with an Affiliate because of temporary disability (any disability
other than a permanent and total Disability as defined in Paragraph 1 hereof),
or who is on leave of absence for any purpose, shall not, during the period of
any such absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment or director status with the Company or with an
Affiliate, except as the Administrator may otherwise expressly provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any
change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment or director
status so long as the Participant continues to be an employee or director of the
Company or any Affiliate.
17. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR
--------------------------------------------------------------------------
DEATH OR DISABILITY.
--------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, in the
event of a termination of service (whether as an employee or director), other
than termination "for cause," Disability, or death for which events there are
special rules in Paragraphs 18, 19, and 20, respectively, before all Company
rights of repurchase shall have lapsed, then the Company shall have the right to
repurchase that number of Shares subject to a Stock Grant as to which the
Company's repurchase rights have not lapsed.
18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE "FOR CAUSE".
-------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if the Participant's service (whether as an employee or
director) with the Company or an Affiliate is terminated "for cause":
a. All Shares subject to any Stock Grant shall be immediately subject to
repurchase by the Company at the purchase price, if any, thereof.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or
14
non-feasance of duty, unauthorized disclosure of confidential
information, and conduct substantially prejudicial to the business of
the Company or any Affiliate. The determination of the Administrator
as to the existence of "cause" will be conclusive on the Participant
and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service, that either prior or subsequent to the Participant's
termination the Participant engaged in conduct which would constitute
"cause," then the Company's right to repurchase all of such
Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
----------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if a Participant ceases to be an employee or director of
the Company or of an Affiliate by reason of Disability: to the extent the
Company's rights of repurchase have not lapsed on the date of Disability, they
shall be exercisable; provided, however, that in the event such rights of
repurchase lapse periodically, such rights shall lapse to the extent of a pro
rata portion of the Shares subject to such Stock Grant as would have lapsed had
the Participant not become Disabled prior to the end of the vesting period which
next ends following the date of Disability. The proration shall be based upon
the number of days of such vesting period prior to the date of Disability.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
20. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE OR DIRECTOR.
--------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply in the event of the death of a Participant while the
Participant is an employee or director of the Company or of an Affiliate: to the
extent the Company's rights of repurchase have not lapsed on the date of death,
they shall be exercisable; provided, however, that in the event such rights of
repurchase lapse periodically, such rights shall lapse to the extent of a pro
rata portion of the
15
Shares subject to such Stock Grant as would have lapsed had the Participant not
died prior to the end of the vesting period which next ends following the date
of death. The proration shall be based upon the number of days of such vesting
period prior to the Participant's death.
21. PURCHASE FOR INVESTMENT.
------------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise or acceptance of a Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"1933 Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right shall
warrant to the Company, prior to the receipt of such Shares, that such
person(s) are acquiring such Shares for their own respective accounts,
for investment, and not with a view to, or for sale in connection
with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the provisions of
the following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such
grant:
"The shares represented by this certificate have
been taken for investment and they may not be
sold or otherwise transferred by any person,
including a pledgee, unless (1) either (a) a
Registration Statement with respect to such
shares shall be effective under the Securities
Act of 1933, as amended, or (b) the Company shall
have received an opinion of counsel satisfactory
to it that an exemption from registration under
such Act is then available, and (2) there shall
have been compliance with all applicable state
securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued upon
such particular exercise or acceptance in compliance with the 1933 Act
without registration thereunder.
22. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
------------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised and all
Stock Grants which have not been accepted will terminate and become null and
void; provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Participant or the
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise or accept any Stock Right to the extent
that the Stock Right is exercisable or subject to acceptance as of the date
immediately prior to such dissolution or liquidation.
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23. ADJUSTMENTS.
------------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
pertinent Option Agreement or Stock Grant Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise or acceptance of such Stock Right may be
appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such events.
The number of Shares subject to Options to be granted to directors pursuant to
Paragraph 6(A)(e) shall also be proportionately adjusted upon the occurrence of
such events.
B. Consolidations or Mergers. If the Company is to be consolidated with or
-------------------------
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Administrator or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph) at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash payment equal
to the excess of the Fair Market Value of the Shares subject to such Options
(either to the extent then exercisable or, at the discretion of the
Administrator, all Options being made fully exercisable for purposes of this
Subparagraph) over the exercise price thereof.
With respect to outstanding Stock Grants, the Administrator or the
Successor Board, shall either (i) make appropriate provisions for the
continuation of such Stock Grants by substituting on an equitable basis for the
Shares then subject to such Stock Grants either the consideration payable with
respect to the outstanding Shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Stock Grants must be
accepted (to the extent then subject to acceptance) within a specified number of
days of the date of such notice, at the end of which period the offer of the
Stock Grants shall terminate; or (iii) terminate all Stock Grants in exchange
for a cash payment equal to the excess of the Fair Market Value of the Shares
subject to such Stock Grants over the purchase price thereof, if any. In
addition, in the event of an Acquisition,
17
the Administrator may waive any or all Company repurchase rights with respect to
outstanding Stock Grants.
C. Recapitalization or Reorganization. In the event of a recapitalization
----------------------------------
or reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising or accepting a Stock Right shall be entitled to
receive for the purchase price, if any, paid upon such exercise or acceptance
the securities which would have been received if such Stock Right had been
exercised or accepted prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to Subparagraph A, B or C with respect to ISOs shall
be made only after the Administrator, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424(h) of the Code) or would
cause any adverse tax consequences for the holders of such ISOs. If the
Administrator determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments, unless the holder of an ISO specifically requests in writing that
such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
24. ISSUANCES OF SECURITIES.
------------------------
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company
prior to any issuance of Shares pursuant to a Stock Right.
25. FRACTIONAL SHARES.
------------------
No fractional shares shall be issued under the Plan and the person
exercising a Stock Right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
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26. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
-------------------------------------------------------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
27. WITHHOLDING.
------------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise or acceptance of a Stock Right or in connection with a
Disqualifying Disposition (as defined in Paragraph 28) or upon the lapsing of
any right of repurchase, the Company may withhold from the Participant's
compensation, if any, or may require that the Participant advance in cash to the
Company, or to any Affiliate of the Company which employs or employed the
Participant, the amount of such withholdings unless a different withholding
arrangement, including the use of shares of the Company's Common Stock or a
promissory note, is authorized by the Administrator (and permitted by law). For
purposes hereof, the fair market value of the shares withheld for purposes of
payroll withholding shall be determined in the manner provided in Paragraph 1
above, as of the most recent practicable date prior to the date of exercise. If
the fair market value of the shares withheld is less than the amount of payroll
withholdings required, the Participant may be required to advance the difference
in cash to the Company or the Affiliate employer. The Administrator in its
discretion may condition the exercise of an Option for less than the then Fair
Market Value on the Participant's payment of such additional withholding.
28. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
-----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any
19
sale) of such shares before the later of (a) two years after the date the Key
Employee was granted the ISO, or (b) one year after the date the Key Employee
acquired Shares by exercising the ISO. If the Key Employee has died before such
stock is sold, these holding period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
29. TERMINATION OF THE PLAN.
------------------------
The Plan will terminate on August 27, 2007, the date which is ten (10)
years from the earlier of the date of its adoption and the date of its approval
by the shareholders of the Company. The Plan may be terminated at an earlier
-------
date by vote of the shareholders of the Company; provided, however, that any
such earlier termination shall not affect any Option Agreements or Stock Grant
Agreements executed prior to the effective date of such termination.
30. AMENDMENT OF THE PLAN AND AGREEMENTS.
-------------------------------------
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Stock Rights granted under
the Plan or Stock Rights to be granted under the Plan for favorable federal
income tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code, and to the
extent necessary to qualify the shares issuable upon exercise or acceptance of
any outstanding Stock Rights granted, or Stock Rights to be granted, under the
Plan for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers. Any amendment
approved by the Administrator which the Administrator determines is of a scope
that requires shareholder approval shall be subject to obtaining such
shareholder approval. Any modification or amendment of the Plan shall not,
without the consent of a Participant, adversely affect his or her rights under a
Stock Right previously granted to him or her. With the consent of the
Participant affected, the Administrator may amend outstanding Option Agreements
and Stock Grant Agreements in a manner which may be adverse to the Participant
but which is not inconsistent with the Plan. In the discretion of the
Administrator, outstanding Option Agreements and Stock Grant Agreements may be
amended by the Administrator in a manner which is not adverse to the
Participant.
31. EMPLOYMENT OR OTHER RELATIONSHIP.
---------------------------------
Nothing in this Plan or any Option Agreement or Stock Grant Agreement shall
be deemed to prevent the Company or an Affiliate from terminating the employment
or director status of a Participant, nor to prevent a Participant from
terminating his or her own employment, consultancy or director status or to give
any Participant a right to be retained in employment or other service by the
Company or any Affiliate for any period of time.
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32. GOVERNING LAW.
--------------
This Plan shall be construed and enforced in accordance with the law of the
State of Delaware.
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