SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WESTERN STAFF SERVICES, INC.
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 26, 1998
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TO THE STOCKHOLDERS OF WESTERN STAFF SERVICES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of stockholders (the "Annual
Meeting") of Western Staff Services, Inc. (the "Company"), a Delaware
corporation, will be held on March 26, 1998 at 10:00 a.m., local time, at the
Walnut Creek Marriott Hotel located at 2355 N. Main Street, Walnut Creek,
California, for the following purposes, as more fully described in the Proxy
Statement accompanying this Notice:
1. To elect two Class II directors to serve for three-year terms and until
their successors are elected;
2. To ratify the appointment of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending October 31, 1998;
3. To amend (i) Articles Two and Three of the Company's 1996 Stock
Option/Stock Issuance Plan (the "Plan") to provide for greater
transferability of Non-Statutory Options, and (ii) Article Three of the
Plan to provide for an increase in the annual automatic option grant to
each Eligible Director on the date of each Annual Meeting (beginning with
the 1998 Annual Meeting) from 1,000 shares to 2,000 shares of Common
Stock, subject to the restrictions of the Plan; and
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on February 5, 1998 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books will not be closed between the record date and the date of the meeting.
All stockholders are cordially invited to attend the meeting in person. Whether
or not you plan to attend, please sign and return the enclosed Proxy as promptly
as possible in the envelope enclosed for your convenience. Should you receive
more than one proxy because your shares are registered in different names and
addresses, each proxy should be signed and returned to assure that all your
shares will be voted. You may revoke your proxy at any time prior to the time it
is voted at the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
/S/ W. ROBERT STOVER
--------------------------------------
W. Robert Stover
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
February 17, 1998
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, AND COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
PROXY STATEMENT
TABLE OF CONTENTS
PAGE
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PROXY STATEMENT............................................................................................ 3
Voting................................................................................................. 3
Revocability Of Proxies................................................................................ 4
Solicitation........................................................................................... 4
Deadline For Receipt Of Stockholder Proposals.......................................................... 4
MATTERS TO BE CONSIDERED AT ANNUAL MEETING................................................................. 5
PROPOSAL ONE--ELECTION OF CLASS II DIRECTORS............................................................. 5
General................................................................................................ 5
Business Experience of Directors....................................................................... 5
Board Meetings and Committees.......................................................................... 6
Directors' Compensation................................................................................ 6
PROPOSAL TWO--RATIFICATION OF INDEPENDENT ACCOUNTANTS.................................................... 8
PROPOSAL THREE--AMENDMENT OF 1996 STOCK OPTION/STOCK ISSUANCE PLAN....................................... 9
Summary of 1996 Stock Option/Stock Issuance Plan....................................................... 9
General Provisions..................................................................................... 12
Certain Federal Income Tax Information................................................................. 14
Amended Plan Benefits.................................................................................. 15
OTHER MATTERS.............................................................................................. 16
OWNERSHIP OF SECURITIES.................................................................................... 17
EXECUTIVE COMPENSATION REPORT.............................................................................. 19
GENERAL COMPENSATION POLICY................................................................................ 19
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER................................................................ 21
EXECUTIVE COMPENSATION..................................................................................... 22
Summary Compensation Table............................................................................. 22
Option Grants in Last Fiscal Year...................................................................... 23
Aggregate Option Exercises and Fiscal Year End Values.................................................. 23
Employment Arrangements................................................................................ 23
Compensation Committee Interlocks and Insider Participation............................................ 24
CERTAIN TRANSACTIONS....................................................................................... 25
COMPARISON OF STOCKHOLDER RETURN........................................................................... 27
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934....................................... 29
ANNUAL REPORT.............................................................................................. 29
FORM 10-K.................................................................................................. 29
EXHIBIT A.................................................................................................. 30
2
WESTERN STAFF SERVICES, INC.
301 LENNON LANE
WALNUT CREEK, CALIFORNIA 94598-2453
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 26, 1998
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The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of the Company, for use at the Annual Meeting. The Annual Meeting will
be held at 10:00 a.m., local time, at the Walnut Creek Marriott Hotel located at
2355 N. Main Street, Walnut Creek, California. These proxy solicitation
materials were mailed on or about February 18, 1998, to all stockholders
entitled to vote at the Annual Meeting.
VOTING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. On February 5, 1998, the record date for determination of
stockholders entitled to notice of and to vote at the Annual Meeting, 10,271,175
shares of the Company's common stock, $0.01 par value ("Common Stock"), were
issued and outstanding. No shares of the Company's preferred stock were
outstanding.
The presence at the Annual Meeting of a majority, or approximately 5,135,259
shares of Common Stock, either in person or by Proxy, will constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes are counted as present for the purpose of determining the presence or
absence of a quorum for the transaction of business. Each stockholder is
entitled to one vote for each share of Common Stock held by such stockholder on
February 5, 1998. Directors are elected by a plurality vote. Since votes are
cast in favor of or withheld from each nominee, abstentions and broker non-votes
will therefore have no effect on the outcome of Proposal One. Proposal Two
requires an affirmative vote of a majority of shares present in person or
represented by proxy at the Annual Meeting and entitled to vote on such matter.
Proposal Three likewise requires an affirmative vote of a majority of such
shares. Abstentions will have the same effect as negative votes, while broker
non-votes are not included in the total number of votes cast on Proposal Two or
Proposal Three and therefore will not be counted for purposes of determining
whether either of those proposals has been approved. All votes will be tabulated
by the inspector of elections appointed for the meeting, who will separately
tabulate affirmative and negative votes, abstentions and broker non-votes.
If any stockholder is unable to attend the Annual Meeting, such stockholder
may vote by proxy. The enclosed Proxy is solicited by the Board, and, when
returned properly completed, will be voted as you direct on your proxy card. In
the discretion of the proxy holder, shares represented by such proxies will be
voted upon any other business as may properly come before the Annual Meeting. If
no specific instructions are given with respect to matters to be acted upon at
the Annual Meeting, shares of Common Stock represented by a properly executed
proxy will be voted FOR (i) the election of management's nominees for Directors
listed in Proposal One, (ii) the ratification of the selection of Price
Waterhouse LLP as the independent public accountants for the Company for fiscal
1998, and (iii) the amendment of the Company's 1996 Stock Option/Stock Issuance
Plan.
3
REVOCABILITY OF PROXIES
You may revoke or change your Proxy at any time before it is voted at the
Annual Meeting by filing with the Secretary of the Company at the Company's
principal executive offices, a notice of revocation or another signed Proxy with
a later date. You may also revoke your Proxy by attending the Annual Meeting and
voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram, or other means by directors, officers or employees. No
additional compensation will be paid to these individuals for any such services.
Except as described above, the Company does not presently intend to solicit
proxies other than by mail.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1999 Annual Meeting must be received no
later than November 28, 1998, in order that they may be included in the proxy
statement and form of proxy relating to that meeting.
4
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE--ELECTION OF CLASS II DIRECTORS
GENERAL
The Board of Directors has selected two nominees, both of whom are currently
serving as Class II directors of the Company. The nominees for director are
Michael K. Phippen and Paul A. Norberg. Both Mr. Phippen and Mr. Norberg were
directors of the Company as of February 5, 1998. Each person nominated for
election has agreed to serve if elected, and management has no reason to believe
that either nominee will be unavailable to serve. In the event either nominee is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who may be designated by the present Board
of Directors to fill the vacancy.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR the nominees named below. In the event that additional
persons are nominated, other than by the Board of Directors, for election as
Directors, the proxy holders intend to vote all proxies received by them for the
nominees listed below and any additional Board of Directors' nominee as
described above. The two candidates receiving the highest number of affirmative
votes of the shares represented and voting on this particular matter at the
Annual Meeting will be elected Class II directors of the Company, to serve their
respective three-year terms and until their successors have been elected and
qualified.
BUSINESS EXPERIENCE OF DIRECTORS
MICHAEL K. PHIPPEN, age 45, joined the Company in October 1995 as an
Executive Vice President. Mr. Phippen became President, Chief Operating Officer
and a director of the Company in January 1996. Mr. Phippen has directed the
operations of the Company's corporate office and all the operating divisions of
the Company since mid July of 1997, when the Company announced a management
restructuring. From October 1995 to January 1996 he directed the daily field
operations of all light industrial, clerical and light technical offices in the
United States, as well as the Company's planning, sales, franchise operations
and marketing development. Mr. Phippen's affiliation with the Company began in
1987 with the opening of his first franchise in Minneapolis. Under his
leadership, the affiliate group, Merbco Inc., grew to encompass 14 offices. The
Company acquired the assets of Merbco Inc. in October 1995. From 1977 to 1987,
Mr. Phippen served in various positions for Kelly Services, Inc., including as
Branch Manager and Regional Manager.
PAUL A. NORBERG, age 57, has been employed by the Company since 1979,
initially as Vice President and Chief Financial Officer, and was promoted in
1985 to Senior Vice President and in 1988 to Executive Vice President.
Previously he had been employed by Liken Home Furnishings Division of Beatrice
Foods Co., a manufacturer of window coverings, from 1973 to 1979 in the position
of Controller and subsequently Vice President, Finance. He is a certified public
accountant on inactive status.
The Company's bylaws authorize the Board of Directors to fix the number of
directors by resolution. The number is currently fixed at six. The Company's
Board of Directors is divided into three classes, designated Class I, Class II
and Class III, with each class having a three-year term. Following the Company's
Initial Public Offering, on April 30, 1996 (the "Offering"), Jack D. Samuelson
and Gilbert L. Sheffield were appointed to serve in Class I, Michael K. Phippen
and Paul A. Norberg were appointed to serve in Class II and W. Robert Stover and
Harvey L. Maslin were appointed to serve in Class III. The initial directors in
each class are to hold office for terms of one year, two years and three years,
respectively. Thereafter each class will serve a three-year term. At the 1997
Annual Meeting, Messrs. Samuelson and Sheffield were elected to serve their
respective three-year terms. Mr. Maslin has resigned his directorship such that
at present there is only one Class III director, namely, Mr. Stover. Officers
are appointed to serve at the discretion of the Board of Directors. There are no
family relationships among executive officers or directors of the Company.
5
BOARD MEETINGS AND COMMITTEES
During fiscal 1997, the Board of Directors held four meetings and acted by
unanimous written consent on six occasions. The Board of Directors has an Audit
Committee, a Compensation Committee and a Strategic Planning Committee. Each of
the directors attended (i) all meetings of the Board and (ii) all meetings held
by committees on which he served during fiscal 1997.
The Audit Committee currently consists of three directors, W. Robert Stover,
Gilbert L. Sheffield and Jack D. Samuelson, and Mr. Samuelson is its Chairman.
The Committee's duties include reviewing internal financial information,
monitoring cash flow, budget variances and credit arrangements, reviewing the
audit program of the Company, reviewing with the Company's independent
accountants the results of all audits upon their completion, annually selecting
and recommending independent accountants, overseeing the quarterly unaudited
reporting process and taking such other action as may be necessary to assure the
adequacy and integrity of all financial information distributed by the Company.
The Audit Committee held one meeting during fiscal 1997.
The Compensation Committee currently consists of three directors, W. Robert
Stover, Gilbert L. Sheffield and Jack D. Samuelson. Mr. Sheffield is its
Chairman. The Compensation Committee has the exclusive authority to administer
the Company's 1996 Stock Option/Stock Issuance Plan, the Employee Stock Purchase
Plan and the International Employee Stock Purchase Plan. In addition, the
Compensation Committee is responsible for providing recommendations to the Board
of Directors concerning compensation levels for the Company's senior management
and working with senior management on benefit and compensation programs for
Company employees, including matters related to participation in profit sharing,
bonus plans and stock option plans and preparing reports to the extent necessary
to comply with applicable disclosure requirements established by the Securities
and Exchange Commission or other regulatory bodies. The Compensation Committee
held four meetings during fiscal 1997.
The Strategic Planning Committee currently consists of three directors, W.
Robert Stover, Gilbert L. Sheffield and Jack D. Samuelson. Mr. Stover is its
Chairman. The Committee is responsible for evaluating the Company's business
plans and future business including, but not limited to, the evaluation of
potential acquisitions and new business opportunities. The Strategic Planning
Committee held no meetings during fiscal 1997. However, all committee members
participated with the entire Board of Directors in discussions of a strategic
plan at three Board meetings as well as in discussions of acquisitions at four
Board meetings during fiscal 1997.
DIRECTORS' COMPENSATION
In fiscal 1997, non-employee Board members each received an annual fee of
$6,000 for service on the Board in addition to a fee of $1,000 for each meeting
attended. Effective in fiscal 1998, their annual fee has been increased to
$7,000 for service on the Board and they will continue to receive a fee of
$1,000 for each meeting attended. Non-employee Board members will also be
reimbursed for their reasonable expenses incurred in connection with attending
Board meetings.
In addition, non-employee Board members are eligible to receive periodic
option grants under the Automatic Option Grant Program in effect under the
Company's 1996 Stock Option/Stock Issuance Plan. Under the Automatic Option
Grant Program, each individual who subsequently joins the Board as a non-
employee director will receive at that time an option grant, provided such
individual has not previously been in the Company's employ. In addition, at each
annual stockholders' meeting beginning with the 1997 Annual Meeting, each
individual who continues to serve as a non-employee Board member presently is
entitled to an option grant for 1,000 shares with an exercise price equal to the
fair market value of the option shares on the grant date, provided such
individual has served as a Board member for at least six months. However, the
employee Board members have approved an increase to double the number of such
option shares, beginning with the 1998 Annual Meeting, and this matter is
subject to stockholder approval, as more fully described hereinafter.
6
Each automatic option grant will have a maximum term of ten (10) years
measured from the grant date, subject to earlier termination following the
optionee's cessation of Board service. The option will become exercisable for
all the option shares upon the optionee's completion of one year of Board
service measured from the grant date. However, the option will become
immediately exercisable for all the option shares should the optionee cease
Board service by reason of death or disability or should the Company be acquired
by merger or asset sale during the period of the optionee's service on the
Board.
Pursuant to the terms of the Automatic Option Grant Program, Messrs.
Sheffield and Samuelson, the two individuals serving as non-employee Board
members at the time of the Offering, each received an option grant for 1,000
shares with an exercise price per share equal to the $14.00 per share price at
which the Common Stock was sold in the Offering. As of the Company's first
Annual Meeting on April 15, 1997, Messrs. Sheffield and Samuelson each also
received an automatic option grant for 1,000 shares with an exercise price of
$9.125, equal to the fair market value of the option shares on the grant date,
due to their continuing service as non-employee directors.
In addition to the foregoing option grants, Messrs. Sheffield and Samuelson
were each granted special options on November 1, 1996 to purchase 1,500 shares
with an exercise price of $14.25 per share, the closing selling price of the
Company's Common Stock on that date. Each of these options has a maximum term of
ten (10) years measured from the grant date, subject to earlier termination
following the optionee's cessation of Board service. The option will become
exercisable for all the option shares upon the optionee's completion of one year
of Board service measured from the grant date. However, the option will become
immediately exercisable for all the option shares should the optionee cease
Board service by reason of death or disability or should the Company be acquired
by merger or asset sale during the period of the optionee's service on the
Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION
OF MR. PHIPPEN AND MR. NORBERG AS CLASS II DIRECTORS OF THE COMPANY.
7
PROPOSAL TWO--RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors, which appointed the firm of Price Waterhouse LLP,
independent public accountants for the Company during fiscal 1997 and fiscal
1996, has appointed that firm to serve in the same capacity for fiscal 1998, and
is asking the stockholders to ratify this appointment. The affirmative vote of a
majority of the shares represented and voting at the Annual Meeting is required
to ratify the selection of Price Waterhouse LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of the
Company and its stockholders.
A representative of Price Waterhouse LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP TO SERVE
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL 1998.
8
PROPOSAL THREE--AMENDMENT OF
1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Board of Directors, other than the non-employee members who abstained
from voting, have approved amendments to the 1996 Stock Option/Stock Issuance
Plan (as defined before, the "Plan"), subject to stockholder approval. The
proposed amendments to the Plan increase the number of shares subject to the
Automatic Option Grant Program (as described below) from 1,000 to 2,000 shares,
and would reflect changes to Securities and Exchange Commission Rule 16b-3 by
providing for increased transferability of Non-Statutory Option grants. This
proposal to amend the Plan requires stockholder approval pursuant to the terms
of the Plan. The Board recommends approval of the amendments because it believes
they increase the Company's ability to attract, retain and motivate key
employees and directors by providing them with an enhanced proprietary interest
in the Company or an additional feature enhancing the value of certain options
issued under the Plan, which results in an incentive to enhance the growth and
profitability of the Company.
SUMMARY OF 1996 STOCK OPTION/STOCK ISSUANCE PLAN
The essential terms of the Plan, as proposed to be amended, are summarized
below. This summary is not intended to be a complete description of all of the
terms of the Plan, and is qualified in its entirety by the terms of the Plan, as
proposed to be amended, which is attached to this Proxy Statement as EXHIBIT A
and is hereby incorporated herein by reference.
PLAN ADMINISTRATION. The Plan is composed of three separate components: the
Discretionary Option Grant Program, the Automatic Option Grant Program and the
Stock Issuance Program. Either the Board or a committee of the Board shall
administer the Discretionary Option Grant Program and the Stock Issuance
Program. (the relevant administrating entity shall hereinafter be referred to as
the "Plan Administrator"). The Automatic Option Grant Program, in comparison, is
self-executing and no Plan Administrator shall exercise any discretionary
function with respect to grants made pursuant to that program.
The Board may appoint a Primary Committee, consisting of two or more
non-employee Board members who meet certain requirements, as the Plan
Administrator to execute the Discretionary Option Grant and Stock Issuance
Programs with respect to eligible individuals who are subject to Section 16
("Section 16 Insiders") under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), a Secondary Committee as the Plan Administrator to execute the
Discretionary Option Grant and Stock Issuance Programs with respect to eligible
parties EXCEPT for Section 16 Insiders, or the Board may retain such
administrative duties itself. The Plan Administrator has complete discretion to
determine eligible individuals, the number of shares subject to a discretionary
grant or stock issuance, the status of an option as either an Incentive Stock
Option or a Non-Statutory Stock Option, the vesting schedule and the maximum
term for which any discretionary option is to remain outstanding.
ELIGIBILITY. Non-employee members of the Board (other than those serving on
a committee acting as the Plan Administrator), officers and other key employees
of the Company and its subsidiaries (whether now existing or subsequently
established) and independent consultants and advisors to the Company and its
subsidiaries shall be eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs. Non-employee members of the Board serving on a
committee acting as the Plan Administrator are not eligible during their period
of service to participate in the Discretionary Option Grant and Stock Issuance
Programs. Such individuals may, however, participate in the Automatic Option
Grant Program. In no event may any one participant in the Plan be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares in the aggregate per calendar year.
9
VALUATION. The fair market value per share of the Company's Common Stock on
any relevant date under the Plan shall be the closing selling price per share on
that date on the Nasdaq National Market ("Nasdaq"). If there is no reported sale
for such date, then the closing selling price for the last previous date for
which such quotation exists shall be determinative of fair market value.
EQUITY INCENTIVE PROGRAMS. As indicated above, the Plan contains three
separate equity incentive programs: (i) a Discretionary Option Grant Program
under which certain non-employee Board members, officers and key employees,
consultants or independent advisors may be granted stock options to purchase
shares of the Company's Common Stock; (ii) an Automatic Option Grant Program
under which option grants are made at specified intervals to non-employee
directors of the Board; and (iii) a Stock Issuance Program under which eligible
individuals may be issued shares of the Company's Common Stock directly through
the immediate purchase of such shares.
DISCRETIONARY OPTION GRANT PROGRAM. Under the Discretionary Option Grant
Program, the exercise price per share for Incentive Options shall not be less
than 100% of the fair market value per share of the Company's Common Stock on
the grant date. For Incentive Stock Options granted to employees possessing 10%
or more of the total combined voting power of all classes of stock of the
Company or any of its subsidiaries (a "10% Holder"), the exercise price per
share may not be less than 110% of such fair market value. The exercise price
per share for Non-Statutory Options shall not be less than 85% of the fair
market value per share of the Company's Common Stock on the grant date. The Plan
Administrator shall have full authority to determine which eligible persons are
to receive option grants, the time or times such grants are to be made, the
number of shares to be covered by each grant, the status of the option as either
an Incentive Stock Option or Non-Statutory Stock Option, the vesting schedule
and other attributes of the option. No granted option shall, however, have a
maximum term in excess of ten years. No Incentive Stock Option granted to a 10%
Holder shall have a maximum term in excess of five years.
Any option held by the optionee at the time of cessation of service shall
not remain exercisable beyond the limited period designated by the Plan
Administrator (not to exceed 12 months) at the time of the option grant. During
that period the option generally shall be exercisable only for the number of
shares of the Company's Common Stock in which the optionee is vested at the time
of cessation of service. The Plan Administrator, however, shall have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding option may be exercised and/or to accelerate
the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at the time of grant or at any time while
the options remain outstanding. Any unvested share of the Company's Common Stock
shall be subject to repurchase by the Company, at the original exercise price
paid per share, upon the optionee's cessation of service prior to vesting in
those shares. The Plan Administrator shall have complete discretion in
establishing the vesting schedule for any such unvested shares and shall have
full authority to cancel the Company's outstanding repurchase rights with
respect to those shares and thereby accelerate the vesting of such shares in
whole or in part at any time.
The Plan Administrator, in its discretion, is also authorized to issue stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program. Stock appreciation rights provide holders
with the right to surrender all or part of an unexercised option in exchange for
a distribution from the Company in an amount equal to the excess of (i) the fair
market value (on the option surrender date) of the vested shares of the
Company's Common Stock subject to the surrendered option over (ii) the aggregate
exercise price payable for such shares. Such appreciation distribution may, at
the discretion of the Plan Administrator, be made in cash or in shares of the
Company's Common Stock or partly in shares and partly in cash. With respect to
officers of the Company subject to short-swing profit restrictions under Section
16 of the 1934 Act, limited stock appreciation rights may be granted as part of
their option grants. Any option with such a limited stock appreciation right in
effect for at least six months may be surrendered to the Company to the extent
such option is exercisable for fully vested shares upon
10
the occurrence of a hostile take over that effects a change in ownership of
securities possessing more than 50% of the total combined voting power of the
Company's outstanding securities. In return for the surrendered option, the
officer shall be entitled to a cash distribution from the Company in an amount
per surrendered option share equal to the excess of (i) the Take-Over Price (as
such term is defined in the Plan) per share of the Company Common Stock paid in
such hostile tender offer over (ii) the aggregate exercise price payable for
such share.
AUTOMATIC OPTION GRANT PROGRAM. Under the Automatic Option Grant Program,
each individual who is already serving as, or who first becomes, a non-employee
director of the Board on or after the Plan Effective Date (as such term is
defined in the Plan), whether through election by the stockholders or
appointment by the Board, shall automatically be granted at the time of such
initial election or appointment, an option grant for 2,000 shares of the
Company's Common Stock, provided such individual has not been in the Company's
prior employ. In addition, option grants for 2,000 shares of the Company's
Common Stock shall automatically be made annually thereafter to non-employee
directors of the Board who have served for at least six months. Accordingly, on
the date of each annual stockholders meeting, each individual who has been
re-elected to serve as a non-employee director of the Board and who has served
for at least six months shall automatically be granted a stock option to
purchase 2,000 shares of the Company's Common Stock. There shall be no limit on
the number of such additional 2,000-share option grants any one non-employee
director of the Board may receive over his or her period of Board service. As
discussed above, non-employee members of the Board who are serving on a
committee acting as the Plan Administrator may participate only in the Automatic
Option Grant Program.
Prior to the amendments proposed herein, annual option grants under the
Automatic Option Grant Program consisted of options to purchase 1,000 shares of
the Company's Common Stock.
Under the Automatic Option Grant Program, the exercise price per share shall
be equal to 100% of the fair market value per share of the Company's Common
Stock on the automatic grant date. Each option shall have a maximum term of 10
years from the grant date and each option shall become fully exercisable for all
of the option shares upon the holder's completion of one year of Board service
from the grant date.
Should the optionee cease to serve as a Board member for any reason other
than death or permanent disability, he or she shall have a twelve-month period
from the cessation of service in which to exercise the vested portion of the
option. If an optionee should die within twelve months after the cessation of
Board service, the personal representative of the optionee, or the person or
persons to whom the option is transferred by the optionee's will or the laws of
decent and distribution, may exercise the vested portion of the option within
twelve months after the cessation of Board service. Should the optionee die or
become permanently disabled while serving as a Board member, then each automatic
option grant held by that individual optionee shall accelerate in full and those
vested shares may be purchased at any time within the twelve-month period
following the date of the optionee's cessation of Board service.
The Company's repurchase rights with respect to each automatic option grant
shall immediately lapse upon certain changes in control or ownership of the
Company, as discussed in more detail below under "General Provisions." In
addition, upon the occurrence of a hostile take over that effects a change in
ownership of securities possessing more than 50% of the total combined voting
power of the Company's outstanding securities, each automatic option grant which
has been outstanding for at least six months may be surrendered to the Company
for a cash distribution per surrendered option share in an amount equal to the
excess of (i) the Take-Over Price (as such term is defined in the Plan) over
(ii) the aggregate exercise price payable for such share.
The remaining terms and conditions of the option grants under the Automatic
Option Grant Program shall conform in general to the terms described above for
option grants made under the Discretionary Option Grant Program.
11
STOCK ISSUANCE PROGRAM. Shares may be sold directly to an eligible
individual under the Stock Issuance Program at a price per share not less than
85% of the fair market value, payable in cash or check or through a promissory
note payable to the Company or in consideration of past services rendered to the
Company or any subsidiary.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule in one or more installments tied to the participant's
period of future services or the Company's attainment of specified financial
performance objectives as the Plan Administrator may establish at the time of
issuance. Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Company or issued directly to the participant with legends on
the certificates evidencing transfer restrictions. Individuals holding shares
under the Stock Issuance Program shall have full stockholder rights with respect
to those shares, whether the shares are vested or unvested, including voting
rights and the right to receive any regular dividends.
GENERAL PROVISIONS
ACCELERATION OF OPTION VESTING. Outstanding options under the Plan shall
become immediately exercisable, and unvested shares issued or issuable under the
Plan shall be subject to accelerated vesting, in the event of certain changes in
the ownership or control of the Company. Such option vesting acceleration is
triggered by (i) the acquisition of the Company by any person or entity through
merger, consolidation or asset sale (a "Corporate Transaction") or (ii) a
hostile takeover of the Company through a successful tender offer for securities
possessing more than 50% of the total combined voting power of the Company's
outstanding securities or a change in the majority of the Board over a period of
36 consecutive months effected through one or more contested elections for Board
membership (a "Change in Control").
Each option outstanding under the Discretionary Option Grant Program at the
time of a Corporate Transaction shall automatically become fully and immediately
exercisable. However, an outstanding option under the Discretionary Option Grant
Program shall not accelerate to the extent such option is to be assumed by the
successor corporation or its parent, replaced with either a comparable option to
purchase shares of the capital stock of the successor corporation or a cash
incentive program of the successor corporation, or its parent, or if other
limitations are imposed by the Plan Administrator at the time of the grant. The
Plan Administrator shall have the discretion to provide for the subsequent
acceleration of any option which does not accelerate at the time of a Corporate
Transaction, in the event the optionee's service terminates within a designated
period (not to exceed twelve months) following a Corporate Transaction or Change
in Control.
Upon the occurrence of a Corporate Transaction, the Company's outstanding
repurchase rights under the Discretionary Option Grant and Stock Issuance
Programs may also terminate, and the shares subject to those terminated rights
shall become fully vested.
The shares of the Company's Common Stock subject to each option outstanding
under the Automatic Option Grant Program at the time of any Corporate
Transaction or Change in Control shall immediately vest, and the options shall
accordingly become immediately exercisable. In addition, all unvested shares
issued under the Stock Issuance Program shall immediately vest upon the
occurrence of any Corporate Transaction, except to the extent any such right is
expressly assigned to the successor corporation in connection with the Corporate
Transaction or as otherwise limited by the Issuance Agreement (as such term is
defined in the Plan). The acceleration of options in the event of a Corporate
Transaction or Change in Control may be seen as an anti-take over provision and
may have the effect of discouraging a merger proposal, a takeover attempt or
other efforts to gain control of the Company.
CHANGES IN CAPITALIZATION. In the event any change is made to the
outstanding shares of the Company's Common Stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number
12
and/or class of securities issuable under the Plan; (ii) the maximum number
and/or class of securities for which any one individual may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances in the aggregate per calendar year; (iii) the number and/or class of
securities and price per share in effect under each outstanding option under the
Discretionary Option Grant or Automatic Option Grant Program; and (iv) the
number and/or class of securities for which option grants are to be subsequently
made under the Automatic Option Grant Program to each newly-elected or
continuing non-employee Director.
TRANSFERABILITY OF OPTIONS AND STOCK. Pursuant to the Discretionary Option
Grant Program, Incentive Options are only exercisable by the optionee and are
therefore not transferable except upon the optionee's death. Non-Statutory
Options, however, may be assigned in whole or in part during the lifetime of the
optionee. Prior to the amendments proposed herein, the holder of Non-Statutory
Options could only transfer such options during the holder's lifetime in
accordance with the terms of a Qualified Domestic Order. Finally, participants
in the Stock Issuance Program have no right to transfer any unvested shares of
Common Stock.
FINANCIAL ASSISTANCE. The Plan Administrator may institute a loan program
in order to assist one or more participants in financing their exercise of
outstanding options under the Discretionary Option Grant or in the purchase of
shares under the Stock Issuance Program. The form and manner in which such
assistance is to be made available (including loans or installment payments with
or without security or collateral), and the terms upon which such assistance is
to be provided, shall be determined by the Plan Administrator. However, the
maximum amount of financing provided to any optionee or participant may not
exceed the option or purchase price of the acquired shares (less the par value)
plus any applicable federal, state and local income and employment tax liability
incurred by such individuals in connection with the acquisition of the shares.
Any such financing may be subject to forgiveness in whole or in part, at the
discretion of the Plan Administrator.
SPECIAL TAX ELECTION. The Plan Administrator may provide one or more
holders of Non-Statutory Options or unvested shares under the Plan with the
right to have the Company use shares of the Company's Common Stock otherwise
issuable to such individuals in satisfaction of all or part of the federal,
state and local income and employment tax liabilities incurred by such
individuals in connection with the exercise of their options or the vesting of
their shares. Alternatively, the Plan Administrator may allow such individuals
to deliver previously acquired shares of the Company's Common Stock in payment
of such tax liabilities.
AMENDMENT AND TERMINATION. The Board may amend or modify the Plan in any or
all respects whatsoever, subject to obtaining any required stockholder approval
pursuant to the Plan and applicable law, including any applicable stock exchange
or national market system requirements. Notwithstanding the foregoing, the Board
may neither amend nor modify the Plan if such action would adversely affect the
rights and obligations any optionee or participant in the Stock Issuance
Program, unless such optionee or participant consents to the amendment, nor may
any amendment be made to the provisions of the Automatic Option Grant Program or
any outstanding options under that program more frequently than once every six
months, other than to the extent necessary to comply with Federal income tax
laws and regulations. In addition, the Board may not, without the approval of
the Company's stockholders, amend the Plan to (i) materially increase the
maximum number of shares issuable under the Plan or the number of shares for
which options may be granted to newly elected or continuing Eligible Directors
under Article Three of the Plan or the maximum number of shares for which any
one individual participating in the Plan may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances in
the aggregate per calendar year, except for permissible adjustments under
Section VI, subsection C of Article One pertaining to the expiration or
termination of options prior to exercise in full and their subsequent
availability for reissuance; (ii) materially modify the eligibility requirements
for Plan
13
participation; or (iii) materially increase the benefits accruing to Plan
participants. The Plan shall in all events terminate on April 30, 2007, unless
sooner terminated by the Board.
CERTAIN FEDERAL INCOME TAX INFORMATION
The following summary of the U.S. federal income tax consequences of Plan
transactions is based upon U.S. federal income tax laws in effect on the date of
this Proxy Statement. This summary does not purport to be complete, and does not
discuss foreign, state or local tax consequences.
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. However, the difference between the fair market
value of the shares on the exercise date and the exercise price paid for the
shares is classified as an item of adjustment in the year of exercise for
purposes of the alternative minimum tax. In addition, the optionee shall
recognize taxable income in the year in which the purchased shares are sold or
otherwise made the subject of disposition. For federal tax purposes,
dispositions are divided into two categories: (i) qualifying and (ii)
disqualifying. The optionee makes a qualifying disposition of the purchased
shares if the sale or other disposition of such shares is made after the
optionee has held the shares for more than two years after the grant date of the
option and more than one year after the exercise date. If the optionee fails to
satisfy either of these two minimum holding periods prior to the sale or other
disposition of the purchased shares, then a disqualifying disposition shall
result.
Upon a qualifying disposition of the shares, the optionee shall recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares then the lesser of (i) the difference between the
amount realized on disposition of the shares and the exercise price paid for
those shares or (ii) the difference between the fair market value of the shares
on the exercise date and the exercise price paid for the shares shall be taxable
as ordinary income. Any additional gain recognized upon the disposition shall be
a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company shall be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the amount of ordinary income
recognized by the optionee. In no other instance shall the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a Non-Statutory Option. The optionee shall in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares, and the optionee shall be required to
satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the Non-Statutory Option are subject
to repurchase by the Company at the original exercise price in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee shall not recognize any taxable income at the time of exercise but
shall have to report as ordinary income, as and when the Company's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of the
shares on the date the repurchase right lapses with respect to those shares over
(ii) the exercise price paid for the shares.
The optionee may, however, elect under Section 83(b) of the Code to include
as ordinary income in the year of exercise of the Non-Statutory Option an amount
equal to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee shall not recognize any additional ordinary
income as and when the repurchase right lapses.
The Company shall be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
Non-Statutory Option. In general, the deduction
14
shall be allowed for the taxable year of the Company in which such ordinary
income is recognized by the optionee.
APPRECIATION RIGHTS. An optionee who is granted a stock appreciation right
shall recognize ordinary income in the year exercised equal to the amount of the
appreciation distribution. The Company shall be entitled to an income tax
deduction equal to the appreciation distribution for the taxable year in which
the ordinary income is recognized by the optionee.
DIRECT STOCK ISSUANCE. The tax principles applicable to direct stock
issuances under the Plan shall be substantially the same as those summarized
above for the exercise of unvested shares of the Company's Common Stock under
Non-Statutory Option grants.
PARACHUTE PAYMENTS. If the exercisability of an option or the vesting of
shares issued under the Plan were accelerated as a result of a Change in Control
or Corporate Transaction, all or a portion of the value of the option or stock
subject to such acceleration may constitute a "parachute payment" for purposes
of the excess parachute provisions of the Code. If total parachute payments
exceed three times an employee's average compensation for the five tax years
preceding the Change in Control or Corporate Transaction, the employer loses its
deduction for, and the recipient is subject to a 20% excise tax on the amount
of, the parachute payments in excess of one times such average compensation.
AMENDED PLAN BENEFITS
With the exception of those options which would be granted pursuant to the
Automatic Option Grant Program, the Company cannot now determine the number of
options to be granted in the future under the Plan, as proposed to be amended,
to all current executive officers as a group, all current members of the Board
excluding current executive officers as a group or all employees (excluding
current executive officers) as a group.
Pursuant to the Automatic Option Grant Program of the Plan, as proposed to
be amended, newly elected Board members who have not been in the prior employ of
the Company or any subsidiary shall receive an initial Non-Statutory Option
grant and those non-employee Board members who have served on the Board for at
least six months shall receive an annual Non-Statutory Option grant to purchase
2,000 shares of the Common Stock of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDED
AND
RESTATED 1996 STOCK OPTION/STOCK ISSUANCE PLAN.
15
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is granted
by the execution of the enclosed Proxy.
16
OWNERSHIP OF SECURITIES
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1997 for (i) all
persons who are beneficial owners of five percent (5%) or more of the
outstanding shares of the Company's Common Stock, (ii) each director and nominee
of the Company, (iii) the Company's Chief Executive Officer and the four other
most highly paid executive officers as of the fiscal year ended November 1,
1997, and (iv) all executive officers and directors of the Company as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable.
NAME NUMBER OF SHARES(1) PERCENT(2)
- ------------------------------------------------------------- ------------------- -------------
W. Robert Stover(3).......................................... 6,653,807 64.8%
Joan C. Stover(4)............................................ 5,958,218 58.1%
c/o Western Staff Services, Inc.
301 Lennon Lane
Walnut Creek, CA 94598
Neumeier Investment Counsel.................................. 648,000 6.3%
26435 Carmel Rancho Blvd.
Carmel, CA 93923
Michael K. Phippen(5)........................................ 60,247 *
Harvey L. Maslin(6).......................................... 65,584 *
Paul A. Norberg(7)........................................... 32,632 *
Ronald C. Picco(8)........................................... 2,779 *
Jack D. Samuelson(9)......................................... 8,500 *
Gilbert L. Sheffield(10)..................................... 5,500 *
All executive officers and directors as a group (13
persons)(11)............................................... 6,809,698 65.6%
- ------------------------
* Less than one percent (1%)
(1) To the Company's knowledge, except as indicated in the footnotes to this
table and subject to applicable community property laws, each of the
persons named in this table has sole voting and investment power with
respect to all shares of Common Stock indicated opposite such person's
name.
(2) Based on 10,271,175 shares of Common Stock outstanding at December 31,
1997. Shares of Common Stock subject to options, warrants and convertible
notes and other purchase rights currently exercisable or convertible, or
exercisable or convertible within 60 days of December 31, 1997 are deemed
outstanding for computing the percentage of the person or entity holding
such securities but are not deemed outstanding for computing the percentage
of any other person or entity.
(3) Includes 5,958,218 shares of Common Stock held by W. Robert Stover and Joan
C. Stover as Co-Trustees of the Stover Revocable Trust dated 11/16/88, as
amended, the beneficial ownership of which may be attributable to each of
Mr. Stover and Mrs. Stover. Includes 695,589 shares of Common Stock
contributed to the Stover Charitable Lead Annuity Trust as to which Mr.
Stover has voting power, but has disclaimed beneficial ownership. Does not
include 113,571 shares of Common Stock owned by the Stover Foundation (the
"Old Foundation") and 25,433 shares of Common Stock owned by the Stover
Foundation, a California nonprofit religious corporation (the "New
Foundation") as to which Mr. Stover has shared voting power.
17
(4) Includes 5,958,218 shares of Common Stock held by W. Robert Stover and Joan
C. Stover as Co-Trustees of the Stover Revocable Trust dated 11/16/88, as
amended, the beneficial ownership of which may be attributable to each of
Mr. Stover and Mrs. Stover.
(5) Includes options to purchase 43,747 shares of Common Stock held by Mr.
Phippen, which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
(6) Includes options to purchase 3,084 shares of Common Stock held by Mr.
Maslin, which are immediately exercisable under the 1989/90 Stock Option
Plan and options to purchase 60,000 shares of Common Stock which are
immediately exercisable under the 1996 Stock Option/Stock Issuance Plan.
The vesting of options to purchase 38,438 of the 60,000 shares of Common
Stock under the 1996 Stock Option/Stock Issuance Plan has been accelerated
such that they are immediately exercisable, in addition to 21,562 shares
that were already vested, pursuant to a severance arrangement by and
between Mr. Maslin and the Company. See "Employment Arrangements."
(7) Includes options to purchase 3,084 shares of Common Stock held by Mr.
Norberg, which are immediately exercisable under the 1989/90 Stock Option
Plan and options to purchase 26,250 shares of Common Stock which are
immediately exercisable under the 1996 Stock Option/Stock Issuance Plan.
(8) Includes options to purchase 2,291 shares of Common Stock held by Mr.
Picco, which are immediately exercisable under the 1996 Stock Option/Stock
Issuance Plan.
(9) Includes options to purchase 2,500 shares of Common Stock held by Mr.
Samuelson which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
(10) Includes options to purchase 2,500 shares of Common Stock held by Mr.
Sheffield which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
(11) Includes options to purchase 6,168 shares of Common Stock held by all
executive officers and directors, which are immediately exercisable under
the 1989/90 Stock Option Plan and options to purchase 113,285 shares of
Common Stock which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
18
WESTERN STAFF SERVICES, INC.
COMPENSATION COMMITTEE
OF THE
BOARD OF DIRECTORS
EXECUTIVE COMPENSATION REPORT
The Compensation Committee was formed on March 9, 1995 in anticipation of
the Offering. It consists of three Board members, namely, W. Robert Stover,
Gilbert L. Sheffield and Jack D. Samuelson. Mr. Stover is Chairman of the Board
of Directors and Chief Executive Officer. Messrs. Sheffield and Samuelson are
not officers or employees of the Company. Mr. Sheffield is presently the
Chairman of the Compensation Committee.
It is the duty of the Compensation Committee to review and establish the
compensation of executive officers of the Company, including base salary,
participation in profit sharing, bonus and other cash incentive plans, subject
to ratification by the Board. During fiscal 1997, the Compensation Committee
also had the exclusive authority to administer the Company's 1996 Stock
Option/Stock Issuance Plan under which grants may be made to such officers.
In October 1996, the Compensation Committee engaged Strategic Compensation
Associates ("SCA") to make a comprehensive review and competitive assessment of
existing executive compensation packages in total and by component, including
salary, annual bonus, stock options and major benefits. SCA made specific
recommendations to the Compensation Committee pertaining to each of these
topics.
GENERAL COMPENSATION POLICY
The fundamental policy of the Compensation Committee in compensation matters
is to offer the Company's executive officers competitive compensation
opportunities based upon their personal performance and their contribution to
the financial success of the Company. To achieve this policy, a substantial
portion of each executive officer's total annual compensation is made contingent
upon the achievement of designated financial and performance goals. Accordingly,
each executive officer's compensation package is comprised of three elements:
(i) base salary which is designed primarily to be competitive with base salary
levels in effect both at companies within the temporary staffing industry which
are of comparable size to the Company and at companies outside of such industry
with which the Company competes for executive talent, (ii) annual bonuses
payable in cash and tied to the Company's attainment of financial milestones
based on criteria established by the Compensation Committee, and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests between
the executive officers and the Company's stockholders. As an employee's level of
responsibility and accountability within the Company increases over time, a
greater portion of his or her total compensation is intended to be dependent
upon the Company's performance, and stock price appreciation rather than upon
base salary.
FACTORS. The principal factors considered by the Compensation Committee in
establishing the components of each executive officer's compensation package for
fiscal 1997 are summarized below. However, the Compensation Committee may in its
discretion apply entirely different factors, particularly different measures of
financial performance, in setting executive compensation for future fiscal
years.
* BASE SALARY. The base salary for each executive officer is determined on
the basis of internal comparability considerations and the base salary levels in
effect for comparable positions at the Company's principal competitors, both
within and outside the temporary staffing industry. The base salary level for
executive officers is generally at a level determined for such individuals on
the basis of the external salary data of temporary staffing service companies
within the same geographic area and with small to medium market capitalization.
This group of companies is less inclusive than the temporary staffing index in
the performance graph included in the Company's Proxy Statement for purposes of
comparing the stock price performance of the Company's Common Stock. However,
the Company believes this smaller group of
19
companies gives a more accurate indication of the market for executive services
in which the Company competes. Salaries are reviewed on an annual basis, and
adjustments to each executive officer's base salary are based upon individual
performance and salary increases paid by the Company's competitors.
* ANNUAL INCENTIVE COMPENSATION. An annual bonus may be earned by selected
executive officers except the Chief Executive Officer based upon their
participating interest in a bonus pool tied to Company performance. Each
officer's participating interest is determined by the Compensation Committee at
the start of the fiscal year and may vary from year to year. The bonus pool for
fiscal 1997 was set at ten percent (10%) of the increase in net income of fiscal
1997 over fiscal 1996. For such purpose, net income was defined as the Company's
consolidated income before taxes less a provision for income taxes equal to
thirty-nine percent (39%) of pre-tax income. For fiscal 1997 there was an
additional incentive of two percent (2%) of the improved net profit over fiscal
1996 for each one tenth of one percent (1/10 of 1%) improvement of the ratio of
net profit to sales, and that incentive was to be added to the incentive total
distributed. The Chief Executive Officer's bonus, if any, is at the discretion
of the Compensation Committee and the Board. For fiscal 1997, no specific
personal performance goals were established for the executive officers as a
condition to their participation in the bonus pool; however, no bonus payout was
to be made to any officer unless his or her performance for the fiscal year was
considered to be at a satisfactory level. Accordingly, the Compensation
Committee reviewed the performance of the Chief Executive Officer, and the Chief
Executive Officer reviewed the performances of the other senior executive
officers, namely, the President and Chief Operating Officer, the Vice Chairman
of the Board and Chief Administrative Officer, and the Executive Vice President
and Chief Financial Officer, and made his recommendations to the Compensation
Committee. The Compensation Committee has delegated to those senior executive
officers the authority to review the performances of the other officers and key
employees who report to them directly. For fiscal 1997, the executive bonuses
ranged from 3.26% to 10.59% of total compensation.
For each subsequent fiscal year, the Compensation Committee will determine
whether or not to continue or modify the executive bonus program for that year
and, specifically, will designate the executive officers eligible to participate
in the program, specify what percentage of the bonus pool each of the
participants may earn, and determine the eligibility criteria for participation.
* LONG-TERM INCENTIVE COMPENSATION. Option grants are intended to align the
interests of each executive officer with those of the Company's stockholders and
to provide each individual with a significant incentive to manage the Company
from the perspective of an owner with an equity stake in the business. The
Compensation Committee determines the size of the option grant according to each
executive's position within the Company and sets a level it considers
appropriate to create a meaningful opportunity for stock ownership. In addition,
the Compensation Committee takes into account an individual's level of
responsibility and opportunity to influence the Company's financial results,
comparable awards made to individuals in similar positions within the industry,
and the number of unvested options held by each individual at the time of the
new grant. The relative weight given to each of these factors varies among
individuals at the Compensation Committee's discretion.
Each option grant allows the officer to acquire shares of the Company's
Common Stock at a fixed price per share (the market price on the date preceding
the grant date) over a specified period of time (up to ten years). The options
generally vest in installments over a four-year period, contingent upon the
executive officer's continued employment with the Company. The options generally
become exercisable with respect to twenty-five percent (25%) of the option
shares upon the optionee's completion of one year of service measured from the
vesting commencement date and the balance in 36 successive monthly installments
upon the optionee's completion of each month of service over the 36-month period
measured from the first anniversary of the vesting commencement date.
Accordingly, the option will provide a return to the executive officer only if
the executive officer remains employed by the Company for one or more years
during which the option vests, and then only if the market price of the
underlying shares appreciates over the option term.
20
TAX LIMITATION. As a result of federal tax legislation enacted in 1993, a
publicly-held company such as Western Staff Services, Inc. will not be allowed a
federal income tax deduction for compensation paid to the executive officers
named in the Summary Compensation Table, to the extent that compensation exceeds
one million dollars ($1,000,000) per officer. The compensation paid to the
Company's executive officers for fiscal 1997 did not exceed the one million
dollar limit per officer, nor is the compensation to be paid to the Company's
executive officers for fiscal 1998 expected to reach that level. Because it is
very unlikely that the compensation payable to any of the Company's executive
officers in the foreseeable future will approach the one million dollar
limitation, the Compensation Committee has decided not to take any action at
this time to limit or restructure the elements of compensation payable to the
Company's executive officers. The Committee will reconsider this decision should
the individual compensation of any executive officer ever approach the one
million dollar level.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In setting the compensation payable to the Company's Chief Executive
Officer, Mr. Stover, the Compensation Committee has sought to establish a
competitive rate of base salary, realizing that a significant percentage of his
overall compensation package is directly tied to Company performance and stock
price appreciation because of his position as a principal shareholder.
Mr. Stover's base salary is established through an evaluation of salaries
paid to similarly situated chief executive officers both at companies in the
industry which are of comparable size to the Company and at companies in other
industries with which the Company competes for executive personnel. In setting
Mr. Stover's base salary, it is the intent of the Compensation Committee to
provide him with a level of stability and certainty each year and not have this
particular component of compensation affected to any significant degree by
Company performance factors. In fiscal 1996, the Compensation Committee
conducted its annual review of Mr. Stover's base salary level and increased his
base salary from $215,000 to $250,000 for fiscal 1996. This base salary level
was continued for fiscal 1997.
The Compensation Committee did not award a cash bonus to Mr. Stover for
fiscal 1997, despite his efforts and contributions to the successful operation
of the Company throughout fiscal 1997. The Committee granted no option shares to
Mr. Stover during fiscal 1997 since he is a principal shareholder of the
Company.
Compensation Committee
Gilbert L. Sheffield,
Chairman of Compensation Committee
Jack D. Samuelson
Member of Compensation Committee
W. Robert Stover
Member of Compensation Committee
21
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned, by the Company's
Chief Executive Officer and the four other highest-paid executive officers whose
salary and bonus for fiscal 1997 was in excess of $100,000, for services
rendered in all capacities to the Company and its subsidiaries for each of the
last two fiscal years.(1) No executive officer who would have otherwise been
includable in such table on the basis of salary and bonus earned for fiscal 1997
has been excluded by reason of his or her termination of employment or change in
executive status during that fiscal year.(2) The individuals included in the
table will be collectively referred to as the "Named Officers."
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
------------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#)
- --------------------------------- ---- ---------- --------- ------------
W. Robert Stover................. 1997 250,000 -- --
Chairman of the Board of 1996 244,616 -- --
Directors and
Chief Executive Officer 1995 215,000 -- --
Michael K. Phippen............... 1997 222,115 23,531 --
President, Chief Operating 1996 177,826 37,527 100,000
Officer
and Director 1995 6,731(3) -- --
Harvey L. Maslin................. 1997 190,000 18,825 --
Vice Chairman of the Board of 1996 189,423 46,909 60,000
Directors
and Chief Executive Officer, 1995 185,000 35,410 --
Western
Medical Services, Inc.(4)
Paul A. Norberg.................. 1997 190,000 18,825 --
Executive Vice President, Chief 1996 180,000 28,145 60,000
Financial Officer and Director 1995 180,000 32,910 --
Ronald C. Picco(5)............... 1997 144,375 4,706 --
Senior Vice President, 1996 128,676 18,764 5,000
Operations
1995 11,567 -- --
- ------------------------
(1) Long-term compensation and all other compensation figures have not been
included in the table because such information is not applicable.
(2) Mr. Maslin is no longer with the Company. His employment concluded in
November 1997 after the start of fiscal 1998.
(3) Mr. Phippen joined the Company in October 1995. The salary reported above
for 1995 represents annual compensation earned by Mr. Phippen for the fiscal
year ended October 28, 1995.
(4) Mr. Maslin's previous title was Vice Chairman of the Board of Directors and
Chief Administrative Officer. Mr. Maslin's employment with the Company
concluded in November 1997. The Company has entered into a severance
agreement with Mr. Maslin. See "Employment Arrangements."
(5) Mr. Picco joined the Company in September 1995. The salary reported above
for 1995 represents the actual compensation earned by Mr. Picco for the
fiscal year ended October 28, 1995.
22
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock option grants made during fiscal 1997 under the
Company's 1996 Stock Option/ Stock Issuance Plan to the Named Officers. No stock
appreciation rights were granted to the Named Officers during such fiscal year.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR END VALUES
None of the Named Officers exercised any of their options during fiscal
1997. The table below sets forth information with respect to the unexercised
options held by them as of the end of such fiscal year. No stock appreciation
rights were exercised during such fiscal year, and no stock appreciation rights
were outstanding at the end of such fiscal year.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED "IN-THE-MONEY" OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR
YEAR END(#) END($)(1)(2)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
W. Robert Stover.......................................... -- -- -- --
Michael K. Phippen........................................ 35,935 64,065 $ 15,740 $ 28,060
Harvey L. Maslin(3)....................................... 24,646 38,438 24,365 16,836
Paul A. Norberg........................................... 24,646 38,438 24,365 16,836
Ronald C. Picco........................................... 1,875 3,125 821 1,369
- ------------------------
(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the option.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the in-the-money options at November 1, 1997
(based on the closing price of $14.438 for the Company's Common Stock on
Nasdaq for October 31, 1997, the trading day immediately preceding the end
of fiscal 1997) and the exercise price of the options.
(3) The vesting of options to purchase 38,438 shares of Common Stock that were
unexercisable as of the end of fiscal 1997 was accelerated and such options
are immediately exercisable pursuant to a severance agreement by and between
Mr. Maslin and the Company. See "Employment Arrangements."
EMPLOYMENT ARRANGEMENTS
The Company entered into an employment agreement with W. Robert Stover on
September 29, 1994 which provides for his continuing employment until he chooses
to retire or until his death. In addition to base annual compensation, subject
to adjustment with the mutual agreement of the parties, the agreement provides
that Mr. Stover may be paid bonuses based on the Company's economic
circumstances and his extraordinary efforts and contributions. The agreement was
amended as of November 2, 1996 to eliminate the death benefits otherwise payable
to Mr. Stover's widow or estate upon his death during the employment term and to
maintain Mr. Stover's base salary at $250,000 for fiscal 1996. The agreement was
amended effective August 14, 1997 to reinstate such death benefits, which
provide for the payment of three times Mr. Stover's annual compensation then in
effect in equal monthly installments over a four year period. There was no
change in Mr. Stover's base salary for fiscal 1997.
The Company does not have employment agreements with any other Named
Officers, and their employment with the Company may be terminated at any time at
the discretion of the Board of Directors. However, the Plan Administrator of the
1996 Stock Option Plan/Stock Issuance has authority to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding options
held by the Chief Executive Officer and the Company's other executive officers,
whether granted under that plan or any
23
predecessor plan, in the event their employment were to be terminated within a
designated period (whether involuntarily or through a forced resignation)
following: (i) an acquisition of the Company by merger or asset sale, or (ii) a
hostile takeover of the Company effected through a successful tender offer for
more than 50% of the Company's outstanding Common Stock or through a change in
the majority of the Board as a result of one or more contested elections for
Board membership over a period of 36 consecutive months.
The Company has entered into a severance agreement with Mr. Maslin that
provides, among other terms, for an immediate payment of two year's base salary
equal to $380,000, additional consideration not to exceed $25,000 and the
accelerated vesting of options to purchase 38,438 shares of Common Stock granted
under the 1996 Stock Option/Stock Issuance Plan, which were unvested at the end
of fiscal 1997. Pursuant to such severance agreement, Mr. Maslin must exercise
his vested options to purchase at least 60,000 shares of Common Stock by
February 17, 1998, and must exercise his remaining vested options to purchase
3,084 shares of Common Stock no later than October 27, 1999. In the event such
options are not exercised by such dates, they will expire.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established a Compensation Committee in March 1995.
The Compensation Committee currently consists of Messrs. Stover, Sheffield and
Samuelson. Except for Mr. Stover, no member of such Committee was at any time
during fiscal 1997 or at any other time an officer or employee of the Company.
No executive officer of the Company served on the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
For a description of transactions between the Company and members of the
Compensation Committee or their affiliates, see the "Certain Transactions"
section.
24
CERTAIN TRANSACTIONS
MANAGEMENT CONTRACT WITH WESTERN VIDEO IMAGES. The Company has a management
services contract with Western Video Images, Inc. ("WVI"), a corporation wholly
owned by Mr. Stover, the principal stockholder of the Company. Management fees
charged to WVI for fiscal 1997, fiscal 1996 and fiscal 1995 were $180,000,
$197,000 and $226,000, respectively. The Company provides accounting, tax,
legal, administrative and management support and services to WVI for a fee based
upon the gross sales of WVI. The fee is paid monthly in arrears for actual
services rendered. The Company believes that the terms of the management
services contract are commercially reasonable. WVI has arranged separate
financing for itself as required by its operations and does not receive any
financing from the Company.
In addition, the Company is the lessee of the principal facilities in which
WVI operates. WVI is charged for all costs of the lease for these facilities.
The Company will remain the lessee and has subleased the facilities to WVI until
October 31, 2000, the termination date of the lease obligation. The Company has
entered into an arrangement with WVI, whereby WVI will indemnify the Company
against any and all liability arising out of the Company's continuing
obligations under the lease.
OTHER TRANSACTIONS WITH AFFILIATES. On the date of the closing of the
Offering, the Company and all of its current stockholders entered into a Tax
Indemnification Agreement relating to their respective income tax liabilities.
Because the Company became fully subject to corporate income taxation after the
termination of the Company's S corporation status ("Effective Termination
Date"), the reallocation of income and deductions between the period during
which the Company was treated as an S corporation and the period during which
the Company became subject to corporate income taxation may increase the taxable
income of one party while decreasing that of another party. The Tax
Indemnification Agreement was intended to assure that taxes would be borne by
the Company on the one hand and by the current stockholders on the other, only
to the extent that such parties were treated as receiving the related income for
income tax purposes. Subject to certain limitations, the Tax Indemnification
Agreement generally provides that the current stockholders will be indemnified
by the Company with respect to federal and state income taxes shifted from a
Company taxable year subsequent to the Effective Termination Date to a taxable
year in which the Company was an S corporation, and the Company will be
indemnified by the current stockholders with respect to federal and state income
taxes shifted from an S corporation taxable year to a Company taxable year
subsequent to the Effective Termination Date. The Tax Indemnification Agreement
also provides that the current stockholders will pay or reimburse the Company
for any and all taxes of the Company which was formerly taxed as an S
corporation for any period ending on or prior to the Effective Termination Date
(other than certain taxes reflected in the Company's fiscal 1995 Consolidated
Financial Statements). In addition, the Tax Indemnification Agreement provides
that the amount of the S corporation distribution to current stockholders will
not exceed $5.0 million. Any payment made by the Company to the current
stockholders pursuant to the Tax Indemnification Agreement may be considered by
the Internal Revenue Service or state taxing authorities to be non-deductible by
the Company for income tax purposes.
In April 1996, prior to the Offering, the Company executed a Promissory Note
in the principal amount of $3,888,393 payable to the Stover Revocable Trust
dated 11/16/88, as amended. The Company likewise executed Promissory Notes
payable to Stephen R. Stover, Susan J. Stover and Amy J. Stover in the principal
amounts of $317,857 each and Promissory Notes payable to the Stephen R. Stover
Irrevocable Trust dated 11/16/88, the Susan J. Stover Irrevocable Trust dated
11/16/88 and the Amy J. Stover Irrevocable Trust dated 11/16/88 in the principal
amounts of $52,679 each. The principal amounts of these non-interest bearing
notes were calculated based on the $5.0 million limitation of the S corporation
distribution to current stockholders. The repayment schedules under these notes
included four consecutive quarterly installments equal to one-quarter of the
principal amounts on July 15, 1996, October 15, 1996, January 15, 1997 and April
15, 1997. The Company has fully paid to date in aggregate a total of $5.0
million under these notes, having paid the final installments of $1.25 million
in the aggregate on or about April 15, 1997. No further payments are due under
these notes.
25
During October 1995, the Company purchased the operations of one of its
franchise agents, Michael K. Phippen, now President and Chief Operating Officer
of the Company, for a total price of $5.9 million. The Company paid $1.5 million
in cash and agreed to make installment payments for the balance at an interest
rate of 6.50%. Installments of $973,000 in fiscal 1997 and $1.5 million in
fiscal 1996 have been paid and two additional installments will be paid in
fiscal 1998 and fiscal 1999 in the amounts of $973,000 and $972,000,
respectively.
Any future transactions between the Company and its officers, directors, and
affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties. Such transactions with such persons
will be subject to approval by a majority of the Company's outside directors or
will be consistent with policies approved by such outside directors.
26
COMPARISON OF STOCKHOLDER RETURN(1)
The graph depicted below reflects a comparison of the cumulative total
return (change in stock price plus reinvestment dividends) of the Company's
Common Stock with the cumulative total returns of the Standard and Poor's 500
Index and peer issuers in the temporary staffing industry.(2) The graph covers
the period from April 30, 1996, the date of the Offering, through the last
trading day of fiscal 1997.
The graph assumes that $100 was invested on April 30, 1996 in the Company's
Common Stock and in each index and that all dividends were reinvested. No cash
dividends have been declared on the Company's Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
WESTERN STAFF SERVICES, S&P 500 INDEX AND PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CUMULATIVE RETURN S&P 500 PEER GROUP WESTERN
4/30/96 $100 $100 $100
11/1/96 $107.58 $80.29 $89.74
10/31/97 $139.81 $93.35 $90.93
4/30/96 11/1/96 10/31/97
------------------ ------------------ ------------------
S&P 500 100 107.58 139.81
Peer Group 100 80.29 93.35
Western 100 89.74 90.93
The Company's stock was first traded publicly on April 30, 1996. The graph
depicts cumulative returns calculated on an annual basis on $100 invested in
Western stock, the S&P 500 Index and Peer Group Index comparing Kelly Services
Inc., Interim Services Inc., Manpower Inc., Olsten Corporation and Personnel
Group of America Inc.
- ------------------------
(1) The performance graph and all of the material in the Compensation Committee
Report is not deemed filed with the Securities and Exchange Commission, and
is not incorporated by reference to any filing
27
of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, whether made before or after the date of
this Proxy Statement and irrespective of any general incorporation language
in any such filing.
(2) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
28
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all executive officers, directors and greater than 10% stockholders
complied with all filing requirements applicable to them with respect to
transactions during fiscal 1997.
ANNUAL REPORT
A copy of the Annual Report of the Company for fiscal 1997 has been mailed
concurrently with this Proxy Statement to all stockholders entitled to notice of
and to vote at the Annual Meeting. The Annual Report is not incorporated into
this Proxy Statement and is not considered proxy solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the SEC on January 30,
1998. Stockholders may obtain a copy of this report, without charge, by writing
to Paul A. Norberg, Executive Vice President and Chief Financial Officer, at the
Company's executive offices at P.O. Box 9280, 301 Lennon Lane, Walnut Creek,
California 94598-2453.
Dated: February 17, 1998
THE BOARD OF DIRECTORS OF
WESTERN STAFF SERVICES, INC.
29
EXHIBIT A
1996 STOCK OPTION/STOCK ISSUANCE PLAN
AS PROPOSED TO BE AMENDED
30
WESTERN STAFF SERVICES, INC.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1996 Stock Option/Stock Issuance Plan (the "Plan") is intended to
promote the interests of Western Staff Services, Inc., a Delaware corporation
(the "Corporation"), by providing eligible individuals with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation (or its Parent or Subsidiary corporations).
B. The Plan became effective immediately upon the execution and final
pricing of the Underwriting Agreement for the initial public offering of the
Corporation's Common Stock on April 30, 1996 (referred to herein as the "Plan
Effective Date").
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in effect:
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:
(i) the acquisition directly or indirectly by any person or related
group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant to
a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept; or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning
of such period or (B) have been elected or nominated for election
as Board members during such period by at least a majority of the
Board members described in clause (A) who were still in office at
the time such election or nomination was approved by the Board.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's Common Stock, par value of
$0.01 per share.
CORPORATE TRANSACTION: either of the following stockholder-approved
transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all
of the Corporation's assets in complete liquidation or dissolution
of the Corporation.
31
EMPLOYEE: an individual who performs services while in the employ of
the Corporation or one or more Parent or Subsidiary corporations, subject to
the control and direction of the employer entity not only as to the work to
be performed but also as to the manner and method of performance.
EXERCISE DATE: the date on which the Corporation shall have received
written notice of the option exercise.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
-If the Common Stock is not at the time listed or admitted to trading
on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per
share on the date in question, as such price is reported by the National
Association of Securities Dealers, Inc. through the Nasdaq National
Market. If there is no reported closing selling price for Common Stock on
the date in question, then the closing selling price on the last
preceding date for which such quotation exists shall be determinative of
Fair Market Value.
-If the Common Stock is at the time listed or admitted to trading on
any national securities exchange, then the Fair Market Value shall be the
closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common
Stock on such exchange on the date in question, then the Fair Market
Value shall be the closing selling price on the exchange on the last
preceding date for which such quotation exists.
-For purposes of any option grants which are made at the time the
Underwriting Agreement for the initial public offering of the Common
Stock is executed and priced but prior to the time the Common Stock is
first traded on either a national securities exchange or the Nasdaq
National Market, the Fair Market Value per share of Common Stock shall be
deemed to be equal to the price per share at which the Common Stock is to
be sold in the initial public offering pursuant to the Underwriting
Agreement.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
(i) the direct or indirect acquisition by any person or related group of
persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, and
(ii) the acceptance of more than fifty percent (50%) of the securities
so acquired in such tender or exchange offer from holders other
than the officers and directors of the Corporation subject to the
short-swing profit restrictions of Section 16 of the 1934 Act.
INCENTIVE OPTION: a stock option which satisfies the requirements of
Code Section 422.
INVOLUNTARY TERMINATION: the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
32
(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is
effected by the Corporation without the individual's consent.
MISCONDUCT: the commission of any act of fraud, embezzlement or
dishonesty by the Optionee, Participant or other person in the Service of
the Corporation (or any Parent or Subsidiary), any unauthorized use or
disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider
as grounds for the dismissal or discharge of any Optionee, Participant or
other person in the Service of the Corporation (or any Parent or
Subsidiary).
1934 ACT: the Securities and Exchange Act of 1934, as amended from time
to time.
NON-STATUTORY OPTION: a stock option not intended to meet the
requirements of Code Section 422.
OPTIONEE: a person to whom an option is granted under the Discretionary
Option Grant or Automatic Option Grant Program.
PARTICIPANT: a person who is issued Common Stock under the Stock
Issuance Program.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for the purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the
inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more.
PLAN ADMINISTRATOR: the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such
entity is carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.
PRIMARY COMMITTEE: the committee of two (2) or more non-employee Board
members appointed by the Board to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders.
SECONDARY COMMITTEE: a committee of two (2) or more Board members
appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section
16 Insiders.
SECTION 16 INSIDER: an officer or director of the Corporation subject
to the short-swing profit liabilities of Section 16 of the 1934 Act.
SECTION 12(g) REGISTRATION DATE: the date on which the initial
registration of the Common Stock under Section 12(g) of the 1934 Act becomes
effective.
33
SERVICE: the performance of services on a periodic basis for the
Corporation (or any Parent or Subsidiary corporation) in the capacity of an
Employee, a non-employee member of the Board or an independent consultant or
advisor, except to the extent otherwise specifically provided in the
applicable stock option or stock issuance agreement.
TAKE-OVER PRICE: the greater of (i) the Fair Market Value per share of
Common Stock on the date the particular option to purchase such stock is
surrendered to the Corporation in connection with a Hostile Take-Over or
(ii) the highest reported price per share of Common Stock paid by the tender
offeror in effecting such Hostile Take-Over. However, if the surrendered
option is an Incentive Option, the Take-Over Price shall not exceed the
clause (i) price per share.
B. The following provisions shall be applicable in determining the Parent
and Subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation shall be considered to be a Parent of
the Corporation, provided each such corporation in the unbroken chain (other
than the Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
Each corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation shall be considered to be a
Subsidiary of the Corporation, provided each such corporation (other than the
last corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
III. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. The Plan shall be divided into three separate
components: the Discretionary Option Grant Program specified in Article Two, the
Automatic Option Grant Program specified in Article Three and the Stock Issuance
Program specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock in accordance with the
provisions of Article Two. Under the Automatic Option Grant Program, each
individual serving as a non-employee Board member on the Plan Effective Date and
each individual who first joins the Board as a non-employee director at any time
after such Plan Effective Date shall at periodic intervals receive option grants
to purchase shares of Common Stock in accordance with the provisions of Article
Three, with the first such grants to be made on the Plan Effective Date. Under
the Stock Issuance Program, eligible individuals may be issued shares of Common
Stock directly, either through the immediate purchase of such shares at a price
per share not less than eighty-five percent (85%) of the fair market value per
share of Common Stock at the time of issuance or as a bonus for past services
rendered the Corporation or the Corporation's attainment of financial
objectives.
B. GENERAL PROVISIONS. Unless the context clearly indicates otherwise, the
provisions of Articles One and Five shall apply to the Discretionary Option
Grant Program, Automatic Option Grant Program and the Stock Issuance Program and
shall accordingly govern the interests of all individuals under the Plan.
IV. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. No non-employee Board member shall be eligible
to serve on the Primary Committee if such individual has, during the twelve
(12)-month period immediately preceding the date of his or her appointment to
the Committee or (if shorter) the period commencing with the Section 12(g)
Registration Date and ending with the date of his or her
34
appointment to the Primary Committee, received an option grant or direct stock
issuance under the Plan or any other stock option, stock appreciation, stock
bonus or other stock plan of the Corporation (or any Parent or Subsidiary),
other than pursuant to the Automatic Option Grant Program.
B. Administration of the Discretionary Option Grant and Stock Issuance
Programs with respect to all other persons eligible to participate in those
programs may, at the Board's discretion, be vested in the Primary Committee or a
Secondary Committee, or the Board may retain the power to administer those
programs with respect to all such persons. The members of the Secondary
Committee may include Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of the
Primary Committee and any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority to establish such rules
and regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant Program or
Stock Issuance Program under its jurisdiction or any stock option or stock
issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and no Plan Administrator shall exercise any discretionary functions with
respect to option grants made pursuant to that program.
V. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
Program under Article Two and the Stock Issuance Program under Article Four
shall be limited to the following:
(i) officers and other key employees of the Corporation (or its Parent or
Subsidiary corporations) who render services which contribute to the
management, growth and financial success of the Corporation (or its
parent or subsidiary corporations);
(ii) non-employee members of the Board other than those serving as Plan
Administrator; and
(iii) those consultants or other independent advisors who provide valuable
services to the Corporation (or its Parent or Subsidiary corporations).
B. The non-employee Board members serving as Plan Administrator shall not
be eligible during such period of service to participate in the Discretionary
Option Grant and Stock Issuance Programs or in any other stock option, stock
purchase, stock bonus or other stock plan of the Corporation (or its Parent or
Subsidiary corporations). Such individuals shall, however, be eligible to
receive automatic option grants pursuant to the provisions of Article Three.
35
C. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority (subject to the provisions of
the Plan) to determine, (i) with respect to the option grants under the
Discretionary Option Grant Program, which eligible persons are to receive option
grants, the time or times when such option grants are to be made, the number of
shares to be covered by each such grant, the status of the granted option as
either an Incentive Option or a Non-Statutory Option, the time or times at which
each option is to become exercisable, the vesting schedule (if any) applicable
to the option shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to be issued to
each Participant, the vesting schedule (if any) applicable to the issued shares
and the consideration to be paid for such shares.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the Plan and
shall be drawn from either the Corporation's authorized but unissued shares of
Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
1,033,812 shares, subject to adjustment from time to time in accordance with the
provisions of this Section VI.
B. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year.
C. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full (including any option
cancelled in accordance with the cancellation-regrant provisions of Section IV
of Article Two of the Plan), then the shares subject to the portion of each
option not so exercised shall be available for subsequent issuance under the
Plan. Shares subject to any stock appreciation rights exercised under the Plan
and all share issuances under the Plan, whether or not the shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an outstanding option under the Plan be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable under
the Plan be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an outstanding option under the Plan
or the vesting of a direct share issuance made under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the share issuance, and not by the net number of shares of Common Stock
actually issued to the holder of such option or share issuance.
D. Should any change be made to Common Stock issuable under the Plan by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one individual participating in the Plan may be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances in the aggregate per calendar year, (iii) the number and/or class of
securities for which automatic-option grants are to be subsequently made per
eligible non-employee Board member under the Automatic Option Grant Program and
(iv) the number and/or class of securities and price per share in effect under
each option outstanding under either the Discretionary Option Grant or Automatic
Option Grant Program. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program shall be
authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or Non-Statutory
Options. Individuals who are not Employees of the Corporation or its Parent or
Subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. OPTION PRICE.
1. The option price per share shall be fixed by the Plan Administrator
in accordance with the following provisions:
(i) The option price per share of Common Stock subject to an Incentive
Option shall in no event be less than one hundred percent (100%) of
the Fair Market Value of such Common Stock on the grant date.
(ii) The option price per share of Common Stock subject to a
Non-Statutory Option shall in no event be less than eighty-five
percent (85%) of the Fair Market Value of such Common Stock on the
grant date.
2. The option price shall become immediately due upon exercise of the
option and, subject to the provisions of Section I of Article Five and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:
(i) full payment in cash or check drawn to the Corporation's order;
(ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on
the Exercise Date (as such term is defined below);
(iii) full payment in a combination of shares of Common Stock held for
the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued
at Fair Market Value on the Exercise Date and cash or check drawn
to the Corporation's order; or
(iv) full payment through a broker-dealer sale and remittance procedure
pursuant to which the Optionee shall provide irrevocable written
instructions to (A) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate option price payable
for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation in connection with such purchase and (B) the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
Except to the extent the sale and remittance procedure is used in
connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the
37
Plan Administrator and set forth in the instrument evidencing the grant. No such
option, however, shall have a maximum term in excess of ten (10) years from the
grant date.
C. TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise period applicable to
any outstanding options held by the Optionee at the time of cessation of Service
or death.
(i) Should an Optionee cease Service for any reason (including death or
Permanent Disability) while holding one or more outstanding options
under this Article Two, then none of those options shall (except to
the extent otherwise provided pursuant to subparagraph 2 below)
remain exercisable for more than a twelve (12)-month period (or such
shorter period determined by the Plan Administrator and set forth in
the instrument evidencing the grant) measured from the date of such
cessation of Service.
(ii) Any option held by the Optionee under this Article Two and
exercisable in whole or in part on the date of his or her death may
be subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with
the laws of descent and distribution. However, the right to
exercise such option shall lapse upon the earlier of (A) the first
anniversary of the date of the Optionee's death (or such shorter
period determined by the Plan Administrator and set forth in the
instrument evidencing the grant) or (B) the specified expiration
date of the option term. Accordingly, upon the occurrence of the
earlier event, the option shall terminate and cease to remain
outstanding.
(iii) Under no circumstances shall any such option be exercisable after
the specified expiration date of the option term.
(iv) During the applicable post-Service exercise period, the option may
not be exercised in the aggregate for more than the number of
shares (if any), in which the Optionee is vested at the time of his
or her cessation of Service. Upon the expiration of the limited
post-Service exercise period or (if earlier) upon the specified
expiration date of the option term, each such option shall
terminate and cease to remain outstanding with respect to any
vested shares for which the option has not otherwise been
exercised. However, each outstanding option shall immediately
terminate and cease to remain outstanding, at the time of the
Optionee's cessation of Service, with respect to any shares for
which the option is not otherwise at that time exercisable or in
which the Optionee is not otherwise vested.
(v) Should the Optionee's Service be terminated for Misconduct, then all
outstanding options held by the Optionee under this Article Two
shall terminate immediately and cease to remain outstanding.
2. The Plan Administrator shall have the discretion, exercisable either at
the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number
of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments in which
the Optionee would have vested under the option had the Optionee
continued in Service.
38
D. STOCKHOLDER RIGHTS.
An Optionee shall have no stockholder rights with respect to any shares
covered by the option until such individual shall have exercised the option,
paid the option price for the purchased shares and become the holder of record
of those shares.
E. TRANSFERABILITY.
During the lifetime of the Optionee, any Incentive Option shall be
exercisable only by the Optionee and shall not be assignable or transferable
other than by will or by the laws of descent and distribution following the
Optionee's death. However, a Non-Statutory Option may be assigned in whole or in
part during the Optionee's lifetime in accordance with the terms of the
instrument evidencing the grant. The terms applicable to the assigned portion of
any Non-Statutory Option shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
F. REPURCHASE RIGHTS.
The shares of Common Stock acquired upon the exercise of any Article Two
option grant may be subject to repurchase by the Corporation in accordance with
the following provisions:
(i) The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock under this Article Two.
Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase any or
all of those unvested shares at the option price paid per share. The
terms and conditions upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the
instrument evidencing such repurchase right.
(ii) All of the Corporation's outstanding repurchase rights under this
Article Two shall automatically terminate, and all shares subject
to such terminated rights shall immediately vest in full, upon the
occurrence of a Corporate Transaction, except to the extent:(A) any
such repurchase right is expressly assigned to the successor
corporation (or parent thereof) in connection with the Corporate
Transaction or (B) such termination is precluded by other
limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
(iii) The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of
Service, to cancel the Corporation's outstanding repurchase rights
with respect to one or more shares purchased or purchasable by the
Optionee under this Article Two and thereby accelerate the vesting
of such shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as Non-Statutory Options when issued under the Plan shall NOT be
subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the
respective date or dates of grant) of Common Stock for which one or more options
granted to any Employee under this Plan (or any other option plan of the
Corporation or its Parent or Subsidiary corporations) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which
39
such options are granted. Should the number of shares of Common Stock for which
any Incentive Option first becomes exercisable in any calendar year exceed the
applicable One Hundred Thousand Dollar ($100,000) limitation, then that option
may nevertheless be exercised in that calendar year for the excess number of
shares as a Non-Statutory Option.
B. 10% STOCKHOLDER. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the Code)
possessing ten percent (10%) or more of the total combined voting power of all
classes of stock of the Corporation or any one of its Parent or Subsidiary
corporations, then the option price per share shall not be less than one hundred
ten percent (110%) of the Fair Market Value per share of Common Stock on the
grant date, and the option term shall not exceed five (5) years, measured from
the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any Corporate Transaction, each option which is at the
time outstanding under this Article Two shall automatically accelerate so that
each such option shall, immediately prior to the specified effective date for
the Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. However, an outstanding option
under this Article Two shall NOT so accelerate if and to the extent: (i) such
option is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation or parent thereof or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation or
parent thereof, (ii) such option is to be replaced with a cash incentive program
of the successor corporation which preserves the option spread existing at the
time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option, or (iii)
the acceleration of such option is subject to other limitations imposed by the
Plan Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
B. Immediately following the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
C. Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the option price
payable per share, provided the aggregate option price payable for such
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan on both an aggregate and per
participant basis following the consummation of the Corporate Transaction shall
be appropriately adjusted.
D. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in whole or in part in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed twelve (12) months) following the effective date of any Corporate
Transaction in which those options are assumed or replaced and do not otherwise
accelerate. Any options so accelerated shall remain exercisable for fully-vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the twelve (12)-month period measured from the effective date of
the Involuntary Termination. In addition, the Plan Administrator may provide
that one or more of the Corporation's
40
outstanding repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate in whole or in
part, and the shares subject to those terminated rights shall accordingly vest.
E. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in whole or in part in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed twelve (12) months) following the effective date of any Change in
Control. Each
option so accelerated shall remain exercisable for fully-vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of the
twelve (12)-month period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation's outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate in whole or in part, and the shares subject to those terminated rights
shall accordingly vest.
F. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Qualified Option.
G. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected Optionees, the cancellation
of any or all outstanding options under this Article Two and to grant in
substitution new options under the Plan covering the same or different numbers
of shares of Common Stock but with an option price per share not less than (i)
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the new grant date in the case of a grant of an Incentive Option, (ii) one
hundred ten percent (110%) of such Fair Market Value in the case of a grant of
an Incentive Option to a 10% Stockholder or (iii) eighty-five percent (85%) of
such Fair Market Value in the case of all other grants.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its discretion
to implement the stock appreciation right provisions of this Section V, one or
more Optionees may be granted the right, exercisable upon such terms and
conditions as the Plan Administrator may establish, to surrender all or part of
an unexercised option under this Article Two in exchange for a distribution from
the Corporation in an amount equal to the excess of (i) the Fair Market Value
(on the option surrender date) of the number of shares in which the Optionee is
at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate exercise price payable for such vested shares.
B. No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the later of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in
41
accordance with the terms of the instrument evidencing such option, but in no
event may such rights be exercised more than ten (10) years after the date of
the option grant.
D. One or more officers of the Corporation subject to the short-swing profit
restrictions of the 1934 Act may, in the Plan Administrator's sole discretion,
be granted limited stock appreciation rights in tandem with their outstanding
options under this Article Two. Upon the occurrence of a Hostile Take-Over, the
officer shall have a thirty (30)-day period in which he or she may surrender any
outstanding options with such a limited stock appreciation right in effect for
at least six (6) months to the Corporation, to the extent such option is at the
time exercisable for fully vested shares of Common Stock. The officer shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to each surrendered option (or surrendered portion of
such option) over (ii) the aggregate exercise price payable for such shares. The
cash distribution shall be made within five (5) days following the date the
option is surrendered to the Corporation, and neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
the option surrender and cash distribution. Any unsurrendered portion of the
option shall continue to remain outstanding and become exercisable in accordance
with the terms of the instrument evidencing such grant.
E. The shares of Common Stock subject to any option surrendered for an
appreciation distribution pursuant to this Section V shall not be available for
subsequent issuance under the Plan.
42
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
A. ELIGIBLE OPTIONEES. The individuals eligible to receive automatic option
grants pursuant to the provisions of this Article Three program shall be limited
to those individuals who are serving as non-employee Board members on the Plan
Effective Date or who are first elected or appointed as non-employee Board
members on or after the Plan Effective Date, whether through appointment by the
Board or election by the Corporation's stockholders. Each non-employee Board
member eligible to participate in the Automatic Option Grant Program pursuant to
the foregoing criteria shall be designated an Eligible Director for purposes of
the Plan.
B. LIMITATION. Except for the option grants to be made pursuant to the
provisions of this Automatic Option Grant Program, Eligible Directors who are
serving as the Plan Administrator shall not be eligible during such period of
service to receive any additional option grants or stock issuances under this
Plan or any other stock plan of the Corporation (or any Parent or Subsidiary
corporation).
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATES. Option grants shall be made under this Article Three on
the dates specified below:
1. INITIAL GRANT. Each Eligible Director who is a non-employee Board
member on the Plan Effective Date and each Eligible Director who is first
elected or appointed as a non-employee Board member after such date shall
automatically be granted, on the Plan Effective Date or on the date of such
initial election or appointment (as the case may be), a Non-Statutory Option
to purchase 2,000 shares of Common Stock upon the terms and conditions of
this Article Three. In no event, however, shall a non-employee Board member
be eligible to receive such an initial option grant if such individual has
at any time been in the prior employ of the Corporation (or any Parent or
Subsidiary corporation).
2. ANNUAL GRANT. On the date of each Annual Stockholders Meeting,
beginning with the 1997 Annual Meeting, each individual who will continue to
serve as an Eligible Director shall automatically be granted, whether or not
such individual is standing for re-election as a Board member at that Annual
Meeting, a Non-Statutory Option to purchase an additional 2,000 shares of
Common Stock upon the terms and conditions of this Article Three, provided
he or she has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such annual option grants
any one Eligible Director may receive over his or her period of Board
service, and non-employee Board members who have previously been in the
employ of the Corporation (or any Parent or Subsidiary corporation) shall be
eligible to receive such annual option grants over their period of continued
Board service.
B. EXERCISE PRICE. The exercise price per share of Common Stock subject to
each automatic option grant made under this Article Three shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
automatic grant date.
C. PAYMENT. The exercise price shall be payable in one of the alternative
forms specified below:
(i) full payment in cash or check drawn to the Corporation's order;
(ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on
the Exercise Date (as such term is defined below);
(iii) full payment in a combination of shares of Common Stock held for
the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes
43
and valued at Fair Market Value on the Exercise Date and cash or
check drawn to the Corporation's order; or
(iv) full payment through a sale and remittance procedure pursuant to
which the Optionee shall provide irrevocable written instructions
to (A) a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares and (B) the Corporation to deliver
the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
Except to the extent the sale and remittance procedure specified above is
used for the exercise of the option for vested shares, payment of the exercise
price for the purchased shares must accompany the exercise notice.
D. OPTION TERM. Each automatic grant under this Article Three shall have a
maximum term of ten (10) years measured from the automatic grant date.
E. EXERCISABILITY. Each automatic grant shall become fully exercisable for
the option shares upon the Optionee's completion of one (1) year of Board
service measured from the automatic grant date. The exercisability of each
automatic grant outstanding under this Article Three shall be accelerated as
provided in Section II.G and Section III of this Article Three.
F. TRANSFERABILITY. Any automatic option grant may be assigned in whole or
in part during the Optionee's lifetime in accordance with the terms of the
instrument evidencing the grant. The terms applicable to the assigned portion of
the automatic option grant shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
G. EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
1. Should the Optionee cease to serve as a Board member for any reason
(other than death or Permanent Disability) while holding one or more
automatic option grants under this Article Three, then such individual shall
have a twelve (12)-month period following the date of such cessation of
Board membership in which to exercise each such option for any or all of the
shares of Common Stock for which that option is exercisable at the time of
such cessation of Board service. Each such option shall immediately
terminate and cease to be outstanding, at the time of such cessation of
Board service, with respect to any shares for which the option is not
otherwise at that time exercisable.
2. Should the Optionee die within twelve (12) months after cessation of
Board service, then any automatic option grant held by the Optionee at the
time of death may subsequently be exercised, for any or all of the shares of
Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Board membership (less any option shares
subsequently purchased by the Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Any such exercise must occur
within twelve (12) months after the date of the Optionee's cessation of
Board service.
3. Should the Optionee die or become Permanently Disabled while serving
as a Board member, then any automatic option grant held by such Optionee
under this Article Three shall accelerate in full, and the Optionee (or the
representative of the Optionee's estate or the person or persons to whom the
option is transferred upon the Optionee's death) shall have a twelve
(12)-month period following the date of the Optionee's cessation of Board
membership in which to exercise such option for any or all of the shares of
Common Stock subject to the option at the time of such cessation of Board
membership.
44
4. In no event shall any automatic grant under this Article Three
remain exercisable after the expiration date of the ten (10)-year option
term. Upon the expiration of the applicable post-service exercise period
under subparagraph 1, 2 or 3 above or (if earlier) upon the expiration of
the ten (10)-year option term, the automatic grant shall terminate and cease
to be outstanding for any unexercised shares for which the option was
otherwise exercisable at the time of the Optionee's cessation of Board
membership.
H. STOCKHOLDER RIGHTS. The holder of an automatic option grant under this
Article Three shall have none of the rights of a stockholder with respect to any
shares subject to such option until such individual shall have exercised the
option, paid the exercise price for the purchased shares and become the holder
of record of those shares.
III. CORPORATE TRANSACTION/CHANGES IN CONTROL
A. In the event of any Corporate Transaction, each automatic option grant at
the time outstanding under this Article Three shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. Immediately after the
consummation of the Corporate Transaction, all automatic option grants under
this Article Three shall terminate and cease to be outstanding, except to the
extent assumed by the successor entity or its parent company.
B. In connection with any Change in Control, each automatic option grant at
the time outstanding under this Article Three shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Change in Control, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. Any option accelerated in
connection with the Change in Control shall remain fully exercisable until the
expiration or sooner termination of the option term.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each option held
by him or her under this Article Three for a period of at least six (6) months.
The Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the surrendered option (whether or
not the option is otherwise at the time exercisable for those shares) over (ii)
the aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the surrender of the option to the
Corporation. Neither the approval of the Plan Administrator nor the consent of
the Board shall be required in connection with such option surrender and cash
distribution. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall not be available for subsequent
issuance under the Plan.
D. The automatic option grants outstanding under this Article Three shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, together with the
automatic option grants outstanding under this Article Three, may not be amended
at intervals more frequently than once every six (6) months, other than to the
extent necessary to comply with applicable Federal income tax laws and
regulations.
V. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.
45
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate purchases without any intervening stock option
grants. The issued shares shall be evidenced by a Stock Issuance Agreement
("Issuance Agreement") that complies with the terms and conditions of this
Article Four.
A. CONSIDERATION.
1. Shares of Common Stock drawn from the Corporation's authorized but
unissued shares of Common Stock ("Newly Issued Shares") shall be issued
under the Stock Issuance Program for one or more of the following items of
consideration which the Plan Administrator may deem appropriate in each
individual instance:
a. full payment in cash or check made payable to the Corporation's
order;
b. a promissory note payable to the Corporation's order in one or
more installments, which may be subject to cancellation in whole or in
part upon terms and conditions established by the Plan Administrator; or
c. past services rendered to the Corporation or any Parent or
Subsidiary corporation.
2. Newly Issued Shares may, in the absolute discretion of the Plan
Administrator, be issued for consideration with a value less than one
hundred percent (100%) of the Fair Market Value of such shares at the time
of issuance, but in no event less than eighty-five percent (85%) of such
Fair Market Value.
3. Shares of Common Stock reacquired by the Corporation and held as
treasury shares ("Treasury Shares") may be issued under the Stock Issuance
Program for such consideration (including one or more of the items of
consideration specified in subparagraph 1. above) as the Plan Administrator
may deem appropriate, whether such consideration is in an amount less than,
equal to or greater than the Fair Market Value of the Treasury Shares at the
time of issuance. Treasury Shares may, in lieu of any cash consideration, be
issued subject to such vesting requirements tied to the Participant's period
of future Service or the Corporation's attainment of specified performance
objectives as the Plan Administrator may establish at the time of issuance.
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program may,
in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments
over the Participant's period of Service. The elements of the vesting
schedule applicable to any unvested shares of Common Stock issued under the
Stock Issuance Program, namely:
a. the Service period to be completed by the Participant or the
performance objectives to be achieved by the Corporation;
b. the number of installments in which the shares are to vest;
c. the interval or intervals (if any) which are to lapse between
installments; and
d. the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting
schedule, shall be determined by the Plan Administrator and incorporated
into the Issuance Agreement executed by the Corporation and the
Participant at the time such unvested shares are issued.
46
2. The Participant shall have full stockholder rights with respect to
any shares of Common Stock issued to him or her under the Plan, whether or
not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any
regular cash dividends paid on such shares. Any new, additional or different
shares of stock or other property (including money paid other than as a
regular cash dividend) which the Participant may have the right to receive
with respect to his or her unvested shares by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration or by reason of any Corporate
Transaction shall be issued, subject to (i) the same vesting requirements
applicable to his or her unvested shares and (ii) such escrow arrangements
as the Plan Administrator shall deem appropriate.
3. Should the Participant cease to remain in Service while holding one
or more unvested shares of Common Stock under the Stock Issuance Program,
then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further stockholder rights
with respect to those shares. To the extent the surrendered shares were
previously issued to the Participant for consideration paid in cash or cash
equivalent (including the Participant's purchase-money promissory note), the
Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares. The surrendered shares may, at the Plan Administrator's
discretion, be retained by the Corporation as Treasury Shares or may be
retired to authorized but unissued share status.
4. The Plan Administrator may in its discretion elect to waive the
surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such
waiver shall result in the immediate vesting of the Participant's interest
in the shares of Common Stock as to which the waiver applies. Such waiver
may be effected at any time, whether before or after the Participant's
cessation of Service or the attainment or non-attainment of the applicable
performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all unvested shares of
Common Stock at the time outstanding under this Stock Issuance Program shall
immediately vest in full and the Corporation's repurchase/cancellation rights
shall terminate, except to the extent: (i) any such right is expressly assigned
to the successor corporation (or parent thereof) in connection with the
Corporate Transaction or (ii) such termination is precluded by other limitations
imposed in the Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within
twelve (12) months following the effective date of any Corporate Transaction in
which those repurchase/cancellation rights are assigned to the successor
corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within
twelve (12) months following the effective date of any Change in Control.
47
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing such unvested shares. To the extent an escrow
arrangement is utilized, the unvested shares and any securities or other assets
distributed with respect to such shares (other than regular cash dividends)
shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such shares (or the distributed securities or assets)
vests. If the unvested shares are issued directly to the Participant, the
restrictive legend on the certificates for such shares shall read substantially
as follows:
'THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE ACCORDINGLY
SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II) CANCELLATION OR REPURCHASE
IN THE EVENT THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES
TO REMAIN IN THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS
AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK
ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER
PREDECESSOR IN INTEREST) DATED , 199 , A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION.'
B. The Participant shall have no right to transfer any unvested shares of
Common Stock issued to him or her under the Stock Issuance Program. For purposes
of this restriction, the term "transfer" shall include (without limitation) any
sale, pledge, assignment, encumbrance, gift or other disposition of such shares,
whether voluntary or involuntary. Upon any such attempted transfer, the unvested
shares shall immediately be cancelled in accordance with substantially the same
procedure in effect under Section I.B.3 of this Article Four, and neither the
Participant nor the proposed transferee shall have any rights with respect to
such cancelled shares. However, the Participant shall have the right to make a
gift of unvested shares acquired under the Stock Issuance Program to his or her
spouse or issue, including adopted children, or to a trust established for the
benefit of such spouse or issue, provided the donee of such shares delivers to
the Corporation a written agreement to be bound by all the provisions of the
Stock Issuance Program and the Issuance Agreement applicable to the gifted
shares.
48
ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any Optionee or
Participant (including an Optionee or Participant who is an officer of the
Corporation) in the exercise of one or more options granted to such Optionee
under the Discretionary Option Grant Program or the purchase of one or more
shares issued to such Participant under the Stock Issuance Program, including
the satisfaction of any Federal and state income and employment tax obligations
arising therefrom, by (i) authorizing the extension of a loan from the
Corporation to such Optionee or Participant or (ii) permitting the Optionee or
Participant to pay the option price or purchase price for the purchased Common
Stock in installments over a period of years. The terms of any loan or
installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate at the
time such option price or purchase price becomes due and payable. Loans or
installment payments may be authorized with or without security or collateral.
In all events, the maximum credit available to the Optionee or Participant may
not exceed the option or purchase price of the acquired shares (less the par
value of such shares) plus any Federal, state and local income and employment
tax liability incurred by the Optionee or Participant in connection with the
acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever,
However, (i) no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan, nor
adversely affect the rights of any Participant with respect to Common Stock
issued under the Stock Issuance Program prior to such action, unless the
Optionee or Participant consents to such amendment, and (ii) any amendment made
to the Automatic Option Grant Program (or any options outstanding thereunder)
shall be in compliance with the limitation of Section IV of Article Three. In
addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan to (i) materially increase the maximum number of
shares issuable under the Plan or the number of shares for which options may be
granted to newly elected or continuing Eligible Directors under Article Three of
the Plan or the maximum number of shares for which any one individual
participating in the Plan may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances in the aggregate per
calendar year, except for permissible adjustments under Section VI subsection C
of Article One, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program, which are in both instances in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under the Discretionary Option Grant Program or the Stock
Issuance Program are held in escrow until stockholder approval is obtained for a
sufficient increase in the number of shares available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess option grants or excess share issuances are
made, then (i) any unexercised excess options shall terminate and cease to be
exercisable and (ii) the Corporation shall promptly refund the purchase price
paid for any excess shares actually issued under the Plan and held in
49
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of stock options for such shares or the vesting of such shares under
the Plan shall be subject to the satisfaction of all applicable Federal, foreign
state and local income tax and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and in accordance with the
provisions of this Section III of Article Five and such supplemental rules as
the Plan Administrator may from time to time adopt (including the applicable
harbor provisions of Rule 16b-3 of the Securities and Exchange Commission),
provide any or all holders of Non-Statutory Options (other than the automatic
grants made pursuant to Article Three of the Plan) or unvested shares under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Federal, foreign state and local income and employment tax liabilities
incurred by such holders in connection with the exercise of their options or the
vesting of their shares (the "Taxes"). Such right may be provided to any such
holder in either or both of the following formats:
1. STOCK WITHHOLDING: The holder of the Non-Statutory Option or
unvested shares may be provided with the election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such non-statutory option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the applicable Taxes (not to exceed one hundred percent
(100%)) designated by the holder.
2. STOCK DELIVERY: The Plan Administrator may, in its discretion,
provide the holder of the Non-Statutory Option or the unvested shares with
the election to deliver to the Corporation, at the time the Non-Statutory
Option is exercised or the shares vest, one or more shares of Common Stock
previously acquired by such individual (other than in connection with the
option exercise or share vesting triggering the Taxes) with an aggregate
Fair Market Value equal to the percentage of the Taxes incurred in
connection with such option exercise or share vesting (not to exceed one
hundred percent (100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan became effective on April 30, 1996 and was approved by
stockholders on April 26, 1996. The Board adopted and approved amendments to the
Plan to provide for an increase in the number of shares subject to grants under
the Automatic Option Grant Program from 1,000 to 2,000 shares and to reflect the
amendments promulgated by the Securities and Exchange Commission to Rule 16b-3
which allow for greater transferability of Non-Statutory Options (collectively,
the "Amendments") in August 1997 and December 1997, respectively. None of the
Amendments shall be given effect until they shall have been approved by the
Corporation's stockholders.
B. The Plan shall terminate upon the earlier of (i) ten (10) years
following the Plan Effective Date or (ii) the date on which all shares available
for issuance under the Plan shall have been issued pursuant to the exercise of
the options granted under the Plan or the issuance of shares (whether vested or
unvested) under the Stock Issuance Program. If the date of termination is
determined under clause (i) above, then all option grants and unvested share
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants or issuance.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or share issuances under the Plan shall be used for
general corporate purposes.
50
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under the
Plan, the issuance of any shares under the Stock Issuance Program, and the
issuance of Common Stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and Common Stock issued pursuant to
it.
B. No shares of Common Stock or other assets shall be issued or delivered
under this Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which stock of the same class is then listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of the Plan
shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any Parent or Subsidiary corporation)
for any period of specific duration, and the Corporation (or any Parent or
Subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or service at any time and for any reason, with or
without cause.
VIII. MISCELLANEOUS PROVISIONS
A. Except as provided in the Plan, the right to acquire Common Stock or
other assets under the Plan may not be assigned, encumbered or otherwise
transferred by any Optionee or Participant.
B. The provisions of the Plan relating to the exercise of options and the
vesting of shares shall be governed by the laws of the State of California, as
such laws are applied to contracts entered into and performed in such State.
C. The provisions of the Plan shall inure to the benefit of, and be binding
upon, the Corporation and its successors or assigns, whether by Corporate
Transaction or otherwise, and the Participants and Optionees, the legal
representatives of their respective estates, their respective heirs or legatees
and their permitted assignees.
51
WESTERN STAFF SERVICES, INC.
PROXY
The undersigned, revoking previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated
February 17, 1998 in connection with the 1998 Annual Meeting of stockholders to
be held at 10:00 a.m. on March 26, 1998, at the Walnut Creek Marriott Hotel,
located at 2355 N. Main Street, Walnut Creek, California and hereby appoints
W. Robert Stover and Robin A. Herman, and each of them, (with full power to
act alone), the attorneys and proxies of the undersigned, with power of
substitution to each to vote all shares of the Common Stock of WESTERN STAFF
SERVICES, INC. registered in the name provided herein which the undersigned
is entitled to vote at the 1998 Annual Meeting of stockholders, and at any
adjournment or adjournments thereof, with all the powers the undersigned
would have if personally present. Without limiting the general authorization
hereby given, the proxies are, and each of them is, instructed to vote or act
as follows on the proposals set forth in the Proxy Statement.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR
THE RATIFICATION OF INDEPENDENT ACCOUNTANTS AND FOR THE AMENDMENT OF THE
COMPANY'S 1996 STOCK OPTION/STOCK ISSUANCE PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
(SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATION, SIMPLY SIGN ON THE REVERSE SIDE. YOU NEED NOT MARK
ANY BOXES.)
/ X / PLEASE MARK YOUR
VOTE AS IN THIS
EXAMPLE USING
DARK INK ONLY
1. ELECTION OF DIRECTORS:
FOR all nominees listed below WITHHOLD AUTHORITY to vote for
---- (except as indicated) ---- all nominees listed below
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW.
Michael K. Phippen
Paul A. Norberg
2. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE LLP, AS THE
INDEPENDENT ACCOUNTANTS OF THE COMPANY, FOR FISCAL 1998:
FOR AGAINST ABSTAIN
---- ---- ----
3. AMENDMENT OF ARTICLES TWO AND THREE OF THE 1996 STOCK OPTION/STOCK
ISSUANCE PLAN: Greater transferability of Non-Statutory Options and an
increase in the number of shares of Common Stock annually granted pursuant to
the Automatic Grant Program on the date of each Annual Meeting (beginning
with the 1998 Annual Meeting) from 1,000 to 2,000 shares, subject to the
restrictions of the Plan
FOR AGAINST ABSTAIN
---- ---- ----
Date
--------------------------------
--------------------------------
Signature
--------------------------------
Signature
This Proxy should be marked, dated
and signed by the stockholder(s)
exactly as his or her name appears
hereon, and returned promptly in
the enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate. If shares are
held by joint tenants or as
community property, both should
sign.