UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
KENSEY NASH CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[Kensey Nash Corporation LOGO]
735 Pennsylvania Drive
Exton, Pennsylvania 19341
May 11, 2006
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to a special meeting
of stockholders of Kensey Nash Corporation. The special meeting will be held on
Thursday, June 22, 2006, beginning at 10:00 a.m., local time, at the offices of
Kensey Nash Corporation, 735 Pennsylvania Drive, Exton, Pennsylvania 19341.
Directions to our new corporate headquarters are located on our website,
www.kenseynash.com, under "Contact Us". The formal notice of the special meeting
appears on the next page.
The purpose of the special meeting is to vote on a proposal to approve the Fifth
Amended and Restated Kensey Nash Corporation Employee Incentive Compensation
Plan. The attached Notice of Special Meeting of Stockholders and Proxy Statement
provide detailed information about this matter.
It is important that your views be represented whether or not you are able to be
present at the special meeting. Please sign and date the enclosed proxy card and
promptly return it to us in the postage-prepaid envelope. If you sign and return
your proxy card without specifying your choice, it will be understood that you
wish to have your shares voted in accordance with the recommendation of the
Board of Directors contained in the Proxy Statement.
We are gratified by your continued interest in Kensey Nash Corporation and urge
you to return your proxy card as soon as possible.
Sincerely,
Joseph W. Kaufmann
President and Chief Executive Officer
[Kensey Nash Corporation LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 22, 2006
To the Stockholders of
Kensey Nash Corporation:
A Special Meeting of Stockholders of Kensey Nash Corporation (the "Company")
will be held at 10:00 a.m., local time, on Thursday, June 22, 2006, at the
offices of Kensey Nash Corporation, 735 Pennsylvania Drive, Exton, Pennsylvania
19341, for the following purposes:
(1) To consider and approve the Fifth Amended and Restated Kensey Nash
Corporation Employee Incentive Compensation Plan; and
(2) To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on May 1, 2006 as the
record date for determining stockholders entitled to notice of, and to vote at,
the meeting.
By Order of the Board of Directors,
Joseph W. Kaufmann
President and Secretary
Exton, Pennsylvania
May 11, 2006
All stockholders are urged to attend the meeting in person or by proxy. Whether
or not you expect to be present at the meeting, please complete, sign and date
the enclosed proxy card and return it promptly in the enclosed postage prepaid
envelope furnished for that purpose.
Kensey Nash Corporation
735 Pennsylvania Drive
Exton, Pennsylvania 19341
(484) 713-2100
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of Kensey Nash
Corporation, a Delaware corporation (the "Company"), for use at its Special
Meeting of Stockholders (the "Special Meeting") to be held at 10:00 a.m., local
time, Thursday, June 22, 2006, at the offices of Kensey Nash Corporation, 735
Pennsylvania Drive, Exton, Pennsylvania 19341, and any adjournments or
postponements thereof. This Proxy Statement and the accompanying form of proxy
are being mailed to stockholders on or about May 11, 2006.
Voting Securities -- The Board of Directors has fixed the close of business on
May 1, 2006 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of, and to vote at, the Special Meeting or any
adjournments or postponements thereof. As of the Record Date, the Company had
outstanding 11,556,213 shares of its Common Stock. Each of the outstanding
shares of Common Stock is entitled to one vote on all matters to come before the
Special Meeting.
Proxies -- Joseph W. Kaufmann and Douglas G. Evans, the persons named as proxies
on the proxy card accompanying this Proxy Statement, were selected by the Board
of Directors of the Company to serve in such capacity. Messrs. Kaufmann and
Evans are officers and directors of the Company. Each executed and returned
proxy will be voted in accordance with the direction indicated thereon, or if no
direction is indicated, such proxy will be voted in accordance with the
recommendation of the Board of Directors contained in this Proxy Statement. Each
stockholder giving a proxy has the power to revoke it at any time before the
shares it represents are voted. Revocation of a proxy is effective upon receipt
by the Secretary of the Company of either (1) an instrument revoking the proxy,
or (2) a duly executed proxy bearing a later date. Additionally, a stockholder
may change or revoke a previously executed proxy by voting in person at the
Special Meeting, but attendance at the Special Meeting will not by itself revoke
a proxy.
Quorum -- The required quorum for the transaction of business at the Special
Meeting will be a majority of the outstanding shares of Common Stock entitled to
vote on the Record Date.
Required Vote -- The affirmative vote of a majority of the shares present in
person or represented by proxy and entitled to vote is required to approve the
Fifth Amended and Restated Kensey Nash Corporation Employee Incentive
Compensation Plan (the "Amended and Restated Employee Plan").
Abstentions -- Abstentions will have the same effect as votes against the
proposal to approve the Amended and Restated Employee Plan.
Broker Non-Votes -- Under the rules of the National Association of Securities
Dealers, Inc., member brokers generally may not vote shares held by them in
street name for customers unless they are permitted to do so under the rules of
any national securities exchange of which they are a member. Under the rules of
the New York Stock Exchange, Inc. ("NYSE"), member brokers who hold shares in
street name for customers have the authority to vote on certain "routine" items
in the event that they have not received instructions from beneficial owners.
When a proposal is not a "routine" matter and a brokerage firm has not received
voting instructions from the beneficial holder of the shares with respect to
that proposal, the brokerage firm may not vote the shares for that proposal.
This is called a "broker non-vote." The approval of the Amended and Restated
Employee Plan is not considered a "routine" matter. As a result, NYSE member
brokers who do not receive instructions from their customers will not be
entitled to vote on the proposal to approve the Amended and Restated Employee
Plan and will have no
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effect on the voting on this proposal. Broker non-votes will, however, be
included for purposes of determining whether a quorum is present at the Special
Meeting.
Stockholder List -- A list of stockholders entitled to vote at the Special
Meeting, arranged in alphabetical order, showing the address and number of
shares registered in the name of each stockholder, will be open to the
examination of any stockholder for any purpose germane to the Special Meeting
during ordinary business hours commencing May 11, 2006, and continuing through
the date of the Special Meeting at the offices of the Company, 735 Pennsylvania
Drive, Exton, Pennsylvania 19341.
PROPOSAL 1
APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE PLAN
The Company's Board of Directors has approved, and proposes that the Company's
stockholders approve, amending and restating the Company's Fourth Amended and
Restated Employee Incentive Compensation Plan, which was previously approved by
the Company's stockholders, as the Amended and Restated Employee Plan. The
Amended and Restated Employee Plan (1) provides for an increase in the number of
shares of the Company's Common Stock authorized for issuance under the Company's
Employee Incentive Compensation Plan (the "Plan") by 1,500,000 shares to
5,550,000 shares, (2) exempts the Plan and awards under the Plan from coverage
under Section 409A of the Internal Revenue Code of 1986, as amended (the
"Code"), which applies to deferred compensation arrangements, (3) includes per
participant annual maximums for stock and cash based awards under the Plan, (4)
adds two items to the list of business criteria upon which the Compensation
Committee may base cash incentive and other performance based awards under the
Plan, (5) eliminates provisions that are no longer relevant due to changes in
the Company's status and changes in applicable law, including provisions that
were effective only prior to the Company's initial public offering, and (6)
clarifies certain ambiguous provisions, including a provision regarding
available methods for paying the exercise price of stock options awarded under
the Plan.
The Board of Directors desires to maintain the Plan and provide the Plan with
additional shares because it believes that the well recognized benefits of
incentive compensation plans outweigh any burden on, or dilution of, the
Company's stockholders attendant to the award of stock options, shares of
restricted stock or other types of awards. Those benefits include:
o Attraction and retention of key employees
o The encouragement of key employees to acquire a proprietary interest
in the Company
o The ability to fashion attractive incentive awards based upon the
performance of the Company and the price for its Common Stock
o Alignment of the interests of directors, officers, employees and
consultants with the interests of the Company's stockholders
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") administers the Amended and Restated Employee Plan.
The Compensation Committee consists of two or more outside directors, as defined
under section 162(m) of the Code. These "outside directors" are also
non-employee directors, as defined in Rule 1b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
Background
The Plan was originally adopted by the Board of Directors on April 1, 1995. The
most recent previous amendment to the Plan occurred on June 28, 2004, when the
Company's stockholders approved at a special meeting, an amendment to reserve an
additional 850,000 shares of Common Stock for issuance under the Plan. That
amendment brought the total number of shares authorized for issuance under the
Plan to 4,050,000 shares.
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The following table provides information as of May 1, 2006 regarding the
Company's outstanding shares of Common Stock, shares underlying options
outstanding, shares previously issued under the Plan and shares added to the
Plan upon stockholder approval of the Amended and Restated Plan:
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As of May 1, 2006:
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Shares Underlying Options Outstanding 2,198,806
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Shares Outstanding 11,556,213
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Shares & Shares Underlying Options Outstanding 13,755,019
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Overhang (Shares Underlying Options Outstanding/Shares Outstanding) 19%
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Weighted average exercise price $ 17.67
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Shares Previously Issued Under Plan (Upon Exercise of Options and
as Restricted Stock) 1,654,533
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Options Available for Grant 52,439
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Total Overhang (Shares Underlying Options Outstanding + Plan Shares
Available/Shares Outstanding) 19%
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Shares Board Seeks Approval For 1,500,000
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As a % of Shares Outstanding 13%
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As a % of Shares & Shares Underlying Options Outstanding 11%
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The following table provides information regarding awards of restricted stock
and options under the Plan in the Company's fiscal year ended June 30, 2005
("Fiscal 2005"):
Awards in Fiscal 2005 Under the Plan
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Shares
Restricted Stock Underlying
Name and Position Awards Options
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Joseph W. Kaufmann, CEO 29,967 -
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Douglas G. Evans, COO 25,443 -
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Wendy F. DiCicco, CFO 9,629 -
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John E. Nash, VP New Technologies 2,508 -
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Executive Group 67,547 -
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Non-Executive Director Group 12,000 (1)
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Non-Executive Officer Employee Group 26,000 125,500
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Non-Employee Consultant Group - -
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Total Granted for Fiscal 2005 105,547 125,500
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(1) Options to purchase a total of 54,000 shares of Common Stock were granted in
Fiscal 2005 to the Company's non-employee directors under the Company's
Non-Employee Compensation Plan, which has now been retired.
Key Points Regarding the Amended and Restated Employee Plan
o All Non-Executive Director awards will be granted from the Amended and
Restated Employee Plan in the future. The Non-Employee Director
Compensation Plan has been retired.
o As part of its process for determining executive officer and director
compensation, the Compensation Committee reviews the compensation practices
of a medical device peer group consisting of 19 small and mid
capitalization companies. These companies range in size from approximately
$50 million to $1.4 billion in market capitalization and $17 million to
$430 million in annual revenues. A key measurement used by the Company in
determining the number of stock based awards is "run rate." A company's run
rate is calculated
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as follows: total stock based awards divided by shares outstanding. The
Company's run rate for its most recently completed fiscal year and its
average run rate over the last three year fiscal years was 3.1% and 3.5%,
respectively, which compares favorably to the peer group averages of 3.7%
and 3.7%, respectively, for these periods.
o The Compensation Committee intends to limit the total annual stock based
awards under the Amended and Restated Plan to a maximum of 400,000 shares
in any fiscal year, excluding one-time awards for new employees. The
Compensation Committee believes it is important for our company to not only
retain key personnel in a highly competitive industry but also attract
talented and experienced employees by using stock based incentives as a
component of overall compensation.
Stockholder approval of the Amended and Restated Employee Plan is sought to
continue (1) to meet the requirements of the NASDAQ National Market, (2) to
qualify certain compensation under the Amended and Restated Employee Plan as
performance-based compensation that is tax deductible without limitation under
Section 162(m) of the Internal Revenue Code, and (3) to qualify certain stock
options granted under the Amended and Restated Employee Plan as incentive stock
options. Furthermore, Section 13.1 of the Amended and Restated Employee Plan
provides that no amendment to the Amended and Restated Employee Plan shall be
made without the approval of the Company's stockholders to the extent such
approval is required by law or agreement. The Amended and Restated Employee Plan
will be effective on the date of stockholder approval and will apply to all
awards made under the Plan before, on or after that date. If the Amended and
Restated Employee Plan is not approved by stockholders, the Plan will remain in
place without any additional shares and without any of the other changes
provided in the Amended and Restated Employee Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE
AMENDED AND RESTATED EMPLOYEE PLAN.
Terms of the Amended and Restated Employee Plan
The following brief summary of certain features of the Amended and Restated
Employee Plan is qualified in its entirety by reference to the full text of the
Amended and Restated Employee Plan, copies of which will be furnished by the
Company without charge upon written request and is available on the Company's
website at www.kenseynash.com under the section called "Corporate Governance".
Awards Under the Amended and Restated Employee Plan. The Amended and Restated
Employee Plan is a flexible plan that provides the Compensation Committee broad
discretion to fashion the terms of the awards to provide eligible recipients
with such stock-based and performance-related incentives as the Compensation
Committee deems appropriate. The Amended and Restated Employee Plan permits the
issuance of awards in a variety of forms, including (1) nonqualified and
incentive stock options for the purchase of Common Stock, (2) stock appreciation
rights, (3) restricted stock, (4) bonus stock and awards in lieu of obligations,
(5) dividend equivalents, (6) other stock-based awards, (7) performance awards
and (8) cash incentive awards. The Amended and Restated Plan provides that
5,550,000 shares of Common Stock will be reserved and available for issuance
pursuant to awards under the Plan. Over any three fiscal year period, the
maximum aggregate number of shares of Common Stock that may be covered by stock
options, stock appreciation rights, restricted stock awards and other stock
based awards granted to any single participant in the Amended and Restated Plan
is 1,000,000 shares, subject to adjustment under specified circumstances. The
maximum aggregate amount that may be paid out under the Amended and Restated
Plan as cash incentive awards or other cash awards to any single participant in
any fiscal year is $500,000.
Eligibility. The persons eligible to participate in the Amended and Restated
Employee Plan are directors, officers, employees and consultants of the Company
or any subsidiary of the Company who, in the opinion of the Compensation
Committee, contribute to the growth and success of the Company or its
subsidiaries. The purpose of the Amended and Restated Employee Plan is to
promote the overall financial objectives of the Company and its stockholders by
motivating eligible participants to achieve long-term growth in stockholder
equity in the
5
Company and to retain the association of these individuals. As of May 1, 2006,
the Company had six non-employee directors, four executive officers,
approximately 330 other employees and five consultants eligible to participate
in the Amended and Restated Employee Plan.
Release of Shares. At the discretion of the Compensation Committee, shares of
Common Stock subject to an award under the Amended and Restated Employee Plan
that remain unissued upon termination of such award, are forfeited or are
received by the Company as consideration for the exercise or payment of an
award, the shares otherwise subject to the award may again be available for
grant by the Compensation Committee. In the event of a stock dividend, stock
split, recapitalization, sale of substantially all of the assets of the Company,
reorganization or other similar event, the Compensation Committee will make
appropriate adjustments to the aggregate number of shares of Common Stock
subject to the Amended and Restated Employee Plan and the number, class and
price of shares subject to outstanding awards.
Stock Options. Stock options granted under the Amended and Restated Employee
Plan may be either incentive stock options qualified under Section 422 of the
Code ("ISOs") or non-qualified stock options ("NQSOs"). The exercise period for
any stock option granted under the Amended and Restated Employee Plan will be
determined by the Compensation Committee, provided that no stock option shall be
exercisable more than 10 years after the date such stock option is granted or 5
years from the date of grant in the case of an ISO granted to a 10% or more
stockholder of the Company. The exercise price for options granted under the
Amended and Restated Employee Plan will be determined by the Compensation
Committee, provided that the option price per share may not be less than the
fair market value per share on the date the stock option is granted. If an
option is intended to qualify as an ISO that is to be granted to a party that is
a 10% or more stockholder of the Company, the exercise price per share may not
be less than 110% of the fair market value per share of the Company's Common
Stock on the grant date. The exercise price of an option may be paid in cash or,
if approved by the Compensation Committee (i) by delivering Common Stock of the
Company already owned by the recipient for a period of 6 months prior to such
payment and having a fair market value on the date of delivery equal to the
exercise price, (ii) by authorizing the Company to retain shares of Common Stock
of the Company that would otherwise be issuable on exercise of the option having
a fair market value on the date of exercise equal to the exercise price, or
(iii) in such other manners as provided in the Amended and Restated Employee
Plan. In addition, the Compensation Committee may, in its discretion and subject
to applicable law, authorize the Company to (1) lend to a recipient a portion of
the exercise price of an option, or (2) guarantee a loan obtained by a recipient
on a full recourse basis from a third-party for the purpose of paying the
exercise price. No such loan or guarantee shall exceed 24 months or obligate the
Company for an amount to exceed the lesser of the aggregate fair market value
per share of the Common Stock on the date of exercise of the option, less the
par value of the shares of Common Stock to be purchased upon exercise of the
stock option, or an amount permitted under applicable laws or the regulations,
the rules of the Federal Reserve Board and any other governmental agency having
jurisdiction. Under the Sarbanes-Oxley Act of 2002, the Company may not make any
such loan to an executive officer or director of the Company.
Stock Appreciation Rights. Stock appreciation rights may be granted alone or in
conjunction with a stock option grant. If a stock appreciation right is granted
in conjunction with a stock option, the term of the stock appreciation right
shall be the same as the term of the corresponding stock option. Upon the
exercise of a stock appreciation right granted in conjunction with a stock
option grant, a recipient shall be entitled to receive an amount in cash, shares
of the Company's Common Stock or both as determined by the Compensation
Committee and equal in value to the excess of the fair market value per share of
Common Stock over the option price per share of Common Stock, multiplied by the
number of shares in respect of which the stock appreciation right is exercised.
The Compensation Committee shall establish such terms applicable to stock
appreciation rights granted on a stand-alone basis, provided that the value to
be used instead of the option price shall not be less than the fair market value
per share of Common Stock on the date the stock appreciation right is awarded.
Stock appreciation rights granted in conjunction with an ISO may not be
exercisable unless the fair market value of the Common Stock on the date of
exercise exceeds the option exercise price.
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Restricted Stock. Shares of restricted stock may be granted alone or in
conjunction with other awards under the Plan. The Compensation Committee will
determine the terms of restricted stock grants, including conditioning a grant
on the achievement of performance goals by the recipient or the Company and
making the shares of restricted stock subject to forfeiture. During the
restricted period set by the Compensation Committee, the recipient will not be
permitted to sell, assign, transfer, pledge or otherwise encumber any interest
in the shares of restricted stock. During the restricted period, the recipient
will have all other rights of a stockholder of the Company.
Bonus Stock and Awards in Lieu of Obligations. Subject to limitations described
in the Amended and Restated Employee Plan, the Compensation Committee is
authorized to grant shares of the Company's Common Stock as a bonus, or to grant
shares of Common Stock or other awards in lieu of obligations of the Company to
pay cash or deliver other property.
Dividend Equivalents. The Compensation Committee is authorized to grant dividend
equivalents, entitling the recipient to receive cash, Common Stock, other types
of awards or other property equal in value to dividends paid with respect to a
specified number of shares of the Company's Common Stock.
Other Stock-Based Awards. The Compensation Committee is authorized, subject to
limitations imposed by applicable law, to grant such other types of awards that
may be denominated or payable in, or valued in whole or in part based on the
value of, the Company's Common Stock, as determined by the Compensation
Committee to be consistent with the purposes of the Amended and Restated
Employee Plan. These types of awards may include convertible or exchangeable
debt securities, other rights convertible or exchangeable into the Company's
Common Stock, purchase rights for Common Stock, awards with value and payment
contingent upon the performance of the Company and other similar types of
awards. The Compensation Committee will determine the terms and conditions for
all such awards.
Performance Awards and Cash Incentive Awards. The Compensation Committee is
authorized to condition any type of award or cash payment on the performance of
the Company utilizing business criteria or other measures of performance it
deems appropriate. The Committee will utilize one or more of the following
business criteria for the Company in establishing performance goals for a
performance award: (1) total stockholder return; (2) such total stockholder
return as compared to total return (on a comparable basis) of a
publicly-available index such as, but not limited to, the Standard & Poor's 500
or the NASDAQ-U.S. Index; (3) net income; (4) pre-tax earnings; (5) earnings
before interest expense, taxes, depreciation and amortization (EBITDA); (6)
pre-tax operating earnings after interest expense and before bonuses, service
fees and extraordinary or special items; (7) operating margin; (8) earnings per
share; (9) return on equity; (10) return on capital; (11) return on investment;
(12) operating income before payment of executive bonuses; (13) working capital;
(14) pro forma net income, excluding facility transition charges and equity
compensation expense; and (15) pro forma earnings per share, excluding facility
transition charges and equity compensation expense.
Change in Control Provisions. In the event of a Change in Control (as defined in
the Amended and Restated Employee Plan): (1) any stock appreciation rights and
stock options outstanding as of the date of such Change in Control and not
then-exercisable shall become fully exercisable to the full extent of the
original award; (2) the restrictions applicable to restricted stock or other
awards shall lapse and such awards shall become free of all restrictions and
become fully-vested and transferable to the full extent of the original award;
and (3) the performance goals and other conditions with respect to any
outstanding performance award or cash incentive award shall be deemed to have
been satisfied in full, and such award shall be fully distributable, if and to
the extent provided by the Compensation Committee, notwithstanding that the
award may not be fully deductible to the Company under Section 162(m) of the
Code. In addition, unless the Compensation Committee shall provide otherwise,
any award of any recipient who is an officer or director of the Company for
which the grant date is less than six months prior to the Change in Control,
shall be cancelled in exchange for a cash payment to the recipient at the time
of such recipient's termination of employment, equal to the amount that the
Change in Control Price (as defined in the Amended and Restated Employee Plan)
per share of Common Stock of the Company shall
7
exceed the amount which the recipient must pay to exercise the award per share
of Common Stock, multiplied by the number of shares of Common Stock granted
under the award, plus interest.
Amendments; Prohibitions. The Board of Directors or the Compensation Committee
may amend, alter or discontinue the Amended and Restated Employee Plan or an
award (either prospectively or retroactively) at any time, other than an
amendment, alteration or discontinuation that would impair the rights of a
recipient of an award under the Amended and Restated Employee Plan without the
recipient's consent. However, no amendment or alteration of the Amended and
Restated Employee Plan will be made without the approval of the Company's
stockholders to the extent such approval is required by law or applicable
listing standards. In addition, neither the Board of Directors nor the
Compensation Committee will be permitted to (1) amend an option to reduce its
exercise price, (2) cancel an option and regrant an option with a lower exercise
price than the original exercise price of the cancelled option, or (3) take any
other action (whether in the form of an amendment, cancellation or replacement
grant) that has the effect of repricing an option.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the U.S. federal income tax consequences
associated with stock options, stock appreciation rights, stock awards and other
awards granted under the Amended and Restated Employee Plan. This summary is not
intended to be exhaustive and does not describe state, local or foreign tax
consequences.
Nonqualified Stock Options
Participant. Generally, a participant receiving a nonqualified stock option does
not realize any taxable income for federal income tax purposes at the time of
grant. Upon exercise of such option, the excess of the fair market value of the
shares of common stock subject to the nonqualified stock option on the date of
exercise over the exercise price will generally be taxable to the participant as
ordinary income. The participant will have a capital gain (or loss) upon the
subsequent sale of the shares of common stock received upon exercise of the
option in an amount equal to the sale price reduced by the fair market value of
the shares of common stock on the date the option was exercised. The holding
period for purposes of determining whether the capital gain (or loss) is a
long-term or short-term capital gain (or loss) will generally commence on the
date the nonqualified stock option is exercised.
If the Participant Uses Common Stock to Pay the Option Exercise Price. If the
participant who exercises a nonqualified stock option pays the exercise price by
tendering shares of Common Stock of the Company and receives back a larger
number of shares, the participant will realize taxable income in an amount equal
to the fair market value of the additional shares received on the date of
exercise, less any cash paid in addition to the shares tendered. Upon a
subsequent sale of the Common Stock, the number of shares equal to number
delivered as payment of the exercise price will have a tax-basis equal to that
of the shares originally tendered. The additional newly acquired shares obtained
upon exercise of the nonqualified stock option will have a tax basis equal to
the fair market value of such shares on the date of exercise.
The Company. The Company generally will be entitled to a tax deduction in the
same amount and in the same year in which the participant recognizes ordinary
income resulting from the exercise of a nonqualified stock option.
Incentive Stock Options
Participant. Generally, a participant will not realize any taxable income for
Federal income tax purposes at the time an ISO is granted. Upon exercise of the
ISO, the participant will generally incur no income tax liability (other than
pursuant to the alternative minimum tax, if applicable), unless the participant
has left the Company's employ more than three months before exercising the
option. If the participant transfers shares of Common Stock received upon the
exercise of an incentive stock option within a period of two years from the date
of grant of such
8
incentive stock option or one year from the date of receipt of the shares of
common stock (the "Holding Period"), then, in general, the participant will have
taxable ordinary income in the year in which the transfer occurs in an amount
equal to the excess of the fair market value on the date of exercise over the
exercise price. However, if the sale price is less than the fair market value of
such shares on the date of exercise, the ordinary income will not be more than
the difference between the sale price and the exercise price. The participant
will have long-term or short-term capital gain (or loss) in an amount equal to
the amount by which the amount received for such common stock exceeds (or is
less than) the participant's tax basis in the common stock as increased by the
amount of any ordinary income recognized as a result of the disqualifying
disposition, if any. If the participant transfers the shares of common stock
after the expiration of the Holding Period, he or she will recognize capital
gain (or loss) equal to the difference between the sale price and the exercise
price.
If the Participant Uses Common Stock to Pay the Option Exercise Price. If a
participant who exercises an incentive stock option pays the option exercise
price by tendering shares of Common Stock, such participant will generally incur
no income tax liability (other than pursuant to the alternative minimum tax, if
applicable), provided any Holding Period requirement for the tendered shares is
met. If the tendered stock was subject to the Holding Period requirement when
tendered (i.e., had not been held for the entire Holding Period), payment of the
exercise price with such stock constitutes a disqualifying disposition. If the
participant pays the exercise price by tendering Common Stock and the
participant receives back a larger number of shares, under proposed Treasury
regulations, the participant's basis in the number of shares of newly acquired
stock equal to the number of shares delivered as payment of the exercise price
will have a tax basis equal to that of the shares originally tendered,
increased, if applicable, by an amount included in the participant's gross
income as compensation. The additional newly acquired shares upon exercise of
the option will have a tax basis of zero. All stock acquired upon exercise will
be subject to the Holding Period requirement, including the number of shares
equal to the number tendered to pay the exercise price. Any disqualifying
disposition will be deemed to be a disposition of stock with the lowest basis.
The Company. The Company will not be entitled to a tax deduction upon grant,
exercise or subsequent transfer of shares of common stock acquired upon exercise
of an incentive stock option, provided that the participant holds the shares
received upon the exercise of such option for the Holding Period. If the
participant transfers the common stock acquired upon the exercise of an
incentive stock option prior to the end of the Holding Period, the Company will
generally be entitled to a deduction at the time the participant recognizes
ordinary income in an amount equal to the amount of ordinary income recognized
by such participant as a result of such transfer.
Stock Appreciation Rights
Participant. Generally, a participant receiving a stock appreciation right does
not realize any taxable income for Federal income tax purposes at the time of
grant. Upon the exercise of a stock appreciation right, the participant will
generally recognize ordinary income in an amount equal to the amount of cash or
the fair market value of the Common Stock distributed to the participant. The
participant will have a capital gain (or loss) upon a subsequent sale of shares
of common stock received in an amount equal to the sale price reduced by the
fair market value of the shares of common stock on the date the stock
appreciation right was exercised. The holding period for purposes of determining
whether the capital gain (or loss) is a long-term or short-term capital gain (or
loss) will generally commence on the date the stock appreciation right is
exercised.
The Company. The Company generally will be entitled to a tax deduction in the
same amount and in the same year in which the participant recognizes ordinary
income resulting from the exercise of stock appreciation rights.
Stock Awards
Participant. Generally, a participant receiving a stock award will recognize
taxable income at the time of grant of a stock award of unrestricted shares. The
taxable income will be equal to the excess of the fair market value of the
unrestricted shares on the grant date over any amount the participant pays for
the unrestricted shares. Generally, a
9
participant will not recognize taxable income at the time of grant of a stock
award of restricted shares. However, a participant may make an election under
section 83(b) of the Code (Section 83(b)) to be taxed at the time of the stock
award. If a participant does not elect under Section 83(b) to recognize income
at the time of the stock award, the participant will recognize taxable income at
the time of vesting. The taxable income will be equal to the excess of the fair
market value of the restricted shares at the time the shares vest over any
amount the participant paid for the restricted shares. A participant may elect
under Section 83(b) to include as ordinary income in the year of the stock award
an amount equal to the excess of the fair market value of the shares on the
transfer date over any purchase price paid for the shares. The fair market value
of the shares will be determined as if the shares were not subject to
forfeiture. If a participant makes the Section 83(b) election, the participant
will not recognize any additional income when the shares vest. Any appreciation
in the value of the restricted shares after the award is not taxed as
compensation, but instead as a capital gain when the restricted shares are sold
or transferred. If the participant makes a Section 83(b) election and the
restricted shares are later forfeited, the participant is not entitled to a tax
deduction or a refund of the tax already paid. The Section 83(b) election must
be filed with the IRS within 30 days following the date the shares are awarded
to a participant. The 83(b) election generally is not revocable and cannot be
made after the 30-day period has expired. Dividends received on restricted
shares subject to a Section 83(b) election are taxed as dividends instead of
compensation.
The Company. The Company generally will be entitled to an income tax deduction
equal to the amount of ordinary income a participant recognizes in connection
with a stock award. The deduction will generally be allowed for the taxable year
in which the participant recognizes such ordinary income.
Other Awards
Participant. With respect to awards granted under the Amended and Restated
Employee Plan that result in the payment or issuance of cash or shares of Common
Stock or other property that is either not restricted as to transferability or
not subject to a substantial risk of forfeiture, the participant must generally
recognize ordinary income equal to the cash or the fair market value of shares
or other property received. With respect to awards involving the issuance of
shares of Common Stock or other property that is restricted as to
transferability and subject to a substantial risk of forfeiture, the participant
must generally recognize ordinary income equal to the fair market value of the
shares or other property received at the first time the shares or other property
becomes transferable or not subject to a substantial risk of forfeiture,
whichever occurs earlier. A participant may make a Section 83(b) election and be
taxed at the time of receipt of shares or other property rather than upon the
lapse of restrictions on transferability or the substantial risk of forfeiture,
but if the participant subsequently forfeits such shares or property the
participant would not be entitled to any tax deduction, including a capital
loss, for the value of the shares or property on which he previously paid tax.
The participant must file such election with the Internal Revenue Service within
30 days after the receipt of the shares or other property.
The Company. The Company generally will be entitled to a deduction in an amount
equal to the ordinary income received by the participant. The deduction will
generally be allowed for the taxable year in which the participant recognizes
such ordinary income.
Section 409A
Section 409A of the Code makes substantial changes to the federal income tax
treatment of nonqualified deferred compensation. Section 409A was enacted as
part of the American Jobs Creation Act of 2004 and generally became effective
for amounts deferred on or after January 1, 2005. The Company currently does not
intend to make grants under the Plan that constitute deferred compensation
subject to Section 409A. Therefore, the Plan has been amended to qualify all
awards made under the Plan for exemption from coverage under Section 409A in
accordance with the rules set forth in proposed regulations issued by the U.S.
Department of Treasury (the "Regulations"). However, because of the proposed
nature of the Regulations, certain issues remain unclear. In addition, the rules
governing Section 409A and exemption from coverage thereunder are subject to
additional
10
clarification and change upon the finalization of the Regulations. Accordingly,
the Plan may need to be further revised once Regulations are finalized.
Section 162(m)
Section 162(m) of the Code ("Section 162(m)"), provides that any compensation
paid to a "covered employee" within the meaning of Section 162(m) which is in
excess of $1,000,000 cannot be deducted by the Company for Federal income tax
purposes unless, in general, (1) such compensation constitutes "qualified
performance-based compensation" satisfying the requirements of Section 162(m)
and (2) the plan or agreement providing for such performance-based compensation
has been approved by stockholders. The Company intends that options, stock
appreciation rights, cash incentive awards and certain other performance-based
awards under the Amended and Restated made to persons expected to be "covered
employees" will constitute "qualified performance-based compensation" and,
accordingly will not be subject to the 162(m) deductibility cap.
Parachute Payments
In the event any payments or rights accruing to a participant upon a Change in
Control, or any payments awarded under the Amended and Restated Employee Plan,
constitute "parachute payments" under Section 280G of the Code, depending upon
the amount of such payments accruing and the other income of the participant of
the Company, the participant may be subject to an excise tax (in addition to
ordinary income tax) and the Company may be disallowed a deduction for the
amount of the actual payment.
11
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
The following table sets forth, as of May 1, 2006, certain information with
respect to the beneficial ownership of the Company's Common Stock by (1) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (2) each of the Company's directors, (3) each of the
Named Executive Officers (as defined on page 15) and (4) all Company executive
officers and directors as a group. Unless otherwise indicated, each person or
group has sole dispositive and voting power with respect to the shares shown
below as beneficially owned by such person.
Amount and Nature of Percent of
Names and Address Beneficial Ownership Class
- ----------------- -------------------- -----
Lord, Abbett & Co. LLC (1)...................................... 1,315,415 11.4%
Wellington Management Company, LLP (2).......................... 1,195,049 10.3
BAMCO, Inc. (3)................................................. 1,125,800 9.7
Transamerica Investment Management, LLC (4)..................... 994,478 8.6
Penn Capital Management, Inc. (5)............................... 886,417 7.7
Brown Capital Management, Inc. (6).............................. 877,550 7.6
Joseph W. Kaufmann (7).......................................... 821,425 6.7
U.S. Trust Corporation (8)...................................... 758,515 6.6
Kenneth R. Kensey, M.D. (9)..................................... 641,000 5.6
Independence Investment LLC (10)................................ 635,760 5.5
Douglas G. Evans, P.E. (11)..................................... 642,964 5.3
John E. Nash, P.E. (12)......................................... 379,008 3.3
Walter R. Maupay, Jr. (13)...................................... 106,440 *
Robert J. Bobb (14)............................................. 85,360 *
Wendy F. DiCicco, CPA (15)...................................... 76,855 *
C. McCollister Evarts, M.D (16)................................. 52,440 *
Steven J. Lee (17).............................................. 43,940 *
Harold N. Chefitz (18).......................................... 42,296 *
Kim D. Rosenberg (19)........................................... 34,940 *
All Executive Officers and Directors as a group
(10 persons).................................................. 2,285,668 17.3%
- ------------------
* Denotes less than one percent.
(1) The principal place of business for Lord, Abbett & Co. LLC is 90 Hudson
Street, Jersey City, NJ 07302. Lord, Abbett & Co. has sole voting power and
sole dispositive power with respect to all of the shares shown as
beneficially owned. This information was obtained from a Schedule 13G filed
with the SEC on February 14, 2006.
(2) The principal place of business for Wellington Management Company, LLP is
75 State Street, Boston, MA 02109. Wellington Management has shared voting
power with respect to 986,500 of the shares shown as beneficially owned by
it and shared dispositive power with respect to all of the shares. This
information was obtained from a Schedule 13G filed with the SEC on February
14, 2006.
(3) Baron Capital Group, Inc. and Ronald Baron are parent holding companies of
BAMCO, Inc., Baron Capital Management, Inc. and Baron Small Cap Fund; the
address for all of them is 767 Fifth Avenue, New York, NY 10153. Baron
Capital Group and Ronald Baron have shared voting power with respect to
1,053,300 of the shares shown as beneficially owned by them and shared
dispositive power with respect to all of the shares. This information was
obtained from a Schedule 13G filed with the SEC on February 14, 2006.
(4) The principal place of business for Transamerica Investment Management, LLC
is 1150 South Olive Street, Suite 2700, Los Angeles, CA 90015. This
information was obtained from a Schedule 13F filed with the SEC, which
disclosed ownership as of December 31, 2005.
(5) The principal place of business for Penn Capital Management, Inc. is 457
Haddonfield Rd. Suite 210, Cherry Hill, NJ 08002. This information was
obtained from a Schedule 13F filed with the SEC, which disclosed ownership
as of December 31, 2005.
(6) The principal place of business for Brown Capital Management, Inc. is 1201
N. Calvert Street, Baltimore, MD 21202. Brown Capital Management has sole
voting power with respect to 685,350 of the shares shown as beneficially
owned by it and sole dispositive power with respect to all of the shares.
This information was obtained from a Schedule 13G filed with the SEC on
February 6, 2006.
(7) Includes 719,502 shares issuable upon exercise of options within 60 days of
May 1, 2006.
(8) United States Trust Company of New York and U.S. Trust Company, N.A. are
wholly-owned direct subsidiaries of U.S. Trust Corporation. U.S. Trust
Corporation is a wholly owned direct subsidiary of The Charles Schwab
Corporation. The principal place of
12
business for U.S. Trust Corporation is 114 West 47th Street, 25th Floor,
New York, New York 10036. U.S. Trust Corporation has sole voting power with
respect to 230,210 of the shares shown as beneficially owned, sole
dispositive power with respect to 746,435 of the shares shown as
beneficially owned and shared dispositive power with respect to 5,260 of
the shares shown as beneficially owned. This information was obtained from
a Schedule 13G filed with the SEC on February 13, 2006.
(9) Represents shares held by the Kenneth R. Kensey Revocable Trust, of which
Kenneth R. Kensey is trustee. Dr. Kensey has voting and dispositive power
with respect to the shares held by the trust. The principal place of
business for Dr. Kensey is c/o Rheologics, Inc., 15 East Uwchlan Ave.,
Suite 414, Exton, Pennsylvania 19341.
(10) The principal place of business for Independence Investment LLC is 53 State
Street, 28th Floor, Boston, MA 02109-2804. This information was obtained
from a Schedule 13F filed with the SEC, which disclosed ownership as of
March 31, 2006.
(11) Includes 68,605 shares held by the Douglas G. Evans Revocable Trust, 1,050
shares held indirectly by his minor children and 538,200 shares issuable
upon exercise of options within 60 days of May 1, 2006.
(12) Includes 355,500 shares held by the John E. Nash Revocable Trust and 20,000
shares issuable upon exercise of options within 60 days of May 1, 2006.
(13) Includes 77,500 shares issuable upon exercise of options within 60 days of
May 1, 2006.
(14) Includes 77,500 shares issuable upon exercise of options within 60 days of
May 1, 2006.
(15) Includes 60,525 shares issuable upon exercise of options within 60 days of
May 1, 2006.
(16) Includes 47,500 shares issuable upon exercise of options within 60 days of
May 1, 2006.
(17) Includes 37,500 shares issuable upon exercise of options within 60 days of
May 1, 2006.
(18) Includes 38,000 shares issuable upon exercise of options within 60 days of
May 1, 2006.
(19) Includes 30,000 shares issuable upon exercise of options within 60 days of
May 1, 2006.
13
EXECUTIVE COMPENSATION
The table below contains information with respect to the compensation paid and
awarded by the Company for services rendered during the fiscal years ended June
30, 2005, 2004 and 2003 to its chief executive officer and the only three other
executive officers of the Company (each, a "Named Executive Officer").
SUMMARY COMPENSATION TABLE
Annual Compensation Long Tem Compensation Awards
---------------------- -----------------------------------
Restricted
Total Stock Securities Option All Other
Fiscal Compensation Awards Underlying Awards Compensation
Name and Principal Position Year ($) Salary ($) Bonus ($) ($) (5) Options (#) ($) (14) ($)
- --------------------------- ---- --- ---------- --------- ------- ----------- -------- ---
Joseph W. Kaufmann 2005 1,199,374 290,000 - 903,505(6) - - 5,869(15)
President, Chief Executive 2004 2,477,276 290,000 295,000(2) 689,450(7) 85,000 1,198,951 3,875
Officer and Secretary 2003 460,419 280,750 178,141 - - - 1,528
Douglas G. Evans, P.E. 2005 1,023,896 250,000 - 767,106(8) - - 6,790(16)
Chief Operating Officer 2004 2,056,314 246,250 255,000(3) 565,460(9) 70,000 986,095 3,509
and Assistant Secretary 2003 372,227 227,000 142,514 - - - 2,713
Wendy F. DiCicco, CPA 2005 480,395 183,750 - 290,314(10) - - 6,331(17)
Chief Financial Officer 2004 903,824(1) 159,715 81,000(4) 234,450(11) 30,000 425,712 2,947
2003 192,995 148,752 42,000 - - - 2,243
John E. Nash, P.E. 2005 185,797 107,500 - 75,616(12) - - 2,681(18)
Vice President of New 2004 209,246 100,000 10,000 41,700(13) 5,000 56,485 1,061
Technologies 2003 256,948 100,000 35,000 - 15,000 120,150 1,798
- ------------------
(1) The Company's short-term disability insurance carrier paid $9,536 of Ms.
DiCicco's salary in the fiscal year ended June 30, 2004 ("Fiscal 2004").
(2) Includes a cash bonus of $70,000 received in June 2004, and a $225,000 cash
bonus for Fiscal 2004 performance.
(3) Includes a cash bonus of $55,000 received in June 2004, and a $200,000 cash
bonus for Fiscal 2004 performance.
(4) Includes a cash bonus of $20,000 received in June 2004, and a $61,000 cash
bonus for Fiscal 2004 performance.
(5) The holders of the Company's restricted stock will be entitled to receive
any dividends paid to the holders of the Company's Common Stock, and any
cash dividends on the restricted stock will automatically be reinvested in
additional restricted stock.
(6) Consists of 29,967 shares awarded September 9, 2005 (grant date market
value of $30.15 per share). As of June 30, 2005, Mr. Kaufmann held a total
of 22,330 shares of unvested restricted stock, with an aggregate market
value on that date of $675,259. The shares awarded September 9, 2005 vest
in three equal annual installments beginning on September 9, 2006.
(7) Consists of 15,000 shares awarded July 21, 2004 (grant date market value of
$27.43 per share) and 10,000 shares awarded August 24, 2004 (grant date
market value of $27.80 per share). The shares awarded on July 21, 2004 vest
in three equal annual installments beginning on January 1, 2005 and the
shares awarded on August 24, 2004 vest in three equal annual installments
beginning on August 24, 2005.
(8) Consists of 25,443 shares awarded September 9, 2005 (grant date market
value of $30.15 per share). As of June 30, 2005, Mr. Evans held a total of
18,304 shares of unvested restricted stock, with an aggregate market value
on that date of $553,513. The shares awarded September 9, 2005 vest in
three equal annual installments beginning on September 9, 2006.
(9) Consists of 12,000 shares awarded July 21, 2004 (grant date market value of
$27.43 per share) and 8,500 shares awarded August 24, 2004 (grant date
market value of $27.80 per share). The shares awarded on July 21, 2004 vest
in three equal annual installments beginning on January 1, 2005 and the
shares awarded on August 24, 2004 vest in three equal annual installments
beginning on August 24, 2005.
(10) Consists of 9,629 shares awarded September 9, 2005 (grant date market value
of $30.15 per share). As of June 30, 2005, Ms. DiCicco held a total of
7,496 shares of unvested restricted stock, with an aggregate market value
on that date of $226,679. The shares awarded September 9, 2005 vest in
three equal annual installments beginning on September 9, 2006.
(11) Consists of 5,000 shares awarded July 21, 2004 (grant date market value of
$27.43 per share) and 3,500 shares awarded August 24, 2004 (grant date
market value of $27.80 per share). The shares awarded on July 21, 2004 vest
in three equal annual installments beginning on January 1, 2005 and the
shares awarded on August 24, 2004 vest in three equal annual installments
beginning on August 24, 2005.
(12) Consists of 2,508 shares awarded September 9, 2005 (grant date market value
of $30.15 per share). As of June 30, 2005, Mr. Nash held a total of 1,500
shares of unvested restricted stock, with an aggregate market value on that
date of $45,360. The shares awarded September 9, 2005 vest in three equal
annual installments beginning on September 9, 2006.
14
(13) Consists of 1,500 shares awarded August 24, 2004 (grant date market value
of $27.80 per share). The shares awarded on August 24, 2004 vest in three
equal annual installments beginning on August 24, 2005.
(14) The value shown for an option award is based on the fair value as of the
grant date using the Black-Scholes option-pricing model. This same model is
used to compute the compensation expense related to stock options reported
the Company's financial statements.
(15) Consists of $4,749 for a Company matching cash contribution paid and/or
accrued under the Company's 401(k) Plan, $790 for additional disability
premiums and $330 for additional life insurance premiums.
(16) Consists of $3,920 for a Company matching cash contribution paid and/or
accrued under the Company's 401(k) Plan, $2,725 for additional disability
premiums and $145 for additional life premiums.
(17) Consists of $5,346 for a Company matching cash contribution paid and/or
accrued under the Company's 401(k) Plan, $865 for additional disability
premiums and $120 for additional life premiums.
(18) Represents Company matching cash contribution paid and/or accrued under the
Company's 401(k) Plan.
15
Option Grants For Fiscal 2005 -- The Company did not award any stock option
grants or stock appreciation rights to its Named Executive Officers for Fiscal
2005. The Named Executive Officers received restricted stock awards for Fiscal
2005 (see "Summary Compensation Table").
Aggregated Option Exercises in Fiscal 2005 and Fiscal 2005 Option Values -- The
following table provides information regarding the Named Executive Officers'
option exercises during Fiscal 2005 and unexercised options held at June 30,
2005. None of the Named Executive Officers held any stock appreciation rights as
of June 30, 2005.
AGGREGATED OPTION EXERCISES IN FISCAL 2005 AND FISCAL 2005 OPTION VALUES
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options at Fiscal In-The-Money Options at Fiscal
On Value Year-End 2005(#) Year-End 2005($)(1)
Exercise Realized ----------------------------- -----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
Joseph W. Kaufmann.......... 113,998 $1,758,872 701,169 18,333 $11,817,962 $287,095
Douglas G. Evans, P.E. ..... -- -- 553,200 15,000 $8,962,836 $234,900
Wendy F. DiCicco, CPA....... 10,000 $183,723 75,525 5,000 $767,508 $78,300
John E. Nash, P.E........... -- -- 15,000 5,000 $132,900 $60,350
- ------------------
(1) The value per option is calculated by subtracting the exercise price from
the closing price per share of the Common Stock on the NASDAQ National
Market on June 30, 2005, which was $30.24.
Employment Agreements -- Mr. Kaufmann is a party to a three-year Employment
Agreement with the Company dated as of June 1, 2004 that expires in June 2007
and provides for a minimum annual base salary of $250,000, or his most recent
per annum base salary, whichever is greater. Mr. Evans is a party to a
three-year Employment Agreement with the Company dated as of June 1, 2004 that
expires in June 2007 and provides for a minimum annual base salary of $200,000,
or his most recent per annum base salary, whichever is greater. Each of these
employment agreements provides that the officer's salary is subject to annual
increases as determined by the Company's Board of Directors and provides that an
annual bonus may be paid at the discretion of the Board of Directors. The Board
of Directors increased Mr. Kaufmann's salary to $290,000 effective October 1,
2002 and Mr. Evans' salary to $250,000 effective October 1, 2003. The agreements
restrict each of Messrs. Kaufmann and Evans from competing with the Company
during the term of the agreement and for twelve months after termination of his
employment with the Company.
Each of Messrs. Kaufmann and Evans is also party to a Termination and Change in
Control Agreement with the Company, dated as of the same date as his Employment
Agreement. Pursuant to the Termination and Change in Control Agreement, if,
following a Change in Control (as defined therein), the Company terminates,
other than for cause, any of Messrs. Kaufmann or Evans, he will be entitled to
receive, among other things, severance pay equal to his base salary for a period
of two years. Each of Messrs. Kaufmann and Evans would also be entitled to
receive an additional payment, net of taxes, to compensate for any excise tax
imposed on these and other payments if they are determined to be excess
parachute payments under the Code. Following a Change in Control, all unvested
options granted to each of Messrs. Kaufmann and Evans will immediately become
vested.
At the time of printing this proxy statement, the terms of a new Employment
Agreement for Ms. DiCicco are being finalized. The new Employment Agreement is
expected to be presented to the Compensation Committee on May 9, 2006 for
approval. Once the Employment Agreement has been approved and executed, the
Company will file Ms. DiCicco's Employment Agreement with the Securities and
Exchange Commission ("SEC") on a Form 8-K.
Director Compensation -- The Company does not pay additional compensation to its
executive officers for their service as directors. The non-employee directors
receive a $10,000 annual retainer and are paid a fee of $2,500
16
per Board of Directors meeting, plus travel expenses and other costs associated
with attending meetings. Non-employee directors who serve on the Executive
Committee are paid a fee of $2,000 per Executive Committee meeting plus travel
expenses and other costs associated with attending the meetings. Non-employee
directors who serve on the Audit Committee are paid a fee of $2,000 each quarter
in connection with the review of the Company's quarterly and annual filings made
with the SEC, unless such review takes place on the date of a Board of Directors
meeting. Committee Chairpersons receive an additional $2,000 annual retainer. In
addition, there is an educational allowance for Board of Directors training
totaling $10,000, plus travel expenses and other costs associated with attending
training.
Each non-employee director receives an initial grant of options to purchase
5,000 shares of Common Stock upon such director's appointment to the Board of
Directors, exercisable at the fair market value of such shares on the date of
grant. In consideration of service on the Board of Directors, on the date of
each annual meeting of the stockholders of the Company, each non-employee
director who is elected, re-elected or continues to serve as a director because
his term has not expired, receives an option to purchase 7,500 shares of Common
Stock, exercisable at the fair market value of such shares on the date of grant.
In consideration of his service as the Chairman of the Board of Directors, on
the date of each annual meeting of the stockholders of the Company, the Chairman
of the Board who is elected, re-elected or continues to serve as a director
because his term has not expired, receives an option to purchase 11,250 shares
of Common Stock, exercisable at the fair market value of such shares on the date
of grant. In addition, each non-employee director who serves on a committee, as
of the date of the annual meeting, receives an additional option to purchase
1,500 shares of Common Stock, exercisable at the fair market value of such
shares on the date of grant. Each committee member is only entitled to a single
such option to purchase 1,500 shares even if he serves on several committees. In
addition, additional grants of options may be made, from time to time, as
determined by the Compensation Committee.
Each non-employee director who is elected, re-elected or continues to serve as a
director because his term has not expired also receives, on the date of the
annual meeting, an award of 2,000 shares of restricted Common Stock. The
Chairman of the Board who is elected, re-elected or continues to serve as a
director because his term has not expired also receives, on the date of the
annual meeting, an award of 3,000 shares of restricted Common Stock. Prior to
the shares granted in December of 2005, outstanding awards of restricted Common
Stock contained a three-year vesting provision, contingent, in the case of 1,000
shares, upon the Company's achievement of certain earnings per share targets
and, in the case of the other 1,000 shares, on the Common Stock reaching certain
price targets. Beginning with the December 2005 restricted Common Stock awards,
all grants awarded to non-employee directors and the Chairman of the Board will
no longer be subject to the achievement of certain earnings per share targets
and Company Common Stock price targets; all other attributes of the grants will
remain the same as described above. Previously awarded restricted stock grants
will remain subject to the original provisions that were in effect at the time
of grant.
17
Equity Compensation Plan Information
As of June 30, 2005, the Company maintained the Plan and the Directors' Plan,
each of which was approved by the Company's stockholders. The following table
provides information, as of June 30, 2005, about the securities authorized for
issuance under these equity compensation plans. This table does not include any
awards that have been made in the Company's fiscal year ending June 30, 2006 and
does not reflect the increase in the number of shares authorized for issuance
under the Plan that has been approved by the Company's Board of Directors,
subject to stockholder approval of the Amended and Restated Employee Plan at the
Special Meeting. The Directors' Plan was retired in December 2005.
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Number of Securities Compensation
to be Issued Upon Weighted-Average Exercise Plans (excluding
Exercise of Price of Outstanding securities
Outstanding Options, Options, Warrants reflected in
Warrants and Rights and Rights column (a))
------------------- ---------- -----------
(a) (b) (c)
------------------- ---------- -----------
Equity compensation plans approved by
security holders 2,536,958 $ 17.21 315,879
Equity compensation plans not approved
by security holders --------- ------- -------
18
MISCELLANEOUS AND OTHER MATTERS
Solicitation -- The cost of this proxy solicitation will be borne by the
Company. The Company may request banks, brokers, fiduciaries, custodians,
nominees and certain other record holders to send proxies, proxy statements and
other materials to their principals. Such banks, brokers, fiduciaries,
custodians, nominees and other record holders will be reimbursed by the Company
for their reasonable out-of-pocket expenses of solicitation. The Company does
not anticipate that costs and expenses incurred in connection with this proxy
solicitation will exceed an amount normally expended for a proxy solicitation
for an election of directors in the absence of a contest.
Proposals of Stockholders -- Proposals of stockholders for the 2006 Annual
Meeting of Stockholders will not be included in the proxy statement for, or
considered at, that annual meeting unless the proposal is proper for inclusion
in the proxy statement and for consideration and is received by the Secretary of
the Company at the Company's offices between June 3, 2006 and July 3, 2006.
Other Business -- The Board of Directors is not aware of any other matters to be
presented at the Special Meeting other than those mentioned in the Company's
Notice of Special Meeting of Stockholders enclosed herewith. If any other
matters are properly brought before the Special Meeting, however, it is intended
that the persons named in the proxy will vote as the Board of Directors directs.
Additional information -- The Company will furnish without charge a copy of the
Amended and Restated Employee Plan, as filed with the SEC with this proxy
statement, upon the written request of any person who is a stockholder as of the
Record Date. Requests for such materials should be directed to Kensey Nash
Corporation--Investor Relations, 735 Pennsylvania Drive, Exton, Pennsylvania
19341, Attention: Secretary. The Company's filings with the SEC (including a
copy of the Amended and Restated Employee Plan), as well as all of its committee
charters and other corporate governance documents, are also available on its
website at www.kenseynash.com under the section called "Corporate Governance".
By order of the Board of Directors,
Joseph W. Kaufmann
President and Secretary
Exton, Pennsylvania
May 11, 2006
19
EXHIBIT A
FIFTH AMENDED AND RESTATED
KENSEY NASH CORPORATION
EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE I
ESTABLISHMENT
1.1 Purpose. The Kensey Nash Corporation Fifth Amended and Restated
Employee Incentive Compensation Plan (the "Plan"), which amends and restates the
Kensey Nash Corporation Fourth Amended and Restated Employee Incentive
Compensation Plan, is hereby established by Kensey Nash Corporation ("Company").
The purpose of the Plan is to promote the overall financial objectives of the
Company and its stockholders by motivating those persons selected to participate
in the Plan to achieve long-term growth in stockholder equity in the Company and
by retaining the association of those individuals who are instrumental in
achieving this growth. The Plan is intended to qualify certain compensation
awarded under the Plan for tax deductibility under Section 162(m) of the Code
(as defined herein) to the extent deemed appropriate by the Committee (as
defined herein). The Plan and the grant of awards thereunder are expressly
conditioned upon the Plan's approval by the stockholders of the Company. If such
approval is not obtained, then this Plan and all Awards (as defined herein)
hereunder shall be null and void ab initio with respect to all Awards granted on
or after the Effective Date (as defined below). The Plan is adopted (and
accordingly, the Company's Fourth Amended and Restated Employee Incentive
Compensation Plan is amended and restated), subject to stockholder approval,
effective as of June 22, 2006 (the "Effective Date"), and the Plan's terms shall
govern Awards granted hereunder (including all prior versions hereof) before, on
or after the Effective Date.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth below:
2.1 "Affiliate" means a corporation or other entity (i) controlled by or
under common control with the Company (as defined in Section 414(b) or (c) of
the Code) and which, in the case of grants of Stock Options and Stock
Appreciation Rights would, together with the Company, be classified as the
"service recipient" (as defined in the regulations under Section 409A of the
Code) with respect to a Participant.
2.2 "Agreement" or "Award Agreement" means, individually or collectively,
any agreement entered into pursuant to the Plan pursuant to which an Award is
granted to a Participant.
2.3 "Award" means any Option, SAR, Restricted Stock, Stock, Dividend
Equivalent, Other Stock-Based Award, Performance Award or Cash Incentive Award,
together with any other right or interest granted to a Participant under the
Plan.
2.4 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Awards or other rights are
transferred if and to the extent permitted hereunder. If, upon a Participant's
death, there is no designated Beneficiary or surviving designated Beneficiary,
then the term Beneficiary means the Participant's Representative.
2.5 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.6 "Cash Incentive Award" means a conditional right granted to a
Participant under Section 9.4(c) hereof to receive a cash payment, unless
otherwise determined by the Committee, after the end of a specified period.
2.7 "Cause" shall mean, for purposes of whether and when a Participant has
incurred a Termination of
20
Employment for Cause, any act or omission which permits the Company to terminate
the written agreement or arrangement between the Participant and the Company or
an Affiliate for "cause" as defined in such agreement or arrangement, or in the
event there is no such agreement or arrangement or the agreement or arrangement
does not define the term "cause" or a substantially equivalent term, then Cause
shall mean (a) any act or failure to act deemed to constitute cause under the
Company's established practices, policies or guidelines applicable to the
Participant or (b) the Participant's act or omission which constitutes gross
misconduct with respect to the Company or an Affiliate in any material respect,
including, without limitation, an act or omission of a criminal nature, the
result of which is detrimental to the interests of the Company or an Affiliate,
or conduct, or the omission of conduct, which constitutes a material breach of a
duty the Participant owes to the Company or an Affiliate.
2.8 "Change in Control" and "Change in Control Price" have the meanings set
forth in Sections 11.2 and 11.3, respectively.
2.9 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.10 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.11 "Committee" means the Compensation Committee of the Board or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that the Committee shall consist solely of two or more
directors, each of whom is a "disinterested person" within the meaning of Rule
16b-3 under the Exchange Act and each of whom is also an "outside director"
under Section 162(m) of the Code.
2.12 "Common Stock" means the shares of the $0.01 par value common stock of
the Company, whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
2.13 "Company" means Kensey Nash Corporation, a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities the securities of the Company shall be exchanged; and any assignee of
or successor to substantially all of the assets of the Company.
2.14 "Covered Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.15 "Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully
self-induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred while participating in a criminal offense. The determination of
Disability shall be made by the Committee. The determination of Disability for
purposes of this Plan shall not be construed to be an admission of disability
for any other purpose.
2.16 "Dividend Equivalent" means a right, granted to a Participant under
Section 9.2, to receive cash, Common Stock, other Awards or other property equal
in value to dividends paid with respect to a specified number of shares of
Common Stock.
2.17 "Effective Date" means June 22, 2006.
21
2.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.19 "Fair Market Value" means the value determined on the basis of the
good faith determination of the Committee, without regard to whether the Common
Stock is restricted or represents a minority interest, pursuant to the
applicable method described below:
(a) if the Common Stock is listed on a national securities exchange or
quoted on NASDAQ, the closing price of the Common Stock on the relevant date
(or, if such date is not a business day or a day on which quotations are
reported, then on the immediately preceding date on which quotations were
reported), as reported by the principal national exchange on which such shares
are traded (in the case of an exchange) or by NASDAQ, as the case may be;
(b) if the Common Stock is not listed on a national securities exchange or
quoted on NASDAQ, but is actively traded in the over-the-counter market, the
average of the closing bid and asked prices for the Common Stock on the relevant
date (or, if such date is not a business day or a day on which quotations are
reported, then on the immediately preceding date on which quotations were
reported), or the most recent preceding date for which such quotations are
reported; and
(c) if, on the relevant date, the Common Stock is not publicly traded or
reported as described in (i) or (ii), the value determined in good faith by the
Committee.
2.20 "Grant Date" means the date as of which an Award is granted pursuant
to the Plan.
2.21 "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.22 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq National
Market (or any successor thereto).
2.23 "Nonqualified Stock Option" means an Option to purchase Common Stock
in the Company granted under the Plan, the taxation of which is pursuant to
Section 83 of the Code.
2.24 "Option Period" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.
2.25 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).
2.26 "Other Stock Based Awards" means Awards granted to a Participant under
Section 9.3 hereof.
2.27 "Participant" means a person who satisfies the eligibility conditions
of Article V and to whom an Award has been granted by the Committee under the
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which was held by or for the benefit
of the Participant, the Participant's parents, spouse or descendants, or a
custodian under a uniform gifts to minors act or similar statute for the benefit
of the Participant's descendants, to the extent permitted by the Committee and
not inconsistent with Rule 16b-3. Notwithstanding the foregoing, the term
"Termination of Employment" shall mean the Termination of Employment of the
person to whom the Award was originally granted.
2.28 "Performance Award" means a right, granted to a Participant under
Section 9.4 hereof, to receive Awards
22
based upon performance criteria specified by the Committee.
2.29 "Plan" means the Fifth Amended and Restated Kensey Nash Corporation
Employee Incentive Compensation Plan, as herein set forth and as may be amended
from time to time.
2.30 "Public Offering" means the initial public offering of shares of
Common Stock under the Securities Act.
2.31 "Representative" means (a) the person or entity acting as the executor
or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred; provided that
only one of the foregoing shall be the Representative at any point in time as
determined under applicable law and recognized by the Committee.
2.32 "Restricted Stock" means Common Stock granted to a Participant under
Section 8.1 hereof, that is subject to certain restrictions and to a risk of
forfeiture.
2.33 "Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such a plan, or if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.34 "Rule 16b-3"and "Rule 16a-1(c)(3)" mean Rule 16b-3 and Rule
16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.35 "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
2.36 "Stock Appreciation Right" or "SAR" means a right granted under
Article VII.
2.37 "Stock Option" or "Option" means a right, granted to a Participant
under Section 6.1 hereof, to purchase Common Stock or other Awards at a
specified price during specified time periods.
2.38 "Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate, or to be an officer, independent contractor, director or employee
of any entity that provides services to the Company or an Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliates. With respect to any person
who is not an employee with respect to the Company or an Affiliate of the
Company, the Agreement shall establish what act or event shall constitute a
Termination of Employment for purposes of the Plan. A transfer of employment
from the Company to an Affiliate, or from an Affiliate to the Company, shall not
be a Termination of Employment, unless expressly determined by the Committee. A
Termination of Employment shall occur for an employee who is employed by an
Affiliate of the company if the Affiliate shall cease to be an Affiliate and the
Participant shall not immediately thereafter become an employee of the Company
or an Affiliate of the Company.
In addition, certain other terms used herein have definitions given to them in
the first place in which they are used.
23
ARTICLE III
ADMINISTRATION
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee. A majority of the Committee shall constitute a quorum at any
meeting thereof (including by telephone conference) and the acts of a majority
of the members present, or acts approved in writing by a majority of the entire
Committee without a meeting, shall be the acts of the Committee for purposes of
this Plan. The Committee may authorize any one or more of its members or an
officer of the Company to execute and deliver documents on behalf of the
Committee. A member of the Committee shall not exercise any discretion
respecting himself or herself under the Plan. The Board shall have the authority
to remove, replace or fill any vacancy of any member of the Committee upon
notice to the Committee and the affected member. Any member of the Committee may
resign upon notice to the Board. The Committee may allocate among one or more of
its members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the terms
of the Plan:
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Awards or any combination
thereof are to be granted hereunder;
(c) to determine the number of shares of Common Stock to be covered by
each stock-based Award granted hereunder;
(d) to determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the Option Price, the Option Period,
any exercise restriction or limitation and any exercise acceleration,
forfeiture or waiver regarding any Award, any shares of Common Stock
relating thereto, any performance criteria and the satisfaction of
each criteria);
(e) to adjust the terms and conditions, at any time or from time to time,
of any Award, subject to the limitations of Section 12.1;
(f) to determine under what circumstances an Award may be settled in cash
or Common Stock;
(g) to provide for the forms of Agreements to be utilized in connection
with the Plan;
(h) to determine whether a Participant has a Disability or a Retirement;
(i) to determine what securities law requirements are applicable to the
Plan, Awards and the issuance of shares of Common Stock under the Plan
and to require of a Participant that appropriate action be taken with
respect to such requirements;
(j) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Awards;
(k) to interpret and make final determinations with respect to the
remaining number of shares of Common Stock available under this Plan;
(l) to require, as a condition of the exercise of an Award or the issuance
or transfer of a certificate of Common Stock, the withholding from a
Participant of the amount of any Federal, state or local taxes as may
be necessary in order for the Company or any other employer to obtain
a deduction or as may be otherwise required by law;
24
(m) to determine whether and with what effect a Participant has incurred a
Termination of Employment;
(n) to determine whether the Company or any other person has a right or
obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
(o) to determine the restrictions or limitations on the transfer of Common
Stock;
(p) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the
terms of an Agreement;
(q) to determine the permissible methods of Award exercise and payment,
including cashless exercise arrangements;
(r) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and
(s) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Company and
Participants. No determination shall be subject to de novo review if challenged
in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 5,550,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in whole
or in part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. Subject to Section 7.3(e), if any shares of Common
Stock that are subject to any Award cease to be subject to an Award or are
forfeited, if any Award otherwise terminates without issuance of shares of
Common Stock being made to the Participant, or if any shares (whether or not
restricted) of Common Stock are received by the Company in connection with the
exercise of an Award, including the satisfaction of any tax withholding
obligation, such shares, in the discretion of the Committee, may again be
available for distribution in connection with Awards under the Plan.
4.3 Restrictions on Shares. Shares of Common Stock issued as or in
conjunction with an Award shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in an Award Agreement. The Company shall
not be
25
required to issue or deliver any certificates for shares of Common Stock,
cash or other property prior to (i) the listing of such shares on any stock
exchange or NASDAQ (or other public market) on which the Common Stock may then
be listed (or regularly traded), (ii) the completion of any registration or
qualification of such shares under Federal or state law, or any ruling or
regulation of any government body which the Committee determines to be necessary
or advisable, and (iii) the satisfaction of any applicable withholding
obligation in order for the Company or an Affiliate to obtain a deduction with
respect to the exercise of an Award. The Company may cause any certificate for
any share of Common Stock to be delivered to be properly marked with a legend or
other notation reflecting the limitations on transfer of such Common Stock as
provided in this Plan or as the Committee may otherwise require. The Committee
may require any person exercising an Award to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of the shares of Common Stock in compliance with applicable
law or otherwise. Fractional shares shall not be delivered, but shall be rounded
to the next lower whole number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder as
to shares of Common Stock subject to an Award until, after proper exercise of
the Award or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued or transferred.
Upon exercise of the Award or any portion thereof, the Company will have thirty
(30) days in which to issue the shares, and the Participant will not be treated
as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued or transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Best Efforts To Register. The Company will register under the
Securities Act the Common Stock delivered or deliverable pursuant to Awards on
Commission Form S-8 if available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon after stockholder approval of the Plan
as the Committee, in its sole discretion, shall deem such registration
appropriate. The Company will use its best efforts to cause the registration
statement to become effective and will file such supplements and amendments to
the registration statement as may be necessary to keep the registration
statement in effect until the earliest of (a) one year following the expiration
of the Option Period of the last Option outstanding, (b) the date the Company is
no longer a reporting company under the Exchange Act and (c) the date all
Participants have disposed of all shares delivered pursuant to any Award. The
Company may delay the foregoing obligation if the Committee reasonably
determines that any such registration would materially and adversely affect the
Company's interests or if there is no material benefit to Participants.
4.6 Adjustments. In the event of any Company stock dividend, stock split,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company stock
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee shall adjust or substitute, as the case may
be, the number of shares of Common Stock available for Awards under the Plan,
the number of shares of Common Stock covered by outstanding Awards, the exercise
price per share of outstanding Awards, the limitations set forth in Section 5.2
and performance conditions and any other characteristics or terms of the Awards
as the Committee shall deem necessary or appropriate to reflect equitably the
effects of such changes to the Participants; provided, however, that the
Committee may limit any such adjustment so as to maintain the deductibility of
the Awards under Section 162(m) and to prevent the Plan or Awards from
qualifying for exemption under Section 409A or to prevent a violation of Section
409A and that any fractional shares resulting from such adjustment shall be
eliminated by rounding to the next lower whole number of shares with appropriate
payment for such fractional shares as shall reasonably be determined by the
Committee.
26
ARTICLE V
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are directors, officers, employees and consultants of the Company or any
Affiliate of the Company, who shall be in a position, in the opinion of the
Committee, to make contributions to the growth, management, protection and
success of the Company and its subsidiaries. Of those persons described in the
preceding sentence, the Committee may, from time to time, select persons to be
granted Awards and shall determine the terms and conditions with respect
thereto. In making any such selection and in determining the form of the Award,
the Committee may give consideration to the person's functions and
responsibilities, the person's contributions to the Company and its
subsidiaries, the value of the individual's service to the Company and its
subsidiaries and such other factors deemed relevant by the Committee.
5.2 Per-Person Award Limitations. Subject to adjustment under Section 4.6,
the maximum number of shares of Common Stock that may be covered by Stock
Options, Stock Appreciation Rights, Restricted Stock, Other Stock Based Awards
and other Awards, in the aggregate, granted to any one Participant during any
three consecutive fiscal years of the Company shall be 1,000,000 shares of
Common Stock. In addition, the maximum aggregate amount that may be paid out as
Cash Incentive Awards or other cash Awards in any fiscal year of the Company
shall be $500,000.
ARTICLE VI
STOCK OPTIONS
6.1 General. The Committee shall have authority to grant Stock Options
under the Plan at any time or from time to time. Stock Options may be granted
alone or in addition to other Awards and may be either Incentive Stock Options
or Nonqualified Stock Options. A Stock Option shall entitle the Participant to
receive shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement (the terms and
provisions of which may differ from other Agreements), including, without
limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the
date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant. Only a person who is a common-law
employee of the Company, any parent corporation of the Company or a subsidiary
(as such terms are defined in Section 424 of the Code) on the date of grant
shall be eligible to be granted an Option which is intended to be and is an
Incentive Stock Option. To the extent that any Stock Option is not designated as
an Incentive Stock Option or even if so designated does not qualify as an
Incentive Stock Option, it shall constitute a Nonqualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be exercised, so as
to disqualify the Plan under Section 422 of the Code or, without the consent of
the Participant affected, to disqualify any Incentive Stock Option under such
Section 422.
6.3 Terms and Conditions. Stock Options shall be subject to such terms and
conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option shall be fixed
by the Committee; provided that no Stock Option shall be exercisable
more than ten (10) years after the date the Stock Option is granted.
In the case of an Incentive Stock Option granted to an individual who
owns more than ten percent (10%) of the combined voting power of all
classes of stock of the Company, a corporation which is a parent
corporation of the Company or any subsidiary of the Company (each as
defined in Section 424 of the Code), the Option Period shall not
exceed five (5) years from the date of grant. No Option which is
27
intended to be an Incentive Stock Option shall be granted more than
ten (10) years from the date the Plan is adopted by the Company or the
date the Plan is approved by the stockholders of the Company,
whichever is earlier.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under a Stock Option shall be determined by the Committee;
provided, however, that the Option Price per share shall be not less
than the Fair Market Value per share on the date the Option is
granted. If such Option is intended to qualify as an Incentive Stock
Option and is granted to an individual who owns or who is deemed to
own stock possessing more than ten percent (10%) of the combined
voting power of all classes of stock of the Company, a corporation
which is a parent corporation of the Company or any subsidiary of the
Company (each as defined in Section 424 of the Code), the Option Price
per share shall not be less than one hundred ten percent (110%) of
such Fair Market Value per share.
(c) Exercisability. Subject to Section 11.1, Stock Options shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee
provides that any Stock Option is exercisable only in installments,
the Committee may at any time waive such installment exercise
provisions, in whole or in part. In addition, the Committee may at any
time accelerate the exercisability of any Stock Option. If the
Committee intends that an Option be an Incentive Stock Option, the
Committee may, in its discretion, provide that the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock as to
which such Incentive Stock Option which is exercisable for the first
time during any calendar year shall not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this Article VI, a
Participant may exercise Stock Options, in whole or in part, at any
time during the Option Period by the Participant's giving written
notice of exercise on a form provided by the Committee (if available)
to the Company specifying the number of shares of Common Stock subject
to the Stock Option to be purchased. Such notice shall be accompanied
by payment in full of the purchase price by cash or check or such
other form of payment as the Company may accept. If approved by the
Committee, payment in full or in part may also be made (i) by
delivering Common Stock already owned by the Participant for a period
of at least six (6) months prior to such payment and having a total
Fair Market Value on the date of such delivery equal to the Option
Price; (ii) by the execution and delivery of a full recourse
promissory note or other full recourse evidence of indebtedness (and
any security agreement thereunder) satisfactory to the Committee and
permitted in accordance with Section 6.3(e); (iii) by authorizing the
Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the Option having a total Fair Market Value
on the date of delivery equal to the Option Price; (iv) by the
delivery of cash or the extension of credit by a broker-dealer to whom
the Participant has submitted a notice of exercise or otherwise
indicated an intent to exercise an Option (in accordance with Part
220, Chapter II, Title 12 of the Code of Federal Regulations,
so-called "cashless" exercise); or (v) by any combination of the
foregoing. If payment of the Option Price of a Nonqualified Stock
Option is made in whole or in part in the form of Restricted Stock,
the number of shares of Common Stock to be received upon such exercise
that is equal to the number of shares of Restricted Stock used for
payment of the Option Price shall be subject to the same forfeiture
restrictions to which such Restricted Stock was subject, unless
otherwise determined by the Committee. In the case of an Incentive
Stock Option, the right to make a payment in the form of already owned
shares of Common Stock of the same class as the Common Stock subject
to the Stock Option may be authorized only at the time the Stock
Option is granted. No shares of Common Stock shall be issued until
full payment therefor, as determined by the Committee, has been made.
Subject to any forfeiture restrictions that may apply if a Stock
Option is exercised using Restricted Stock, a Participant shall have
all of the rights of a stockholder of the Company holding the class of
Common Stock that is subject to such Stock Option (including, if
applicable, the right to vote the shares and the right to receive
dividends), when the Participant has given written notice of exercise,
has paid in full for such shares and such shares have been recorded on
the Company's official stockholder records as having been issued or
transferred.
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(e) Company Loan or Guarantee. Upon the exercise of any Option and subject
to the pertinent Agreement, the discretion of the Committee and
applicable law, the Company may, at the request of the Participant:
(i) lend to the Participant, on a full recourse basis, an amount
equal to such portion of the Option Price as the Committee may
determine; or
(ii) guarantee a loan obtained by the Participant on a full
recourse basis from a third-party for the purpose of tendering the
Option Price.
The remaining terms and conditions of any loan or guarantee, including the
interest rate and any security interest thereunder, shall be determined by
the Committee, except that (1) the term of any loan may not exceed
twenty-four (24) months and (2) no extension of credit or guarantee shall
obligate the Company for an amount to exceed the lesser of the aggregate
Fair Market Value per share of the Common Stock on the date of exercise,
less the par value of the shares of Common Stock to be purchased upon the
exercise of the Award, or the amount permitted under applicable laws or the
regulations and rules of the Federal Reserve Board and any other
governmental agency having jurisdiction.
(f) Non-transferability of Options. Except as provided herein or in an
Agreement, no Stock Option or interest therein shall be transferable by the
Participant other than by will or by the laws of descent and distribution,
and all Stock Options shall be exercisable during the Participant's
lifetime only by the Participant. If and to the extent transferability is
permitted by Rule 16b-3 or does not result in liability to any Participant
and except as otherwise provided by an Agreement, every Option granted
hereunder shall be freely transferable, but only if such transfer is
consistent with the use of Form S-8 (or the Committee's waiver of such
condition) and consistent with an Award's intended status as an Incentive
Stock Option (as applicable).
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of ninety
(90) days following the date of the appointment of a Representative (or such
other period or no period as the Committee may specify) or until the expiration
of the Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the one (1) year period (or such other period or no period as
the Committee may specify) immediately following the date of such Termination of
Employment or until the expiration of the Option Period, whichever period is
shorter, and the Participant's death at any time following such Termination of
Employment due to Disability shall not affect the foregoing. In the event of
Termination of Employment by reason of Disability, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Nonqualified Stock Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
which is a Retirement, or the Termination of Employment is involuntary on the
part of the Participant (but is not due to death or Disability or with Cause),
any Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the ninety (90) day period commencing with the date of such
Termination of Employment or until the expiration of the Option Period. Unless
otherwise provided in an Agreement or determined by the Committee, if a
Participant incurs a Termination of Employment which is either (a) voluntary on
the part of the Participant (and is not a Retirement) or (b) with Cause, the
Option shall terminate immediately. The death or Disability of a Participant
after a Termination of Employment otherwise provided herein shall not extend the
time permitted to exercise an Option.
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ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 General. The Committee shall have authority to grant Stock Appreciation
Rights under the Plan at any time or from time to time. Subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with all
or part of any Stock Option granted under the Plan, in which case the exercise
of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of a Stock Option
shall result in the cancellation of a corresponding portion of the Stock
Appreciation Right. Such rights may be granted only at the time of grant of such
Stock Option. A Stock Appreciation Right may also be granted on a stand-alone
basis. The grant of a Stock Appreciation Right shall occur as of the date the
Committee determines. Each Stock Appreciation Right granted under this Plan
shall be evidenced by an Agreement, which shall embody the terms and conditions
of such Stock Appreciation Right and which shall be subject to the terms and
conditions set forth in this Plan.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(a) Period and Exercise. The term of a Stock Appreciation Right shall be
established by the Committee. If granted in conjunction with a Stock
Option, the Stock Appreciation Right shall have a term which is the
same as the Option Period and shall be exercisable only at such time
or times and to the extent the related Stock Options would be
exercisable in accordance with the provisions of Article VI. A Stock
Appreciation Right which is granted on a stand-alone basis shall be
for such period and shall be exercisable at such times and to the
extent provided in an Agreement. Stock Appreciation Rights shall be
exercised by the Participant's giving written notice of exercise on a
form provided by the Committee (if available) to the Company
specifying the portion of the Stock Appreciation Right to be
exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right granted in
conjunction with a Stock Option, a Participant shall be entitled to
receive an amount in cash, shares of Common Stock or both as
determined by the Committee or as otherwise permitted in an Agreement
equal in value to the excess of the Fair Market Value per share of
Common Stock over the Option Price per share of Common Stock specified
in the related Agreement multiplied by the number of shares in respect
of which the Stock Appreciation Right is exercised; provided, however,
the Option Price may not be less than the Fair Market Value per share
of Common Stock on the date the Stock Appreciation Right is granted.
In the case of a Stock Appreciation Right granted on a stand alone
basis, the Agreement shall specify the value to be used in lieu of the
Option Price per share of Common Stock; provided, however, such value
may not be less than the Fair Market Value per share of Common Stock
on the date the Stock Appreciation Right is granted. The aggregate
Fair Market Value per share of the Common Stock shall be determined as
of the date of exercise of such Stock Appreciation Right.
(c) Non-transferability of Stock Appreciation Rights. Stock Appreciation
Rights shall be transferable only when and to the extent that a Stock
Option would be transferable under the Plan unless otherwise provided
in an Agreement.
(d) Termination. A Stock Appreciation Right shall terminate at such time
as a Stock Option would terminate under the Plan, unless otherwise
provided in an Agreement.
(e) Effect on Shares Under the Plan. Upon the exercise of a Stock
Appreciation Right, the Stock Option or
30
part thereof to which such Stock Appreciation Right is related shall
be deemed to have been exercised for the purpose of the limitation set
forth in Section 4.2 on the number of shares of Common Stock to be
issued under the Plan, but only to the extent of the number of shares
of Common Stock covered by the Stock Appreciation Right at the time of
exercise based on the value of the Stock Appreciation Right at such
time.
(f) Incentive Stock Option. A Stock Appreciation Right granted in tandem
with an Incentive Stock Option shall not be exercisable unless the
Fair Market Value of the Common Stock on the date of exercise exceeds
the Option Price. In no event shall any amount paid pursuant to the
Stock Appreciation Right exceed the difference between the Fair Market
Value on the date of exercise and the Option Price.
ARTICLE VIII
RESTRICTED STOCK
8.1 General. The Committee shall have authority to grant Restricted Stock
under the Plan at any time or from time to time. Shares of Restricted Stock may
be awarded either alone or in addition to other Awards granted under the Plan.
The Committee shall determine the persons to whom and the time or times at which
grants of Restricted Stock will be awarded, the number of shares of Restricted
Stock to be awarded to any Participant, the time or times within which such
Awards may be subject to forfeiture and any other terms and conditions of the
Awards. Each Award shall be confirmed by, and be subject to the terms of, an
Agreement. The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals by the Participant or by the Company
or an Affiliate (including a division or department of the Company or an
Affiliate) for or within which the Participant is primarily employed or upon
such other factors or criteria (such as length of tenure) as the Committee shall
determine. The provisions of Restricted Stock Awards need not be the same with
respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on issuance of
shares of Common Stock otherwise provided in the Plan, each Participant
receiving an Award of Restricted Stock shall be issued a certificate in respect
of such shares of Restricted Stock. Such certificate shall be registered in the
name of such Participant and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award as determined by
the Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of the Plan
and the Agreement, during a period set by the Committee commencing
with the date of such Award (the "Restriction Period"), the
Participant shall not be permitted to sell, assign, transfer, pledge
or otherwise encumber any interest in shares of Restricted Stock.
(b) Rights. Except as provided in Section 8.3(a), the Participant shall
have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class of Common
Stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive any
cash dividends. Unless otherwise determined by the Committee and
subject to the Plan, cash dividends on the class of Common Stock that
is the subject of the Restricted Stock shall be automatically
reinvested in additional Restricted Stock, and dividends on the class
of Common Stock that is the subject of the Restricted Stock payable in
Common Stock shall be paid in the form of Restricted Stock of the same
class as the Common Stock on which such dividend was paid.
31
(c) Acceleration. Based on service, performance by the Participant or by
the Company or an Affiliate, including any division or department for
which the Participant is employed, or such other factors or criteria
as the Committee may determine, the Committee may provide for the
lapse of restrictions in installments and may accelerate the vesting
of all or any part of any Award and waive the restrictions for all or
any part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or determined by
the Committee, if the Participant incurs a Termination of Employment
during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in
the Restricted Stock. Unless otherwise provided in an Agreement, upon
a Participant's Termination of Employment for any reason during the
Restriction Period other than death or Disability, all shares of
Restricted Stock still subject to restriction shall be forfeited by
the Participant, except the Committee shall have the discretion to
waive in whole or in part any or all remaining restrictions with
respect to any or all of such Participant's shares of Restricted
Stock.
(e) Delivery. If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
unlegended certificates for such shares shall be delivered to the
Participant.
ARTICLE IX
OTHER AWARDS
9.1 Bonus Stock and Awards In Lieu of Obligations. The Committee is
authorized to grant Common Stock as a bonus, or to grant Common Stock or other
Awards in lieu of Company obligations to pay cash or deliver other property
under other plans or compensatory arrangements, provided that, in the case of
Participants subject to Section 16 of the Exchange Act, the amount of such
grants remains within the discretion of the Committee to the extent necessary to
ensure that acquisition of Common Stock or other Awards are exempt from
liability under Section 16(b) of the Exchange Act. Common Stock or Awards
granted hereunder shall be subject to such other terms as shall be determined by
the Committee and shall be paid to the Participant no later than March 15 of the
year following the calendar year in which such Common Stock or Awards are
granted and vested.
9.2 Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Common
Stock, other Awards, or other property equal in value to dividends paid with
respect to a specified number of shares of Common Stock. Dividend Equivalents
may be awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents will be paid or distributed when
accrued or will be deemed to have been reinvested in additional Common Stock,
Awards, or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
9.3 Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, including, but not limited to, Section 409A of
the Code, to grant to Participants such other Awards that may be denominated or
payable in, valued in whole or in part by reference to, or otherwise based on,
or related to, Common Stock, as deemed by the Committee to be consistent with
the purposes of the Plan, including, without limitation, convertible or
exchangeable debt securities, other rights convertible or exchangeable into
Common Stock, purchase rights for Common Stock, Awards with value and payment
contingent upon performance of the Company or any other factors designated by
the Committee, and Awards valued by reference to the book value of Common Stock
or the value of securities of or the performance of specified subsidiaries. The
Committee shall determine the terms and conditions of such Awards. Common Stock
delivered pursuant to an Award in the nature of a purchase right granted under
this Section 9.3 shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation, cash,
Common Stock, other Awards, or other property, as the Committee shall determine.
Cash awards, as an element of or supplement to any other Award under the Plan,
may also be granted pursuant to this Section 9.3.
32
9.4 Performance Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and its timing, may be
subject to performance conditions specified by the Committee. The
Committee may use business criteria and other measures of performance
it deems appropriate in establishing any performance conditions, and
may exercise its discretion to reduce or increase the amounts payable
under any Award subject to performance conditions, except as limited
under Sections 9.4(b) and 9.4(c) hereof in the case of a Performance
Award intended to qualify under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees. If the
Committee determines that a Performance Award to be granted to a
person the Committee regards as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of Code
Section 162(m), the grant and/or settlement of such Performance Award
shall be contingent upon achievement of preestablished performance
goals and other terms set forth in this Section 9.4(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and
a targeted level or levels of performance with respect to such
criteria, as specified by the Committee consistent with this Section
9.4(b). Performance goals shall be objective and shall otherwise meet
the requirements of Code Section 162(m), including the requirement
that the level or levels of performance targeted by the Committee
result in the performance goals being "substantially uncertain." The
Committee may determine that more than one performance goal must be
achieved as a condition to settlement of such Performance Awards.
Performance goals may differ for Performance Awards granted to any one
Participant or to different Participants.
(ii)Business Criteria. One or more of the following business criteria
for the Company, on a consolidated basis, and/or for specified
subsidiaries or business units of the Company (except with respect to
the total stockholder return and earnings per share criteria), shall
be used exclusively by the Committee in establishing performance goals
for such Performance Awards: (1) total stockholder return; (2) such
total stockholder return as compared to total return (on a comparable
basis) of a publicly available index such as, but not limited to, the
Standard & Poor's 500 or the Nasdaq-U.S. Index; (3) net income; (4)
pre-tax earnings; (5) EBITDA or earnings before interest expense,
taxes, depreciation and amortization; or (6) pre-tax operating
earnings after interest expense and before bonuses, service fees, and
extraordinary or special items; (7) operating margin; (8) earnings per
share; (9) return on equity; (10) return on capital; (11) return on
investment; (12) operating income before payment of executive bonuses;
(13) working capital; (14) pro forma net income, excluding facility
transition charges and equity compensation expense; and (15) pro forma
earnings per share, excluding facility transition charges and equity
compensation expense. The foregoing business criteria shall also be
exclusively used in establishing performance goals for Cash Incentive
Awards granted under Section 9.4(c) hereof.
(iii) Performance Period: Timing For Establishing Performance Goals.
Achievement of performance goals in respect of Performance Awards
shall be measured over such periods as may be specified by the
Committee. Performance goals shall be established on or before the
dates that are required or permitted for "performance-based
compensation" under Code Section 162(m).
(iv) Settlement of Performance Awards; Other Terms. Settlement of
Performance Awards may be in cash or Common Stock, or other Awards, or
other property, in the discretion of the Committee. The Committee may,
in its discretion, reduce the amount of a settlement otherwise to be
made in connection with such Performance Awards, but may not exercise
discretion to increase any such
33
amount payable in respect of a Performance Award subject to this
Section 9.4(b). The Committee shall specify the circumstances in which
such Performance Awards shall be forfeited or paid in the event of a
Termination of Employment or a Change in Control prior to the end of a
performance period or settlement of Performance Awards, and other
terms relating to such Performance Awards.
(c) Cash Incentive Awards Granted to Designated Covered Employees. The
Committee may grant Cash Incentive Awards to Participants, including
those designated by the Committee as likely to be Covered Employees,
which Awards shall represent a conditional right to receive a payment
in cash, unless otherwise determined by the Committee, after the end
of a specified calendar year or calendar quarter or other period
specified by the Committee, in accordance with this Section 9.4(c).
(i) Cash Incentive Award. The Cash Incentive Award for Participants
that the Committee regards as likely to be regarded as Covered
Employees shall be based on achievement of a performance goal or goals
based on one or more of the business criteria set forth in Section
9.4(b), and may be based on such criteria for any other Participant.
The Committee may specify the amount of the individual Cash Incentive
Award as a percentage of any such business criteria, a percentage
thereof in excess of a threshold amount, or another amount which need
not bear a strictly mathematical relationship to such relationship
criteria. The Committee may establish a Cash Incentive Award pool that
includes Participants the Committee regards likely to be regarded as
Covered Employees, which shall be an unfunded pool, for purposes of
measuring Company performance in connection with Cash Incentive
Awards. The amount of the Cash Incentive Award pool shall be based
upon the achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 9.4(b) hereof in
the given performance period, as specified by the Committee. The
Committee may specify the amount of the Cash Incentive Award pool as a
percentage of any of such business criteria, a percentage thereof in
excess of a threshold amount, or as another amount which need not bear
a strictly mathematical relationship to such business criteria.
(ii)Potential Cash Incentive Awards. Not later than the date required
or permitted for "qualified performance-based compensation" under Code
Section 162(m), the Committee shall determine the Participants who
will potentially receive Cash Incentive Awards for the specified year,
quarter or other period, either as individual Cash Incentive Awards or
out of an Cash Incentive Award pool established by such date and the
amount or method for determining the amount of the individual Cash
Incentive Award or the amount of such Participant's portion of the
Cash Incentive Award pool or the individual Cash Incentive Award.
(iii) Payout of Cash Incentive Awards. After the end of the specified
year, quarter or other period, as the case may be, the Committee shall
determine the amount, if any, of potential individual Cash Incentive
Award otherwise payable to a Participant, the Cash Incentive Award
pool and the maximum amount of potential Cash Incentive Award payable
to each Participant in the Cash Incentive Award pool. The Committee
may, in its discretion, determine that the amount payable to any
Participant as a final Cash Incentive Award shall be increased or
reduced from the amount of his or her potential Cash Incentive Award,
including a determination to make no final Award whatsoever, but may
not exercise discretion to increase any such amount in the case of an
Cash Incentive Award intended to qualify under Code Section 162(m).
The Committee shall specify the circumstances in which an Cash
Incentive Award shall be paid or forfeited in the event of Termination
of Employment by the Participant or a Change in Control prior to the
end of the period for measuring performance or the payout of such Cash
Incentive Award, and other terms relating to such Cash Incentive Award
in accordance with the Plan. Upon the completion of the measuring
period and the determination of the right to payment and the amount,
the Committee shall direct the Committee to make payment, which shall
occur no later than the later of (A) the fifteenth day of the third
month following the end of the Participant's taxable year in which he
or she earned the Cash Incentive Award or (B) the fifteenth day of the
third month following the end of the Company's
34
taxable year in which the Participant earned the Cash Incentive Award.
(d) Written Determinations. All determinations by the Committee as to the
establishment of performance goals and the potential Performance
Awards or Cash Incentive Awards related to such performance goals and
as to the achievement of performance goals relating to such Awards,
the amount of any Cash Incentive Award pool and the amount of final
Cash Incentive Awards, shall be made in writing in the case of any
Award intended to qualify under Code Section 162(m). The Committee may
not delegate any responsibility relating to such Performance Awards or
Cash Incentive Awards.
ARTICLE X
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
10.1 Transfer of Shares. A Participant may at any time make a transfer of
shares of Common Stock received pursuant to the exercise of an Award to his
parents, spouse or descendants, to any trust for the benefit of the foregoing or
to a partnership the interests of which are principally for the foregoing or to
a custodian under a uniform gifts to minors act or similar statute for the
benefit of any of the Participant's descendants. Any transfer of shares received
pursuant to the exercise of an Award shall not be permitted or valid unless and
until the transferee agrees to be bound by the provisions of this Plan, and any
provision respecting Common Stock under the applicable Agreement, provided that
"Termination of Employment" shall continue to refer to the Termination of
Employment of the Employee.
10.2 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Award.
10.3 Committee Discretion. The Committee may in its sole discretion include
in any Agreement an obligation that the Company purchase a Participant's shares
of Common Stock received upon the exercise of an Award (including the purchase
of any unexercised Awards which have not expired), or may obligate a Participant
to sell shares of Common Stock to the Company, upon such terms and conditions as
the Committee may determine and set forth in an Agreement. The provisions of
this Article X shall be construed by the Committee in its sole discretion, and
shall be subject to such other terms and conditions as the Committee may from
time to time determine. Notwithstanding any provision herein to the contrary,
the Company may upon determination by the Committee assign its right to purchase
shares of Common Stock under this Article X, whereupon the assignee of such
right shall have all the rights, duties and obligations of the Company with
respect to purchase of the shares of Common Stock.
10.4 No Company Obligation. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of, any material information regarding the Company
or any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XI
CHANGE IN CONTROL PROVISIONS
11.1 Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, unless otherwise provided in an Agreement, in the event of a
Change in Control (as defined in Section 11.2):
(a) Any Stock Appreciation Rights and Stock Options outstanding as of the
date of such Change in Control and not then exercisable shall become
fully exercisable to the full extent of the original grant;
35
(b) The restrictions applicable to any Restricted Stock or other Award
shall lapse, and such Restricted Stock or other Award shall become
free of all restrictions and become fully vested and transferable to
the full extent of the original grant.
(c) The performance goals and other conditions with respect to any
outstanding Performance Award or Cash Incentive Award shall be deemed
to have been satisfied in full, and such Award shall be fully
distributable, if and to the extent provided by the Committee in the
Agreement relating to such Award or otherwise, notwithstanding that
the Award may not be fully deductible to the Company under Section
162(m) of the Code.
(d) Notwithstanding any other provision of the Plan, unless the Committee
shall provide otherwise in an Agreement, any Award of any Participant
who is an officer or director of the Company (within the meaning of
Section 16(b) of the Exchange Act) for which the Grant Date is less
than six (6) months prior to the Change in Control, shall be cancelled
in exchange for a cash payment to the Participant, at the time of the
Participant's Termination of Employment, equal to the amount which the
Change in Control Price (as defined in Section 11.3) per share of
Common Stock on the date of such election shall exceed the amount
which the Participant must pay to exercise the Award per share of
Common Stock under the Award (the "Spread") multiplied by the number
of shares of Common Stock granted under the Award, plus interest on
such amount at the prime rate as reported from time to time in The
Wall Street Journal, compounded annually and determined from time to
time.
11.2 Definition of Change in Control. For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:
(a) An acquisition of at least twenty percent (20%) by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) (a "Person") of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); or
(b) The approval by the stockholders of the Company of a reorganization,
merger, consolidation, complete liquidation or dissolution of the
Company, the sale or disposition of all or substantially all of the
assets of the Company or similar corporate transaction (in each case
referred to in this Section 11.2 as a "Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at the time of
such approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either explicitly
or implicitly); or
(c) A change in the composition of the Board such that the individuals
who, as of the date of the Public Offering, constitute the Board (such
Board shall be hereinafter referred to as the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this Section 11.2(c), that any
individual who becomes a member of the Board whose election, or
nomination for election by the Company's stockholders, was approved by
a vote of at least a majority of those individuals who are members of
the Board and who were also members of the Incumbent Board (or deemed
to be such pursuant to this proviso) shall be considered as though
such individual were a member of the Incumbent Board; but, provided,
further, that any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board
shall not be so considered as a member of the Incumbent Board.
Notwithstanding the foregoing provisions of this Section, the following shall be
excluded from the events
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described in (a) and (b) above: (i) any acquisition by or consummation of a
Corporate Transaction with the Company, an Affiliate or an employee benefit plan
(or related trust) sponsored or maintained by the Company or an Affiliate, (ii)
the acquisition by or consummation of a Corporate Transaction with any Person
who beneficially owned, immediately prior to such acquisition or Corporate
Transaction, directly or indirectly, twenty percent (20%) or more of the
Outstanding Company Common Stock or Outstanding Company Voting Securities, or
(iii) any acquisition or Corporate Transaction, if more than a majority of the
beneficial ownership of the entity resulting from the acquisition or Corporate
Transaction is held by Persons who held the beneficial ownership of the
Outstanding Company Voting Securities before the acquisition or Corporate
Transaction.
11.3 Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (a) the highest reported sales price of a share of
Common Stock in any transaction reported on the principal exchange on which such
shares are listed or on NASDAQ during the sixty (60)-day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer or Corporate Transaction, the highest price
per share of Common Stock paid in such tender or exchange offer or Corporate
Transaction, except that, in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, such price shall be
based only on the Fair Market Value of the Common Stock on the date any such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
ARTICLE XII
MISCELLANEOUS
12.1 Amendments and Termination. The Board may amend, alter or discontinue
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under a Stock Option, Stock
Appreciation Right or Restricted Stock Award theretofore granted without the
Participant's consent, except such an amendment made to cause the Plan to
qualify for the exemption provided by Rule 16b-3 or made to comply with an
exemption from, or prevent a violation of, Section 409A of the Code. In
addition, no such amendment shall be made without the approval of the Company's
stockholders to the extent such approval is required by law, agreement or the
rule of any stock exchange or NASDAQ (or other public market) on which the
Common Stock shall be listed (or regularly traded).
The Committee may amend the Plan at any time provided that (a) no amendment
shall impair the rights of any Participant under any Award theretofore granted
without the Participant's consent., and (b) any amendment shall be subject to
the approval or rejection of the Board.
The Committee may amend the terms of any Award or other Award theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Participant without the Participant's consent. Notwithstanding
anything in the Plan to the contrary, neither the Board nor the Committee will
be permitted to (i) amend an Option to reduce its Option Price, (ii) cancel an
Option and regrant an Option with a lower Option Price than the original Option
Price of the cancelled Option, or (iii) take any other action (whether in the
form of an amendment, cancellation or replacement grant) that has the effect of
repricing an Option.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
12.2 Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution or exchange for, any other
Award or any award granted under another plan of the Company, any subsidiary, or
any business entity to be acquired by the Company or a subsidiary, or any other
right of a Participant to receive
37
payment from the Company or any subsidiary. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is granted
in substitution or exchange for another Award or award, the Committee shall
require the surrender of such other Award or award in consideration for the
grant of the new Award. In addition, Awards may be granted in lieu of cash
compensation, including in lieu of cash amounts payable under other plans of the
Company or any subsidiary, in which the Fair Market Value of Common Stock
subject to the Award is equivalent in value to the cash compensation, or in
which the exercise price, grant price or purchase price of the Award in the
nature of a right that may be exercised is equal to the Fair Market Value of the
underlying Common Stock minus the value of the cash compensation surrendered.
Notwithstanding the foregoing, no grant or substitution made pursuant to this
Section 12.2 shall be made to the extent that such grant or substitution would
violate Section 409A of the Code or prevent the Plan from qualifying from
exemption under Section 409A of the Code.
12.3 Form and Timing of Payment Under Awards. Subject to the terms of the
Plan and any applicable Agreement, payments to be made by the Company or an
Affiliate upon the exercise of an Award or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Common Stock, other Awards or other property, and may be made in a single
payment or transfer or in installments, as specified in the applicable Award
Agreement. The settlement of any Award may be accelerated, and cash paid in lieu
of Common Stock in connection with such settlement, in the discretion of the
Committee or upon occurrence of one or more specified events (in addition to a
Change in Control). Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment payments or the
granting or crediting of Dividend Equivalents in respect of installment payments
denominated in Common Stock. Notwithstanding the foregoing, no form or timing of
payment made pursuant to this Section 12.3 shall be made to the extent that such
form or timing of payment would violate Section 409A of the Code or prevent the
Plan from qualifying from exemption under Section 409A of the Code.
12.4 Status of Awards Under Code Section 162(m). It is the intent of the
Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
12.5 Unfunded Status of Plan; Limits on Transferability. It is intended
that the Plan be an "unfunded" plan for incentive compensation. The Committee
may authorize the creation of domestic trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or make payments;
provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan. Unless otherwise provided in this Plan or in an Agreement,
no Award shall be subject to the claims of Participants' creditors and no Award
may be transferred, assigned, alienated or encumbered in any way other than by
will or the laws of descent and distribution or to a Representative upon the
death of the Participant.
12.6 Section 409A of the Code. No Award granted pursuant to this Plan is
intended to constitute "deferred compensation" as defined in Section 409A of the
Code, and the Plan and the terms of all Awards shall be interpreted accordingly.
If any provision of the Plan or an Award contravenes any regulations or Treasury
guidance promulgated under Section 409A of the Code or could cause an Award to
be subject to the penalties and interest under Section 409A of the Code, such
provision of the Plan or Award shall be modified to maintain, to the maximum
extent practicable, the original intent of the applicable provision without
violating the provisions of Section 409A of the Code.
12.7 General Provisions.
38
(a) Representation. The Committee may require each person purchasing or
receiving shares pursuant to an Award to represent to and agree with
the Company in writing that such person is acquiring the shares
without a view to the distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the Plan shall prevent
the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award, the Participant shall
pay to the Company (or other entity identified by the Committee), or
make arrangements satisfactory to the Company or other entity
identified by the Committee regarding the payment of, any Federal,
state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount required in order for the Company
or an Affiliate to obtain a current deduction. If the Participant
disposes of shares of Common Stock acquired pursuant to an Incentive
Stock Option in any transaction considered to be a disqualifying
transaction under the Code, the Participant must give the Committee
written notice of such transfer and the Company shall have the right
to deduct any taxes required by law to be withheld from any amounts
otherwise payable to the Participant. Unless otherwise determined by
the Committee, withholding obligations may be settled with Common
Stock, including Common Stock that is part of the Award that gives
rise to the withholding requirement. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements,
and the Company and its Affiliates shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment
otherwise due to the Participant.
(d) Reinvestment. The reinvestment of dividends in additional Restricted
Stock at the time of any dividend payment shall be permissible only if
sufficient shares of Common Stock are available under the Plan for
such reinvestment (taking into account then outstanding Options and
other Awards).
(e) Representation. The Committee shall establish such procedures as it
deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are
to be paid.
(f) Controlling Law. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the
laws of the State of Delaware (other than its law respecting choice of
law). The Plan shall be construed to comply with all applicable law
and to avoid liability to the Company, an Affiliate or a Participant,
including, without limitation, liability under Section 16(b) of the
Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the
value of any shares of Common Stock, cash or other thing of value
under this Plan or an Agreement to be transferred to the Participant,
and no shares of Common Stock, cash or other thing of value under this
Plan or an Agreement shall be transferred unless and until all
disputes between the Company and the Participant have been fully and
finally resolved and the Participant has waived all claims to such
against the Company or an Affiliate.
(h) Fail Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3. To the extent any action by
the Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Committee.
12.8 Mitigation of Excise Tax. Unless otherwise provided in an Agreement or
determined by the Committee, if any payment or right accruing to a Participant
under this Plan (without the application of this Section 13.7),
39
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under the Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights or payments under this
Plan is to apply shall be made by the Committee in good faith after consultation
with the Participant, and such determination shall be conclusive and binding on
the Participant. The Participant shall cooperate in good faith with the
Committee in making such determination and providing the necessary information
for this purpose.
12.9 No Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or an
Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual's becoming a Participant in this Plan.
12.10 Awards in Substitution for Awards Granted by Other Corporations.
Awards (including cash in respect of fractional shares) may be granted under the
Plan from time to time in substitution for awards held by employees, directors
or service providers of other corporations who are about to become officers,
directors or employees of the Company or an Affiliate as the result of a merger
or consolidation of the employing corporation with the Company or an Affiliate,
or the acquisition by the Company or an Affiliate of the assets of the employing
corporation, or the acquisition by the Company or Affiliate of the stock of the
employing corporation, as the result of which it becomes a designated employer
under the Plan. The terms and conditions of the Awards so granted may vary from
the terms and conditions set forth in this Plan at the time of such grant as the
majority of the members of the Committee may deem appropriate to conform, in
whole or in part, to the provisions of the awards in substitution for which they
are granted. Notwithstanding the foregoing, no grant or substitution made
pursuant to this Section 12.10 shall be made to the extent that such grant or
substitution would violate Section 409A of the Code or prevent the Plan from
qualifying for an exemption under Section 409A of the Code.
12.11 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
12.12 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such Affiliate, with the consent
of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of the Plan.
12.13 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to suspend
or delay any time period described in the Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company.
40
12.14 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
12.15 Severability. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
12.16 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
12.17 Entire Agreement. This Plan and each Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
[Signature Page Follows]
Executed on this 22nd day of June, 2006.
KENSEY NASH CORPORATION
By: _______________________________
Title: President and CEO
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[Logo]
Kensey Nash
[ ] Mark this box with an X if you have made
changes to your name or address details above.
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Special Meeting Proxy Card
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A Issues
The Board of Directors unanimously recommends that you vote FOR Proposal 1.
1. PROPOSAL TO APPROVE THE FIFTH AMENDED For Against Abstain
AND RESTATED KENSEY NASH CORPORATION [ ] [ ] [ ]
EMPLOYEE INCENTIVE COMPENSATION PLAN.
2. Each of the persons named as proxies
herein are authorized, in such person's
discretion, to vote upon such other matters as
may properly come before the Special Meeting.
B Authorized Signatures - Sign Here - This section must be completed for your
instructions to be executed.
This proxy must be signed exactly as name appears hereon. When shares are held
by joint tenants, both should sign. Attorneys, executors, administrators,
trustees and guardians should indicate their capacities. If the signer is a
corporation, please print full corporate name and indicate capacity of duly
authorized officer executing on behalf of the corporation. If the signer is a
partnership or limited liability company, please print full partnership or
limited liability company name and indicate capacity of duly authorized person
executing on behalf of the partnership or limited liability company.
Signature 1 - Please keep signature within the box
- --------------------------------------------------
Signature 2 - Please keep signature within the box
- --------------------------------------------------
Date (mm/dd/yyyy)
- --------------------------------------------------
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Proxy - Kensey Nash Corporation
- --------------------------------------------------------------------------------
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 22, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder(s) hereby appoints Joseph W. Kaufmann and Douglas G.
Evans, and each of them, with full power of substitution, as attorneys and
proxies for and in the name and place of the undersigned, and hereby authorizes
each of them to represent and to vote all of the shares of Common Stock of
Kensey Nash Corporation (the "Company") held of record by the undersigned as of
May 1, 2006 which the undersigned is entitled to vote at the Special Meeting of
Stockholders to be held on June 22, 2006, at the offices of Kensey Nash
Corporation, 735 Pennsylvania Drive, Exton, Pennsylvania at 10:00 a.m., local
time, and any adjournments or postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE
VOTED AT THE SPECIAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF IN
THE MANNER DESCRIBED HEREIN. IF NO CONTRARY INDICATION IS MADE, THE PROXY WILL
BE VOTED FOR PROPOSAL 1 AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED
AS PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL
MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.