SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
[X] Filed by the registrant
[ ] Filed by a party other than the registrant
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[ ] Preliminary proxy statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
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[ ] Definitive additional materials
[ ] Soliciting material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
(Name of Registrant as Specified in Its Charter)
MIM CORPORATION
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
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MIM CORPORATION
100 CLEARBROOK ROAD
ELMSFORD, NEW YORK 10523
(914) 460-1600
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 19, 1999
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To Our Stockholders:
The 1999 Annual Meeting of Stockholders of MIM Corporation will be held
at 2:00 p.m., local time, on August 19, 1999 at the Trumbull Marriott Merritt
Parkway, 180 Hawley Lane, Trumbull, Connecticut 06611, for the following
purposes:
1. To elect six (6) Directors to the Board of Directors (the
"Board"), each to hold office, subject to the provisions of
the Company's Restated Certificate of Incorporation and
Amended and Restated By-Laws, for a term of between one (1)
and three (3) years (as described in paragraph 2 below) and
until their respective successors shall have been duly elected
and qualified.
2. To approve an amendment to the Company's Restated Certificate
of Incorporation to divide the Board into three classes of
Directors with only one class being elected each year, such
that the term of the Class I Directors, Class II Directors and
Class III Directors would expire at the 2000, 2001 and 2002
annual meetings of stockholders, respectively. If this
proposal is not approved by the Company's stockholders, all
Directors elected at the 1999 Annual Meeting will serve a term
of one year until the 2000 Annual Meeting and until their
respective successors shall have been duly elected and
qualified.
3. To approve certain "performance-based" and other compensation
provisions, including compensation payable in connection with
termination and change in control, set forth in the employment
agreement dated December 2, 1998 between the Company and its
Chairman and Chief Executive Officer, and to approve the
related option plan and agreement.
4. To approve amendments to the Company's Amended and Restated
1996 Stock Incentive Plan (the "Employee Plan") in order to
add performance shares and performance units as securities
subject to grant by the Company to employees under the
Employee Plan, to make available under the Employee Plan an
additional 825,450 shares of the Company's Common Stock, par
value $0.0001 per share ("Common Stock"), and to make certain
other related technical changes to the Employee Plan.
5. To approve an amendment to the Company's 1996 Non-Employee
Directors Stock Incentive Plan (the "Directors Plan") in order
to make available under the Directors Plan an additional
200,000 shares of Common Stock.
6. 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 July 2, 1999
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting and any adjournments or postponements thereof.
All stockholders are cordially invited to attend the meeting in person.
However, whether or not you plan to attend, PLEASE PROMPTLY SIGN, DATE AND MAIL
THE ENCLOSED PROXY CARD IN THE ENCLOSED RETURN ENVELOPE, which requires no
postage if mailed in the United States. Returning your proxy card does not
deprive you of your right to attend the meeting and vote your shares in person.
By order of the Board of Directors,
/s/ BARRY A. POSNER
-------------------------------------------------
Barry A. Posner
Vice President, Secretary and General Counsel
Elmsford, New York
July 2, 1999
MIM CORPORATION
100 CLEARBROOK ROAD
ELMSFORD, NEW YORK 10523
(914) 460-1600
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PROXY STATEMENT
---------------------
This proxy statement (this "Proxy Statement"), which is being sent to
stockholders on or about July 7, 1999, is furnished in connection with the
solicitation of proxies by the Board of Directors of MIM Corporation (the
"Company"), a Delaware corporation, for use at the 1999 Annual Meeting of
Stockholders (the "Meeting") to be held on August 19, 1999 at 2:00 p.m., local
time, at the Trumbull Marriott Merritt Parkway, 180 Hawley Lane, Trumbull,
Connecticut 06611, and at any adjournments or postponements.
PROPOSALS; RECORD DATE
At the Meeting, the Company's stockholders will be asked:
1. To elect six (6) Directors to the Board of Directors (the "Board"),
each to hold office, subject to the provisions of the Company's
Restated Certificate of Incorporation and Amended and Restated
By-Laws, for a term of between one (1) and three (3) years (as
described in Proposal 2 below) and until their respective
successors shall have been duly elected and qualified.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to divide the Board into three classes of Directors
with only one class being elected each year, such that the term of
the Class I Directors, Class II Directors and Class III Directors
would expire at the 2000, 2001 and 2002 annual meetings of
stockholders, respectively. If this proposal is not approved by the
Company's stockholders, all Directors elected at the Meeting will
serve a term of one year until the 2000 Annual Meeting and until
their respective successors shall have been duly elected and
qualified.
3. To approve certain "performance-based" and other compensation
provisions, including compensation payable in connection with
termination and change in control, set forth in the employment
agreement (the "CEO Employment Agreement") dated December 2, 1998
between the Company and its Chairman and Chief Executive Officer,
and to approve the related option plan and agreement (the "CEO
Option Plan and Agreement").
4. To approve amendments to the Company's Amended and Restated 1996
Stock Incentive Plan (the "Employee Plan") in order to add
performance shares and performance units as securities subject to
grant by the Company to employees under the Employee Plan, to make
available under the Employee Plan an additional 825,450 shares of
the Company's Common Stock, par value $0.0001 per share ("Common
Stock"), and to make certain other related technical changes to the
Employee Plan.
5. To approve an amendment to the Company's 1996 Non-Employee
Directors Stock Incentive Plan (the "Directors Plan") in order to
make available under the Directors Plan an additional 200,000
shares of Common Stock.
6. To transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
At the close of business on July 2, 1999, the record date (the "Record
Date") set by the Board of Directors for the determination of stockholders
entitled to notice of, and to vote at the Meeting, there were issued and
outstanding an aggregate of 18,829,189 shares of Common Stock, which constitute
the only outstanding securities of the Company entitled to vote. On the Record
Date, the outstanding shares of Common Stock were held by approximately 115
holders of record in addition to approximately 2,200 stockholders whose shares
were held in nominee name.
VOTING
Each holder of Common Stock on the Record Date is entitled to cast one
vote per share at the Meeting on each matter properly brought before the
Meeting, exercisable in person or by properly executed proxy. The presence of
the holders of a majority of the outstanding shares of Common Stock entitled to
vote at the Meeting, in person or by properly executed proxy, is necessary to
constitute a quorum. A quorum is necessary for any action to be taken at the
Meeting.
With respect to Proposal 1 (the election of six directors), the six
nominees receiving the highest number of votes duly cast at the Meeting will be
elected. With respect to Proposal 2 (the proposed amendment to the Company's
Restated Certificate of Incorporation to adopt a classified Board), the
affirmative vote of holders of a majority of the outstanding shares of Common
Stock is required. With respect to Proposals 3, 4 and 5, the affirmative vote of
holders of a majority of the outstanding shares of Common Stock present, in
person or by proxy, at the Meeting and entitled to vote is required. If a proxy
is marked "withhold authority" or "abstain" on any such matter, or if specific
instructions are given that no vote be cast on any specific matter (a "Specified
Non-Vote"), the shares represented by such proxy will not be voted on such
matter. Abstentions will be included within the number of shares present at the
Meeting and entitled to vote for purposes of determining whether such matter has
been authorized, but broker and other Specified Non-Votes will not be so
included. Therefore, since the affirmative votes described above are required
for approval of the Proposals described in this Proxy Statement (other than
Proposal 1), an abstention with respect to any such proposal will have the
effect of a vote against such Proposal.
PROXIES
Your proxy may be revoked at any time prior to its exercise by giving
written notice to the Secretary of the Company at the offices of the Company set
forth above, by presenting a duly executed proxy bearing a later date or by
voting in person at the Meeting, but your attendance at the Meeting alone will
not revoke your proxy. Your proxy, when properly executed, will be voted in
accordance with the specific instructions indicated on your proxy card. Unless
contrary instructions are given, your proxy will be voted: (1) FOR the election
of the six nominees for director, as described in greater detail in Proposal 1
below; (2) FOR the approval of the proposed amendments to the Company's Restated
Certificate of Incorporation, as described in greater detail in Proposal 2
below; (3) FOR the approval of certain "performance-based" and other
compensation provisions set forth in the CEO Employment Agreement and FOR the
approval of the CEO Option Plan and Agreement, as described in greater detail in
Proposal 3 below; (4) FOR the approval of the amendments to the Employee Plan,
as described in greater detail in Proposal 4 below; and (5) FOR the approval of
the amendments to the Directors Plan, as described in greater detail in Proposal
5 below; and (6) to the extent permitted by applicable rules of the Securities
and Exchange Commission (the "Commission"), in accordance with the judgment of
the persons voting the proxies upon such other matters as may properly come
before the Meeting and any adjournments or postponements thereof.
OTHER BUSINESS; ADJOURNMENTS
The Board is not currently aware of any business to be acted upon at
the Meeting other than as described in this Proxy Statement. If other matters
are properly brought before the Meeting, or any adjournments or postponements
thereof, the persons appointed as proxies will, to the extent permitted by
applicable rules of the Commission, have discretion to vote or act thereon
according to their judgment. Adjournments may be made for the purpose of, among
other things, soliciting additional proxies. Any adjournment may be made from
time to time by approval of the holders of a majority of the shares present in
person or by proxy at the Meeting (whether or not a quorum exists) without
further notice other than by an announcement made at the Meeting. The Company
does not currently intend to seek an adjournment of the Meeting.
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PROPOSAL 1.
ELECTION OF DIRECTORS
The By-Laws of the Company provide that the number of directors shall
be such number, currently six (6), as shall be designated from time to time by
resolution of the Board of Directors. Each director shall hold office until his
successor is elected at the next annual meeting and duly qualified or until his
earlier death, resignation or removal. The Board of Directors has nominated and
recommends the election of Richard H. Friedman, Scott R. Yablon, Dr. Louis A.
Luzzi, Richard A. Cirillo, Dr. Louis DiFazio and Michael Kooper, all of whom
currently serve as directors of the Company. However, if the amendment to the
Restated Certificate of Incorporation described below under Proposal 2 is
approved by the Company's stockholders then, upon filing of such amendment with
the Secretary of State of the State of Delaware, the directors will be divided
into three classes, initially of two members each, one class of which will be
elected each year to hold office for a three-year term and until their
successors have been duly elected and qualified. Although the Board of Directors
has no reason to believe that any of the nominees will be unable to serve, if
such event should occur, proxies will be voted (unless marked to the contrary)
for such person or persons, if any, as shall be recommended by the Board of
Directors. However, proxies will not be voted for the election of more than six
directors.
The following table sets forth, as of July 2, 1999, certain information
with respect to each nominee for director, including biographical data for at
least the last five years.
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Name Age Position
- ---- --- --------
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Richard H. Friedman........ 48 Chairman of the Board and
Chief Executive Officer
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Scott R. Yablon............ 48 President, Chief Operating Officer and
Director
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Louis A. Luzzi, Ph.D....... 67 Director
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Richard A. Cirillo......... 48 Director
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Louis DiFazio, Ph.D........ 61 Director
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Michael Kooper............. 63 Director
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Richard H. Friedman is currently the Chairman and Chief Executive
Officer of the Company. He joined the Company in April 1996 and was elected a
director of the Company and appointed Chief Financial Officer and Chief
Operating Officer in May 1996. Mr. Friedman also served as the Company's
Treasurer from April 1996 until February 1998. From February 1992 to December
1994, Mr. Friedman served as Chief Financial Officer and Vice President of
Finance of Zenith Laboratories Inc. ("Zenith"). In December 1994, Zenith was
acquired by IVAX Corporation, an international health care company and a major
multi-source generic pharmaceutical manufacturer and marketer. From January 1995
to January 1996, he was Vice President of Administration of IVAX Corporation's
North American Multi-Source Pharmaceutical Group and each of its operating
companies.
Scott R. Yablon joined the Company in May 1998 and was appointed
President, Chief Financial Officer, Chief Operating Officer and Treasurer. He
relinquished the positions of Chief Financial Officer and Treasurer on March 22,
1999, upon the promotion of Mr. Edward J. Sitar to those positions at that time.
Mr. Yablon has served as a director of the Company since July 1996. Prior to
joining the Company, he held the position of Vice President - Finance and
Administration at Forbes, Inc.
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Louis A. Luzzi, Ph.D. has served as a director of the Company since
July 1996. Dr. Luzzi is the Dean of Pharmacy and Provost for Health Science
Affairs of the University of Rhode Island College of Pharmacy. He has been a
Professor of Pharmacy at the University of Rhode Island since 1981. Dr. Luzzi
participates in several university, industry and government committees and has
published numerous articles.
Richard A. Cirillo has served as a director of the Company since April
1998. Since June 21, 1999, Mr. Cirillo has been a partner of the law firm of
King & Spalding. From 1975 until June, 1999, Mr. Cirillo was a member of the law
firm Rogers and Wells LLP, with which he had been associated since 1975. Until
Mr. Cirillo's departure, Rogers and Wells LLP had served as outside general
counsel to the Company.
Louis DiFazio, Ph.D., has served as a director of the Company since May
1998. From 1990 through March 1997, Dr. DiFazio served as President of Technical
Operations for the Pharmaceutical Group of Bristol-Myers Squibb and from March
1997 until his retirement in June 1998 served as Group Senior Vice President.
Dr. DiFazio also serves as a member of the Board of Trustees of Rutgers
University and the University of Rhode Island. Dr. DiFazio received his B.S. in
Pharmacy at Rutgers University and his Ph.D. in Pharmaceutical Chemistry from
the University of Rhode Island.
Martin ("Michael") Kooper has served as a director of the Company since
April 1998. Mr. Kooper has served as the President of the Kooper Group since
December 1997, a successor to Michael Kooper Enterprises, an insurance and risk
management consulting firm. From 1980 through December 1997, Mr. Kooper served
as President of Michael Kooper Enterprises.
INFORMATION CONCERNING MEETINGS AND CERTAIN COMMITTEES
The Company has standing Audit and Compensation Committees of the Board
of Directors. The Audit Committee, currently comprised of Messrs. Yablon and
Cirillo and Dr. DiFazio, makes recommendations to the Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by the Company's independent auditors,
reviews and evaluates the Company's internal accounting controls and performs
such other functions as directed by the Board of Directors. The Compensation
Committee, currently comprised of Mr. Cirillo and Drs. DiFazio and Luzzi,
administers the Company's Employee Plan and the Directors Plan, makes
recommendations to the Board of Directors concerning executive compensation
matters and performs such other duties as from time to time are designated by
the Board of Directors. The Company does not have a standing nominating
committee. Instead, the Board of Directors selects nominees for directors.
During 1998, the Board of Directors held eight meetings, the Audit Committee
held one meeting and the Compensation Committee held two meetings. Each director
attended at least 75% of the meetings of the Board of Directors and all
applicable committee meetings during the period that such director served as a
director in 1998.
COMPENSATION OF DIRECTORS
Directors who are not officers or employees of the Company ("Outside
Directors") receive fees of $1,500 per month and $500 per meeting of the Board
or any committee thereof and are reimbursed for expenses incurred in connection
with attending such meetings. In addition, each Outside Director receives
options to purchase 20,000 shares of the Common Stock under the Directors Plan.
Directors who are also officers of the Company are not paid any director fees or
granted any options under the Directors Plan.
The Directors Plan provides for the automatic grant of non-qualified
stock options to purchase 20,000 shares of Common Stock to Outside Directors
joining the Company following the adoption of the Directors Plan. The exercise
price of such options is equal to the fair market value of Common Stock on the
date of grant. Options granted under the Directors Plan generally vest over
three years. Prior to the amendment to the Directors Plan described below in
Proposal 5, the Company had reserved 100,000 shares of Common Stock for issuance
under the Directors Plan. Through July 2, 1999, options to purchase 20,000
shares have been granted under the Directors Plan to each of Dr. Luzzi and Mr.
Yablon at an exercise price of $13 per share, options to purchase 20,000 shares
have been granted to Mr. Cirillo at an exercise price of $4.35 per share and
options to purchase 20,000 shares have been granted to each of Mr. Kooper and
Dr. DiFazio at an exercise price of $4.6875 per share. Accordingly, without the
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amendment to the Directors Plan described in Proposal 5, the Company would not
have any shares available for grant under the Directors Plan. As described below
under Proposal 5, stockholders are being asked to approve an amendment to the
Directors Plan in order to make available an additional 200,000 shares of Common
Stock for grant under the Directors Plan.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The six nominees receiving the highest number of votes duly cast at the
Meeting will be elected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE
ABOVE-NAMED NOMINEES.
5
PROPOSAL 2.
APPROVAL OF AMENDMENTS TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO ESTABLISH A CLASSIFIED BOARD OF DIRECTORS
GENERAL
The Company currently has a Board of Directors consisting of six (6)
members elected to one-year terms at each annual meeting of stockholders. The
Company seeks to establish a classified board of directors by dividing the Board
of Directors into three (3) classes with staggered terms.
A classified board is one in which a certain number, but not all, of
the directors are elected on a rotating basis each year. This method of electing
directors makes changes in the composition of a company's board of directors
more difficult, and thus a potential change in control of that company a more
lengthy and difficult process. Delaware law permits companies to adopt a
classified board of directors, pursuant to which the directors can be divided
into as many as three classes with staggered terms of office, with only one
class of directors standing for election each year. The Company's Board of
Directors recommends that the Company's stockholders approve the adoption of a
classified Board, dividing the directors into three classes. After the
classified Board is implemented, the directors of each class will serve
three-year terms and the term of one class will expire each year.
CLASSIFIED BOARD; SUPERMAJORITY REQUIREMENTS FOR AMENDMENTS TO CLASSIFIED BOARD
The proposed addition of new Article Ninth to the Company's Restated
Certificate of Incorporation (the "Amendment") would divide the Board of
Directors into three classes: Class I, Class II and Class III. If the Amendment
is adopted and if all current nominees are elected as described in Proposal 1,
each director will be elected to the class described below:
Class I Class II Class III
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Michael Kooper Scott R. Yablon Richard H. Friedman
Dr. Louis A. Luzzi Dr. Louis DiFazio Richard A. Cirillo
Initially, the term of the Class I Directors would expire at the next
annual meeting in 2000, and the terms of Class II and Class III Directors would
expire at the 2001 and 2002 annual meetings of stockholders, respectively.
Thereafter, successors to the directors in each class would be elected for
three-year terms. The Amendment would thus have the effect of causing only one
class of directors to be elected each year, with the directors in the other two
classes remaining in office until the elections held in the two following years,
respectively. In the event that the stockholders do not approve the Amendment,
each director elected at the Meeting will continue to serve for a one-year term,
only until his successor is duly elected and qualified at the next annual
meeting in 2000 or until his earlier death, resignation or removal. If the
Amendment is adopted, any further amendment to new Article Ninth will require
the affirmative vote of stockholders holding at least 66-2/3% of the outstanding
shares of capital stock of the Company entitled to vote.
The Board of Directors believes that dividing the directors into three
classes is in the best interests of the Company and its stockholders because the
likelihood of continuity and stability in the policies formulated by the Board
of Directors will be enhanced by providing that directors will serve three-year
terms rather than one-year terms. Two annual elections would, in general, be
required to replace a majority of the classified Board of Directors and effect a
forced change in the control of the Company.
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The Board of Directors also believes that a classified Board would
effectively reduce the possibility that a third party could effect a hostile,
non-negotiated change in control of the Company. A classified Board would serve
to ensure that the Board of Directors and management, if confronted by a
hostile, non-negotiated proposal from a third party who has acquired a block of
the Common Stock, will have sufficient time to review the proposal and
appropriate alternatives to the proposal and to attempt to negotiate a better
transaction, if possible, for the stockholders, thereby facilitating the Board's
objective to maximize stockholder value.
The Board of Directors believes that if a potential acquiror were to
purchase a significant or controlling interest in the Company, the potential
acquiror's ability to remove the Company's Board of Directors and obtain control
of the Board and thereby remove the Company's management would severely curtail
the Company's ability to properly evaluate the proposal and negotiate
effectively with the potential acquiror. The threat of obtaining control of the
Board of Directors would deprive the Board of the time and information necessary
to evaluate the proposal, to study alternative proposals and to help ensure that
the best price is obtained for the Company's stockholders in any transaction
involving the Company which may ultimately be undertaken. A classified Board is
designed to reduce the vulnerability of the Company to an unsolicited takeover
proposal, particularly a proposal that does not contemplate the acquisition of
all of the outstanding Common Stock, or an unsolicited proposal for the
restructuring or sale of all or part of the Company.
Although the Board of Directors believes that this Proposal is in the
best interests of the Company and its stockholders for the foregoing reasons,
stockholders should be aware of the following possible effects of the adoption
of a classified Board. Because the creation of a classified Board will increase
the amount of time and effort required for a bidder to obtain control of the
Company without the cooperation of the Board of Directors, even if the bidder
were to acquire a majority of the Company's outstanding Common Stock, the
existence of a classified Board could tend to discourage certain tender offers
which stockholders might feel would be in their best interests. Because tender
offers for control usually involve a purchase price higher than the current
market price, the creation of a classified Board could also discourage open
market purchases by a potential bidder. Such tender offers or open market
purchases could increase the market price of the Common Stock, enabling
stockholders to sell their shares at a price higher than that which otherwise
would prevail. In addition, the creation of a classified Board could make the
Common Stock less attractive to persons who invest in securities in anticipation
of an increase in price if a takeover bid develops. Finally, because these
provisions will make the removal of directors more difficult, it will increase
the directors' security in their positions and, since the Board of Directors has
the power to retain and discharge management, could increase the likelihood that
current management will retain their positions for longer periods of time than
might otherwise be the case in the absence of a classified Board.
Takeovers or changes in management of the Company which are proposed
and effected without prior negotiation with the Company's Board or management
are not necessarily detrimental to the Company and its stockholders. However,
the Board believes that the benefits of seeking to protect its ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to take
over or restructure the Company outweigh the disadvantages of discouraging such
proposals. The Amendment is not being submitted as the result of, and the Board
is unaware of, any specific effort by any persons to obtain control of the
Company or to accumulate significant amounts of its Common Stock.
The foregoing discussion of the Amendment is qualified in its entirety
by reference to the full text of the Amendment attached to this Proxy Statement
as Appendix I.
RIGHTS PLAN
On November 24, 1998, the Board of Directors of the Company adopted a
stockholder rights plan, as amended through the date hereof. The rights plan may
also have certain anti-takeover effects and may cause substantial dilution to a
person or group that attempts to acquire the Company on terms not approved by
the Board of Directors. The stockholder rights plan is intended to help ensure
7
that the Board, if confronted by an unsolicited proposal from a third party to
acquire control of the Company, will have sufficient time to review the
proposal, to develop, if deemed appropriate, alternatives to the proposal and to
act in what the Board believes to be in the best interests of the Company and
its stockholders.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of the Amendment to establish a classified Board of Directors
will require the affirmative vote of the majority of the outstanding shares of
Common Stock. As a result, abstentions, broker non-votes and Specified Non-Votes
will have the same effect as a vote against the Proposal. Because the directors
will be directly affected by the institution of a classified Board, they may be
deemed to have an interest in the outcome of this Proposal. As of July 2, 1999,
the Company's directors and executive officers as a group beneficially owned
approximately 14% of the outstanding Common Stock entitled to vote at the
Meeting. The Company expects that its directors and executive officers will vote
their respective shares of Common Stock in favor of this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
AMENDMENT TO ESTABLISH A CLASSIFIED BOARD.
8
PROPOSAL 3.
APPROVAL OF COMPENSATION PROVISIONS OF THE CHIEF EXECUTIVE OFFICER'S
EMPLOYMENT AGREEMENT AND APPROVAL OF RELATED OPTION PLAN AND AGREEMENT
BACKGROUND
In 1998, the Board of Directors retained Strategic Compensation
Research Associates ("SCRA"), an independent executive compensation consulting
firm, to make recommendations to the Board regarding the development and
adoption of an appropriate compensation package for Richard H. Friedman, the
Company's Chairman and Chief Executive Officer (the "CEO" or "Chief Executive
Officer") in order to secure a long term agreement with him and in an effort to
more closely align the interests of the Chief Executive Officer with those of
the Company's stockholders. Strategic Compensation Research Associates is a New
York-based consulting firm specializing in executive and directors' compensation
matters from the corporate governance perspective. The Board considered the
recommendations of SCRA and approved the substantive compensation provisions of
the CEO Employment Agreement, which it believes to be in the best interests of
the Company and its stockholders in that such compensation provisions
appropriately incentivize the Chief Executive Officer to maximize stockholder
value for all stockholders. See "Additional Information - Compensation Committee
Report on Executive Compensation." As a result, in December 1998, the Chief
Executive Officer entered into the CEO Employment Agreement with the Company,
which provides for his employment as the Chairman and Chief Executive Officer
for a term of employment through November 30, 2003 (unless earlier terminated).
See "Additional Information - Employment Agreements." SCRA was also retained to
advise the Board regarding a Company-wide senior management long-term
compensation program. See Proposal 4.
The CEO Employment Agreement provides for an initial base annual salary
of $425,000. Under the CEO Employment Agreement, the Chief Executive Officer is
entitled to receive certain fringe benefits, and is also eligible to participate
in the Company's executive bonus program. Under the CEO Employment Agreement,
the Chief Executive Officer was granted options to purchase 800,000 shares of
Common Stock. These options are evidenced by the CEO Option Plan and Agreement.
In addition, the Chief Executive Officer was granted 200,000 performance units
and 300,000 performance shares. Under the terms of the CEO Employment Agreement
and the CEO Option Plan and Agreement, stockholder approval is required for: (i)
the Chief Executive Officer's participation in the executive bonus program, (ii)
the grants of options, performance units and performance shares to the Chief
Executive Officer, and (iii) the compensation payable to the Chief Executive
Officer upon his termination or upon a change in control as described below. In
addition, as discussed below under Proposal 4, Section 162(m) of the Internal
Revenue Code of 1986, as amended ("Code"), disallows tax deductions to public
companies for compensation in excess of $1 million paid or accrued in a taxable
year with respect to certain executive officers, unless such compensation is of
a type that qualifies for exemption from that limitation. One such exemption is
for performance-based compensation, such as the bonus arrangements and the
options and performance units awarded under the CEO Employment Agreement and the
CEO Option Plan and Agreement, provided that certain requirements are met,
including stockholder approval of those compensation provisions. Therefore,
stockholder approval of the bonus arrangements, options and performance units is
expected to satisfy certain of the requirements of Section 162(m) in order to
make available to the Company such favorable tax treatment. In addition,
stockholder approval of the CEO Option Plan and Agreement is necessary in order
for a portion of the underlying options to be treated as incentive stock options
("ISOs") under the Code.
The full text of the CEO Employment Agreement is attached as Appendix
II-A to this Proxy Statement, and the full text of the CEO Option Plan and
Agreement is attached as Appendix II-B to this Proxy Statement. The following
description of the compensation provisions of the CEO Employment Agreement that
are subject to stockholder approval and the CEO Option Plan and Agreement is
intended merely as a summary of the principal features of those agreements and
is qualified in its entirety by reference to the provisions of the CEO
Employment Agreement and the CEO Option Plan and Agreement.
9
PROVISIONS SUBJECT TO STOCKHOLDER APPROVAL
BONUS. The CEO Employment Agreement provides for bonuses to be paid to
the Chief Executive Officer. The Compensation Committee (the "Committee") may
authorize the payment of bonuses to the Chief Executive Officer with such
conditions and terms as the Committee may determine. Performance goals for the
payment of bonuses may include, individual objectives, Company objectives or
both. Company objectives may include, but not be limited to, one or more of the
following: total revenue, earnings, earnings per share or return on equity, or
the extent of changes in such criteria. The Chief Executive Officer's total
potential cash payout under bonuses and performance units in any one year may
not exceed $5,000,000 (a maximum which is not an expected award but which is
instead intended to satisfy certain aspects of Code 162(m)), with any amount
which would be payable but for the $5,000,000 limitation being deferred to the
following year.
PERFORMANCE UNITS. The performance units granted to the Chief Executive
Officer vest and become payable upon the achievement by the Company of certain
specified levels of after-tax net income in fiscal 2001. Upon vesting, the
performance units are payable in two equal installments in April 2002 and 2003
as follows: (a) $10 per unit upon the Company's achievement of a threshold level
of after-tax net income ($21.6 million) in fiscal 2001; (b) $25 per unit upon
the Company's achievement of a target level of after-tax net income ($27.0
million) in fiscal 2001; and (c) $40 per unit upon the Company's achievement of
a maximum level of after-tax net income ($32.0 million) in fiscal 2001. However,
the Chief Executive Officer's total potential cash payout under bonuses and
performance units in any one year may not exceed $5,000,000, with any amount
which would be payable but for the $5,000,000 limitation being deferred to the
following year. For these purposes, after-tax net income is computed giving
affect to any accruals required in connection with any executive compensation
programs.
PERFORMANCE SHARES. The performance shares issued by the Company to the
Chief Executive Officer are subject to restrictions on transfer and encumbrance
through December 2, 2006 and are automatically forfeited to the Company upon
termination of the Chief Executive Officer's employment with the Company prior
to December 2, 2006. The restrictions to which the performance shares are
subject may lapse prior to December 2, 2006 in the event that the Company
achieves certain specified levels of fully-diluted earnings per share in fiscal
2001 ($1.08) or 2002 ($1.25). The Chief Executive Officer possesses voting
rights with respect to the performance shares, but is not entitled to receive
dividends or other distributions, if any, paid with respect to the performance
shares until the restrictions lapse.
INCENTIVE STOCK OPTIONS. Under the CEO Employment Agreement and the CEO
Option Plan and Agreement, the Chief Executive Officer was granted options to
purchase 800,000 shares of Common Stock at an exercise price of $4.95 per share
(110% of the market price on December 2, 1998, the date of grant). Shares in
excess of the number permitted to receive ISO treatment under the Code will be
nonqualified options with an exercise price of $4.50 per share (the market price
on the date of grant). The options vest in three equal annual installments on
the first three anniversaries of the date of grant. The aggregate maximum number
of shares for which awards may be granted under the CEO Option Plan and
Agreement is 800,000 (and no options other than the initial 800,000 options may
be issued thereunder). The shares issued under the CEO Option Plan and Agreement
may be authorized but unissued shares or reacquired shares, and the Company may
purchase shares required for this purpose if it deems such purchase to be
advisable.
The CEO Option Plan and Agreement is administered by the Committee,
which is comprised of at least two members designated by the Board of Directors.
Each Committee member is both an "outside director" (within the meaning of
Treasury Regulation Section 1.162-27(e)(3) or any successor thereto) and a
"non-employee" director (within the meaning of Rule 16b-3(b)(3) under the
Exchange Act). As noted above, the Committee currently consists of Mr. Cirillo
and Drs. DiFazio and Luzzi. The Compensation Committee has approved the CEO
Option Plan and Agreement and the issuance of the options thereunder to the
Chief Executive Officer.
The CEO Option Plan and Agreement terminates five years after the date
of grant, in the case of ISOs, and ten years after the date of grant, in the
case of nonqualified stock options.
10
The Chief Executive Officer may pay for shares covered by the CEO
Option Plan and Agreement (i) in cash or its equivalent, (ii) in shares of
Common Stock previously acquired by the Chief Executive Officer (subject to
certain holding period requirements), (iii) to the extent authorized by the
Company, pursuant to a "cashless exercise" or (iv) in any combination of (i),
(ii) and (iii).
The options may not be transferred other than by will or the laws of
descent and distribution. If the Chief Executive Officer is married at the time
of exercise or lapse of forfeiture restrictions and so requests, the
certificate(s) issued will be registered in the name of the Chief Executive
Officer and his spouse, jointly, with rights of survivorship.
The Committee may amend the options, from time to time in any respect
whatsoever, PROVIDED THAT, no such amendment, suspension or termination shall
materially impair the rights of the Chief Executive Officer without his consent,
and FURTHER PROVIDED THAT, the approval by the affirmative votes of holders of
at least a majority of the shares of Common Stock present, or represented, and
entitled to vote at a duly held meeting of stockholders of the Company is
required for any amendment which would (i) require stockholder approval pursuant
to Treasury Regulation Section 1.162-27(e)(4)(vi) or any successor thereto, (ii)
change the class of employees eligible to receive ISOs under the CEO Option Plan
and Agreement (presently limited to the Chief Executive Officer), (iii) increase
the maximum number of shares with respect to which ISOs may be granted under the
CEO Option Plan and Agreement (except as permitted under the CEO Option Plan and
Agreement with respect to capital adjustments), or (iv) extend the duration of
the CEO Option Plan and Agreement with respect to ISOs granted thereunder.
Based on the advice of counsel, the Company believes that, under
present Federal tax law and regulations, the Federal income tax consequences to
the Company and the Chief Executive Officer of awards under the CEO Option Plan
and Agreement would be identical to those described below under "Proposal
4-Summary of Tax Aspects of the Employee Plan - ISOs."
COMPENSATION PAYABLE UPON TERMINATION OR CHANGE OF CONTROL. If the
Chief Executive Officer's employment is terminated early due to his death or
disability, (i) all vested options may be exercised by his estate for one year
following termination, (ii) all performance units shall vest and become payable
at the accrued value measured at the end of the fiscal year following his
termination and (iii) the Chief Executive Officer shall become vested in, and
all restrictions would lapse with respect to (A) 1/3 of the performance shares
if the date of termination occurs before the first anniversary of the grant date
and the Company achieves the target earnings per share ($.50) for the fiscal
year in which the date of termination occurs; (B) 2/3 of the performance shares
if the date of termination occurs on or after the first anniversary but before
the second anniversary of the grant date and the Company achieves the target
earnings per share ($.64) for the fiscal year in which the date of termination
occurs; and (C) all of the performance shares if the date of termination occurs
on or after the second anniversary but before the day following the third
anniversary of the grant date and the Company achieves the target earnings per
share ($1.08) for the fiscal year in which the date of termination occurs
(clauses (A), (B) and (C) being hereinafter referred to collectively as
"Proportional Vesting"); PROVIDED, HOWEVER, that should the Chief Executive
Officer remain disabled for six months following his termination for disability,
he shall also be entitled to receive for a period of two years following
termination, his annual salary at the time of termination and continuing
coverage under all benefit plans and programs to which he was previously
entitled.
If the Chief Executive Officer's employment is terminated early by the
Company without Cause (as defined in the CEO Employment Agreement), (i) he shall
be entitled to receive, for the longer of two years following termination or the
period remaining in his term of employment under the Agreement, his annual
salary at the time of termination (less the net proceeds of any long term
disability or workers' compensation benefits) and continuing coverage under all
benefit plans and programs to which he was previously entitled, (ii) all
unvested options shall become vested and immediately exercisable in accordance
with the terms of the options and he shall become vested in any other pension or
deferred compensation plans, (iii) any performance units to which he would have
been entitled at the time of his termination shall become vested and payable at
the accrued value measured at the end of the fiscal year in which such
11
termination occurs, and (iv) any performance shares shall be entitled to
Proportional Vesting.
If the Chief Executive Officer is terminated by the Company for Cause,
he shall be entitled to receive only salary, bonus and other benefits earned and
accrued through the date of termination and to retain any performance shares
previously vested.
If the Chief Executive Officer terminates his employment for Good
Reason (as defined in the CEO Employment Agreement), (i) he shall be entitled to
receive, for a period of two years following termination, his annual salary at
the time of termination and continuing coverage under all benefit plans and
programs to which he was previously entitled, (ii) all unvested options shall
become vested and immediately exercisable in accordance with the terms of the
options and he shall become vested in any other pension or deferred compensation
plans, (iii) all performance units granted to him shall become vested and
payable at the accrued value measured at the end of the fiscal year in which
such termination occurs, and (iv) any performance shares shall be entitled to
Proportional Vesting.
Upon the Company undergoing certain specified changes of control which
result in his termination by the Company for Cause or by him for Good Reason or
upon a material reduction in his duties, (i) the Chief Executive Officer shall
be entitled to receive, for the longer of three years following termination or
the period remaining in his term of employment under the CEO Employment
Agreement, his annual salary at the time of termination and continuing coverage
under all benefit plans and programs to which he was previously entitled, (ii)
all unvested options shall become vested and immediately exercisable in
accordance with the terms of the options and the Chief Executive Officer shall
become vested in any other pension or deferred compensation plans, (iii) all
performance units granted to him shall become vested and immediately payable at
the then applicable maximum rate, and (iv) all performance shares issued to him
shall vest and become immediately transferable without restriction.
OTHER. If all of the foregoing provisions are not approved by the
Company's stockholders by December 31, 1999, (December 1, 1999 in the case of
the CEO Option Plan and Agreement), then no compensation will be paid to the
Chief Executive Officer under such provisions. However, the Company and the
Chief Executive Officer would be obligated to negotiate in good faith during the
90-day period commencing January 1, 2000 to reach a mutually acceptable
alternative to such provisions which may also be subject to stockholder approval
at a later date. In the event that the Chief Executive Officer and the Company
are unable to agree on an alternative compensation arrangement within such
90-day period, the Chief Executive Officer will have the right to terminate the
CEO Employment Agreement on not less than six months' prior written notice, in
which event he would be entitled to receive, for a period of two years after the
termination of his employment, the annual salary that he was receiving at the
time of the termination of his employment and reimbursement for expenses
incurred prior to the date of termination.
On July 2, 1999, the closing price of the Common Stock on The Nasdaq
National Market tier of The Nasdaq Stock Market was $2.375 per share.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of the foregoing compensation provisions of the CEO Employment
Agreement and of the CEO Option Plan and Agreement will require the affirmative
vote of the majority of the shares of Common Stock present, in person or by
proxy, at the Meeting and entitled to vote. As a result, abstentions, broker
non-votes and Specified Non-Votes will have the same effect as a vote against
the Proposal.
Because the Chief Executive Officer has a direct financial interest in
the approval of this Proposal, he has abstained from recommending this Proposal.
As of July 2, 1999, the Company's directors and executive officers as a group
beneficially owned approximately 14% (including 9.6% beneficially owned by the
Chief Executive Officer) of the outstanding Common Stock entitled to vote at the
Meeting. The Company expects that its directors and executive
12
officers (including the Chief Executive Officer) will vote their respective
shares of Common Stock in favor of this Proposal.
THE BOARD OF DIRECTORS (WITH THE CHIEF EXECUTIVE OFFICER ABSTAINING)
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE FOREGOING COMPENSATION
PROVISIONS OF THE CEO EMPLOYMENT AGREEMENT AND FOR THE APPROVAL OF THE CEO
OPTION PLAN AND AGREEMENT.
13
PROPOSAL 4.
APPROVAL OF AMENDMENTS TO THE AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
BACKGROUND
The Employee Plan was adopted by the Company's Board of Directors and
approved by the Company's stockholders in May 1996, with certain amendments
approved by the stockholders in June 1997. In 1998, the Board of Directors
retained SCRA (see Proposal 3 for information regarding SCRA) to make
recommendations to the Board regarding a Company-wide senior management
long-term compensation program in order to more closely align the interests of
senior management with those of the Company's stockholders and to make the
Company's compensation arrangements more consistent with those of the industry
in an effort to attract, retain and motivate key employees. The Board considered
the recommendations of SCRA and adopted a 1998 Total Compensation Program for
Key Employees (the "Program") that it believes to be in the best interests of
the Company and its stockholders in that it appropriately incentivizes senior
management to maximize stockholder value for all stockholders and will enable
the Company to attract, retain and motivate key employees. See "Additional
Information - Compensation Committee Report on Executive Compensation."
GENERAL
In order to effectuate the Program, in December 1998, the Board of
Directors amended the Employee Plan to: (i) make an additional 825,450 shares of
Common Stock available for issuance under the Employee Plan (the "Additional
Shares") in addition to those remaining outstanding or available for issuance
under the Employee Plan prior to such amendment (1,549,550 for a total of
2,375,000 shares); (ii) add performance shares and performance units as
securities subject to grant by the Company to employees under the Employee Plan;
and (iii) effect certain technical changes to the Employee Plan. At the Meeting,
stockholders will be asked to approve the foregoing amendments to the Employee
Plan. The Board of Directors believes that the increase in the number of shares
authorized for issuance under the Employee Plan and the other amendments are
necessary in order to continue to attract and retain employees of the Company,
and to motivate such persons with a view toward increasing stockholder value and
to more closely align the interests of such persons with the interests of
stockholders.
Options granted under the Employee Plan may be designated as ISOs
within the meaning of Section 422 of the Code, or may be designated as options
not intended to be ISOs ("Non-Qualified Stock Options"). As amended, the
Employee Plan provides that awards may also consist of performance units or
performance shares. The Company's ability to issue any Additional Shares upon
exercise of awards under the Employee Plan is conditioned upon stockholder
approval of the foregoing amendments to the Employee Plan.
The full text of the Employee Plan, as amended and restated to date, is
attached as Appendix III to this Proxy Statement. The following description of
the Employee Plan is intended as a summary of its principal features and is
qualified in its entirety by reference to the provisions of the Employee Plan.
1. NUMBER OF SHARES. The aggregate maximum number of shares for which
awards may be granted under the Employee Plan is 2,375,000. No Awardee (as
defined below) may receive awards under the Employee Plan relating to more than
1,500,000 shares of Common Stock in any one year, no more than 500,000 shares of
Common Stock may be subject to ISOs, and no more than 750,000 shares of Common
Stock may be subject to performance share awards. The shares issued under the
Employee Plan may be authorized but unissued shares or reacquired shares, and
the Company may purchase shares required for this purpose if it deems such
purchase to be advisable.
2. ADMINISTRATION. The Employee Plan is administered by the Committee.
As noted above, the Committee currently consists of Mr. Cirillo and Drs. DiFazio
and Luzzi. The Committee has the authority to select the employees to be granted
awards under the Employee Plan ("Awardees"), grant awards under the Employee
Plan, and set the exercise price and other terms and conditions of awards.
14
3. ELIGIBILITY. All employees of the Company may be granted awards
under the Employee Plan. As of July 1, 1999, there were approximately 230 such
employees.
4. TERM OF PLAN AND AWARDS. No award may be granted under the Employee
Plan after May 22, 2006, although then-outstanding options and other awards may
extend beyond that date. All awards of options terminate on the earlier of (a)
the expiration of the term specified in the award agreement or other granting
instrument, which, in the case of a Non-Qualified Stock Option, may not exceed
fifteen years from the date of grant and, in the case of an ISO, may not exceed
ten years from the date of grant (or five years after the date of grant if the
Awardee on the date of grant owns, directly or indirectly, shares possessing
more than 10% of the total combined voting power of all classes of stock of the
Company (a "Ten Percenter")) or (b) the date, if any, set by the Committee as an
accelerated expiration date.
5. NATURE OF AWARDS. OPTIONS. The Committee determines the conditions
to the exercisability of each option at the time of the granting thereof.
Options granted to date typically become fully exercisable no later than three
years after grant, and certain options (or portions thereof) granted to
executive officers have been exercisable upon grant. All options held by an
Awardee under the Employee Plan will become fully exercisable if there is a
Change in Control (as defined in the Employee Plan) and if the Awardee's
employment is terminated under specified circumstances within one year after the
Change in Control. The Committee determines the exercise price of each option,
provided that the exercise price for ISOs may not be less than the fair market
value of Common Stock on the date of grant (or 110% thereof if the Awardee is a
Ten Percenter). An Awardee may pay for shares covered by an option (i) in cash
or its equivalent, or, in the discretion of the Committee, either (ii) in shares
of Common Stock previously acquired by the Awardee (subject to certain holding
period requirements), (iii) pursuant to a "cashless exercise" or (iv) in any
combination of (i), (ii) and (iii) above. An Awardee is permitted to pay
pursuant to a so-called "cashless exercise", whereby the Company receives the
exercise price directly from the Awardee's broker out of the proceeds from the
sale or loan against all or a portion of the shares being purchased under the
option.
PERFORMANCE SHARES. The Employee Plan permits the Committee to grant
performance shares comprised of shares of Common Stock with such restrictions,
conditions and other terms as the Committee may determine. Performance shares
will become freely transferable and all such restrictions will lapse if a
specified period of time elapses, if pre-determined performance targets or goals
are met, or both. Performance goals (to be set by the Committee) may include,
but not be limited to, one or more of the following: total cash revenue,
earnings, earnings per share or return on equity, or the extent of changes in
such criteria. Performance shares vest if a Change in Control occurs and the
Awardee's employment is terminated under circumstances specified in the
applicable agreement within one year after the Change in Control.
PERFORMANCE UNITS. The Employee Plan permits the Committee to grant
performance units, which will entitle Awardees to receive a cash payment if
pre-determined performance targets or goals are met. Performance goals (to be
set by the Committee) may include, but not be limited to, one or more of the
following: total revenue, earnings, earnings per share, or return on equity, or
the extent of changes in such criteria. Performance units vest if a Change in
Control occurs and the Awardee's employment is terminated under circumstances
specified in the applicable agreement within one year after the Change in
Control. In no event may any Awardee receive payments in excess of $1 million in
any one year under performance units; in such event, amounts in excess of $1
million are deferred to subsequent years.
6. AWARD DOCUMENT; RESTRICTIONS ON TRANSFERABILITY. All awards will be
evidenced by a written document containing provisions consistent with the
Employee Plan and such other provisions as the Committee deems appropriate. No
awards granted under the Employee Plan may be transferred other than by will or
the laws of descent and distribution. If an Awardee is married at the time of
exercise or lapse of forfeiture restrictions and so requests, the certificate(s)
issued will be registered in the name of the Awardee and his or her spouse,
jointly, with rights of survivorship.
15
7. AMENDMENTS TO AWARDS AND TO THE EMPLOYEE PLAN; DISCONTINUANCE OF THE
EMPLOYEE PLAN. The Board of Directors may suspend, terminate or amend the
Employee Plan, and the Committee may amend any outstanding award, from time to
time in any respect whatsoever, PROVIDED THAT, no such amendment, suspension or
termination shall materially impair the rights of the holder of any outstanding
award without such holder's consent, and FURTHER PROVIDED THAT, the approval by
the affirmative votes of holders of at least a majority of the shares of Common
Stock present, or represented, and entitled to vote at a duly held meeting of
stockholders of the Company is required for any amendment which would (i)
require stockholder approval pursuant to Treasury Regulation Section
1.162-27(e)(4)(vi) or any successor thereto, (ii) change the class of employees
eligible to receive ISOs under the Employee Plan, (iii) increase the maximum
number of shares with respect to which ISOs may be granted under the Employee
Plan (except as permitted under the Employee Plan with respect to capital
adjustments), or (iv) extend the duration of the Employee Plan with respect to
ISOs granted thereunder.
8. SUMMARY OF TAX ASPECTS OF THE EMPLOYEE PLAN. Based on the advice of
counsel, the Company believes that, under present Federal tax law and
regulations, the Federal income tax consequences to the Company and Awardees
under the Employee Plan would be as follows:
ISOS. ISOs under the Employee Plan are intended to meet the
requirements of Section 422 of the Code. Under this section of the Code, the
grant of an incentive stock option under the Employee Plan will not result in
the realization of income to the Awardee, and the Company will likewise not be
entitled to a deduction. Furthermore, if an Awardee acquires stock upon the
exercise of an incentive stock option, no income will result to the Awardee and
the Company will be allowed no deduction as a result of such exercise if the
following conditions are met: (a) at all times during the period beginning with
the date of the grant of the option and ending on the date three months before
the date of such exercise, the Awardee is an employee of the Company or of a
subsidiary; and (b) the Awardee makes no disposition of such Common Stock within
two years from the date the option is granted nor within one year after the
option is exercised. In the event of a sale of such Common Stock by the Awardee
after compliance with these conditions, any gain realized over the price paid
for such Common Stock will ordinarily be treated as a capital gain, and any loss
will ordinarily be treated as a capital loss, in the year of sale. The exercise
of an incentive stock option may result in alternative minimum tax liability to
the Awardee.
If the Awardee fails to comply with the employment or holding period
requirements discussed above, such person will be treated as having received
compensation taxable as ordinary income and/or having received a capital gain
(or loss) in an amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise, in accordance with the
provisions of the Code. If the Awardee is treated as having received
compensation because of this failure to comply with either condition above, an
equivalent deduction from income will be allowed to the Company in the same
year.
NON-QUALIFIED STOCK OPTIONS. The grant of a non-qualified stock option
under the Employee Plan will not result in the realization of income for Federal
tax purposes for an Awardee, nor will the grant entitle the Company to a tax
deduction. An Awardee who exercises a non-qualified stock option will generally
realize compensation taxable as ordinary income in an amount equal to the
difference between the exercise price and the fair market value of the shares on
the date of exercise, and the Company will be entitled to a deduction from
income in the same amount. The Awardee's basis in such shares will be the fair
market value on the date compensation is recognized, and capital gain or loss
will be recognized in the year of a subsequent sale.
PERFORMANCE SHARE AWARDS. Performance share awards granted under the
Employee Plan will constitute taxable income to the Awardee, and a deductible
expense to the Company, in the year in which the restrictions lapse unless the
Awardee elects to recognize income in the year the award is made. Unless such an
election is made, the amount of the taxable income and corresponding deduction
will be equal to the excess of the fair market value of the stock on the date
the restrictions lapse over the amount, if any, paid for such stock. The Company
is also allowed a compensation deduction for dividends paid to Awardees
(provided they have not elected to recognize income at the time of the award) on
performance shares while the restrictions remain in force.
16
PERFORMANCE UNITS. Performance units awarded under the Employee Plan
will not constitute a taxable event to the Awardee until such time as the
Awardee actually receives cash or other property related to such award. The
amount of taxable income will be equal to the amount of cash received or the
fair market value of other property received at such time. The Company will be
entitled to a compensation deduction in the same amount in the same year.
PERFORMANCE BASED COMPENSATION. Section 162(m) of the Code disallows
tax deductions to public companies for compensation in excess of $1 million paid
or accrued in a taxable year to certain executive officers (generally consisting
of the chief executive officer and the four other most highly compensated
executive officers), unless such compensation is of a type that qualifies for
exemption from that limitation. One such exemption is for performance-based
compensation, which can include compensation under a plan such as the Employee
Plan, provided that certain requirements are met, including administration of
the Employee Plan by "outside directors" and stockholder approval of the
Employee Plan and/or particular awards made pursuant to the Employee Plan. The
Board of Directors intends to comply with such requirements with respect to the
Employee Plan to the extent reasonably practicable, but there can be no
assurance that the Employee Plan will so comply.
OTHER. Various additional tax consequences may apply to the granting,
acceleration and exercise of options, performance units and performance shares
and to the disposition of shares acquired thereunder, but such consequences are
beyond the scope of this summary. The foregoing does not purport to be a
complete description of the effect of Federal income taxation upon holders of
options, performance units and performance shares or upon the Company, is not
intended to constitute tax advice, and does not cover possible state, local or
foreign tax consequences.
Each of the executive officers (including directors who are also
executive officers) of the Company has a direct financial interest in the
Proposal to adopt the foregoing amendments to the Employee Plan because all
employees of the Company are eligible to receive awards under such Plan and such
individuals have been awarded options, performance units and performance shares
under the amended Employee Plan, subject to and conditioned upon stockholder
approval of the foregoing amendments to the Employee Plan. As of June 15, 1999,
1,438,059 shares of Common Stock were subject to outstanding options under the
Employee Plan, 378,000 performance shares were outstanding under the Employee
Plan and 185,000 performance units were outstanding under the Employee Plan; and
558,941 shares were available for the future grant of awards. The chart below
indicates the number of options, performance shares and performance units that
have been granted as of July 2, 1999 pursuant to the Employee Plan to (i) the
two Chief Executive Officers who held that title during 1998 and the four other
most highly compensated executive officers of the Company during 1998 (the
"Named Executive Officers"), (ii) all current executive officers (other than the
Named Executive Officers) as a group, (iii) other senior management employees
participating in the Program as a group, (iv) all current directors who are not
executive officers, as a group, and (v) all employees, other than executive
officers and participants in the Program, as a group.
- ---------------------------------------------------------------------------------------
Awardee Options Performance Performance Units
------- ------- ----------- -----------------
Shares
------
- ---------------------------------------------------------------------------------------
Richard H. Friedman (1) -- -- --
- ---------------------------------------------------------------------------------------
John H. Klein -- -- --
- ---------------------------------------------------------------------------------------
Scott R. Yablon(2) -- 200,000 150,000
- ---------------------------------------------------------------------------------------
Barry A. Posner 100,000 60,000 10,000
- ---------------------------------------------------------------------------------------
17
- -----------------------------------------------------------------------------------------------------------
E. Paul Larrat -- -- --
- -----------------------------------------------------------------------------------------------------------
Eric Pallokat -- -- --
- -----------------------------------------------------------------------------------------------------------
All other executive officers as a group (1 person) 50,000 15,000 2,500
- -----------------------------------------------------------------------------------------------------------
All other Program participants (9 persons) 210,000 103,000 22,500
- -----------------------------------------------------------------------------------------------------------
All non-employee directors as a group -- -- --
- -----------------------------------------------------------------------------------------------------------
All other employees as a group 1,078,059 -- --
- -----------------------------------------------------------------------------------------------------------
(1) Under the CEO Employment Agreement and the CEO Option Plan and
Agreement, Mr. Friedman was granted options, performance shares and
performance units not covered by the Employee Plan. See Proposal 3.
(2) Mr. Yablon holds options to purchase 1,000,000 shares of Common Stock
not covered by the Employee Plan. See "Additional Information --
Executive Compensation - Option Grants in Last Fiscal Year."
On July 2, 1999, the closing price of the Common Stock on The Nasdaq
National Market tier of The Nasdaq Stock Market was $2.375 per share.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of the foregoing amendments to the Employee Plan will require
the affirmative vote of the majority of the shares of Common Stock present, in
person or by proxy, at the Meeting and entitled to vote. As a result,
abstentions, broker non-votes and Specified Non-Votes will have the same effect
as a vote against the Proposal. As of July 2, 1999, the Company's directors and
executive officers as a group beneficially owned approximately 14% of the
outstanding Common Stock entitled to vote at the Meeting. The Company expects
that its directors and executive officers will vote their respective shares of
Common Stock in favor of this Proposal.
THE BOARD OF DIRECTORS (WITH MR. YABLON ABSTAINING) UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENTS TO THE EMPLOYEE PLAN.
18
PROPOSAL 5.
APPROVAL OF AMENDMENT TO THE 1996 NON-EMPLOYEE DIRECTORS STOCK INCENTIVE PLAN
The Directors Plan was adopted by the Company's Board of Directors and
approved by the Company's stockholders in May 1996. All 100,000 shares
authorized for issuance under the Directors Plan have been reserved for issuance
under options which have been granted under the Directors Plan. Therefore, in
March 1999, the Board of Directors amended the Directors Plan to increase the
number of shares of Common Stock authorized for issuance under the Directors
Plan by 200,000 shares (the "Additional Directors Shares") from 100,000 to
300,000 shares. At the Meeting, stockholders will be asked to approve the
foregoing amendment to the Directors Plan. The Board of Directors believes that
the increase in the number of shares authorized for issuance under the Directors
Plan is necessary in order to continue to attract and retain qualified
non-employee directors, and to motivate such persons with a view toward
increasing stockholder value and to more closely align the interests of such
persons with the interests of stockholders.
Only Non-Qualified Stock Options may be granted under the Directors
Plan.
The full text of the Directors Plan, as amended and restated to date,
is attached as Appendix IV to this Proxy Statement. The following description of
the Directors Plan is intended merely as a summary of its principal features and
is qualified in its entirety by reference to the provisions of the Directors
Plan.
1. NUMBER OF SHARES. The aggregate maximum number of shares for which
options may be granted under the Directors Plan is 300,000. The shares issued
under the Directors Plan may be authorized but unissued shares or reacquired
shares, and the Company may purchase shares required for this purpose if it
deems such purchase to be advisable.
2. ADMINISTRATION. The Directors Plan is administered by the Committee.
3. ELIGIBILITY. All those directors who are not, and who have not been
during the preceding twelve month period, employees of the Company or any
related entity (as defined in the Directors Plan) may be granted Non-Qualified
Stock Options under the Directors Plan upon their initial election to the Board
of Directors. As of July 2, 1999 there were four such non-employee directors. In
addition, Mr. Yablon was granted options under the Directors Plan in 1996 prior
to becoming an executive officer and employee of the Company.
4. TERM OF PLAN AND OPTIONS. No option may be granted under the
Directors Plan after May 22, 2006, although then-outstanding options may extend
beyond that date. All options terminate on the expiration of the term specified
in the option agreement or other granting instrument, which may not exceed ten
years from the date of grant.
5. EXERCISE OF OPTION. Options granted to date become exercisable in
annual increments over three years from the date of grant.
6. OPTION PRICE. The exercise price for options granted under the
Directors Plan is equal to the fair market value of Common Stock on the date of
grant.
7. PAYMENT. An optionee may pay for shares covered by an option in cash
or its equivalent.
19
8. OPTION DOCUMENT; RESTRICTIONS ON TRANSFERABILITY. All options will
be evidenced by a written option document containing provisions consistent with
the Directors Plan and such other provisions as the Committee deems appropriate.
No option granted under the Directors Plan may be transferred other than by will
or the laws of descent and distribution. If the optionee is married at the time
of exercise and so requests, the certificate(s) issued will be registered in the
name of the optionee and his or her spouse, jointly, with right of survivorship.
9. AMENDMENTS TO OPTIONS AND TO THE DIRECTORS PLAN; DISCONTINUANCE OF
THE DIRECTORS PLAN. The Board of Directors may suspend, terminate or amend the
Directors Plan, and the Committee may amend any outstanding option, from time to
time in any respect whatsoever, PROVIDED THAT, no such amendment, suspension or
termination may materially impair the rights of the holder of any outstanding
option without such holder's consent, and FURTHER PROVIDED THAT, the approval by
the affirmative votes of holders of at least a majority of the shares of Common
Stock present, or represented, and entitled to vote at a duly held meeting of
stockholders of the Company is required for any amendment which would (i) change
the class of persons eligible to receive options under the Directors Plan, or
(ii) increase the benefits of the number of shares with respect to which options
may be granted under the Directors Plan (except as permitted under the Directors
Plan with respect to capital adjustments).
10. SUMMARY OF TAX ASPECTS OF THE DIRECTORS PLAN. Based on the advice
of counsel, the Company believes that, under present Federal tax law and
regulations, the Federal income tax consequences to the Company and optionees
receiving options under the Directors Plan would be as follows:
The grant of a Non-Qualified Stock Option under the Directors Plan will
not result in the realization of income for Federal tax purposes for an option
holder, nor will the grant entitle the Company to a tax deduction. An option
holder who exercises a Non-Qualified Stock Option will generally realize
compensation taxable as ordinary income in an amount equal to the difference
between the option price and the fair market value of the shares on the date of
exercise, and the Company will be entitled to a deduction from income in the
same amount. The option holder's basis in such shares will be the fair market
value on the date compensation is recognized, and capital gain or loss will be
recognized in the year of a subsequent sale.
Various additional tax consequences may apply to the granting,
acceleration and exercise of options and to the disposition of shares acquired
thereunder, but such consequences are beyond the scope of this summary. The
foregoing does not purport to be a complete description of the effect of Federal
income taxation upon holders of options or upon the Company, is not intended to
constitute tax advice, and does not cover possible state, local or foreign tax
consequences.
As of July 2, 1999, 100,000 shares of Common Stock were subject to
outstanding options under the Directors Plan, no shares had been issued upon the
exercise of options and 200,000 Additional Directors Shares were available for
the future grant of options. The availability of these 200,000 Additional
Directors Shares for future grants is subject to and conditioned upon
stockholder approval of the foregoing amendment to the Directors Plan. Through
July 2, 1999, options to purchase 20,000 shares have been granted under the
Directors Plan to each of Dr. Luzzi and Mr. Yablon at an exercise price of $13
per share, options to purchase 20,000 shares have been granted to Mr. Cirillo at
an exercise price of $4.35 per share and options to purchase 20,000 shares have
been granted to each of Mr. Kooper and Dr. DiFazio at an exercise price of
$4.6875 per share.
On July 2, 1999, the closing price of the Company's Common Stock on The
Nasdaq National Market tier of The Nasdaq Stock Market was $2.375 per share.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of the amendment to the Directors Plan will require the
affirmative vote of the majority of the shares of Common Stock present, in
person or by proxy, at the Meeting and entitled to vote. As a result,
abstentions, broker non-votes and Specified Non-Votes will have the same effect
as a vote against the Proposal. As of July 2, 1999, the Company's directors and
20
executive officers as a group beneficially owned approximately 14% of the
outstanding Common Stock entitled to vote at the Meeting. The Company expects
that its directors and executive officers will vote their respective shares of
Common Stock in favor of this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE AMENDMENT TO THE DIRECTORS PLAN.
OTHER MATTERS
The Board of Directors knows of no matters to be presented for action
at the Meeting other than those set forth in this Proxy Statement and the
attached Notice and customary procedural matters. However, if any other matters
should properly come before the Meeting or any adjournments or postponements
thereof, the proxies solicited hereby will be voted on such other matters, to
the extent permitted by applicable rules of the Commission, in accordance with
the judgment of the persons voting such proxies.
21
ADDITIONAL INFORMATION
EXECUTIVE OFFICERS
The following table sets forth, as of July 2, 1999, certain information
with respect to each executive officer of the Company who is not also a director
of the Company. See Proposal 1 above for information regarding those executive
officers who are also directors.
- --------------------------------------------------------------------------------
Name Age Position
---- --- --------
- --------------------------------------------------------------------------------
Barry A. Posner 35 Vice President, Secretary and General Counsel.
Mr. Posner joined the Company in March 1997 as
General Counsel and was appointed as the
Company's Secretary at that time. On April 16,
1998, Mr. Posner was appointed Vice President
of the Company. From September 1990 through
March 1997, Mr. Posner was associated with the
Stamford, Connecticut law firm of Finn Dixon &
Herling LLP, where he practiced corporate law,
specializing in the areas of mergers and
acquisitions and securities law, and commercial
real estate law.
- --------------------------------------------------------------------------------
Edward J. Sitar 39 Chief Financial Officer and Treasurer. Mr.
Sitar joined the Company in August 1998 as Vice
President of Finance. On March 22, 1999, Mr.
Sitar was appointed Chief Financial Officer and
Treasurer, relinquishing the position of Vice
President of Finance. From May 1996 to August
1998, Mr. Sitar was the Vice President of
Finance for Vital Signs, Inc., a publicly
traded manufacturer and distributor of single
use medical products. From June 1993 to April
1996, Mr. Sitar was the Controller of Zenith.
- --------------------------------------------------------------------------------
Executive officers are appointed by, and serve at the pleasure of, the
Board of Directors, subject to the terms of their respective employment
agreements with the Company, which among other things, provide for each of them
to serve in the executive position(s) listed above. See "-Employment Agreements"
below.
COMMON STOCK OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as otherwise set forth below, the following table sets forth, to
the Company's knowledge, as of June 18, 1999, the beneficial ownership of the
Company's Common Stock by: (i) each person or entity known to the Company to own
beneficially five percent or more of the Company's Common Stock; (ii) each of
the Company's directors; (iii) each of the Named Executive Officers; and (iv)
all current directors and executive officers of the Company as a group. Such
information is based upon filings by such persons with the Commission and
information provided to the Company by such persons.
22
- --------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
NAME AND/OR ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED (1)(2) PERCENT OF CLASS(1)(2)
- --------------------------------------- ------------------------- ----------------------
- --------------------------------------------------------------------------------------------------------
Richard H. Friedman.................................... 1,800,000(3) 9.6%
100 Clearbrook Road
Elmsford, NY 10523
- --------------------------------------------------------------------------------------------------------
Scott R. Yablon........................................ 765,334(4) 3.9%
100 Clearbrook Road
Elmsford, NY 10523
- --------------------------------------------------------------------------------------------------------
Barry A. Posner........................................ 61,600(5) *
100 Clearbrook Road
Elmsford, NY 10523
- --------------------------------------------------------------------------------------------------------
E. Paul Larrat......................................... 55,000(6) *
167 Tillinghast Road
E. Greenwich, RI 02818
- --------------------------------------------------------------------------------------------------------
Eric Pallokat.......................................... --- ---
4 Birch Road
Mahwah, NJ 07430
- --------------------------------------------------------------------------------------------------------
E. David Corvese....................................... 2,062,106 11.0%
25 North Road
Peace Dale, RI 02883
- --------------------------------------------------------------------------------------------------------
John H. Klein.......................................... 1,179,500 6.3%
7 Loman Court
Cresskill, NJ 07626
- --------------------------------------------------------------------------------------------------------
Michael R. Erlenbach................................... 1,983,199(7) 10.6%
6438 Huntington
Solon, OH 44139
- --------------------------------------------------------------------------------------------------------
Louis A. Luzzi, Ph.D................................... 21,800(8) *
University of Rhode Island
College of Pharmacy
Forgerty Hall
Kingston, RI 02881
- --------------------------------------------------------------------------------------------------------
Richard A. Cirillo..................................... 6,667(9) *
c/o King & Spalding
1185 Avenue of the Americas
New York, NY 10036
- --------------------------------------------------------------------------------------------------------
Louis DiFazio, Ph.D.................................... 9,167(10) *
Route 206
Princeton, NJ 08543
- --------------------------------------------------------------------------------------------------------
Michael Kooper......................................... 6,667(9) *
770 Lexington Avenue
New York, NY 10021
- --------------------------------------------------------------------------------------------------------
All current directors and executive officers
as a group (eight persons)......................... 2,665,585(1)(2)(11) 13.6%
- --------------------------------------------------------------------------------------------------------
23
- --------
* Less than 1%.
(1) The inclusion herein of any shares as beneficially owned does not
constitute an admission of beneficial ownership of those shares. Except as
otherwise indicated, each person has sole voting power and sole investment
power with respect to all shares beneficially owned by such person.
(2) Shares deemed beneficially owned by virtue of the right of an individual to
acquire them within 60 days after June 18, 1999 upon the exercise of an
option are treated as outstanding for purposes of determining beneficial
ownership and the percentage beneficially owned by such individual.
Percentage ownership has been computed based on 18,803,189 shares of Common
Stock outstanding as of June 18, 1999.
(3) Includes 300,000 shares of Common Stock subject to restrictions on transfer
and encumbrance through December 2, 2006 with respect to which Mr. Friedman
possesses voting rights. See "Executive Compensation - Long Term Incentive
Plan - Awards in Last Fiscal Year" below for a description of terms and
conditions relating to these performance (restricted) shares. Excludes
800,000 shares subject to the unvested portion of options held by Mr.
Friedman.
(4) Represents 763,334 shares issuable upon exercise of the vested portion of
options. Excludes 256,666 shares subject to the unvested portion of options
held by Mr. Yablon.
(5) Includes 60,000 shares of Common Stock subject to restrictions on transfer
and encumbrance through December 2, 2006 with respect to which Mr. Posner
possesses voting rights. See "Executive Compensation -Long Term Incentive
Plan - Awards in Last Fiscal Year" below for a description of terms and
conditions relating to these performance (restricted) shares. Excludes
200,000 shares subject to the unvested portion of options held by Mr.
Posner.
(6) Represents 55,500 shares issuable upon exercise of the vested portion of
options. Mr. Larrat's unvested options terminated upon his resignation from
the Company in March 1999.
(7) The Michael R. Erlenbach Flint Trust holds 1,658,230 shares of Common
Stock. Mr. Erlenbach and John M. Slivka, as trustee, share voting and
dispositive power with respect to these shares. In addition, Mr. Erlenbach
beneficially owns an additional 324,969 shares of Common Stock.
(8) Represents 20,000 shares issuable upon the exercise of the vested portion
of options held by Dr. Luzzi. Dr. Luzzi and his wife share voting and
investment power over an additional 1,800 shares.
(9) Represents of 6,667 shares issuable upon exercise of the vested portion of
options. Excludes 13,333 shares subject to the unvested portion of options.
(10) Represents 6,667 shares issuable upon the exercise of vested portion of
options and 2,500 shares owned directly by Dr. DiFazio. Excludes 13,333
shares subject to the unvested portions of options.
(11) Includes 798,335 shares issuable upon exercise of the vested portion of
options. See footnotes 2 through 10 above.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
annual, long-term and other compensation of the Named Executive Officers for
services rendered in all capacities to the Company and its subsidiaries during
each of the years ended December 31, 1998, 1997 and 1996, respectively:
24
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION
-------------------
LONG-TERM
COMPENSATION
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS COMPENSATION(2) OPTIONS COMPENSATION
- --------------------------- ---- ---------- ----- --------------- ------- ------------
- ----------------------------------------------------------------------------------------------------------------------
Richard H. Friedman ........... 1998 $333,462 $212,500 $33,134 800,000 $ 5,217(4)
Chief Executive Officer 1997 $275,000 $12,000 -- $ 4,710(4)
1996 $187,977 $ 7,000 500,000(3) $ 3,657(4)
- ----------------------------------------------------------------------------------------------------------------------
John H. Klein Former Chief .... 1998 $125,000 -- $ 5,000 -- $205,217(5)
Executive Officer 1997 $325,000 -- $12,000 -- $ 4,710(4)
1996 $220,192 -- $ 7,000 560,000(3) --
- ----------------------------------------------------------------------------------------------------------------------
Scott R. Yablon ............... 1998 $207,500(6) $162,500 $ 6,678 1,000,000(7) $ 4,605(4)
President and 1997 -- -- -- --
Chief Operating Officer 1996 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Barry A. Posner ............... 1998 $191,346(8) $100,000 $10,828 50,000(9) $ 5,890(4)
Vice President, General 1997 $127,366 -- $ 4,166 150,000(7) $ 4,710(4)
Counsel and Secretary 1996 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
E. Paul Larrat(10) ............ 1998 $191,346 $ 10,000 $ 7,400 60,000(9) $ 5,890(4)
Executive Vice President 1997 $155,000 -- $ 3,600 -- $ 4,113(4)
Pro-Mark Holdings, Inc. 1996 $135,556 -- $ 3,600 37,500(11) $ 7,549(4)
- ----------------------------------------------------------------------------------------------------------------------
Eric Pallokat(12) ............. 1998 $138,904 $ 82,500 $ 6,000 25,000(7) --
Vice President of Sales 25,000(9)
1997 $115,000 -- $ 6,000 -- --
1996 $ 53,077 -- $ 2,887 25,000(7) --
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------
(1) The annualized base salaries of the Named Executive Officers for 1998
were as follows: Mr. Friedman ($325,000; $425,000 effective December
1998), Mr. Klein ($325,000), Mr. Yablon ($325,000), Mr. Posner
($200,000), Mr. Larrat ($175,000) and Mr. Pallokat ($130,000).
(2) Represents automobile allowances, and for Messrs. Friedman, Yablon and
Posner in 1998, reimbursement for club membership and related fees and
expenses of $21,135, $ 3,678 and $3,428, respectively.
(3) Represents options to purchase shares of the Company's Common Stock
from E. David Corvese. See "Common Stock Ownership by Certain
Beneficial Owners and Management" above.
(4) Represents life insurance premiums paid by the Named Executive Officer
and reimbursed by the Company.
(5) Represents reimbursement of life insurance premiums in the amount of
$5,217 and payment of severance of $200,000. Mr. Klein resigned as
Chairman and Chief Executive Officer of the Company effective May 15,
1998. Pursuant to a separation agreement, the Company agreed to pay Mr.
Klein severance equal to his annual salary through May 1999.
(6) Mr. Yablon joined the Company as President and Chief Operating Officer
in May 1998.
(7) Represents options to purchase shares of the Company Common Stock from
the Company at market price on the date of grant.
(8) The annualized base salary for Mr. Posner was increased from $175,000
to $200,000 effective in April 1998.
(9) Represents options with respect to which the exercise price was
repriced to $6.50 per share on July 6, 1998. See "Option Grants in Last
Fiscal Year" and "10-Year Option Repricing" tables below.
(10) $55,000 of Mr. Larrat's base salary is paid to him indirectly by the
Company to the University of Rhode Island College of Pharmacy through a
time sharing arrangement. In turn, the University pays such amounts to
Mr. Larrat. The balance of his salary is paid directly to him by the
Company. Mr. Larrat resigned all of his positions with the Company and
its subsidiaries effective March 1999.
(11) Represents options to purchase 77,500 shares of Common Stock at $0.0067
per share and 60,000 shares at $6.50 per share.
(12) Mr. Pallokat resigned all of his positions with the Company and its
subsidiaries effective February 1999.
25
The following table sets forth information concerning stock option
grants made during fiscal 1998 to the Named Executive Officers. These grants are
also reflected in the Summary Compensation Table. In accordance with the rules
and regulations of the Commission, the hypothetical gains or "option spreads"
for each option grant are shown assuming compound annual rates of stock price
appreciation of 5% and 10% from the grant date to the expiration date. The
assumed rates of growth are prescribed by the Commission and are for
illustrative purposes only; they are not intended to predict the future stock
prices, which will depend upon market conditions and the Company's future
performance, among other things.
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE VALUE
AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR
OPTIONS EMPLOYEES PRICE EXPIRATION OPTION TERM
NAME GRANTED IN 1998 ($/SHARE) DATE 5% 10%
- ---- ------- ------- --------- ---- ----------------------
- -------------------------------------------------------------------------------------------------------------------
Richard H. Friedman 800,000 27.7% $ 4.50 12/2/08 $ 2,264,021 $ 3,387,473
John H. Klein -- -- -- -- -- --
Scott R. Yablon 1,000,000 (1) 34.7% $ 4.50 4/17/08 $ 2,830,026 $ 4,234,341
Barry A. Posner 50,000 (2) 1.7% $ 4.6875 5/27/08 $ 147,397 $ 236,033
50,000 (3) 1.7% $ 6.50 7/6/08 $ 204,391 $ 471,091
100,000 3.5% $ 4.50 12/2/08 $ 283,003 $ 423,434
E. Paul Larrat 60,000 (3) 2.0% $ 6.50 7/6/08 $ 245,269 $ 565,310
Eric Pallokat 25,000 (4) 0.8% $ 4.6875 5/27/08 $ 73,699 $ 118,017
25,000 (3) 0.8% $ 6.50 7/6/08 $ 102,195 $ 235,546
- -------------------------------------------------------------------------------------------------------------------
- ---------------------------
(1) Options representing 500,000 shares were immediately vested and
exercisable. Of the remaining 500,000 shares, 250,000 shares became
exercisable on April 17, 1999 and 250,000 shares become exercisable on
April 17, 2000.
(2) Such options become exercisable in three equal installments on May 27,
1999, 2000 and 2001.
(3) Represents options with respect to which the exercise price was
repriced to $6.50 per share on July 6, 1998. See "10-year Option
Repricing" table below.
(4) All such options expired upon Mr. Pallokat's resignation in February
1999.
26
The following table sets forth for each Named Executive Officer the
number of shares covered by both exercisable and unexercisable stock options
held as of December 31, 1998. Also reported are the values for "in-the-money"
options, which represent the difference between the respective exercise prices
of such stock options and $3.375, the per share closing price of the Common
Stock on December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
SHARES
ACQUIRED ON VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED
EXERCISE REALIZED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
(#) ($) OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
----------- ---------- ----------------------------- ---------------------------
- -----------------------------------------------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
- -----------------------------------------------------------------------------------------------------------------------
Richard H. Friedman (2)....... 1,500,000 $7,350,000 -- 800,000 -- --
- -----------------------------------------------------------------------------------------------------------------------
John H. Klein (2) ............ 1,800,000 $8,820,000 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Scott R. Yablon (3)........... -- -- 500,000 500,000 -- --
- -----------------------------------------------------------------------------------------------------------------------
Barry A. Posner (3)........... -- -- -- 200,000 -- --
- -----------------------------------------------------------------------------------------------------------------------
E. Paul Larrat (3)............ -- -- 77,500 60,000(4) $ 261,043 --
- -----------------------------------------------------------------------------------------------------------------------
Eric Pallokat (3)............. -- -- -- 50,000(5) -- --
- -----------------------------------------------------------------------------------------------------------------------
- ------------------------------
(1) Except as indicated, none of the options were "in-the-money".
(2) Indicated options represented shares of Common Stock purchased from E.
David Corvese (see "Common Stock Ownership by Certain Beneficial Owners
and Management" above). In January 1998, Messrs. Friedman and Klein
exercised these options for a total of 1,500,000 and 1,800,000 shares,
respectively.
(3) Indicated options are to purchase shares of Common Stock from the
Company.
(4) All such options expired upon Mr. Larrat's resignation in March 1999.
(5) All such options expired upon Mr. Pallokat's resignation in February
1999.
27
The following table sets forth for each Named Executive Officer the
number of performance units and performance (restricted) shares of Common Stock
granted by the Company during the year ended December 31, 1998. In addition, for
each award, the table also sets forth the related maturation period and future
payments expected to be made under varying circumstances.
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------------
PERFORMANCE
OR PERIOD
NUMBER OF UNTIL MATURATION
SHARES, UNITS OR OR PAYMENT ESTIMATED FUTURE PAYMENTS UNDER
NAME RIGHTS NON-STOCK PRICE-BASED PLANS
- -----------------------------------------------------------------------------------------------------------------
THRESHOLD TARGET MAXIMUM
- -----------------------------------------------------------------------------------------------------------------
Richard H. Friedman........ 200,000(1) 4/1/02 $ 2,000,000 $ 5,000,000 $ 8,000,000
300,000(2) 12/2/06 $ 1,350,000 $ 1,350,000 $ 1,350,000
- -----------------------------------------------------------------------------------------------------------------
John H. Klein.............. -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Scott R. Yablon............ -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Barry A. Posner............ 10,000(1) 4/1/02 $ 100,000 $ 250,000 $ 400,000
60,000(2) 12/2/06 $ 270,000 $ 270,000 $ 270,000
- -----------------------------------------------------------------------------------------------------------------
E. Paul Larrat............. -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Eric Pallokat.............. -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
- --------------------------------
(1) Represents performance units granted to the indicated individual on
December 2, 1998. The performance units vest and become payable upon
the achievement by the Company of certain specified levels of after-tax
net income in fiscal 2001. Upon vesting, the performance units are
payable in two equal installments in April 2002 and 2003 as follows:
(a) $10 per unit upon the Company's achievement of a threshold level of
after-tax net income in fiscal 2001; (b) $25 per unit upon the
Company's achievement of a target level of after-tax net income in
fiscal 2001; and (c) $40 per unit upon the Company's achievement of a
maximum level of after-tax net income in fiscal 2001. Mr. Friedman's
award is subject to the approval by stockholders of Proposal 3. Mr.
Posner's award is subject to approval by stockholders of Proposal 4.
(2) Represents performance (restricted) shares of Common Stock issued by
the Company to the indicated individual on December 2, 1998. The
performance shares are subject to restrictions on transfer and
encumbrance through December 2, 2006 and are automatically forfeited to
the Company upon termination of the grantee's employment with the
Company prior to December 2, 2006. The restrictions to which the
performance shares are subject may lapse prior to December 2, 2006 in
the event that the Company achieves certain specified levels of
earnings per share in fiscal 2001 or 2002. The indicated individual
possesses voting rights with respect to the performance shares, but is
not entitled to receive dividend or other distributions, if any, paid
with respect to the performance shares until the restrictions lapse.
The values shown in the table reflect the value of shares based on the
last sale price of the Common Stock on the date of grant ($4.50). The
last sale price of the Common Stock on December 31, 1998 was $3.375 per
share. Mr. Friedman's award is subject to the approval by stockholders
of Proposal 3. Mr. Posner's award is subject to approval by
stockholders of Proposal 4.
28
The following table sets forth certain information with respect to
shares repriced by the Company in favor of any Named Executive Officers during
the last ten years:
10-YEAR OPTION REPRICINGS(1)(2)
LENGTH (MONTHS)
NUMBER OF OF ORIGINAL
SECURITIES MARKET PRICE EXERCISE PRICE OPTION TERM
UNDERLYING AT AT NEW REMAINING AT
REPRICED TIME OF TIME OF EXERCISE TIME OF
NAME DATE OPTIONS(#) REPRICING($) REPRICING($) PRICE($) REPRICING
---- ---- ---------- ------------ ------------ -------- ---------
Barry A. Posner............. 7/6/98 50,000 $4.75 $7.4375 $6.50 105
E. Paul Larrat.............. 7/6/98 60,000 $4.75 $13.00 $6.50 95
Eric Pallokat............... 7/6/98 25,000 $4.75 $13.00 $6.50 98
- ---------------------------------
(1) Other than the July 1998 repricing, the Company has not repriced the
exercise price of any options held by any executive officers during the last
10 years.
(2) See "Compensation Committee Report on Executive Compensation" below for a
description of the factors that the Compensation Committee considered in
connection with its approval of these repricings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors administers the
Company's stock incentive plans and makes recommendations to the Board of
Directors regarding executive officer compensation matters, including policies
regarding the relationship of corporate performance and other factors to
executive compensation. During 1998, the following persons served as members of
the Compensation Committee: Messrs. Friedman, Yablon and Cirillo, and Drs. Luzzi
and DiFazio. Only Messrs. Friedman and Yablon, each of whom resigned from the
Committee during 1998, were officers of the Company during 1998. The Company's
Compensation Committee presently consists of Mr. Cirillo and Drs. Luzzi and
DiFazio, none of whom is or ever has been an officer of the Company.
As disclosed above, in 1998, the Company paid $55,000 to the University
of Rhode Island College of Pharmacy ("URI College of Pharmacy") in connection
with a time sharing arrangement with respect to Mr. Larrat. URI College of
Pharmacy paid these funds to Mr. Larrat as salary. In addition, in 1998, the
Company paid an additional $10,000 in charitable contributions to URI College of
Pharmacy. Dr. Luzzi is the Dean of URI College of Pharmacy.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company believes that a strong link should exist between executive
compensation and management's success in maximizing shareholder value. This
belief was adhered to in 1998 by developing and formalizing both short-term and
long-term incentive compensation programs which provide competitive
compensation, strong incentives for the executive to stay with the company and
deliver superior financial results, and superior potential rewards if the
company achieves aggressive financial goals. The Compensation Committee's role
and responsibilities involve the development and administration of executive
compensation policies and programs which are consistent with, linked to, and
supportive of the basic strategic objective of maximizing shareholder value,
while taking into consideration the activities and responsibilities of
management.
Early in 1998, the executive organization of the Company underwent
dramatic change with the departures of the former Chairman and of the former
CEO, the appointment of Mr. Friedman as the new Chief Executive Officer, the
recruitment of a new President, and the necessary restructuring of the business
to poise MIM for the future. It became a top priority of the entire Board to
pursue two major objectives simultaneously: (1) to secure a long-term agreement
29
with the new Chief Executive Officer, and (2) to develop an aggressive executive
and key employee compensation program for the rest of the key team. That program
should be one that is consistent with and supportive of the CEO's commitment.
The Board engaged the professional services of an independent outside
consultant to review the existing compensation programs and to assist them in
developing the desired program. The consultant compared the executive
compensation at MIM Corporation with its peer companies in the pharmacy benefits
management industry, as well as other public companies of similar size and
corporate development.
The consultant found and reported to the Board that although some of
the Company's executive salaries were within a competitive range, the Company's
executive bonus opportunities were below the level that would be considered
appropriate for the Company to attract, retain, and motivate the key executive
and other employees it would need to achieve future growth in shareholder value.
The consultant further reported that the long-term compensation portion of the
program should be a more balanced combination of performance units, performance
shares and stock options instead of the sole reliance on stock options for long
term incentive that the Company had used in the past.
The Board directed the Compensation Committee, consisting of Mr.
Cirillo and Drs. DiFazio and Luzzi (none of whom is an officer or employee of
the Company), to work with the consultant to develop an appropriate compensation
package for the Chief Executive Officer in order to secure a long term agreement
with him and to develop and adopt a Total Compensation Program for other senior
management, in each case focused on maximizing shareholder value. At its meeting
in December, the Committee, taking into consideration the recommendations of the
consultant, adopted the substantive compensation provisions of a new five year
employment agreement with Mr. Friedman designed to reassure investors of his
commitment and incentive to lead the Company and to achieve dramatically
enhanced financial performance on behalf of all stockholders. The Committee,
taking into consideration the recommendations of the consultant, also adopted a
new Total Compensation Program for other key employees that was generally
consistent with the Chief Executive Officer's program. These actions were based
on the recommendation of the outside consultant and an internal review of the
Chief Executive Officer's recommendations regarding participation and
appropriate grants of units, shares and options.
A proposal requesting stockholder approval of the CEO Employment
Agreement and the CEO Option Plan and Agreement is set forth under Proposal 3
above. In addition, the Total Compensation Program will require stockholder
approval of certain changes to, and additional authorized shares under, the
Company's Employee Plan. See Proposal 4 above.
COMPENSATION PHILOSOPHY AND ELEMENTS
The Compensation Committee adheres to four principles in discharging
its responsibilities, which have been applied through its adoption in December
1998 of the 1998 Total Compensation Program for Key Employees (the "Program").
First, the majority of the annual bonus and long-term compensation for
management and key employees should be in large part at risk, with actual
compensation levels corresponding to the Company's actual financial performance.
Second, over time, incentive compensation of the Company's executives should
focus more heavily on long-term rather than short-term accomplishments and
results. Third, equity-based compensation and equity ownership expectations
should be used on an increasing basis to provide management with clear and
distinct links to shareholder interests. Fourth, the overall compensation
programs should be structured to ensure the Company's ability to attract,
retain, motivate, and reward those individuals who are best suited to achieving
the desired performance results, both long and short-term, while taking into
account the duties and responsibilities of the individual.
The Program provides the Compensation Committee with the discretion to pay
cash bonuses and grant (i) performance units payable in cash upon achievement of
certain performance criteria established by the Compensation Committee, (ii)
performance shares which are subject to restrictions on transfer and encumbrance
for a specified period of time, but which restrictions may lapse early upon
achievement of certain performance criteria established by the Compensation
Committee and (iii) both non-qualified and incentive stock options.
The Program provides management and employees with the opportunity for
significant cash bonuses and long term rewards if the corporate and individual
objectives are achieved. Specifically, the key executives, other than the Chief
Executive Officer and COO, may receive significant bonuses if the Company's
aggressive annual financial performance plan and individual objectives are
achieved. The maximum amount payable to any one individual under the cash bonus
and performance unit portions of the Program is $1,000,000. The CEO and COO have
higher bonus opportunities, but their potential payouts from both bonus and
30
performance units in any one year is no more than $5,000,000. These outside
limits are not expected awards but are set pursuant to regulations concerning
"performance-based" compensation plans in Code Section 162(m) to enable the
Compensation Committee "negative discretion" in determining the actual bonus or
performance unit awards.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In considering the appropriate salary, bonus opportunity, and long-term
incentive for the new Chief Executive Officer, the Compensation Committee
considered his unique role during 1998 and his expected role over the next five
years. The Compensation Committee determined that in a very real sense, the
Company would have faced extreme difficulty in 1998 were it not for the fact
that Mr. Friedman accepted the challenge to replace both the former
Vice-Chairman and the former Chairman and CEO and give the investment community
and the Company's stockholders reassurance that the Company would overcome the
problems it faced in its primary market. The Board further determined that Mr.
Friedman's demonstrated commitment through the purchase of a large block of
stock, his active and effective involvement in restructuring the business, and
his recruitment and leadership of an aggressive team were assets that should be
protected. The Committee's bonus award to Mr. Friedman and its negotiation of a
new, performance-driven, five year agreement were based on this recognition of
his key role in maximizing future shareholder value.
New employment agreements have also been entered into with the Vice
President and General Counsel and with the Chief Financial Officer reflecting
their participation in the new Program. The President and Chief Operating
Officer was recruited in May 1998; his employment agreement was negotiated at
that time and is described in "Employment Agreements" below.
CODE SECTION 162(M)
The CEO's total compensation package under his new employment agreement
is believed to qualify as "performance-based" compensation with the meaning of
Code Section 162(m). The Total Compensation Program was adopted by a
Compensation Committee composed entirely of non-employee outside directors and
the CEO Employment Agreement and the CEO Option Plan and Agreement were approved
by the entire Board of Directors. In order to qualify for favorable treatment
under Code Section 162(m), the compensation provisions of the CEO Employment
Agreement and the CEO Option Plan and Agreement must be approved by the
Company's stockholders. See Proposal 3. None of the other executives covered by
the Total Compensation Program will receive cash compensation in excess of
$1,000,000 in any one year under the cash bonus or performance unit portions of
the Program. The performance shares and stock options for all persons other than
Mr. Friedman were granted from shares authorized under the Employee Plan, but
the form of the awards require certain amendments to the Employee Plan and
authorization of additional shares under the Employee Plan, subject to
stockholder approval. See Proposal 4.
REPORT ON REPRICING OF OPTIONS
Effective July 6, 1998, each then current employee of the Company,
including the Named Executive Officers, holding options under the Employee Plan
was offered the opportunity to reprice the exercise price of not less than all
options granted at a particular exercise price to an exercise price of $6.50 per
share. The average of the high and low sales price of the Common Stock on July
2, 1998 was $4.75. In consideration of receiving repriced options, each employee
agreed that all such repriced options, including those already vested, would
become unvested and exercisable in three equal installments on the first three
anniversaries of the date of repricing. In connection with the repricing,
approximately 473,000 shares were repriced to $6.50 per share.
The Compensation Committee and the Board of Directors approved the
repricing in July 1998 in an effort to incentivize adequately and fairly the
Company's employees to perform their duties to the fullest extent of their
respective abilities and to promote better morale in the workplace. The
Compensation Committee and the Board of Directors concluded in July 1998 that
the options granted to employees at or around the time of the Company's initial
public offering in August 1996 (with exercise prices of or about $13.00)
represented an excessive premium over then recent ranges of the market price of
the Common Stock so as to prevent the proper incentivizing of the Company's
employees. The Compensation Committee and the Board of Directors determined that
31
the Common Stock was undervalued due to many factors, including the significant
holdings of prior officers and directors of the Company and that these factors
and the consequent undervaluation of the Common Stock were not likely to be
alleviated in the short term. In addition, the repricing program was adopted
partly in response to departures from the Company of certain management and key
non-management personnel in an effort to prevent the loss of additional valued
employees. Furthermore, in connection with the formation of the Company prior to
the Company's initial public offering, certain employees had been granted
options to purchase Common Stock at $0.0067 in exchange and conversion of their
options in a subsidiary of the Company. As a result, as a matter of fairness and
equality to many other employees who had received $13.00 options at the time of
the initial public offering, the Compensation Committee and the Board of
Directors authorized the repricing.
MIM CORPORATION COMPENSATION COMMITTEE
Richard A. Cirillo
Louis DiFazio, Ph.D.
Louis A. Luzzi, Ph.D.
32
EMPLOYMENT AGREEMENTS
In December 1998, Mr. Friedman entered into the CEO Employment
Agreement with the Company which provides for his employment as the Chairman and
Chief Executive Officer for a term of employment through November 30, 2003
(unless earlier terminated) at an initial base annual salary of $425,000. Under
the CEO Employment Agreement, Mr. Friedman is entitled to receive certain fringe
benefits, including an automobile allowance, and is also eligible to participate
in the Company's executive bonus program. Under the CEO Employment Agreement,
Mr. Friedman was granted options to purchase 800,000 shares of Common Stock. The
options vest in three equal installments on the first three anniversaries of the
date of grant. In addition, Mr. Friedman was granted 200,000 performance units
and 300,000 performance shares. See Proposal 3 and "Long Term Incentive Plan -
Awards in Last Fiscal Year" above for a description of the terms and conditions
applicable to the options, performance units and performance shares. Finally,
Mr. Friedman is entitled to certain payments and accelerated vesting of his
options, performance shares and performance units upon termination of his
employment or upon a change in control. These grants to Mr. Friedman of options,
performance units and performance shares and his entitlement to such payments
and accelerated vesting upon termination or change in control are subject to
stockholder approval. Such provisions are described in detail under Proposal 3
above.
During the term of his employment and for one year following the later
of his termination or his receipt of severance payments, Mr. Friedman may not
directly or indirectly (other than with the Company) participate in the United
States in any pharmacy benefit management business or other business which is at
any time a material part of the Company's overall business. Similarly, for a
period of two years following termination, Mr. Friedman may not solicit or
otherwise interfere with the Company's relationship with any present or former
employee or customer of the Company.
In April 1998, Mr. Yablon entered into an employment agreement with the
Company which provides for his employment as the Company's President and Chief
Operating Officer for term of employment through April 30, 2001 (unless earlier
terminated) at an initial base annual salary of $325,000. Under the agreement,
Mr. Yablon is entitled to receive certain fringe benefits, including automobile
and life insurance allowances, and is also eligible to participate in the
Company's executive bonus program. Under the agreement, Mr. Yablon was granted
options to purchase 1,000,000 shares of Common Stock at an exercise price of
$4.50 (the market price on the date of grant). Options with respect to 500,000
shares vested immediately and the remaining options vest in two equal
installments on the first two anniversary dates of the date of grant. If Mr.
Yablon's employment is terminated early due to disability, or by the Company
without cause, or by Mr. Yablon with cause, the Company is obligated to continue
to pay his salary and fringe benefits for one year following such termination.
During the term of employment and for one year after the later of the
termination of employment or severance payments, Mr. Yablon is subject to
substantially the same restrictions on competition as described above with
respect to Mr. Friedman.
In March 1999, Mr. Posner entered into an employment agreement with the
Company which provides for his employment as Vice President and General Counsel
for a term of employment through February 28, 2004 (unless earlier terminated)
at an initial base annual salary of $230,000. Under the agreement, Mr. Posner is
entitled to receive certain fringe benefits, including an automobile allowance,
and is also eligible to participate in the Company's executive bonus program.
Under the agreement, Mr. Posner was granted options to purchase 100,000 shares
of Common Stock at an exercise price of $4.50 per share (the market price on the
date of grant). The options vest in three equal installments on the first three
anniversaries of the date of grant. See Proposal 4 and "Long Term Incentive Plan
- - Awards in Last Fiscal Year" above for a description of certain grants of
performance units and performance shares to Mr. Posner in December 1998 and a
summary of the terms and conditions applicable to the performance units and
performance shares. Under the agreement, upon termination or a change in
control, Mr. Posner is entitled to substantially the same entitlements as
described in Proposal 3 with respect to Mr. Friedman. In addition, Mr. Posner is
subject to the same restrictions on competition and non-interference as
described above with respect to Mr. Friedman.
In March 1999, Mr. Sitar entered into an employment agreement with the
Company which provides for his employment as Chief Financial Officer for a term
of employment through February 28, 2004 (unless earlier terminated) at an
initial base annual salary of $180,000. Under the agreement, Mr. Sitar is
entitled to receive certain fringe benefits, including an automobile allowance,
and is also eligible to participate in the Company's executive bonus program.
Under the agreement, Mr. Sitar was granted options to purchase 50,000 shares of
Common Stock at an exercise price of $4.50 per share (the market price on the
date of grant). The options vest in three equal installments on the first three
33
anniversaries of the date of grant. See Proposal 4 and "Long Term Incentive Plan
- - Awards in Last Fiscal Year" above for a description of certain grants of
performance units and performance shares to Mr. Sitar in December 1998 and a
summary of the terms and conditions applicable to the performance units and
performance shares. Under the agreement, upon termination or a change in
control, Mr. Sitar is entitled to substantially the same entitlements as
described in Proposal 3 with respect to Mr. Friedman. In addition, Mr. Sitar is
subject to the same restrictions on competition and non-interference as
described above with respect to Mr. Friedman.
STOCKHOLDER RETURN PERFORMANCE GRAPH
The Company's Common Stock first commenced trading on the Nasdaq on
August 15, 1996 in connection with the Company's initial public offering. The
graph set forth below compares, for the period of August 15, 1996 through
December 31, 1998, the total cumulative return to holders of the Company's
Common Stock with the cumulative total return of the Nasdaq Stock Market (U.S.)
Index and the NASDAQ Health Services Index.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG MIM CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX AND
THE NASDAQ HEALTH SERVICES INDEX
- ------------------------------------------------------------------------------------------------------
NASDAQ Stock NASDAQ Health
Date MIM Corporation Market (U.S.) Services
- ------------------------------------------------------------------------------------------------------
08/15/96 100 100 100
- ------------------------------------------------------------------------------------------------------
9/30/96 112 108 104
- ------------------------------------------------------------------------------------------------------
12/31/96 38 113 92
- ------------------------------------------------------------------------------------------------------
3/31/97 49 107 86
- ------------------------------------------------------------------------------------------------------
6/30/97 111 127 96
- ------------------------------------------------------------------------------------------------------
9/30/97 75 148 105
- ------------------------------------------------------------------------------------------------------
12/31/97 37 139 94
- ------------------------------------------------------------------------------------------------------
3/31/98 31 163 103
- ------------------------------------------------------------------------------------------------------
6/30/98 37 167 94
- ------------------------------------------------------------------------------------------------------
9/30/98 24 151 71
- ------------------------------------------------------------------------------------------------------
12/31/98 26 196 81
- ------------------------------------------------------------------------------------------------------
- -------------------------------
The above graph assumes an investment of $100 in MIM's Common Stock on
August 15, 1996 and in the Nasdaq Stock Market (U.S.) Index and the Nasdaq
Health Services Index on July 31, 1996, and that all dividends were reinvested.
The performances shown in the above table are not necessarily indicative of
future performance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1997, Alchemie Properties, LLC, a Rhode Island limited
liability company of which Mr. E. David Corvese, a director of the Company until
August 1998 and a 10% beneficial owner, is the manager and principal owner
("Alchemie"), was indebted to the Company in the amount of $280,629 respecting a
loan received from the Company in 1994 in the original principal amount of
$299,000. The loan bears interest at 10% per annum, with interest payable
monthly and principal payable in full on or before December 1, 2004, and is
secured by a lien on Alchemie's rental income.
During 1998, the Company paid $55,500 in rent to Alchemie pursuant to a
ten-year lease entered into in December 1994 for approximately 7,200 square feet
of office space in Peace Dale, Rhode Island.
At December 31, 1998, MIM Holdings, an entity controlled by Mr.
Corvese, was indebted to the Company in the amount of $456,000 respecting loans
received from the Company during 1995 in the aggregate principal amount of
$1,078,000. The Company holds a $456,000 promissory note from MIM Holdings due
March 31, 2001 that bears interest at 10% per annum. Interest generally is
payable quarterly, although in December 1996 the note was amended to extend the
due date to September 30, 1997 for all interest accruing from January 1, 1996 to
said date. This note is guaranteed by Mr. Corvese and further secured by the
assignment to MIM of a $100,000 promissory note that was originally given by an
officer to MIM Holdings. The remaining $622,000 of indebtedness will not be
repaid and was recorded as a stockholder distribution during the first half of
1996.
34
Effective May 15, 1998, Mr. Klein terminated his employment and
resigned all of his positions with the Company and Mr. Friedman was appointed
Chairman and Chief Executive Officer. Pursuant to a Separation Agreement dated
May 15, 1998, the Company agreed to pay Mr. Klein an aggregate of $325,000 in 12
equal monthly installments and to continue to provide Mr. Klein and his
dependents with medical and dental insurance coverage for those 12 months. Under
the Separation Agreement, Mr. Klein is restricted from competing with the
Company or soliciting its employees or customers for one year from the last day
he received severance payments from the Company. During 1998, the Company paid
Mr. Klein a total of $200,000 in severance.
Effective March 31, 1998, Mr. Corvese terminated his employment and
resigned all of his positions with the Company and agreed not to stand for
election to the Board at the 1998 Annual Meeting of Stockholders. Pursuant to a
Separation Agreement dated March 31, 1998, the Company agreed to pay Mr. Corvese
an aggregate of $325,000 in 12 equal monthly installments and to continue to
provide Mr. Corvese and his dependents with medical and dental insurance
coverage for those 12 months. Under the Separation Agreement, Mr. Corvese is
restricted from competing with the Company or soliciting its employees or
customers for one year from the last day he received severance payments from the
Company. During 1998, the Company paid Mr. Corvese a total of $234,750 in
severance.
In connection with the acquisition of Continental Managed Pharmacy
Services, Inc. ("Continental") in August 1998, the three largest shareholders of
Continental ("Continental Shareholders"), including Mr. Erlenbach, a 10%
beneficial owner, entered into an indemnification agreement with the Company
whereby the Continental Shareholders, severally and not jointly, agreed to
indemnify and hold the Company harmless from and against certain claims
threatened against Continental. Under the agreement, the Continental
Shareholders are responsible for all amounts payable in connection with the
threatened claims over and above $100,000. The indemnification obligations of
the Continental Shareholders terminate on December 31, 1999, except with respect
to indemnifiable claims of which they are notified by the Company prior to that
time. In addition, the Continental Shareholders entered into a pledge agreement
with the Company, whereby they granted the Company security interests in an
aggregate of 487,453 shares (in proportion to their respective ownership
percentages) of Common Stock received by them in connection with the Continental
acquisition in order to secure their respective obligations under the
indemnification agreement.
On February 9, 1999, the Company entered into an agreement with Mr.
Corvese to purchase, in a private transaction not reported on Nasdaq, 100,000
shares of Common Stock from Mr. Corvese at $3.375 per share. The last sale price
per share of the Common Stock on February 9, 1999 was $3.50.
Under Section 145 of the Delaware General Corporation Law and the
Company's By-Laws, under certain circumstances the Company may be obligated to
indemnify Mr. Corvese and another former officer of the Company in connection
with their involvement in the Federal and State of Tennessee investigation
focused mainly on the conduct of these two individuals prior to the Company's
initial public offering. In addition, until the Board can make a determination
as to whether or not either or both are so entitled to indemnification, the
Company is obligated under Section 145 and its By-Laws to advance the costs of
defense to such persons; however, if the Board determines that either or both of
these former officers are not entitled to indemnification, such individuals
would be obligated to reimburse the Company for all amounts so advanced. The
Company is not presently in a position to assess the likelihood that either or
both of these former officers will be entitled to such indemnification and
advancement of defense costs or to estimate the total amount that it may have to
pay in connection with such obligations or the time period over which such
amounts may have to be advanced. No assurance can be given, however, that the
Company's obligations to either or both of these former officers would not have
a material adverse effect on the Company's results of operations or financial
condition. In April 1999, the Company loaned to Richard H. Friedman, the
Chairman and Chief Executive Officer of the Company, $1.7 million, evidenced by
a promissory note and a pledge of 1.5 million shares of Common Stock to secure
his obligations under the promissory note. The note requires repayment of
principal and interest by March 31, 2004. Interest is accrued monthly at the
Prime Rate (as defined in the note) then in effect. The loan was approved by the
Company's Board of Directors in order to provide funds for the Chief Executive
Officer to pay the tax liability associated with the exercise of stock options
representing 1.5 million shares of Common Stock in January 1998.
For information concerning certain additional relationships and related
transactions concerning the Company, see "Compensation Committee Interlocks and
Insider Participation" above.
35
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors and officers of
the Company and persons, or "groups" of persons, who own more than 10% of a
registered class of the Company's equity securities (collectively, "Covered
Persons") to file with the Commission and Nasdaq within specified time periods,
initial reports of beneficial ownership, and subsequent reports of changes in
ownership, of certain equity securities of the Company. Based solely on its
review of copies of such reports furnished to it and upon written
representations of Covered Persons that no other reports were required, other
than as described below, the Company believes that all such filing requirements
applicable to Covered Persons with respect to all reporting periods through the
end of fiscal 1998 have been complied with on a timely basis. Mr. Posner failed
to file timely one Statement of Changes of Beneficial Ownership on Form 4
reporting one transaction. Mr. Larry Edelson-Kayne, a former officer, failed to
file timely an Initial Statement of Beneficial Ownership on Form 3. Mr. Michael
Erlenbach, a 10% beneficial owner, failed to file timely one Statement of
Changes of Beneficial Ownership on Form 4 reporting four transactions. Mr. E.
David Corvese, a director of the Company until August 1998 and a 10% beneficial
owner, failed to file timely four Statements of Changes of Beneficial Ownership
on Form 4 reporting 107 transactions.
INDEPENDENT AUDITORS
Arthur Andersen LLP served as the Company's independent public
accountants for fiscal 1998 and have been appointed by the Audit Committee and
the Board of Directors to serve again in such capacity for fiscal 1999.
A representative of Arthur Andersen LLP is expected to be present at
the Meeting and available to respond to appropriate questions. The
representative also will have the opportunity to make a statement if he or she
so desires.
SOLICITATION OF PROXIES
The cost of soliciting the proxies will be paid by the Company.
Directors, officers and employees of the Company may solicit proxies in person,
by mail, telephone or otherwise, but no such person will be specifically
compensated for such services; provided that if the Company engages a solicitor
to assist in the solicitation of proxies, the expense of such solicitation (not
to exceed $10,000) would be borne by the Company. The Company will request
banks, brokers and other nominees to forward proxy materials to beneficial
owners of stock held of record by them and will reimburse them for their
reasonable out-of-pocket expenses in so doing.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy material
for the 2000 Annual Meeting of Stockholders, stockholders' proposals to take
action at such meeting must comply with applicable Commission rules and
regulations, must be directed to the Secretary of the Company at its principal
executive offices set forth on the cover page of this Proxy Statement, and must
be received by the Company not later than April 7, 2000. In addition, if a
stockholder fails to provide the Company notice of any stockholder proposal on
or before the 60th day prior to the date of the 2000 Annual Meeting of
Stockholders, then the persons appointed as proxies by the Company will be
entitled to use their discretionary voting authority if such stockholder
proposal is raised at the Annual Meeting of Stockholders without any discussion
of the matter in the proxy statement relating to the 2000 Annual Meeting.
MISCELLANEOUS
A copy of the Company's 1998 Annual Report to Stockholders is enclosed
but is not to be regarded as proxy solicitation material.
36
UPON REQUEST, THE COMPANY WILL FURNISH FREE OF CHARGE TO RECORD AND
BENEFICIAL OWNERS OF ITS COMMON STOCK A COPY OF ITS 1998 ANNUAL REPORT ON FORM
10-K (INCLUDING FINANCIAL STATEMENTS AND SCHEDULES BUT WITHOUT EXHIBITS). COPIES
OF EXHIBITS TO THE FORM 10-K ALSO WILL BE FURNISHED UPON REQUEST AND THE PAYMENT
OF A REASONABLE CHARGE. COPIES OF SUCH EXHIBITS MAY ALSO BE FOUND ON THE
COMMISSION'S WEBSITE AT WWW.SEC.GOV. ALL REQUESTS SHOULD BE DIRECTED TO THE
SECRETARY OF THE COMPANY AT THE ADDRESS AND TELEPHONE NUMBER OF THE COMPANY'S
PRINCIPAL EXECUTIVE OFFICES SET FORTH ON THE COVER PAGE OF THIS PROXY STATEMENT.
By order of the Board of Directors,
/s/ BARRY A. POSNER
-------------------------------------------------
Elmsford, New York Barry A. Posner
July 2, 1999 Vice President, Secretary and General Counsel
37
Appendix I
TEXT OF NEW ARTICLE NINTH TO RESTATED CERTIFICATE OF INCORPORATION
NINTH: BOARD OF DIRECTORS.
Section 1. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
Section 2. The Board of Directors shall consist of not less than 11
persons, the exact number to be fixed from time to time by the Board of
Directors pursuant to a resolution adopted by a majority of Directors then in
office.
Section 3. Effective as of the 1999 annual meeting of stockholders, the
Board of Directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the number of Directors constituting the Board of Directors. The
term of office for Class I Directors will first expire at the 2000 annual
meeting of stockholders; the term of office of Class II Directors will first
expire at the 2001 annual meeting of stockholders; and the term of office of
Class III Directors will first expire at the 2002 annual meeting of
stockholders, and in each case until their successors are duly elected and
qualified. At each annual meeting of stockholders after the initial
classification of Directors, successors to the class of Directors whose terms
expire at that annual meeting of stockholders shall be elected by stockholders
for a three-year term and until their successors are duly elected and qualified.
Any Director elected to fill a vacancy resulting from an increase in any class
or from the removal from office, death, disability, resignation or
disqualification of a Director or other cause shall hold office for the
remaining term of the class in which such vacancy existed. Except as otherwise
provided herein, no decrease in the size of the Board of Directors shall have
the effect of removing or shortening the term of any incumbent Director. Except
as otherwise provided herein, increases in the size of the Board of Directors
will be distributed among the classes so as to render the classes as nearly
equal in size as practicable. Whenever the holders of Preferred Stock issued
pursuant to this Restated Certificate of Incorporation or the resolution or
resolutions adopted by a majority of the Board of Directors then in office
providing for the issue of shares of Preferred Stock shall have the right,
voting as a separate class, to elect Directors, the election, term of office,
filling of vacancies and other terms of such directorships shall be governed by
the terms of this Restated Certificate of Incorporation or such resolution or
resolutions, as the case may be, and such directorships shall not be divided
into serial classes or otherwise subject to this Section 3 unless expressly so
provided therein.
Section 4. Subject to the rights of the holders of Preferred Stock, any
vacancy in the Board of Directors caused by death, resignation, removal,
retirement, disqualification or any other cause (including an increase in the
number of Directors) may be filled solely by resolution adopted by a majority of
the Board of Directors then in office, whether or not such majority constitutes
less than a quorum, or by a sole remaining Director; PROVIDED HOWEVER, that any
vacancy created by a removal of a Director pursuant to Section 5 of this ARTICLE
NINTH may be filled by action of the stockholders taken at the same meeting at
which the vacancy was created; such action to be upon the affirmative vote of
the holders of not less than a majority of the voting power of the outstanding
shares entitled to vote in the election of Directors, voting as a single class.
Section 5. Subject to the rights of holders of Preferred Stock to elect
Directors or to remove Directors so elected, a duly elected Director of the
Corporation may not be removed from such position other than for cause; any such
removal may be effected only by the affirmative vote of the holders of at least
a majority of the voting power of the outstanding shares entitled to vote in the
election of Directors, voting as a single class.
Section 6. Notwithstanding anything contained herein to the contrary,
the affirmative vote of stockholders holding 66-2/3% of the outstanding shares
of capital stock then entitled to vote on such issue shall be required in order
to amend any provision of, or to adopt any provision which is inconsistent with,
this Article NINTH.
Appendix II-A
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of December 1, 1998,
by and between MIM Corporation, a Delaware corporation, with its principal place
of business at 100 Clearbrook Road, Elmsford, New York 10523 (hereinafter
referred to as the "Company"), and Richard H. Friedman, residing at 2 Palmer
Place, Armonk, NY 10504 (hereinafter referred to as the "Executive").
WHEREAS, the Company wishes to offer employment to the Executive, and
the Executive wishes to accept such offer, on the terms and provisions set forth
below; Accordingly, the parties hereto agree as follows:
1. TERM. The Company hereby employs the Executive, and the Executive
hereby accepts such employment, commencing as of December 1, 1998 and ending
November 30, 2003, as Chief Executive Officer and Chairman of the Board of
Directors of the Company (the "Board") unless sooner terminated in accordance
with the provisions of Section 4 or Section 5 (the period during which the
Executive is employed hereunder, including any extensions or renewals thereof,
being hereinafter referred to as the "Term").
2. DUTIES. The Executive, in his capacity as Chief Executive Officer
and Chairman of the Board, shall faithfully perform for the Company the duties
of said office and position and such other duties of an executive, managerial,
or administrative nature as shall be specified and designated from time to time
by the Board. The Executive shall devote all of his business time and effort to
the performance of his duties hereunder.
3. COMPENSATION.
3.1 SALARY. The Company shall pay the Executive during the
Term an initial base salary at the rate of $425,000 per annum (the "Annual
Salary"), in accordance with the customary payroll practices of the Company
applicable to senior executives, in installments not less frequently than
monthly.
3.2 BENEFITS - IN GENERAL. The Executive shall be permitted
during the Term to participate in any group life, hospitalization or disability
insurance plans, health programs, pension and profit sharing plans, salary
reviews, and similar benefits (other than bonuses and stock options or other
equity-based compensation, which are provided for under Section 3.3 and 3.4
hereof, or severance, displacement or other similar benefits) which are of a
type available from time to time to other senior executives of the Company
generally, in each case to the extent that the Executive is eligible under the
terms of such plans or programs.
3.3 SPECIFIC BENEFITS.
(a) During the Term, the Executive shall be
entitled to receive a bonus each calendar year, payable in cash in accordance
with, and subject to the terms and conditions of the Annual Bonus Compensation
Section of the Company's 1998 Senior Executive Bonus Program (the "Bonus
Program"), a copy of which is attached hereto as Exhibit A. Such Annual Bonus
Compensation shall be determined in accordance with the terms and provisions of
the Bonus Program and shall be payable within ten (10) days of the completion of
the audited financial results of the Company.
(b) Upon execution and delivery of this Agreement,
the Executive shall be granted and shall receive 200,000 "Performance Units" (as
defined in the Bonus Program), subject to the terms and conditions of the Bonus
Program.
(c) Upon execution and delivery of this Agreement,
the Executive shall be granted and shall receive 300,000 "Performance Shares"
(as defined in the Bonus Program), subject to the terms and conditions of the
Bonus Program.
3.4 GRANT OF OPTION. Upon execution and delivery of this
Agreement, the Executive shall be granted and shall receive options ("Options")
to purchase 800,000 shares of the common stock, par value $0.0001 per share, of
the Company ("Common Stock"), at a price per share equal to $4.50 per share,
being the closing sales price per share of the Common Stock on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") on
December 2, 1998, the date on which the Company's Compensation
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Committee granted the Executive these Options and the compensation contemplated
hereby. The Options shall, to the extent permitted by Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), be qualified as
incentive stock options ("ISO's"). Options in excess of the number permitted to
receive ISO treatment under Section 422 of the Code shall not be qualified as
ISO's. Subject to Sections 3.8, 4 and 5 hereof and the applicable stock option
award agreement (i) 266,667 of such Options shall vest and become exercisable on
each of the first and second anniversaries of the date thereof, and (ii) the
remaining 266,666 Options shall vest and become exercisable, on the third
anniversary of the date hereof. The Options shall be subject to the terms of a
definitive stock option agreement to be provided by the Company.
3.5 VACATION. The Executive shall be entitled to vacation of
20 business days per year from and after the date hereof, to be accrued and
available in accordance with the policies applicable to senior executives of the
Company generally.
3.6 AUTOMOBILE. During the Term, the Company will provide
the Executive a monthly allowance of $1,500 for the use of an automobile.
3.7 EXPENSES. The Company shall pay or reimburse the
Executive ordinary and reasonable out-of-pocket expenses actually incurred (and,
in the case of reimbursement, paid) by the Executive during the Term in the
performance of the Executive's services under this Agreement, including, but not
limited to, business related travel and/or entertainment expenses; provided,
that the Executive submits proof of such expenses, with the properly completed
forms and supporting receipts and other documentation as prescribed from time to
time by the Company, in accordance with the policies applicable to senior
executives of the Company generally.
3.8 SHAREHOLDER APPROVAL. The compensation set forth in
Sections 3.3, 3.4, 4, 5.2 and 5.3 hereof shall be subject to the approval of
this Agreement by the Company's shareholders at an annual or special meeting of
the stockholders of the Company or by written consent in lieu thereof
("Shareholder Approval") on or before December 31, 1999. Notwithstanding
anything to the contrary contained in this Agreement or in the Bonus Program, if
approval of this Agreement by the Company's shareholders is not obtained by
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December 31, 1999, the Executive shall not be entitled to receive any of the
benefits set forth in Section 3.3 and 3.4 hereof. Notwithstanding anything to
the contrary contained in this Agreement, in the event that Shareholder Approval
is not obtained by December 31, 1999, the Company and the Executive shall, for
the 90-day period commencing January 1, 2000, negotiate in good faith in order
to provide the Executive with an alternative compensation arrangement mutually
agreeable to the Company and the Executive. In the event that the Executive and
the Company are unable to agree on an alternative compensation arrangement
within such 90-day period, the Executive shall have the right to terminate this
Agreement on not less than six (6) months prior written notice, in which event
the Executive shall be entitled to receive, for a period of two (2) years after
the termination of his employment, the Annual Salary that the Executive was
receiving at the time of the termination of employment (and reimbursement for
expenses incurred prior to the date of termination as set forth in Section 3.7
hereof).
3.9 INCORPORATION BY REFERENCE. The terms and provisions of
the Bonus Program, as amended from time to time, are hereby incorporated herein
by reference as if fully set forth herein; provided, however, that in the event
that Shareholder Approval is not obtained on or before December 31, 1999,
Sections 3.3 and 3.4 hereof, and the incorporation by reference of the Bonus
Program, shall be null and void and of no further force and effect.
4. TERMINATION UPON DEATH OR DISABILITY.
4.1 TERMINATION UPON DEATH. If the Executive dies during the
Term, the obligations of the Company to or with respect to the Executive shall
terminate in their entirety except as otherwise provide under this Section 4.
Upon death, (i) the Executive's estate or beneficiaries shall be entitled to
receive any Annual Salary and other benefits (including bonuses awarded or
declared but not yet paid) earned and accrued under Sections 3.1 and 3.2 of this
Agreement prior to the date of termination and reimbursement for expenses
incurred prior to the date of termination as set forth in Section 3.7 hereof;
(ii) all fully vested and exercisable Options granted under Section 3.4 hereof
and held by the Executive may be exercised by his estate for a period of one (1)
year from and after the date of the Executive's death; (iii) all
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Performance Units granted to the Executive under Section 3.3(b) hereof shall
vest at the accrued value (if any) under the Bonus Program measured at the end
of the fiscal year immediately following the Executive's death; (iv) that
portion of the Performance Shares granted to the Executive under Section 3.3(c)
hereof to which the Executive would have been entitled to receive in accordance
with the Bonus Program, as measured at the end of the fiscal year immediately
following the Executive's death shall vest in favor of the Executive's estate;
and (v) the Executive's estate and beneficiaries shall have no further rights to
any other compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder. Notwithstanding anything to the
contrary contained in this Section 4.1, it is expressly understood and agreed
that nothing in the foregoing clause (v) shall restrict the ability of the
Company to amend or terminate such benefits plans and programs from time to time
in its sole and absolute discretion; provided, however, that the Company shall
in no event be required to provide any coverage contemplated by Section 3.2
hereof after such time as the Executive becomes entitled to coverage under the
benefit plans and programs of another employer or recipient of the Executive's
services (and provided, further, that such entitlement shall be determined
without regard to any individual waivers or other arrangements).
4.2 TERMINATION UPON DISABILITY. If the Executive by virtue
of ill health or other disability is unable to perform substantially and
continuously the duties assigned to him for more than 180 consecutive or
non-consecutive calendar days out of any consecutive twelve-month period, the
Company shall have the right, to the extent permitted by law, to terminate the
employment of the Executive upon notice in writing to the Executive; provided
that the Company will have no right to terminate the Executive's employment if,
in the opinion of a qualified physician reasonably acceptable to the Company, it
is reasonably certain that the Executive will be able to resume the Executive's
duties on a regular full-time basis within 30 days of the date the Executive
receives notice of such termination. Upon termination of employment by virtue of
disability, (i) the Executive shall receive Annual Salary and other benefits
(including Bonuses awarded but not yet paid) earned and accrued under Section
3.2, of this Agreement prior to the effective date of the termination of
employment and reimbursement for expenses incurred prior to the effective date
-5-
of the termination of employment as set forth in Section 3.7 hereof; (ii) all
fully vested and exercisable Options granted under Section 3.4 hereof and held
by the Executive may be exercised by the Executive or his estate or
beneficiaries for a period of one (1) year from and after the date of the
Executive's disability; (iii) all Performance Units granted to the Executive
under Section 3.3 (b) hereof shall vest at the accrued value (if any) under the
Bonus Program measured at the end of the fiscal year immediately following the
Executive's termination of employment; (iv) that portion of the Performance
Shares granted to the Executive under Section 3.3(c) hereof to which the
Executive would have been entitled to receive in accordance with the Bonus
Program, as measured at the end of the fiscal year immediately following the
Executive's termination of employment shall vest in favor of the Executive; and
(v) if the Executive's disabilities shall continue for a period of six (6)
months after his termination under this Section 4.2, the Executive shall receive
for a period for two (2) years after termination of employment (A) the Annual
Salary that the Executive was receiving at the time of such termination of
employment, less the gross proceeds paid to the Executive on account of Social
Security or other similar benefits and Company provided long-term disability
insurance, payable in accordance with Section 3.1 hereof; and (B) such
continuing coverage under the benefit plans and programs the Executive would
have received under Section 3.2 hereof as would have applied in the absence of
such termination; it being expressly understood and agreed that nothing in this
clause (v) shall restrict the ability of the Company to amend or terminate such
benefits plans and programs from time to time in its sole and absolute
discretion; provided, however, that the Company shall in no event be required to
provide any coverage contemplated in Section 3.2 hereof after such time as the
Executive becomes entitled to coverage under the benefit plans and programs of
another employer or recipient of the Executive's services (and provided,
further, that such entitlement shall be determined without regard to any
individual waivers or other arrangements); and (vi) the Executive shall have no
further rights to any other compensation or benefits hereunder on or after the
termination of employment, or any other rights hereunder.
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5. CERTAIN TERMINATIONS OF EMPLOYMENT
5.1 TERMINATION FOR "CAUSE"; TERMINATION OF EMPLOYMENT BY
THE EXECUTIVE WITHOUT GOOD REASON. (a) For purposes of this Agreement, "Cause"
shall mean (i) the Executive's conviction of a felony or a crime of moral
turpitude; or (ii) the Executive's commission of unauthorized acts intended to
result in the Executive's personal enrichment at the material expense of the
Company; or (iii) the Executive's material violation of the Executive's duties
or responsibilities to the Company which constitute willful misconduct or
dereliction of duty, or the material breach of the covenants contained in
Section 6 hereof; or (iv) the Executive's other material breach of this
Agreement which breach shall have continued unremedied for ten (10) days after
written notice by the Company to the Executive specifying such breach.
(b) The Company may terminate the Executive's
employment hereunder for Cause. If the Company terminates the Executive for
Cause, (i) the Executive shall receive Annual Salary and other benefits
(including bonuses awarded or declared but not yet paid) earned and accrued
under this Agreement prior to the effective date of the termination of
employment (and reimbursement for expenses incurred prior to the effective date
of the termination of employment as set forth in Section 3.7); (ii) the
Executive shall be entitled to retain only those Performance Shares which shall
have vested on or prior to the date of termination under this Section 5.1; (iii)
all vested and unvested options shall lapse and terminate immediately and may no
longer be exercised; (iv) all Performance Units shall terminate immediately; and
(v) the Executive shall have no further rights to any other compensation or
benefits hereunder on or after the termination of employment, or any other
rights hereunder.
(c) The Executive may terminate his employment
upon written notice to the Company which specifies an effective date of
termination not less than 30 days from the date of such notice. If the Executive
terminates his employment and the termination is not covered by Section 4, 5.2,
or 5.3, (i) the Executive shall receive Annual Salary and other benefits
(including bonuses awarded or declared but not yet paid) earned and accrued
under this Agreement prior to the effective date of the termination of
employment (and reimbursement for expenses incurred prior to the effective date
of the termination of employment as set forth in Section 3.7); (ii) all fully
vested and exercisable options granted under Section 3.4 hereof and held by the
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Executive may be exercised by the Executive for a period of 30 days from and
after the date of the Executive's effective date of termination; (iii) all
Performance Units and Performance Shares shall lapse and terminate immediately;
and (iv) the Executive shall have no further rights to any compensation or other
benefits hereunder on or after the termination of employment, or any other
rights hereunder.
5.2 TERMINATION WITHOUT CAUSE; TERMINATION FOR GOOD REASON.
(a) For purposes of this Agreement, "Good Reason" shall mean the existence of
any one or more of the following conditions that shall continue for more than 45
days following written notice thereof by the Executive to the Company: (i) the
material reduction of the Executive's authority, duties and responsibilities, or
the assignment to the Executive of duties materially inconsistent with the
Executive's position or positions with the Company; or (ii) the Company's
material and continuing breach of this Agreement.
(b) The Company may terminate the Executive's
employment at any time for any reason whatsoever. If the Company terminates the
Executive's employment and the termination is not covered by Section 4, 5.1 or
5.3 hereof, , (i) the Executive shall receive Annual Salary and other benefits
(including bonuses awarded but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive shall
receive (A) for the longer of (x) two (2) years after termination of employment
or (y) the period of time remaining under the Term, the Annual Salary that the
Executive was receiving at the time of such termination of employment, payable
in accordance with Section 3.1 hereof, and (B) for a period of two (2) years
after termination of employment, such continuing coverage under the benefit
plans and programs the Executive would have received under Section 3.2 hereof as
would have applied in the absence of such termination, it being expressly
understood and agreed that nothing in this clause (ii) shall restrict the
ability of the Company to amend or terminate such benefits plans and programs
from time to time in its sole and absolute discretion; provided, however, that
the Company shall in no event be required to provide any coverage contemplated
by Section 3.2 hereof after such time as the Executive becomes entitled to
coverage under the benefit plans and programs of another employer or recipient
-8-
of the Executive's services (and provided, further, that such entitlement shall
be determined without regard to any individual waivers or other arrangements);
(iii) all outstanding unvested Options granted under Section 3.4 hereof and held
by the Executive shall vest and become immediately exercisable and shall
otherwise be exercisable in accordance with their terms and the Executive shall
become vested in any pension or other deferred compensation other than pension
or deferred compensation under a plan intended to be qualified under Section
401(a) or 403(a) of the Internal Revenue Code of 1986, as amended; (iv) that
portion of the Performance Units granted under Section 3.3(b) hereof to which
the Executive would have been entitled to receive in accordance with the Bonus
Program, as measured on the date of the Executive's termination of employment
shall vest and become immediately payable at any time and from time to time from
and after the termination date at the then applicable target rate set forth in
the Bonus Program; and (v) that portion of the Performance Shares granted under
Section 3.3(c) hereof to which the Executive would have been entitled to receive
in accordance with the Bonus Program as at the end of the fiscal year
immediately following the termination of the Executive's employment shall vest
and become immediately transferable free of any restrictions on transferability
of the Performance Shares (other than restrictions on transfer imposed under
Federal and state securities laws) by the Executive and all other restrictions
imposed thereon shall cease, other than those restrictions, limitations and/or
obligations contained in the Bonus Program that expressly survive the
termination of the Executive's employment with the Company; and (vi) the
Executive shall have no further rights to any other compensation or benefits
hereunder on or after the termination of employment, or any other rights
hereunder.
(c) The Executive may terminate the Executive's
employment with the Company for "Good Reason". If the Executive terminates his
employment for Good Reason and such termination is not covered by Section 5.3
hereof, (i) the Executive shall receive Annual Salary and other benefits
(including bonuses awarded but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive shall
receive for a period of two (2) years after termination of employment (A) the
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Annual Salary that the Executive was receiving at the time of such termination
of employment, payable in accordance with Section 3.1 hereof, and (B) such
continuing coverage under the benefit plans and programs the Executive would
have received under Section 3.2 hereof as would have applied in the absence of
such termination, it being expressly understood and agreed that nothing in this
clause (ii) shall restrict the ability of the Company to amend or terminate such
benefits plans and programs from time to time in its sole and absolute
discretion; provided, however, that the Company shall in no event be required to
provide any coverage contemplated by Section 3.2 hereof after such time as the
Executive becomes entitled to coverage under the benefit plans and programs of
another employer or recipient of the Executive's services (and provided,
further, that such entitlement shall be determined without regard to any
individual waivers or other arrangements); (iii) all outstanding unvested
Options granted under Section 3.4 hereof and held by the Executive shall vest
and become immediately exercisable and shall otherwise be exercisable in
accordance with their terms and the Executive shall become vested in any pension
or other deferred compensation other than pension or deferred compensation under
a plan intended to be qualified under Section 401(a) or 403(a) of the Internal
Revenue Code of 1986, as amended; (iv) all Performance Units granted under
Section 3.3(b) hereof and held by the Executive shall vest and become
immediately payable at any time and from time to time from and after the
termination date at the maximum target rate set forth in the Bonus Program; and
(v) all Performance Shares granted under Section 3.3(c) hereof and held by the
Executive shall vest and become immediately transferable free of any
restrictions on transferability of the Performance Shares (other than
restrictions on transfer imposed under Federal and state securities laws) by the
Executive and all other restrictions imposed thereon shall cease, other than
those restrictions, limitations and/or obligations contained in the Bonus
Program that expressly survive the termination of the Executive's employment
with the Company; and (vi) the Executive shall have no further rights to any
other compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
5.3 CERTAIN TERMINATIONS AFTER CHANGE OF CONTROL. (a) For
purposes of this Agreement, "Change of Control" means the occurrence of one or
more of the following: (i) a "person" or "group" within the means the meaning of
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sections 13(d) and 14(d) of the Securities and Exchange Act of 1934 (the
"Exchange Act") other than the Executive, becomes the "beneficial owner" (within
the meaning of Rule l3d-3 under the Exchange Act) of securities of the Company
(including options, warrants, rights and convertible and exchangeable
securities) representing 30% or more of the combined voting power of the
Company's then outstanding securities in any one or more transactions unless
approved by at least two-thirds of the Board of Directors then serving at that
time; provided, however, that purchases by employee benefit plans of the Company
and by the Company or its affiliates shall be disregarded; or (ii) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the operating assets of the
Company; or (iii) a merger or consolidation, or a transaction having a similar
effect, where (A) the Company is not the surviving corporation, (B) the majority
of the Common Stock of the Company is no longer held by the stockholders of the
Company immediately prior to the transaction, or (C) the Company's Common Stock
is converted into cash, securities or other property (other than the common
stock of a company into which the Company is merged), unless such merger,
consolidation or similar transaction is with a subsidiary of the Company or with
another company, a majority of whose outstanding capital stock is owned by the
same persons or entities who own a majority of the Company's Common Stock at
such time; or (iv) at any annual or special meeting of stockholders of the
Company at which a quorum is present (or any adjournments or postponements
thereof), or by written consent in lieu thereof, directors (each a "New
Director" and collectively the "New Directors") then constituting a majority of
the Company's Board of Directors shall be duly elected to serve as New Directors
and such New Directors shall have been elected by stockholders of the Company
who shall be an (I) "Adverse Person(s)"; (II) "Acquiring Person(s)"; or (III)
"40% Person(s)" (as each of the terms set forth in (I), (II), and (III) hereof
are defined in that certain Rights Agreement, dated November 24, 1998, between
the Company and American Stock Transfer & Trust Company, as Rights Agent.
(b) If within the one (1) year period commencing
upon any Change of Control, the Executive is terminated by the Company or a
successor entity and the termination is not covered by Section 4 or 5. 1, or,
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within such one (1) year period, the Executive elects to terminate his
employment after the Company or a successor entity materially reduces the
Executive's authority, duties and responsibilities, or assigns the Executive
duties materially inconsistent with the Executive's position or positions with
the Company or a successor entity immediately prior to such Change of Control,
(I) the Executive shall receive Annual Salary and other benefits (including
bonuses awarded or declared but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive shall
receive (A) for the longer of (x) three (3) years after termination of
employment; or (y) the period of time remaining under the Term, the Annual
Salary that the Executive was receiving at the time of such termination of
employment, payable in accordance with Section 3.1 hereof, and (B) such
continuing coverage under the benefit plans and programs the Executive would
have received under Sections 3.2 of this Agreement as would have applied in the
absence of such termination; it being expressly understood and agreed that
nothing in this clause (ii) shall restrict the ability of the Company to amend
or terminate such plans and programs from time to time in its sole and absolute
discretion; provided, however, that the Company shall in no event be required to
provide any coverage under Section 3.2 hereof after such time as the Executive
becomes entitled to coverage under the benefit plans and programs of another
employer or recipient of the Executive's services (and provided, further, that
such entitlement shall be determined without regard to any individual waivers or
other arrangements); (ill) all outstanding unvested Options granted under
Section 3.4 hereof and held by the Executive shall vest and become immediately
exercisable and shall otherwise be exercisable in accordance with their terms
and the Executive shall become vested in any pension or other deferred
compensation other than pension or deferred compensation under a plan intended
to be qualified under Section 401(a) or 403(a) of the Internal Revenue Code of
1986, as amended; (iv) all Performance Units granted under Section 3.3(b) hereof
and held by the Executive shall vest and become immediately payable at any time
and from time to time from and after the termination date, at the maximum target
rate set forth in the Bonus Program; (v) all Performance Shares granted under
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Section 3.3 (c) hereof and held by the Executive shall vest and become
immediately transferable free of any restrictions on transferability of the
Performance Shares (other than restrictions on transfer imposed under Federal
and state securities laws) by the Executive and all other restrictions imposed
thereon shall cease other than those restrictions, limitations and/or
obligations contained in the Bonus Program that expressly survive the
termination of the Executive's employment with the Company or any successor
entity, as the case may be; and (vi) the Executive shall have no further rights
to any other compensation or benefits hereunder on or after the termination of
employment or any other rights hereunder.
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6. COVENANTS OF THE EXECUTIVE.
6.1 COVENANT AGAINST COMPETITION, OTHER COVENANTS. The
Executive acknowledges that (i) the principal business of the Company (which,
for purposes of this Section 6 shall include the Company and each of its
subsidiaries and affiliates) is the provision of a broad range of services
designed to promote the cost-effective delivery of pharmacy benefits, including
pharmacy benefit management services, claims processing and/or the purchasing of
pharmaceutical products on behalf of pharmacy networks and long term care
facilities (including assisted living facilities and nursing homes) (such
business, and any and all other businesses that after the date hereof, and from
time to time during the Term, become material with respect to the Company's
then-overall business, herein being collectively refereed to as the "Business');
(ii) the Company is dependent on the efforts of a certain limited number of
persons who have developed, or will be responsible for developing the Company's
Business, (iii) the Company's Business is national in scope; (iv) the
Executive's work for the Company has given and will continue to give him access
to confidential affairs and proprietary information of the Company; (v) the
covenants and agreements of the Executive contained in this Section 6 are
essential to the business and goodwill of the Company; and (vi) the Company
would not have entered into do Agreement but for the covenants and agreements
set forth in this Section 6. Accordingly, the Executive covenants and agrees
that:
(a) At any time during his employment with the
Company and ending one (1) year following (i) termination of the Executive's
employment with the Company (irrespective of the reason for such termination) or
(ii) payment of any Annual Salary in accordance with Section 4 or 5 hereof
(unless such termination is by the Company without Cause), whichever occurs
last, the Executive shall not engage, directly or indirectly (which includes,
without limitation owning, managing operating, controlling, being employed by,
giving financial assistance to, participating in or being connected in any
material way with any person or entity other thaN the Company), anywhere in the
United States in (A) the Business or (B) any material component of the Business;
provided, however, that the Executive's ownership as a passive investor of less
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than two percent (2%) of the issued and outstanding stock of a publicly held
corporation shall not be deemed to constitute competition.
(b) During and after the period during which the
Executive is employed, the Executive shall keep secret and retain in strictest
confidence, and shall not use for his benefit or the benefit of others, except
in connection with the business and affairs of the Company, all confidential
matters relating to the Company and/or the Company's Business, learned by the
Executive heretofore or hereafter directly or indirectly from the Company (the
"Confidential Company Information"), including, without limitation, information
with respect to (i) the strategic plans, budgets, forecasts, intended expansion
of product, service or geographic markets of the company and it's affiliates,
(ii) sales figures, contracts agreements, and undertakings with or with respect
to the Company's customers or prospective customers, (iii) profit or loss
figures, and (iv) then existing or then prospective customers, clients,
suppliers and sources of supply and customer lists, and shall not disclose such
Confidential Company Information to anyone outside of the Company except with
the Company's express written consent and except for Confidential Company
Information which is at the time of receipt or thereafter becomes publicly known
through no wrongful act of the Executive or is received from a third party not
under an obligation to keep such information confidential and without breach of
this Agreement. Notwithstanding the foregoing, this Section 6.1(b) shall not
apply to the extent that the Executive is acting to the extent necessary to
comply with legal process; provided that in the event that the Executive is
subpoenaed to testify or to produce any information or documents before any
court, administrative agency or other tribunal relating to any aspect pertaining
to the Company, he shall immediately notify the Company thereof.
(c) During the period commencing on the date
hereof and ending two (2) years following the later to occur of dates upon which
the Executive SHALL cease to be an (i) employee or (ii) an "affiliate", as
defined in Rule 144 promulgated under the Securities Act of 1993, and the rules
and regulations promulgated thereunder (as amended, the "1993 Act"), of the
Company, the Executive shall not, without the Company's prior written consent,
directly or indirectly, solicit or encourage to leave the employment or other
-15-
service of the Company any employee or independent contractor thereof or hire
(on behalf of the Executive or any other person, firm, corporation or entity)
any employee or independent contractor who has left the employment or other
service of the Company within one (1) year of the termination of such employee's
or independent contractor's employment or other service with the Company. During
such a one (1) year period, the Executive will not, whether for his own account
or for the account of any other person, firm, corporation or other entity,
intentionally interfere with the Company's relationship with, or endeavor to
entice away from the Company any person who during the Term is or was a customer
or client of the Company.
(d) All memoranda, notes, lists, records, property
and any other tangible product and documents (and all copies thereof) made,
produced or compiled by the Executive or made available to the Executive
concerning the Business of the Company, including all Confidential Company
Information, shall be the Company's property and shall be delivered to the
Company at any time on request.
6.2 RIGHTS AND REMEDIES UPON BREACH . (a) The Executive
acknowledges and agrees that any breach by him of any of the provisions of
Section 6.1 hereof (the "Restrictive Covenants") would result in irreparable
injury and damage for which money damages would not provide an adequate remedy.
Therefore, if the Executive breaches or threatens to commit a breach of any of
the provisions of Section 6. 1 hereof, the Company shall have the following
rights and remedies, each of which rights and remedies shall be independent of
the other and severally enforceable, and all of which rights and remedies shall
be in addition to, and not in lieu of, any other rights and remedies available
to the Company under law or in equity (including, without limitation, the
recovery of damages):
(i) The right and remedy to have the
Restrictive Covenants specifically enforced (without posting bond and without
the need to prove damages) by any court having equity jurisdiction, including,
without limitation, the right to an entry against the Executive of restraining
orders
-16-
and injunctions (preliminary, mandatory, temporary and permanent) against
violations, threatened or actual, and whether or not then continuing, of such
covenants.
(ii) The right and remedy to require the
Executive to account for and pay over to the Company all compensation, profits,
monies, accruals, increments or other benefits (collectively, "Benefits")
derived or received by him as the result of any transactions constituting a
breach of the Restrictive Covenants, and the Executive shall account for and pay
over such Benefits to the Company and, if applicable, its affected subsidiaries
and/or affiliates.
(b) The Executive agrees that in any action
seeking specific performance or other equitable relief, he will not assert or
contend that any of the provisions of this Section 6 are unreasonable or
otherwise unenforceable. The existence of any claim or cause of action by the
Executive, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement of the Restrictive Covenants.
7. OTHER PROVISIONS.
7.1 SEVERABILITV. The Executive acknowledges and agrees that
(i) he has had an opportunity to seek advice of counsel in connection with this
Agreement and (ii) the Restrictive Covenants are reasonable in geographical and
temporal scope and in all other respects. If it is determined that any of the
provisions of this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the provisions of this Agreement shall not thereby be affected and
shall be given full effect, without regard to the invalid portions thereof.
7.2 DURATION AND SCOPE OF COVENANTS. If any court or other
decision-maker of competent jurisdiction determines that any of Executive's
covenants contained in this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provision, then, after such determination
has become final and unappealable, the duration or scope of such provision, as
the case may be, shall be reduced so that such provision becomes enforceable
-17-
and, in its reduced form, such provision shall then be enforceable and shall be
enforced.
7.3 ENFORCEABILITY; JURISDICTIONS. Any controversy or claim
arising out of or relating to this Agreement or the breach of this Agreement
that is not resolved by Executive and the Company (or its subsidiaries or
affiliates, where applicable), other than those arising under Section 6 thereof,
to the extent necessary for the Company (or its subsidiaries or affiliates,
where applicable) to avail itself of the rights and remedies provided under
Section 6.2 hereof, shall be submitted to arbitration in New York, New York in
accordance with New York law and the procedures of the American Arbitration
Association. The determination of the arbitrator(s) shall be conclusive and
binding on the Company (or its subsidiaries or affiliates, where applicable) and
Executive and judgment may be entered on the arbitrator(s)' award in any court
having jurisdiction.
7.4 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mails as follows:
(i) If to the Company, to:
MIM Corporation
100 Clearbrook Road
Elmsford, New York 10523
Attention: General Counsel
with a copy to:
Rogers & Wells
200 Park Avenue - Suite 5200
New York, New York 10166-0153
Attention: Richard A. Cirillo
(ii) If to the Executive, to:
Richard H. Friedman
2 Palmer Place
Armonk, NY 10504
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Any such person may by notice given in accordance with this Section 7.4 to the
other parties hereto designate another address or person for receipt by such
person of notices hereunder.
7.5 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
7.6 WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege
nor any single or partial exercise of any such right, power or privilege,
preclude any other or further exercise thereof or the exercise of any other such
right, power or privilege.
7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPALS OF CONFLICTS OF LAW.
7.8 ASSIGNMENT. This Agreement, and the Executive's rights
and obligations hereunder, may not be assigned by the Executive; any purported
assignment by the Executive in violation hereof shall be null and void. In the
event of any sale, transfer or other disposition of all or substantially all of
the Company's assets or business, whether by merger, consolidation or otherwise,
the Company (without limiting the Executive's rights under Section 5.3) may
assign this Agreement and its rights hereunder.
7.9 WITHHOLDING. The Company shall be entitled to withhold
from any payments or deemed payments any amount of tax withholding required by
law.
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7.10 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, permitted
assigns, heirs, executors and legal representatives.
7.11 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of two
copies hereof each signed by one of the parties hereto.
7.12 SURVIVAL. Anything contained in this Agreement to the
contrary not withstanding, the provisions of Sections 5, 6, 7.3 and 7.9, and the
other provisions of this Section 7 (to the extent necessary to effectuate the
survival of Sections 5, 6, 7.3 and 7.9), shall survive termination of this
Agreement and any termination of the Executive's employment hereunder.
7.13 EXISTING AGREEMENTS. Executive represents to the Company
that he is not subject or a party to any employment or consulting agreement,
non-competition covenant or other agreement, covenant or understanding which
might prohibit him from executing this Agreement or limit his ability to fulfill
his responsibilities hereunder.
7.14 HEADINGS. The headings in this Agreement are for
reference only and shall not affect the interpretation of this Agreement.
7.15 SUPERCEDES PRIOR AGREEMENTS. Upon execution and delivery
of this Agreement, this Agreement shall supercede in its entirety any and all
prior agreements with respect to the Executive's employment.
IN WITNESS WHEREOF, the parties hereto have signed their names as of
the day and year first above written.
MIM CORPORATION
By: /s/ BARRY A. POSNER
------------------------------------
Barry A. Posner
Vice President & General Counsel
/s/ RICHARD H. FRIEDMAN
- ------------------------------
Richard H. Friedman
-20-
Appendix II-B
CHIEF EXECUTIVE OFFICER 1998
STOCK OPTION PLAN AND AGREEMENT
-------------------------------
STOCK OPTION PLAN AND AGREEMENT (the "Agreement") made as of the 2nd
day of December, 1998 (the "Grant Date"), between MIM Corporation, a Delaware
corporation (the "Company"), and Richard H. Friedman (the "Awardee").
WHEREAS the Company and the Awardee entered into an Employment
Agreement dated as of December 2, 1998 ("Employment Agreement") pursuant to
Section 3.4 of which the Company upon the authorization of the Compensation
Committee of the Company's Board of Directors (the "Committee"), granted Awardee
an Option (as defined below) to purchase 800,000 shares of the common stock, par
value $0.0001, of the Company ("Common Stock") subject to the terms of this
Agreement; and
WHEREAS, the Option is intended to be granted pursuant to a plan (as
such term is used in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and Section 1.162-27(e)(2)(vi) of the Treasury Regulations
promulgated under the Code) separate and apart from any other stock option plan
of the Company.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration the legal sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereunder, agree as follows:
1. GRANT OF OPTION. The Company hereby establishes the Chief
Executive Officer 1998 Stock Option Plan (the "Plan") and grants to the Awardee
pursuant to the Plan the right and option (the "Option") to purchase all or any
part of an aggregate of 800,000 shares of the Common Stock of the Company (the
"Shares"), the effectiveness of which grant shall be contingent in all respects
upon approval of the grant by the shareholders of the Company on or before
December 1, 1999. The Option is in all respects limited and conditioned as
hereinafter provided. It is intended that the Option granted hereunder be an
incentive stock option ("ISO") as such term is defined in Section 422 of the
Code.
2. DEFINITIONS. For purposes of this Agreement, the terms used
herein shall be defined as follows:
(a) DATE OF TERMINATION. The Awardee's "Date of
Termination" shall be the first day occurring on or after the Reference Date on
which the Awardee's Employment by the Company and its Subsidiaries and
Affiliates is terminated, regardless of the reason for the termination of
Employment; provided that a termination of Employment shall not be deemed to
occur by reason of a transfer of the Awardee between any of the Company and its
Subsidiaries and Affiliates; and further provided that the Awardee's employment
shall not be considered terminated while the Awardee is on a leave of absence
from the Company or a Subsidiary or Affiliate approved by the Awardee's
employer.
(b) DISABILITY. The term "Disability" shall have the
meaning provided in Section 22(e)(3) of the Code.
(c) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The term
"Termination without Cause or for Good Reason" shall mean the termination of the
Awardee's Employment by the Company and its Subsidiaries and Affiliates for
reasons other than "Cause" or by the Awardee for "Good Reason," as such quoted
terms are defined in the Employment Agreement.
3. PURCHASE PRICE. The purchase price per share of the Shares
under the Option shall be (a) $4.50 with respect to those Shares comprising that
portion of the Option not constituting an ISO as determined pursuant to
paragraph 5(b) below and (b) $4.95 with respect to those Shares comprising that
portion of the Option constituting an ISO as determined pursuant to paragraph
5(b) below (individually and collectively, the "Option Price"), being equal to
the average of the high and low sales prices of the Common Stock on the Nasdaq
National Market on the Grant Date ("Fair Market Value") and 110% of the Fair
Market Value of Common Stock on the Grant Date, respectively.
4. TERM. Unless earlier terminated pursuant to any provision of
this Agreement or the Employment Agreement, this Option shall expire on the date
(the "Expiration Date") which is, (a) in the case of those Shares comprising
that portion of the Option constituting an ISO as determined pursuant to
paragraph 5(b) below, the fifth anniversary of December 2, 1998 (the "Reference
Date"), and (b) in the case of those Shares comprising that portion of the
Option not constituting an ISO as determined pursuant to paragraph 5(b) below,
the tenth anniversary of the Reference Date. This Option shall not be
exercisable on or after the Expiration Date.
5. EXERCISE OF OPTION. (a) This Option shall vest and may be
exercised as to one-third of the Shares (rounded to the nearest whole share) on
each of the first three anniversaries of the Reference Date, so that the Option
shall be exercisable as to all Shares on the third such anniversary thereof,
PROVIDED, HOWEVER, that the Option shall be exercisable (i) as to all vested
Shares (that have not been previously forfeited) as of the Awardee's Date of
Termination if such termination occurs by reason of the Awardee's death or
Disability, (ii) as to all vested and unvested Shares (that have not been
previously forfeited) as of the Awardee's Date of Termination if such
termination occurs by reason of the Awardee's Termination Without Cause or for
Good Reason or (iii) as to all vested and unvested Shares (that have not been
previously forfeited) as of the date of Termination if the Awardee's Employment
is terminated within one year following a Change in Control (as defined in the
Employment Agreement, but without giving effect to the following language in
clause (i) thereof: "unless approved by two-thirds of the Board of Directors
then serving at that time") if the Awardee's termination is a Termination
Without Cause or for Good Reason. Options that become exercisable in accordance
with the foregoing shall remain exercisable, subject to the provisions contained
in the Employment Agreement and this Agreement, until the expiration of the term
of this Option as set forth in Paragraph 4 or until other termination of the
Option.
(b) To the extent that the aggregate Fair Market Value
(determined as of the Grant Date) of Common Stock with respect to which ISOs are
exercisable for the first time by the Awardee during any calendar year (under
this Agreement and all other plans of the Company and its Subsidiaries, if any)
exceeds $100,000, the Options or portions thereof which exceed the limit
(according to the order in which they were granted) shall be treated as
nonqualified stock options ("NQSO").
6. METHOD OF EXERCISING OPTION. Subject to the terms and
conditions of this Agreement, the Option may be exercised upon written notice to
the Company at its principal office, which is located at 100 Clearbrook Road,
Elmsford, New York 10523; Attn: Corporate Secretary. Such notice (a suggested
form of which is attached) shall state the election to exercise the Option and
the number of Shares with respect to which it is being exercised; shall be
signed by the person or persons so exercising the Option; shall, if the Company
so requests, be accompanied by the investment certificate referred to in
Paragraph 7 hereof and shall be accompanied by payment of the full Option Price
of such Shares.
The Option Price shall be paid to the Company:
(a) In cash, or in its equivalent;
(b) In Common Stock previously acquired by the Awardee,
provided that if such Shares were acquired through exercise of
an ISO or NQSO or of an option under a similar plan, such
Shares have been held by the Awardee for a period of more than
12 months on the date of exercise; or
(c) In such other manner consistent with applicable law as
from time to time may be authorized in writing by the Company
with respect to such "cashless" option exercise arrangements
as the Company from time to time may maintain with securities
brokers. Any such arrangements and written authorizations may
be terminated at any time by the Company without notice to the
Awardee; or
-2-
(d) In any combination of (a), (b) and (c) above.
In the event such Option Price is paid, in whole or in part,
with shares of Common Stock, the portion of the Option Price so paid shall be
equal to the Fair Market Value on the date of exercise of the Option of the
Common Stock surrendered in payment of such Option Price.
Upon receipt of such notice and payment, the Company, as
promptly as practicable, shall deliver or cause to be delivered a certificate or
certificates representing the Shares with respect to which the Option is so
exercised. The certificate or certificates for the Shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Awardee and if the Awardee shall so request in the notice exercising the Option,
shall be registered in the name of the Awardee and the Awardee's spouse,
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising the Option. In the
event the Option shall be exercised by any person or persons after the legal
disability or death of the Awardee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All Shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and non-assessable by the Company.
7. SHARES TO BE PURCHASED FOR INVESTMENT. Unless the Company has
theretofore notified the Awardee that a registration statement covering the
Shares to be acquired upon the exercise of the Option has become effective under
the Securities Act of 1933 and the Company has not thereafter notified the
Awardee that such registration is no longer effective, or unless counsel to the
Company shall be otherwise satisfied that the Awardee would be permitted under
applicable law to immediately resell Shares acquired upon the exercise of the
Option, it shall be a condition to any exercise of this Option that the Shares
acquired upon such exercise be acquired for investment and not with a view to
distribution, and the person effecting such exercise shall submit to the Company
a certificate of such investment intent, together with such other evidence
supporting the same as the Company may request. The Company shall be entitled to
restrict the transferability of the Shares issued upon any such exercise to the
extent necessary to avoid a risk of violation of the Securities Act of 1933 (or
of any rules or regulations promulgated thereunder) or of any state laws or
regulations. Such restrictions may, at the option of the Company, be noted or
set forth in full on the share certificates.
8. NON-TRANSFERABILITY OF OPTION. This Option is not assignable
or transferable, in whole or in part, by the Awardee otherwise than by the laws
of descent and distribution, and during the lifetime of the Awardee the Option
shall be exercisable only by the Awardee or by his guardian or legal
representative.
9. TERMINATION OF OPTION. (a) The unexercised portion of the
Option (whether vested or not) shall automatically terminate and shall become
null and void and be of no further force or effect upon the first to occur of
the following:
(i) The Expiration Date;
(ii) The expiration of 30 days from the date that the
Awardee ceases to be an employee of the Company upon
termination by resignation where such resignation is
not for Good Reason;
(iii) The expiration of twelve months from the date that the
Awardee ceases to be an employee of the Company or any
of its Subsidiaries as a result of the Awardee's death,
Disability or Termination Without Cause or for Good
Reason;
(iv) Immediately if the Awardee ceases to be an employee of
the Company or any of its Subsidiaries if such
termination is for Cause.
10. WITHHOLDING OF TAXES. The obligation of the Company to deliver
Shares upon the exercise of the Option shall be subject to applicable federal,
state and local tax withholding requirements.
-3-
If the exercise of this Option is subject to the withholding
requirements of applicable federal tax laws, the Compensation Committee of the
Company's Board of Directors ("Committee") may permit the Awardee, subject to
the provisions of such additional withholding rules (the "Withholding Rules") as
shall be adopted by the Committee, to satisfy the minimum federal, state and
local withholding tax, in whole or in part, by electing to have the Company
withhold (or by returning to the Company) shares of Common Stock, which Shares
shall be valued, for this purpose, at their Fair Market Value on the date of
exercise of the Option (or, if later, the date on which the Optionee recognizes
ordinary income with respect to such exercise) (the "Determination Date"). An
election to use shares of Common Stock to satisfy tax withholding requirements
must be made in compliance with and subject to the Withholding Rules, and the
Committee may not withhold shares in excess of the number necessary to satisfy
the minimum federal, state and local income tax withholding requirements. In the
event shares of Common Stock acquired under the exercise of an ISO are used to
satisfy such withholding requirement, such shares of Common Stock must have been
held by the Awardee for a period of not less than the holding period described
in Section 422(a)(1) of the Code on the Determination Date, or if such shares of
Common Stock were acquired through exercise of a non-qualified stock option or
of an option under a similar plan, such option was granted to the Awardee at
least six months prior to the Determination Date.
11. GOVERNING LAW. This Agreement shall be construed in accordance
with, and its interpretation shall be governed by applicable federal law, and
otherwise by the laws of the State of Delaware.
12. ADMINISTRATION. The authority to manage and control the
operation and administration of this Agreement shall be vested in the Committee,
and the Committee shall have all powers with respect to this Agreement as it has
with respect to the Company's Amended and Restated 1996 Stock Incentive Plan.
Any interpretation of this Agreement by the Committee and any decision made by
it with respect to this Agreement is final and binding.
In furtherance of the foregoing, the number of shares of
Common Stock issuable upon exercise of the Option (as well as the Option Price)
shall, subject to the provisions of section 424(a) of the Code, be adjusted, as
may be deemed appropriate by the Committee, to reflect any stock dividend, stock
split, share combination, or similar change in the capitalization of the
Company. In the event of a corporate transaction as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder (a
"Corporate Transaction") (as, for example, a merger, consolidation, acquisition
of property or stock, separation, reorganization, or liquidation), the Option
shall be assumed by the surviving or successor corporation; provided, however,
that, in the event of a proposed Corporate Transaction, the Committee may
terminate all or a portion of the Option if it determines that such termination
is in the best interests of the Company. If the Committee decides to terminate
the Option, the Committee shall give the Awardee not less than ten days' notice
prior to any such termination by reason of such Corporate Transaction, and the
Option may be exercised (if and only to the extent that it is then exercisable)
up to and including the date immediately preceding such termination. Further,
the Committee, in its discretion, may accelerate, in whole or in part, the date
on which the Option becomes exercisable. The Committee also may, in its
discretion, change the terms of any outstanding Option to reflect any such
Corporate Transaction, provided that, in the case of ISOs, such change is
excluded from the definition of a "modification" under section 424(h) of the
Code.
13. ENTIRE AGREEMENT. This Agreement and the Employment Agreement
contain the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior contracts and other agreements to the
extent of any discrepancies or conflicts between this Agreement and the
Employment Agreement, the terms of this Agreement shall govern.
14. PLAN PROVISIONS. This Agreement shall constitute both the
document evidencing the Plan and the agreement memorializing the Option granted
under the Plan. For all purposes, references herein to this "Agreement" shall be
deemed to include references to the "Plan."
The Option shall be the only grant which may be made under the
Plan. Accordingly, the Awardee is the only employee of the Company eligible to
receive an option under the Plan; the maximum number of shares of Common Stock
which may be the subject of options under the Plan is 800,000 (subject to
adjustment as provided herein); and the Awardee shall not receive options to
-4-
acquire Common Stock under the Plan in any one fiscal year of the Company
(regardless of when shares of Common Stock are deliverable in respect thereof)
for more than 800,000 shares.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officers thereunto duly authorized, and the Awardee has hereunto
set his hand and seal, all on the day and year first above written.
MIM Corporation
By: /s/ BARRY A. POSNER
--------------------------------------------
Barry A. Posner
Title: Vice President and General Counsel
-----------------------------------------
ACCEPTED AND AGREED TO:
/s/ RICHARD H. FRIEDMAN
-----------------------------------------------
Richard H. Friedman
Awardee
-5-
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
I hereby exercise the incentive stock option granted to me on
_______________________, 199__, by MIM Corporation, with respect to the
following number of shares of the $.0001 par value per share common stock of MIM
Corporation ("Shares") covered by said option:
Number of Shares to be purchased _______________
Option price per Share $______________
Total exercise price $______________
[Check one of the following to indicate method of payment:]
[ ] A. Enclosed is cash or its equivalent, in the amount of
$__________________, in full payment for such Shares.
[ ] B. Enclosed is/are ___________________ Share(s) with a total Fair Market
Value of $_______________ on the date hereof in full payment for such
Shares.
[ ] C. [Describe any other payment alternatives then available.]
[ ] D. Enclosed is cash or its equivalent in the amount of $____________, and
__ Share(s) with a total Fair Market Value of $__________ on the date
hereof, in [partial] [full] payment for such Shares.
Please have the certificate or certificates representing the purchased
Shares registered in the following name or names(1) ____________________________
and sent to ____________________________________.
DATED: _____________________, _________.
-----------------------------
Awardee's Signature
- --------------------------
1 Certificates may be registered in the name of the Awardee alone or in
the names of the Awardee and his or her spouse, jointly, with right of
survivorship.
- --------------------------
-6-
Appendix III
MIM CORPORATION
1996 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED
EFFECTIVE DECEMBER 1, 1998
SECTION 1 - PURPOSE
This MIM CORPORATION 1996 STOCK INCENTIVE PLAN (the "Plan") is intended
to provide a means whereby MIM Corporation, a Delaware corporation (the
"Company"), and any Subsidiary or other Affiliate of the Company (as hereinafter
defined) may, through the grant of Incentive Stock Options and Non-Qualified
Stock Options (collectively "Options"), Performance Shares (as defined in
Section 6(c)) and Performance Units (as defined in Section 6(d)) to Employees
(as defined in Section 3), attract and retain such Employees and motivate them
to exercise their best efforts on behalf of the Company and of any Subsidiary or
other Affiliate.
As used in the Plan, the following terms shall have the following
meanings:
"Affiliate" means any corporation, limited liability company,
spartnership or other entity, including Subsidiaries, which is controlled by or
under common control with the Company.
"Agreement" means the written agreement between the Company and an
Awardee; as contemplated by Section 6(d).
"Award" means an Option, Performance Shares or Performance Units.
"Awardee" means an Employee to whom an Award has been granted under the
Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Company's Board of
Directors, or, at any time that such a Committee does not then exist, the Board
of Diretors.
"Effective Date" means December 1, 1998.
"Executive" means any of the following: (i) any director of the Company
or (ii) any named executive officer of the Company as defined in Item 402(a)(3)
of Regulation S-K under the Securities Exchange Act of 1934.
"Incentive Stock Options" ("ISOs") means options to acquire Common
Shares (as defined in Section 4) granted under the Plan which qualify as
incentive stock options within the meaning of Section 422 of the Code at the
time they are granted and which are either designated as ISOs in the Agreements
covering such options or which are designated as ISOs by the Committee (as
defined in Section 2 hereof) at the time of grant.
"Non-Qualified Stock Options" ("NQSOs") means all options to acquire
Common Shares granted under the Plan other than ISOs.
"Stock Award" means an Award which is an Option or Performance Shares.
"Subsidiary" means any corporation (whether or not in existence at the
time the Plan is adopted) which, at the time an Option is granted, is a
subsidiary of the Company under the definition of "subsidiary corporation"
contained in section 424(f) of the Code or any similar provision hereafter
enacted.
SECTION 2 - ADMINISTRATION
The Plan shall be administered by the Company's Compensation Committee
(the "Committee"), which shall consist of not less than two (2) non-employee
directors (within the meaning of Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor thereto) who are also outside
directors (within the meaning of Treas. Reg. ss. 1.162-27(e)(3), or any
successor thereto) of the Company who shall be appointed by, and shall serve at
the pleasure of, the Company's Board of Directors (the "Board"). Each member of
such Committee, while serving as such, shall be deemed to be acting in his or
her capacity as a director of the Company.
The Committee shall have full and final authority in its absolute
discretion, subject to the terms of the Plan, to select the Awardees to be
granted Awards under the Plan, to grant Awards on behalf of the Company, and to
set the date of grant and the other terms of such Awards. The Committee may
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and in any Award granted hereunder in the manner and to the extent it shall
deem desirable. The Committee also shall have the authority to establish such
rules and regulations, not inconsistent with the provisions of the Plan, for the
proper administration of the Plan, and to amend, modify or rescind any such
rules and regulations, and to make such determinations and interpretations
under, or in connection with, the Plan, Awards and Agreements (including,
without limitation, determinations with respect to the establishment and
satisfaction of performance objectives under Section 6), as it deems necessary
or advisable. All such rules, regulations, determinations and interpretations
shall be binding and conclusive upon the Company, its shareholders and all
officers and employees and former officers and employees, and upon their
respective legal representatives, beneficiaries, successors and assigns and upon
all other persons claiming under or through any of them. Notwithstanding the
preceding, the Committee shall not have the power or authority under this Plan
to take any action with respect to an Award granted pursuant to this Plan which
is intended to qualify as "performance-based compensation" within the meaning of
section 162(m) of the Code if the taking of such action would cause such Award
to cease to so qualify.
No member of the Board or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Award
granted hereunder.
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SECTION 3 - ELIGIBILITY
The class of persons who shall be eligible to receive Awards under the
Plan shall be the employees (including any directors and officers who also are
employees) of the Company and/or of a Subsidiary or other Affiliate
("Employees") who the Committee believes have the capacity to contribute to the
success of the Company and/or a Subsidiary or other Affiliate, provided that
ISOs shall be granted only to Employees of the Company or of a Subsidiary. More
than one Award may be granted to an Employee under the Plan.
SECTION 4 - STOCK
The number of shares of the Company's $.0001 par value per share Common
Stock ("Common Shares") that may be subject to Stock Awards under the Plan from
and after the Effective Date (i.e., excluding Options previously granted under
the Plan and exercised as of the Effective Date, but including Options
previously granted and not exercised as of the Effective Date, Common Shares
available for Awards under the Plan immediately prior to the Effective Date, and
an increase in the number of Common Shares so available as provided herein)
shall be 2,375,000 shares, subject to adjustment as hereinafter provided. Such
number shall be increased, to the extent authorized by the Board, by the number
of Common Shares repurchased by the Company from time to time in the open market
or in private transactions after the Effective Date and by the number of Common
Shares delivered to or withheld by the Company in payment of the exercise price
of any Option granted under the Plan or in satisfaction of an Awardee's tax
obligations in respect of an Award granted under the Plan. Notwithstanding the
preceding, (i) no Awardee shall receive Stock Awards in any one fiscal year of
the Company (regardless of when Common Shares are deliverable in respect of such
Stock Awards) for more than 1,500,000 Common Shares, (ii) not more than 500,000
Common Shares may be subject to Awards in the form of ISOs and (iii) not more
than 750,000 Common Shares may be subject to Awards in the form of Performance
Shares. Shares issuable under the Plan may be authorized but unissued shares or
reacquired shares, as the Company may determine from time to time.
Any Common Shares subject to a Stock Award which expires or otherwise
terminates for any reason whatever (including, without limitation, the surrender
thereof by the Awardee) without having been exercised shall continue to be
available for the granting of Stock Awards under the Plan; provided, however,
that (a) if a Stock Award is canceled, the Common Shares covered by the canceled
Stock Award shall be counted against the maximum number of shares specified in
Section 4 for which Stock Awards may be granted to a single Awardee, and (b) if
the exercise price of a Stock Award is reduced after the date of grant, the
transaction shall be treated as a cancellation of the original Stock Award and
the grant of a new Stock Award for purposes of counting the maximum number of
shares for which Stock Awards may be granted to a single Awardee.
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SECTION 5 - ANNUAL ISO LIMIT
(a) ISOS. The aggregate Fair Market Value (determined as of the date
the ISO is granted) of the Common Shares with respect to which ISOs become
exercisable for the first time by an Awardee during any calendar year (under
this Plan and any other ISO plan of the Company or any parent corporation
(within the meaning of section 424(e) of the Code ("Parent")) or Subsidiary)
shall not exceed $100,000. The term "Fair Market Value" shall mean the value of
the Common Shares arrived at by a good faith determination of the Committee and
shall be:
(1) the mean between the highest and lowest quoted selling
price, if there is a market for the Common Shares on a registered
securities exchange or in an over the counter market, on the date
specified;
(2) the weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the
specified date, if there are no such sales on the specified date but
there are such sales on dates within a reasonable period both before
and after the specified date;
(3) the mean between the bid and asked prices, as reported by
the National Quotation Bureau on the specified date, if actual sales
are not available during a reasonable period beginning before and
ending after the specified date; or
(4) such other method of determining Fair Market Value as
shall be authorized by the Code, or the rules or regulations
thereunder, and adopted by the Committee.
Where the Fair Market Value of Common Shares is determined under (2)
above, the average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the specified date shall be
weighted inversely by the respective numbers of trading days between the dates
of reported sales and the specified date (I.E., the valuation date), in
accordance with Treas. Reg. ss. 20.2031-2(b)(1), or any successor thereto.
(b) OPTIONS OVER ANNUAL LIMIT. If an Option intended as an ISO is
granted to an Awardee and such Option may not be treated in whole or in part as
an ISO pursuant to the limitation in (a) above, such Option shall be treated as
an ISO to the extent it may be so treated under such limitation and as a NQSO as
to the remainder. For purposes of determining whether an ISO would cause such
limitation to be exceeded, ISOs shall be taken into account in the order
granted.
(c) NQSOS. The annual limit set forth above for ISOs shall not apply to
NQSOs.
SECTION 6 - AWARDS
(a) GRANTING OF AWARDS. From time to time until the expiration or
earlier suspension or discontinuance of the Plan, the Committee may, on behalf
of the Company, grant to Awardees under the Plan such Awards as it determines
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are warranted, subject to the limitations of the Plan; PROVIDED, HOWEVER, that
grants of ISOs and NQSOs shall be separate and not in tandem. The granting of an
Award under the Plan shall not be deemed either to entitle the Awardee receiving
the Award to, or to disqualify the Awardee from, any participation in any other
grant of Awards under the Plan. In making any determination as to whether an
Awardee shall be granted an Award and as to the number of shares to be covered
by such Award, in the case of a Stock Award, or as to the amount payable
pursuant to such Award in the case of Performance Units, the Committee shall
take into account the duties of the Awardee, the Committee's views as to his or
her present and potential contributions to the success of the Company or a
Subsidiary or other Affiliate, and such other factors as the Committee shall
deem relevant in accomplishing the purposes of the Plan. Moreover, the Committee
may determine that the applicable Agreement shall provide that said Award may be
exercised only if certain conditions, as determined by the Committee, are
fulfilled.
(b) TERMS AND CONDITIONS OF OPTIONS. Options granted pursuant to the
Plan shall expressly specify whether they are ISOs or NQSOs; however, if the
Option is not designated in the Agreement as an ISO or NQSO, the Option shall
constitute an ISO if it complies with the terms of section 422 of the Code, and
otherwise, it shall constitute an NQSO. In addition, the Options granted
pursuant to the Plan shall include expressly or by reference the following terms
and conditions, as well as such other provisions not inconsistent with the
provisions of this Plan as the Committee shall deem desirable, and for ISOs
granted under this Plan, the provisions of section 422(b) of the Code:
(1) NUMBER OF SHARES. A statement of the number of Common
Shares to which the Option pertains (or, except in the case of an ISO,
of a formula or other method by which such number shall be then or
thereafter objectively determinable).
(2) PRICE. A statement of the Option exercise price (or,
except in the case of an ISO, of a formula or method by which the
exercise price shall be then or thereafter objectively determinable)
which shall be determined and fixed by the Committee in its discretion
at the time of grant, provided that, in the case of an ISO, the
exercise price shall not be less than 100% of the Fair Market Value of
the optioned Common Shares on the date the ISO is granted (or 110%, if
the ISO is granted to a more than 10% shareholder per (6) below).
(3) TERM.
(A) ISOS. Subject to earlier termination as provided
in Subsection 6(e) below, the term of each ISO shall be not more than
10 years (5 years in the case of a more than 10% shareholder as
provided in (6) below) from the date of grant.
(B) NQSOS. The term of each NQSO shall be not more
than 15 years from the date of grant.
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(4) EXERCISE.
(A) GENERAL. Options shall be exercisable in such
installments and on such dates, commencing not less than 6
months and 1 day from the date of grant (but, in the case of
ISOs, not less than 12 months from the date of grant), as the
Committee may specify, provided that:
(i) in the case of new Options granted to an
Awardee in replacement for options (whether granted
under the Plan or otherwise) held by the Awardee, the
new Options may be made exercisable, if so determined
by the Committee, in its discretion, at the earliest
date the replaced options were exercisable; and
(ii) the Committee may accelerate the
exercise date of any outstanding Options in its
discretion, if it deems such acceleration to be
desirable.
Any Common Shares, the right to the purchase of which
has accrued under an Option, may be purchased at any time up
to the expiration or termination of the Option. Exercisable
Options may be exercised, in whole or in part, from time to
time by giving written notice of exercise to the Company at
its principal office, specifying the number of Common Shares
to be purchased and accompanied by payment in full of the
aggregate Option exercise price for such shares. Only full
shares shall be issued under the Plan and, if any fractional
share would otherwise be issuable upon the exercise of an
Option granted hereunder, the number of Common Shares issuable
upon such exercise shall be rounded to the nearest whole share
and the unexercised portion of such Option adjusted
accordingly provided that in no event shall the total number
of Common Shares issuable upon the full exercise of an Option
exceed the number so specified for such Option under Section
6(b)(1) hereof.
(B) MANNER OF PAYMENT. The Option price shall be
payable:
(i) in cash or its equivalent;
(ii) in the case of an ISO, if the Committee
in its discretion causes the Agreement so to provide
and, in the case of a NQSO, if the Committee in its
discretion so determines at or prior to the time of
exercise, in Common Shares previously acquired by the
Awardee, provided that if such shares were acquired
through the exercise of an ISO and are used to pay
the Option exercise price of an ISO, such shares have
been held by the Awardee for a period of not less
than the holding period described in section
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422(a)(1) of the Code on the date of exercise, or if
such Common Shares were acquired through exercise of
an NQSO or of an option under a similar plan or
through exercise of an ISO and are used to pay the
Option exercise price of an NQSO, such shares have
been held by the Awardee for a period of more than 12
months on the date of exercise; or
(iii) in the discretion of the Committee, in
any combination of (i) and (ii) above.
In the event such Option exercise price is paid, in
whole or in part, with Common Shares, the portion of the
Option exercise price so paid shall equal the Fair Market
Value on the date of exercise of the Option of the Common
Shares surrendered in payment of such Option exercise price.
(5) RIGHTS AS A SHAREHOLDER. An Awardee shall have no rights
as a shareholder with respect to any shares covered by his or her
Option until the issuance of a stock certificate to him or her for such
shares.
(6) TEN PERCENT SHAREHOLDER. If an Awardee owns more than 10%
of the total combined voting power of all shares of stock of the
Company or of a Subsidiary or Parent at the time an ISO is granted to
such Awardee, the Option exercise price for the ISO shall be not less
than 110% of the Fair Market Value of the optioned Common Shares on the
date the ISO is granted, and such ISO, by its terms, shall not be
exercisable after the expiration of five years after the date the ISO
is granted. The conditions set forth in this Subsection (6) shall not
apply to NQSOs.
(c) PERFORMANCE SHARES. The Committee may from time to time cause the
Company to grant pursuant to the Plan Awards of Common Shares to Employees,
subject to such restrictions, conditions and other terms as the Committee may
determine ("Performance Shares").
(1) RESTRICTIONS. At the time a grant of Performance Shares is
made, the Committee shall establish a period of time (the "Restricted
Period") applicable to such Performance Shares. Each grant of
Performance Shares may be subject to a different Restricted Period. The
Committee may, at the time a grant is made, prescribe restrictions in
addition to the expiration of the Restricted Period, including the
performance of corporate and/or individual performance objectives,
which shall be applicable to all or any portion of the Performance
Shares. Performance objectives may be based on achieving a certain
level of total revenue, earnings, earnings per share or return on
equity of the Company and its Subsidiaries and Affiliates, or on the
extent of changes in such criteria. None of the Performance Shares may
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be sold, transferred, assigned, pledged or otherwise encumbered or
transferred during the Restricted Period or prior to the satisfaction
of any other restrictions prescribed by the Committee with respect to
such Performance Shares.
(2) CERTIFICATES. The Company shall issue, in the name of each
Awardee to whom Performance Shares have been granted, certificates
representing the total number of Performance Shares granted to the
Awardee, as soon as reasonably practicable after the grant. The
Company, at the direction of the Committee, shall hold such
certificates, properly endorsed for transfer, for the recipient's
benefit until such time as the Performance Shares are forfeited to the
Company or the restrictions lapse. Each such certificate shall bear the
following legend, in addition to such other legends as counsel to the
Corporation may require:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND
OTHER RESTRICTIONS UNDER THE MIM CORPORATION 1996 STOCK INCENTIVE PLAN,
AS AMENDED AND RESTATED EFFECTIVE MARCH 1, 1999, AND UNDER A
PERFORMANCE SHARES AGREEMENT WITH THE CORPORATION. NO INTEREST IN THE
SHARES REPRESENTED HEREBY MAY BE TRANSFERRED EXCEPT IN COMPLIANCE WITH
THE PROVISIONS OF SUCH PLAN AND AGREEMENT.
(3) RIGHTS OF AWARDEE. Holders of Performance Shares shall
have the right to vote such Performance Shares and the right to receive
any distributions of regular cash dividends with respect to such
shares, provided that all distributions made with respect to
Performance Shares as a result of any split, distribution or
combination of Performance Shares or other similar transaction shall be
subject to the restrictions of this Subsection 6(c).
(4) FORFEITURE. Subject to the provisions of Section 8,
Performance Shares granted pursuant to the Plan shall be forfeited to
the Company if the Awardee terminates Employment with the Company or
its Subsidiaries or Affiliates prior to the expiration or termination
of the Restricted Period and/or the satisfaction of any other
conditions applicable to such Performance Shares. Upon such forfeiture,
the Performance Shares that are forfeited shall be available for
subsequent Awards under the Plan.
(5) DELIVERY OF PERFORMANCE SHARES. Upon the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee, the restrictions applicable to
the Performance Shares shall lapse and a certificate for the number of
Common Shares with respect to which the restrictions have lapsed shall
be delivered, free of all such restrictions, to the Awardee.
(d) PERFORMANCE UNITS. The Committee may from time to time grant Awards
to Employees under the Plan representing the right to receive in cash an amount
determined by reference to certain performance measurements, subject to such
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restrictions, conditions and other terms as the Committee may determine
("Performance Units").
(1) AWARDS. The Agreement covering Performance Units shall
specify Performance Objectives (as defined in Subsection 6(d)(2), a
Performance Period (as defined in Subsection 6(d)(3)) and a value for
each Performance Unit or a formula for determining the value of each
Performance Unit at the time of payment (the "Ending Value").
Performance Units granted to an Awardee shall be credited to an account
(a "Performance Unit Account") established and maintained for such
Awardee.
(2) PERFORMANCE OBJECTIVES. With respect to each Award of
Performance Units, the Committee shall specify performance objectives,
including corporate and/or individual performance objectives, which
must be satisfied in order for the Awardee to be entitled to payment
with respect to such Performance Units ("Performance Objectives").
Performance Objectives may be based on achieving a certain level of
total revenue, earnings, earnings per share or return on equity of the
Company and its Subsidiaries and Affiliates, or on the extent of
changes in such criteria. Different Performance Objectives may be
established for different Awards of Performance Units, and an Awardee
may be granted more than one Award of Performance Units at the same
time.
(3) PERFORMANCE PERIOD. The Committee shall determine a period
of time (the "Performance Period") during which the Performance
Objectives must be satisfied in order for the Awardee to be entitled to
payment of Performance Units granted to such Awardee. Different
Performance Periods may be established for different Awards of
Performance Units. Performance Periods may run consecutively or
concurrently.
(4) PAYMENT FOR PERFORMANCE UNITS. As soon as practicable
following the end of a Performance Period, the Committee shall
determine whether the Performance Objectives for the Performance Period
have been achieved. As soon as reasonably practicable after such
determination, or at such later date or in such installments as the
Committee shall determine at the time of grant, the Company shall pay
to the Awardee an amount equal to the Ending Value of each Performance
Unit as to which the Performance Objectives have been satisfied ;
PROVIDED, HOWEVER, that in no event shall an Awardee receive an amount
in excess of $1,000,000 in respect of Performance Units for any given
year; PROVIDED, further, that any amount earned by an Awardee in any
given year in excess of $1,000,000 shall be deferred and paid in any
subsequent year during which the deferred amount may be paid in
accordance with the provisions of this subsection.
(e) TERMINATION OF EMPLOYMENT. If an Awardee's employment as an
Employee or with the Company and Subsidiaries and, except in the case of ISOs,
other Affiliates ("Employment") is terminated for any reason, any Award granted
to such Awardee and outstanding at the date of termination shall be exercisable,
-9-
vested or payable on and after such date only to the extent and at the times
specified in the applicable Agreement, provided that, in the case of an ISO,
such Agreement shall comply with the requirements of section 422 of the Code.
(f) AGREEMENTS. Awards granted under the Plan shall be evidenced by
written documents ("Agreements") in such form as the Committee shall, from time
to time, approve, which Agreements shall contain such provisions, not
inconsistent with the provisions of the Plan and, in the case of an ISO, section
422(b) of the Code, as the Committee shall deem advisable, and which Agreements,
in the case of any Option, shall specify whether an Option is an ISO or NQSO;
provided, however, if an Option is not designated in the Agreement as an ISO or
NQSO, the Option shall constitute an ISO if it complies with the terms of
section 422 of the Code, and otherwise, it shall constitute an NQSO. Each
Awardee shall enter into, and be bound by, the terms of the Agreement.
SECTION 7 - CAPITAL ADJUSTMENTS
The number of shares which may be issued under the Plan as stated in
Section 4 hereof, and the number of shares issuable upon exercise of outstanding
Stock Awards under the Plan (as well as the Option exercise price per share
under outstanding Options) shall, subject to the provisions of section 424(a) of
the Code, be adjusted, as may be deemed appropriate by the Committee, to reflect
any stock dividend, stock split, share combination, or similar change in the
capitalization of the Company.
In the event of a corporate transaction as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder (a
"Corporate Transaction") (as, for example, a merger, consolidation, acquisition
of property or stock, separation, reorganization, or liquidation), each
outstanding Award shall be assumed by the surviving or successor corporation;
provided, however, that, in the event of a proposed Corporate Transaction, the
Committee may terminate all or a portion of the outstanding Awards if it
determines that such termination is in the best interests of the Company. If the
Committee decides to terminate outstanding Awards, the Committee shall give each
Awardee holding an Option to be terminated not less than ten days' notice prior
to any such termination by reason of such a Corporate Transaction, and any such
Option which is to be so terminated may be exercised (if and only to the extent
that it is then exercisable) up to and including the date immediately preceding
such termination. Further, as provided in Section 6(b)(4)(A)(ii) hereof, the
Committee, in its discretion, may accelerate, in whole or in part, the date on
which any or all Options become exercisable.
The Committee also may, in its discretion, change the terms of any
outstanding Option to reflect any such Corporate Transaction, provided that, in
the case of ISOs, such change is excluded from the definition of a
"modification" under section 424(h) of the Code.
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SECTION 8 - CHANGE IN CONTROL
Subject to the term and other provisions of the applicable Agreement,
all of an Awardee's Awards shall become fully exercisable (in the case of
Options), vested (in the case of Performance Shares) and payable (in the case of
Performance Units, at the maximum Ending Value provided in the applicable
Agreement (subject to the limitation contained in Subsection 6(d)(4))) in the
event that (a) a Change in Control of the Company occurs after June 30, 1996 and
(b) such Awardee's Employment is terminated under circumstances specified in the
applicable Agreement within one year following such Change in Control. A "Change
in Control" shall be deemed to have taken place only upon the occurrence of one
or more of the following: (i) a "person" or "group" within the meaning of
sections 13(d) and 14(d) of the Securities and Exchange Act of 1934 (the
"Exchange Act") other than the Executives, becomes the "beneficial owner"
(within the meaning of Rule l3d-3 under the Exchange Act) of securities of the
Company (including options, warrants, rights and convertible and exchangeable
securities) representing 30% or more of the combined voting power of the
Company's then outstanding securities in any one or more transactions unless
approved by at least two-thirds of the Board of Directors then serving at that
time; provided, however, that purchases by employee benefit plans of the Company
and by the Company or its Affiliates shall be disregarded; or (ii) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the operating assets of the
Company; or (iii) a merger or consolidation, or a transaction having a similar
effect, where (A) the Company is not the surviving corporation, (B) the majority
of the common stock of the Company is no longer held by the stockholders of the
Company immediately prior to the transaction, or (C) the Company's common stock
is converted into cash, securities or other property (other than the common
stock of a company into which the Company is merged), unless such merger,
consolidation or similar transaction is with a subsidiary of the Company or with
another company, a majority of whose outstanding capital stock is owned by the
same persons or entities who own a majority of the Company's common stock at
such time; or (iv) at any annual or special meeting of stockholders of the
Company at which a quorum is present (or any adjournments or postponements
thereof), or by written consent in lieu thereof, directors (each a "New
Director" and collectively the "New Directors") then constituting a majority of
the Company's Board of Directors shall be duly elected to serve as New Directors
and such New Directors shall have been elected by stockholders of the Company
who shall be an (I) "Adverse Person(s)"; (II) "Acquiring Person(s)"; or (III)
"40% Person(s)" (as each of the terms set forth in (I), (II), and (III) hereof
are defined in that certain Rights Agreement, dated November 24, 1998, between
the Company and American Stock Transfer & Trust Company, as Rights Agent). The
Company shall give appropriate advance notice to all Awardees of Options under
the Plan of a pending Change in Control so as to permit such Awardees the
opportunity to exercise such Options prior to the Change in Control.
SECTION 9 - AMENDMENT OR DISCONTINUANCE OF THE PLAN
At any time and from time to time, the Board may suspend or terminate
the Plan or amend it, and the Committee may amend any outstanding Award, in any
respect whatsoever, except that the following amendments shall require the
approval by the affirmative votes of holders of at least a majority of the
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shares present, or represented, and entitled to vote at a duly held meeting of
stockholders of the Company:
(a) with respect to ISOs, any amendment which would:
(1) change the class of employees eligible to participate in
the Plan;
(2) except as permitted under Section 7 hereof, increase the
maximum number of Common Shares with respect to which ISOs may be
granted under the Plan; or
(3) extend the duration of the Plan under Section 10 hereof
with respect to any ISOs granted hereunder; and
(b) any amendment which would require shareholder approval pursuant to
Treas. Reg. ss. 1.162-27(e)(4), or any successor thereto.
The foregoing notwithstanding, no such suspension, discontinuance or
amendment shall materially impair the rights of any holder of an outstanding
Award without the consent of such holder.
SECTION 10 - TERMINATION OF PLAN
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on May
22, 2006, which date is the day immediately prior to 10 years after the date the
Plan was adopted by the Board, and no Awards hereunder shall be granted
thereafter. Nothing contained in this Section 10, however, shall terminate or
affect the continued existence of rights created under Awards issued hereunder
and outstanding on May 22, 2006 which by their terms extend beyond such date.
SECTION 11 - STOCKHOLDER APPROVAL
This Plan became effective on May 23, 1996.
SECTION 12 - MISCELLANEOUS
(a) GOVERNING LAW. The Plan, and the Agreements entered into, and the
Awards granted thereunder, shall be governed by the applicable Code provisions.
Otherwise, the operation of, and the rights of Awardees under, the Plan, the
Agreements, and the Awards shall be governed by applicable federal law and
otherwise by the laws of the State of Delaware.
(b) RIGHTS. Neither the adoption of the Plan nor any action of the
Board or the Committee shall be deemed to give any individual any right to be
granted an Award, or any other right hereunder, unless and until the Committee
shall have granted such individual an Award, and then his or her rights shall be
only such as are provided by the Plan and the Award Agreement.
-12-
Any Stock Award under the Plan shall not entitle the holder thereof to
any rights as a shareholder of the Company prior to the issuance of the shares
pursuant thereto. Further, no provision of the Plan or any Agreement with an
Awardee shall limit the Company's right, in its discretion, to retire such
person at any time pursuant to its retirement rules or otherwise to terminate
his or her Employment at any time for any reason whatsoever.
(c) NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall
impose no obligation upon the Awardee to exercise such Option.
(d) NON-TRANSFERABILITY. No Award shall be assignable or transferable
by the Awardee otherwise than by will or by the laws of descent and
distribution, and during the lifetime of such person, any Options shall be
exercisable only by him or her or by his or her guardian or legal
representative. If an Awardee is married at the time of exercise of an Option or
vesting of Performance Shares and if the Awardee so requests at the time of
exercise or vesting, the certificate or certificates issued shall be registered
in the name of the Awardee and the Awardee's spouse, jointly, with right of
survivorship.
(e) WITHHOLDING AND USE OF SHARES TO SATISFY TAX OBLIGATIONS. The
obligation of the Company to deliver Common Shares or pay cash to an Awardee
pursuant to any Award under the Plan shall be subject to applicable federal,
state and local tax withholding requirements.
In connection with an Award in the form of Common Shares subject to the
withholding requirements of applicable federal tax laws, the Committee, in its
discretion (and subject to such withholding rules ("Withholding Rules") as shall
be adopted by the Committee), may permit the Awardee to satisfy the minimum
required federal, state and local withholding tax, in whole or in part, by
electing to have the Company withhold (or by returning to the Company) Common
Shares, which shares shall be valued, for this purpose, at their Fair Market
Value on the date of exercise of the Option or vesting of Performance Shares (or
if later, the date on which the Awardee recognizes ordinary income with respect
to such exercise or vesting) (the "Determination Date"). An election to use
Common Shares to satisfy tax withholding requirements must be made in compliance
with and subject to the Withholding Rules. The Company may not withhold shares
in excess of the number necessary to satisfy the minimum required federal, state
and local income tax withholding requirements. In the event Common Shares
acquired under the exercise of an ISO are used to satisfy such withholding
requirement, such Common Shares must have been held by the Awardee for a period
of not less than the holding period described in section 422(a)(1) of the Code
on the Determination Date, or if such Common Shares were acquired through
exercise of an NQSO or of an option under a similar plan, such option must have
been granted to the Awardee at least six months prior to the Determination Date.
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(f) LISTING AND REGISTRATION OF SHARES. Each Stock Award shall be
subject to the requirement that, if at any time the Committee shall determine,
in its discretion, that the listing, registration or qualification of the shares
covered thereby upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such Award
or the purchase or vesting of shares thereunder, or that action by the Company
or by the Awardee should be taken in order to obtain an exemption from any such
requirement, no such Stock Award may be exercised, in whole or in part, unless
and until such listing, registration, qualification, consent, approval, or
action shall have been effected, obtained, or taken under conditions acceptable
to the Committee. Without limiting the generality of the foregoing, each Awardee
or his or her legal representative or beneficiary may also be required to give
satisfactory assurance that shares acquired pursuant to a Stock Award are being
purchased for investment and not with a view to distribution, and certificates
representing such shares may be legended accordingly.
***
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Appendix IV
MIM CORPORATION
1996 NON-EMPLOYEE DIRECTORS
STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED
EFFECTIVE MARCH 1, 1999
TABLE OF CONTENTS
Page
----
SECTION 1 Purpose..................................................... 3
SECTION 2 Administration.............................................. 3
SECTION 3 Eligibility................................................. 4
SECTION 4 Stock....................................................... 5
SECTION 5 Granting of Options......................................... 5
SECTION 6 Terms and Conditions of Options............................. 5
SECTION 7 Option Agreements - Other Provisions........................ 9
SECTION 8 Capital Adjustments......................................... 9
SECTION 9 Amendment or Discontinuance of the Plan..................... 10
SECTION 10 Termination of Plan......................................... 11
SECTION 11 Shareholder Approval........................................ 11
SECTION 12 Miscellaneous............................................... 11
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MIM CORPORATION
1996 NON-EMPLOYEE DIRECTORS
STOCK INCENTIVE PLAN
SECTION 1
PURPOSE
This MIM CORPORATION 1996 NON-EMPLOYEE DIRECTORS STOCK INCENTIVE PLAN
("Plan") is intended to provide a means whereby MIM Corporation, a Delaware
corporation (the "Company"), may, through the grant of non-qualified stock
options ("Options") to purchase common stock of the Company ("Common Stock") to
Non-Employee Directors (as defined in Section 3), attract and retain capable
independent directors and motivate such independent directors to promote the
best interests of the Company and of any Related Corporation.
For purposes of the Plan, a Related Corporation of the Company shall
mean either a corporate subsidiary of the Company, as defined in section 424(f)
of the Internal Revenue Code of 1986, as amended ("Code"), or the corporate
parent of the Company, as defined in section 424(e) of the Code. Further, as
used in the Plan, the term "non-qualified stock option" shall mean an option
which, at the time such option is granted, does not qualify as an incentive
stock option within the meaning of section 422 of the Code.
SECTION 2
ADMINISTRATION
The Plan shall be administered by the Company's Compensation Committee
("Committee"), which shall consist of not less than two (2) directors of the
Company who shall be appointed by, and shall serve at the pleasure of, the
Company's Board of Directors ("Board"). Each member of such Committee, while
serving as such, shall be deemed to be acting in his or her capacity as a
director of the Company.
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The Committee shall have full authority, subject to the terms of the
Plan, to interpret the Plan, but shall have no discretion with respect to the
selection of Non-Employee Directors to receive Options, the number of shares of
Common Stock subject to the Plan, setting the purchase price for shares of
Common Stock subject to an Option at other than fair market value, the method or
methods for determining the amount of Options to be granted to each Non-Employee
Director, the timing of grants hereunder or with respect to any other matter
which would cause this Plan to fail to comply with Rule 16b-3(c)(2)(ii) under
the Securities Exchange Act of 1934. Subject to the foregoing, the Committee may
correct any defect, supply any omission and reconcile any inconsistency in this
Plan and in any Option granted hereunder in the manner and to the extent it
shall deem desirable. The Committee also shall have the authority to establish
such rules and regulations, not inconsistent with the provisions of the Plan,
for the proper administration of the Plan, and to amend, modify or rescind any
such rules and regulations, and to make such determinations and interpretations
under, or in connection with, the Plan, as it deems necessary or advisable. All
such rules, regulations, determinations and interpretations shall be binding and
conclusive upon the Company, its shareholders and all Non-Employee Directors
(including former Non-Employee Directors), and upon their respective legal
representa tives, beneficiaries, successors and assigns and upon all other
persons claiming under or through any of them.
No member of the Board or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Option
granted under it.
SECTION 3
ELIGIBILITY
The persons who shall be eligible to receive Options under the Plan
shall be those directors of the Company (the "Non-Employee Directors") who:
(a) are not employees of the Company or any Related Corporation,
(b) have not been employees of the Company or any Related Corporation
during the immediately preceding 12-month period, and
(c) are initially elected to the Board of Directors on or after the
date of the Plan's adoption by the Board of Directors (the "Effective Date").
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SECTION 4
STOCK
Options may be granted under the Plan to purchase up to a maximum of
three hundred thousand (300,000) shares of the Company's Common Stock, par value
$ 0.0001 per share, subject to adjustment as hereinafter provided. Shares
issuable under the Plan may be authorized but unissued shares or reacquired
shares, and the Company may purchase shares required for this purpose, from time
to time, if it deems such purchase to be advisable.
If any Option granted under the Plan expires or otherwise terminates,
in whole or in part, for any reason whatever (including, without limitation, the
Non-Employee Director's surrender thereof) without having been exercised, the
shares subject to the unexercised portion of such Option shall continue to be
available for the granting of Options under the Plan as fully as if such shares
had never been subject to an Option.
SECTION 5
GRANTING OF OPTIONS
An option to purchase 20,000 shares of Common Stock (as
adjusted pursuant to Section 8) automatically shall be granted to any person on
the date he or she first becomes a Non-Employee Director, whether by reason of
his or her election by stockholders or appointment by the Board to be a
director, or, if applicable, the expiration of the 12-month period specified in
Section 3(b) with respect to a present or future director who had previously
been an employee of the Company or any Related Corporation; provided, that if a
Non-Employee Director who previously received a grant of an Option under this
Section 5 terminates service as a director and is subsequently elected or
appointed to the Board again, such director shall not be eligible to receive a
second grant of Options under the Plan.
SECTION 6
TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall include expressly or by
reference the following terms and conditions:
(a) NUMBER OF SHARES. A statement of the number of shares to which
the Option pertains.
(b) PRICE. A statement of the Option price which shall be
determined as follows:
(1) with respect to any Option granted on or prior to the
effective date of the Company's initial public offering, if any, the
exercise price shall be the initial public offering price set forth on
the cover page of the prospectus included within the registration
statement for such Offering as of the date it is declared effective
with the Securities and Exchange Commission PROVIDED THAT such offering
is declared effective within ninety days after the grant date of such
Option; otherwise, the exercise price shall be the fair market value of
the optioned shares of Common Stock as determined as of the date of
grant in accordance with Section 6(b)(2)(iv) hereinbelow; and
(2) with respect to any Option granted after the effective
date of the Company's initial public offering, if any, the exercise
price shall be the fair market value of the optioned shares of Common
Stock, which shall be:
(i) the mean between the highest and lowest quoted
selling price, if there is a market for the Common Stock on a
registered securities exchange or in an over the counter
market, on the date of grant;
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(ii) the weighted average of the means between the
highest and lowest sales on the nearest date before and the
nearest date after the date of grant, if there are no sales on
the date of grant but there are sales on dates within a
reasonable period both before and after the date of grant;
(iii) the mean between the bid and asked prices, as
reported by the National Quotation Bureau on the date of
grant, if actual sales are not available during a reasonable
period beginning before and ending after the date of grant; or
(iv) if Sections 6(b)(2)(i) through (iii) are
inapplicable, such other method of determining fair market
value as shall be authorized by the Code, or the rules or
regulations thereunder, and adopted by the Committee.
Where the fair market value of the optioned shares of Common Stock is
determined under Section 6(b)(2)(ii) above, the average of the means
between the highest and lowest sales on the nearest date before and the
nearest date after the date of grant is to be weighted inversely by the
respective numbers of trading days between the selling dates and the
date of grant (I.E., the valuation date), in accordance with Treas.
Reg. ? 20.2031-2(b)(1).
(c) TERM. Subject to earlier termination as provided in Section 8
hereof, the term of each Option shall be ten (10) years from the date of grant.
(d) EXERCISE. Each Option shall become initially exercisable in
the following amounts and upon the following dates provided that the
Non-Employee Director has served continuously as a director of the Company from
the date of grant to and including each such initial exercise date: (i) as to
6,667 shares, on the first anniversary date of the date of grant; (ii) as to an
additional 6,667 shares, on the later of (A) the first anniversary date of the
grantee's first election to the Board subsequent to the date of grant or (B) the
second anniversary date of the date of grant; and (iii) as to the remaining
6,666 shares, on the later of (A) the first anniversary date of the grantee's
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second election to the Board subsequent to the date of grant or (B) the third
anniversary date of the date of grant. Any Option shares, the right to the
purchase of which has accrued, may be purchased at any time up to the expiration
or termination of the Option. Exercisable Options may be exercised, in whole or
in part, from time to time by giving written notice of exercise to the Company
at its principal office, specifying the number of shares to be purchased and
accompanied by payment in full of the aggregate price for such shares. Only full
shares shall be issued under the Plan, and any fractional share which might
otherwise be issuable upon exercise of an Option granted hereunder shall be
forfeited.
The Option price shall be payable in cash or its equivalent.
(e) EXPIRATION OF TERM OR REMOVAL OF NON-EMPLOYEE DIRECTOR AS
DIRECTOR. If a Non-Employee Director's service as a director with the Company
terminates prior to the expiration date of his or her Option for any reason
(such as, without limitation, failure to be re-elected by the stockholders),
such Option may be exercised by the Non-Employee Director, only to the extent of
the number of shares with respect to which the Non-Employee Director could have
exercised it on the date of such termination of service as a director, at any
time prior to the expiration or other termination of the Option as set forth in
Section 6(c) hereof.
(f) NON-TRANSFERABILITY. No Option shall be assignable or
transferable by the Non-Employee Director otherwise than by will or by the laws
of descent and distribution, and during the lifetime of the Non-Employee
Director, the Option shall be exercisable only by him or her or, in the case of
his or her legal disability, by his or her guardian or legal representative. If
the Non-Employee Director is married at the time of exercise and if the
Non-Employee Director so requests at the time of exercise, the certificate or
certificates shall be registered in the name of the Non-Employee Director and
the Non-Employee Director's spouse, jointly, with right of survivorship. In the
event of the Non-Employee Director's death, the Option may be exercised by the
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Non-Employee Director's estate, personal representative or beneficiary if, when
and to the extent that the Non-Employee Director would have been so entitled
hereunder but for such death after giving effect to all the provisions hereof
including Section 6(e) hereinabove.
(g) RIGHTS AS A SHAREHOLDER. A Non-Employee Director shall have no
rights as a shareholder with respect to any shares covered by his or her Option
until the issuance of a stock certificate to him or her for such shares.
(h) LISTING AND REGISTRATION OF SHARES. Each Option shall be
subject to the requirement that, if at any time the Committee shall determine,
in its discretion, that the listing, registration or qualification of the shares
covered thereby upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such Option
or the purchase of shares thereunder, or that action by the Company or by the
Non-Employee Director should be taken in order to obtain an exemption from any
such requirement, no such Option may be exercised, in whole or in part, unless
and until such listing, registration, qualification, consent, approval, or
action shall have been effected, obtained, or taken under conditions acceptable
to the Committee. Without limiting the generality of the foregoing, each
Non-Employee Director or his or her legal representative or beneficiary may also
be required to give satisfactory assurance that shares purchased upon exercise
of an Option are being purchased for investment and not with a view to
distribution, and certificates representing such shares may be legended
accordingly.
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SECTION 7
OPTION AGREEMENTS - OTHER PROVISIONS
Options granted under the Plan shall be evidenced by written documents
("Option Agreements") in such form as the Committee shall, from time to time,
approve, which Option Agreements shall contain such provisions, not inconsistent
with the provisions of the Plan as the Committee shall deem advisable. Each
Non-Employee Director shall enter into, and be bound by, such Option Agreements.
SECTION 8
CAPITAL ADJUSTMENTS
The number of shares which may be issued under the Plan, as stated in
Section 4 hereof, and the number of shares issuable upon exercise of outstanding
Options under the Plan (as well as the Option price per share under such
outstanding Options), shall, subject to the provisions of section 424(a) of the
Code, be adjusted proportionately to reflect any stock dividend, stock split,
share combination, or similar change in the capitalization of the Company.
In the event of a corporate transaction (as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), and, provision is not made for the
continuance and assumption of Options under the Plan, or the substitution for
such Options of new Options to acquire securities or other property to be
delivered in connection with the transaction, the Committee shall, upon written
notice to the holders of Options, provide that all unexercised Options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization, liquidation, sale or transfer unless exercised (to
the extent then exercisable) by the holder within a specified number of days
(which shall not be less than seven (7) days) following the date of such notice.
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SECTION 9
AMENDMENT OR DISCONTINUANCE OF THE PLAN
(a) GENERAL. The Board from time to time may suspend or
discontinue the Plan or amend it in any respect whatsoever, provided, however,
that an amendment to the Plan shall require shareholder approval (given in the
manner set forth in Section 9(b) below) if such amendment would materially:
(1) increase the benefits accruing to Non-Employee Directors
under the Plan;
(2) increase the number of shares of Common Stock which may
be issued to Non-Employee Directors under the Plan; or
(3) modify the requirements as to eligibility to participate
in the Plan.
The foregoing notwithstanding, no such suspension, discontinuance or
amendment shall materially impair the rights of any holder of an outstanding
Option without the consent of such holder. Further, the provisions of this Plan
establishing the directors eligible to receive Options under this Plan, the
timing of the grants of such Options, the purchase price for shares subject to
Options, the number of Shares covered by each Option, the method or methods for
determining the amount of Options to be granted to each Non-Employee Director,
and any other provision of the Plan which, if amended more than once every six
months, would cause the Plan to fail to comply with Rule 16b-3(c)(2)(ii)(B)
under the Securities Exchange Act of 1934, shall not be amended more than once
every six months.
(b) SHAREHOLDER APPROVAL REQUIREMENTS. Shareholder approval must
be by either:
(1) the written consent of the holders of a majority of the
outstanding shares of Common Stock complying with the requirements of
the certificate of incorporation and bylaws of the Company and of the
applicable provisions of the Delaware General Corporation Law; or
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(2) a majority of the outstanding shares of Common Stock
present, or represented, and entitled to vote at a meeting duly held in
accordance with the requirements of the certificate of incorporation
and bylaws of the Company and of the applicable provisions of the
Delaware General Corporation Law.
SECTION 10
TERMINATION OF PLAN
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on day
immediately prior to the tenth anniversary of the date of the Plan's adoption by
the Board, and no Options hereunder shall be granted thereafter. Nothing
contained in this Section 10, however, shall terminate or affect the continued
existence of rights created under Options issued hereunder and outstanding on
said Plan termination date, which by their terms extend beyond such date.
SECTION 11
SHAREHOLDER APPROVAL
The Effective Date of this Plan shall be the date of the Plan's
adoption by the Board; provided, however, that if the Plan is not approved by
the shareholders in the manner described in Section 9(b), within twelve (12)
months after said date, the Plan and all Options granted hereunder shall be null
and void.
SECTION 12
MISCELLANEOUS
(a) GOVERNING LAW. The operation of, and the rights of
Non-Employee Directors under, the Plan, the Option Agreements and any Options
granted hereunder shall be governed by applicable Federal law, and otherwise by
the laws of the State of Delaware.
(b) RIGHTS. Neither the adoption of the Plan nor any action of the
Board or the Committee shall be deemed to give any individual any right to be
granted an Option, or any other right hereunder, unless and until the Committee
shall have granted such individual an Option, and then his or her rights shall
be only such as are provided by the Option Agreement.
Any Option under the Plan shall not entitle the holder thereof to any
rights as a shareholder of the Company prior to the exercise of such Option and
the issuance of the shares pursuant thereto. Further, any provisions of the Plan
or the Option Agreement with a Non-Employee Director notwithstanding, the
granting of an Option to a Non-Employee Director shall not entitle that
Non-Employee Director to continue to serve as a director of the Company or a
Related Corporation or affect the terms and conditions of such service.
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(c) INDEMNIFICATION OF BOARD AND COMMITTEE. Without limiting any
other rights of indemnification which they may have from the Company and any
SRelated Corporation, the members of the Board and the members of the Committee
shall be indemnified by the Company against all costs and expenses reasonably
incurred by them in connection with any claim, action, suit, or proceeding to
which they or any of them may be a party by reason of any action taken or
failure to act under, or in connection with, the Plan, or any Option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit, or proceeding,
except a judgment based upon a finding of willful misconduct or recklessness on
their part. Upon the making or institution of any such claim, action, suit, or
proceeding, the Board or Committee member shall notify the Company in writing,
giving the Company an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on his or her
own behalf.
(d) APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Common Stock pursuant to Options granted under the Plan shall
be used for general corporate purposes. Any cash received in payment for shares
upon exercise of an Option to purchase Common Stock shall be added to the
general funds of the Company and shall be used for its corporate purposes.
(e) NO OBLIGATION TO EXERCISE OPTION. The granting of an Option
shall impose no obligation upon a Non-Employee Director to exercise such Option.
* * *
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MIM CORPORATION
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 19, 1999
The undersigned stockholder of MIM CORPORATION, a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated July 2, 1999, and hereby revokes all
prior proxies and appoints Richard H. Friedman, Scott R. Yablon and Barry A.
Posner, and each of them, proxies and attorneys-in-fact, with full power to each
of substitution and resubstitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1999 Annual Meeting of
Stockholders of the Company to be held on August 19, 1999, at 2:00 p.m., local
time, at Trumbull Marriott Merritt Parkway, 180 Hawley Lane, Trumbull,
Connecticut 06611 and at any adjournment or postponement thereof, and to vote
all shares of Common Stock of the Company which the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
on the reverse side.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR IF NO
CONTRARY DIRECTION IS INDICATED WILL BE VOTED FOR EACH OF THE PROPOSALS ON THE
REVERSE SIDE HEREOF AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING AS SAID PROXIES DEEM ADVISABLE.
[IMPORTANT - TO BE MARKED, SIGNED AND DATED ON REVERSE SIDE]
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN BLUE OR BLACK INK
PROPOSAL 1 Election of directors. Nominees: Richard H. Friedman, Scott R. Yablon, Dr. Louis A. Luzzi,
Richard A. Cirillo, Dr. Louis DiFazio, and Michael Kooper
------------------------------------------
For [ ] Withheld [ ] [ ] For all nominees except as noted above
PROPOSAL 2 Proposal to amend the Company's Restated Certificate of Incorporation to establish a
classified Board of Directors.
For [ ] Against [ ] Abstain [ ]
PROPOSAL 3 Proposal to approve certain compensation provisions of the Employment Agreement with the
Company's Chairman and Chief Executive Officer, and to approve the related Option Plan and
Agreement.
For [ ] Against [ ] Abstain [ ]
PROPOSAL 4 Proposal to amend the Company's Amended and Restated 1996 Stock Incentive Plan in order to
add performance shares and performance units as securities subject to grant by the Company to
employees under such Plan, to make available under the Plan an additional 825,450 shares of
Common Stock, and to make certain other related technical changes to the Plan.
For [ ] Against [ ] Abstain [ ]
PROPOSAL 5 Proposal to amend the Company's 1999 Non-Employee Directors Stock Incentive Plan to make
available under the Plan an additional 200,000 shares of Common Stock.
For [ ] Against [ ] Abstain [ ]
IN THE DISCRETION OF THE PROXIES UPON SUCH OTHER MATTER OR MATTERS WHICH MAY
PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
(This proxy should be marked, dated and signed by the stockholder(s) exactly as
such stockholder's name appears hereon and returned promptly in the enclosed
envelope. If shares are held by joint tenants or as community property, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership or
limited liability company, please sign in name of partnership or limited
liability company by authorized person.)
Signature: ________________________________
Date: ________________________________
Signature: ________________________________
Date: ________________________________
[ ] Mark here for address change and note