SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-12
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PALLET MANAGEMENT SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of the transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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PALLET MANAGEMENT SYSTEMS, INC.
2855 UNIVERSITY DRIVE, SUITE 510
CORAL SPRINGS, FLORIDA 33065
(954) 340-1290
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 2002
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Pallet Management Systems, Inc., a Florida corporation (the "Company"), will be
held on Monday, May 13, 2002, beginning at 1:00 P.M., Eastern Daylight Time, at
the Company's corporate headquarters located at 2855 University Drive, Suite
510, Coral Springs, Florida 33065, for the following purposes, all of which are
set forth more completely in the accompanying proxy statement:
1. To elect a total of seven persons to the Board of Directors for
one-year terms;
2. To amend the Company's 1998 Omnibus Stock Incentive Plan;
3. To ratify the selection of Kaufman, Rossin & Co. as the Company's
independent auditor for the fiscal year ending June 29, 2002; and
4. To transact such other business as may properly come before the
meeting.
Pursuant to the Company's Bylaws, the Board of Directors has fixed the
close of business on April 8, 2002, as the record date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting.
A FORM OF PROXY AND THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30,
2001, IS ENCLOSED. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH
DOES NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
Ronald Shindler, Chairman of the Board
Coral Springs, Florida
April 19, 2002
PALLET MANAGEMENT SYSTEMS, INC.
2855 UNIVERSITY DRIVE, SUITE 510
CORAL SPRINGS, FLORIDA 33065
(954) 340-1290
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PROXY STATEMENT
----------------------------
The enclosed proxy is solicited by the Board of Directors (the "Board")
of Pallet Management Systems, Inc., a Florida corporation (the "Company"), for
use at the Annual Meeting of Shareholders to be held on Monday, May 13, 2002,
beginning at 1:00 P.M., Eastern Daylight Time, at the Company's corporate
headquarters located at 2855 University Drive, Suite 510, Coral Springs, Florida
33065 (the "Meeting"). The approximate date on which this statement and the
enclosed proxy will first be sent to Shareholders is April 19, 2002. The form of
proxy provides a space for you to withhold your vote for any proposal. You are
urged to indicate your vote on each matter in the space provided. If no space is
marked, then the proxy will be voted by the persons therein named at the
meeting: (1) for the election of seven Directors to serve one-year terms; (2) to
amend the Company's 1998 Omnibus Stock Incentive Plan; (3) for the ratification
of the selection of Kaufman, Rossin & Co. as the Company's independent auditors;
and (4) in their discretion, upon such other business as may properly come
before the meeting. Whether or not you plan to attend the meeting, please fill
in, sign and return your proxy card in the enclosed envelope. The cost of proxy
solicitation by the Board will be borne by the Company. In addition to
solicitation by mail, directors, officers and employees of the Company may
solicit proxies personally and by telephone and telegraph, all without extra
compensation.
At the close of business on April 8, 2002, the record date for the
meeting (the "Record Date"), the Company had outstanding 4,187,612 shares of
common stock, $.01 par value per share (the "Common Stock"). Each share of
Common Stock entitles the holder thereof on the record date to one vote on each
matter submitted to a vote of Shareholders. Only holders of the Common Stock of
record at the close of business on April 8, 2002, are entitled to notice of and
to vote at the Meeting. If there are not sufficient votes for approval of any of
the matters to be voted upon at the Meeting, then the Meeting may be adjourned
in order to permit further solicitation of proxies. The quorum necessary to
conduct business at the Meeting consists of a majority of the outstanding shares
of Common Stock. The election of Directors will be by a plurality of votes cast,
either in person or by proxy, at the Meeting. The approval of the proposals
covered by this Proxy Statement, other than the election of Directors, will
require an affirmative vote of the holders of a majority of the shares of Common
Stock of the Company voting in person or by proxy at the Meeting.
A STOCKHOLDER WHO SUBMITS A PROXY ON THE ACCOMPANYING FORM HAS THE POWER TO
REVOKE IT AT ANY TIME PRIOR TO ITS USE BY DELIVERING A WRITTEN NOTICE TO THE
SECRETARY OF THE COMPANY, BY EXECUTING A LATER-DATED PROXY, OR BY ATTENDING THE
MEETING AND VOTING IN PERSON. UNLESS AUTHORITY IS WITHHELD, PROXIES THAT ARE
PROPERLY EXECUTED WILL BE VOTED FOR THE PURPOSES SET FORTH THEREON.
MANAGEMENT
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DIRECTORS AND EXECUTIVE OFFICERS
The Company currently has nine Directors serving on its Board. The
Directors and Executive Officers of the Company are as follows:
Name Age Position
-------------------------- -------- --------------------------------------------
Robert L. Steiler 54 Interim Executive Leader and Director
John C. Lucy, III 43 Chief Executive Officer
Marc S. Steinberg 39 Chief Financial Officer and Vice President
Philip D. Feltman (1) 81 Director
Ira M. Goldberg 46 Director
Michael D. Karsch 41 Director
Richard J. Katz 70 Director
Zachary M. Richardson (1) 47 Director
Daniel M. Schultz (1) 37 Director
Ronald Shindler 54 Chairman of the Board
Alan P. Sklar 63 Director
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(1) Messrs. Philip D. Feltman, Zachary M. Richardson and Daniel M. Schultz will
not be standing for re-election as Directors of the Company in fiscal 2002.
ROBERT L. STEILER was elected as the Interim Executive Leader of the
Company on March 15, 2002, and has been a Director of the Company since April
2000. He has been a principal of Lewis Management Group, a consulting firm
specializing in business strategy, business development, manufacturing
operations and logistics, since its founding in 1990. Mr. Steiler's firm has
served as a manufacturing consultant to the Company since his election to the
Board. See "Certain Relationships and Related Transactions." Prior to founding
the Lewis Management Group, Mr. Steiler was associated with KPMG Peat Marwick
from 1988 to 1990. Earlier in his career he was Vice President of Materials with
Stone Management Corporation, a large consumer goods company, where he directed
the material management functions and a highly sophisticated computer-controlled
picking and storage system. He was also Vice President of Materials for
SmithKline Beecham, a Fortune 100 pharmaceutical company. Mr. Steiler graduated
from St. John's University with an MBA in Management.
2
JOHN C. LUCY, III, has served as Chief Executive Officer of the Company
since 1995. In addition to being CEO of the Company, he is President of Clary
Lumber, a hardwood lumber sawmill located in Gaston, North Carolina. (see
"Certain Relationships and Related Transactions"), and is also Vice-President of
Blacksburg Enterprises, Inc., which operates a food service franchise in
Blacksburg, Virginia. From 1995 through 1999, Mr. Lucy served the Company as
both CEO and Chairman of the Board. Mr. Lucy has also been actively involved in
the National Wood Pallet and Container Association (the "NWPCA"), where he
served for two years as Chairman of the Military Packing Task Force, and for
three years as Chairman of the Research Steering Committee. Mr. Lucy graduated
from Virginia Tech with a B.S. degree in Business.
MARC S. STEINBERG joined the Company in July 2000 as its Corporate
Controller and became the Chief Financial Officer and Vice President in January
2002. Mr. Steinberg was also appointed Treasurer and Secretary effective August
2000 and served as Vice President of Finance from May 2001 until January 2002.
Mr. Steinberg has worked in the field of accounting for the past 18 years and
has extensive experience in the manufacturing industry. Prior to joining the
Company, Mr. Steinberg served as the controller for the transportation and
education subsidiaries of TFG Corporation. Prior to that, Mr. Steinberg served
as the controller of RTP Corp. (an electronics equipment manufacturer),
controller for Mederer Corporation (a candy manufacturer), and cost accounting
manager for Sensormatic Electronics Corp. (an electronics equipment
manufacturer). Mr. Steinberg has a CPA license, a CMA license and is certified
in Production and Inventory Management. Mr. Steinberg graduated from the
University of Florida in 1984 with a B.S. degree in Accounting.
PHILIP D. FELTMAN has been a Director of the Company since April 2000.
Mr. Feltman has over 50 years of management experience starting in 1947 when he
established a drug store chain in Manchester, Connecticut. He and several
friends later went on to found Ames Department Stores, which became a major
chain of discount department stores. He left Ames in 1978 to found K & F
Industries, Inc., a foreign auto parts importer. Mr. Feltman went on to
participate in the concept, construction, and development of Villas Tacul, a
resort in Cancun, Mexico, and was part of its management team. In addition, Mr.
Feltman was President of Feltman Enterprises Inc., an investment management
company which wholly owned New Nurses, a medical personnel pool; a director of
Royalpar Inc., a public company; and President of Pequot Spring Water Company.
Currently, Mr. Feltman is an active partner in FW Enterprises, which owns office
buildings and apartments; a principal in Travacon Inc., a full service travel
agency located in West Hartford, Connecticut; and a principal in F & R
Associates, Inc., a builder of high quality homes in the Westbrook area of
Connecticut. With a Bachelor of Science degree from the University of
Connecticut, College of Pharmacy, in 1943 he served in the European Theater of
Operations with the 4th Armored Division, Third Army. Mr. Feltman has also been
involved with many charitable causes for many years.
3
IRA M. GOLDBERG was appointed to the Board in November 2001. Mr.
Goldberg has been involved in the financial services and mortgage lending
business since 1984. Until recently, he served as Regional Vice President for
Countrywide Homes Loans, a Fortune 500 company, which he joined in February
2000. Prior to Countrywide Homes Loans, Mr. Goldberg held executive management
positions in the mortgage banking industry in New York and Florida. Mr. Goldberg
is an active member in the National, Florida and New York Associations of
Mortgage Brokers, where he is frequently called upon as a guest speaker and
educator. Mr. Goldberg received his B.A. degree in Economics and Business from
the State University of New York in New Paltz in 1978.
MICHAEL D. KARSCH was appointed to the Board in November 2001. Mr.
Karsch has been a partner in the Boca Raton, Florida law firm of Sachs, Sax &
Klein, P.A. since November 2001, where he specializes in the practice of
corporate and securities laws. Mr. Karsch has been practicing law since 1985,
including with Skadden, Arps, Slate, Meagher & Flom in New York, Bachner Tally
Poleboy & Misher in New York, and Broad and Cassel in Florida. He also served as
general counsel of MerchantOnline.com, Inc., a provider of e-payment solutions,
from May 2000 to April 2001. MerchantOnline.com, Inc. filed a voluntary Chapter
11 bankruptcy proceeding in October 2001. Mr. Karsch received his B.S. degree in
Economics from the Wharton School of Business, and his law degree from the
University of Pennsylvania Law School.
RICHARD J. KATZ was appointed to the Board in November 2001. Mr. Katz
has over 45 years of experience in marketing, advertising, public relations and
sales. Upon discharge from the United States Air Force in 1955, he went to work
for the Lawrence Fertig Advertising Agency. Three years later, he opened up his
own marketing and advertising agency and expanded it to the Katz, Jacobs and
Douglas Advertising Agency in New York, where he served as its
president/creative director. In 1980, Mr. Katz co-founded RAMS (real estate
advertising, marketing and sales), a provider of multi-services to developers
and builders, including research, market studies, architectural collaboration,
marketing plan financial presentations, advertising, public relations, sales
office design, sales training and on-site sales staffing. During the 1980's,
RAMS grew to 200 employees and was involved in more than two billion dollars of
properties. Mr. Katz has received more than 100 awards for his creative and
marketing accomplishments, including two CLIOS. He also is a past member of the
American Management Association, the Presidents Club and the American Academy of
Consultants. Mr. Katz was also an instructor/lecturer of marketing/advertising
for real estate at the New School for Social Research, an active participant in
public service causes such as the New York Library of Presidential Papers, and
the author of many innovative recommendations designed to benefit first time
home buyers. Mr. Katz is a graduate of Brooklyn College, where he majored in
advertising and marketing. Mr. Katz is the father-in-law of David Davidson, who
controls, as part of a group, 621,729 shares of the Company's Common Stock, or
14.8% of the Company. See "Voting Security Ownership of Certain Beneficial
Owners and Management."
ZACHARY M. RICHARDSON was President of the Company from 1994 until
March 15, 2002. From June 1995, when the Company was acquired by Abell
Industries and controlled by the Lucy family, until July 2000, Mr. Richardson's
areas of responsibility were confined to investor relations and financial
reporting. Beginning July 2000, Mr. Richardson assumed executive responsibility
4
for all departments, except New Business Development, of the Company. Mr.
Richardson has been a Director since May 2001 and was a Director of the Company
from 1994 until April 2000, when he voluntarily resigned from that position. Mr.
Richardson has been involved in the pallet industry since 1991, with over 25
years of management and sales experience. After graduating from Franklin and
Marshall College in 1977, he was commissioned in the United States Navy and
designated a Naval Aviator. On active duty for eight years he maintained his
reserve status in the Navy until his retirement from the reserves in 1997. Mr.
Richardson is an active member of the NWPCA and has served on the association's
Recyclers Council Executive Committee, which deals with national issues related
to pallet recycling.
DANIEL M. SCHULTZ was appointed to the Board in November 2001. Mr.
Schultz is the President of Realty Consultant Network, Inc., a commercial real
estate brokerage and consulting firm in Boca Raton, Florida, which he founded in
1992. Mr. Schultz is also the Chief Marketing Officer and a shareholder of KDMS
International, Inc., a software development company for the online gaming
industry, based in Marietta, Georgia, which Mr. Schultz joined in 1999. From
1987 to 1998, Mr. Schultz was the Vice President - General Manager and part
owner of RDS Venture, Inc., an import-export firm based in Dania, Florida,
concentrating on sales of furniture, accessories and art to the wholesale design
trade.
RONALD D. SHINDLER has been a Director of the Company since April 2000
and became Chairman of the Board in March 2001. He has been a shareholder of
Fowler, White, Burnett, Hurley, Banick & Strickroot, a Miami, Florida law firm,
since 1989. He also served as a Vice President and Senior Counsel for Drexel
Burnham Lambert Incorporated from 1979 to 1987, as well as managed a large
brokerage office. Mr. Shindler's firm serves as one of the Company's outside
counsel. He received his B.A. degree from the University of Pennsylvania, his
law degree from Boston University and a Master of Law in taxation from New York
University. Mr. Shindler specializes in securities law.
ALAN P. SKLAR has been a Director of the Company since August 2000. Mr.
Sklar has been a CPA for 41 years. Mr. Sklar founded the Chicago CPA and
management consulting firm, Gleeson, Sklar, Sawyers & Cumpata LLP in 1967, and
is presently a senior partner in the firm, where he primarily consults with
middle market manufacturers and distributors. Mr. Sklar serves as an advisor to
the board for many of his firm's clients. Mr. Sklar also serves on the board of
directors of several non-profit business related organizations, and is former
president of the International Group of Accounting Firms. Mr. Sklar is a
graduate of Northwestern University.
5
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended June 30, 2001, the Board held nine Board
meetings. The Board has a Compensation Committee and an Audit Committee. The
Compensation Committee met on two occasions during fiscal 2001. The Audit
Committee met on four occasions during fiscal 2001. The Board does not have a
nominating or similar committee. During fiscal 2001, no incumbent director
attended or participated in fewer than 75% of the aggregate of the total number
of meetings held by the Board and the total number of meetings held by any
committee on which such director served.
The Compensation Committee reviews and sets the level for executive
compensation for the ensuing year; reviews and recommends the terms of the
employment agreements for the Company's executives; sets bonuses for the
Company's executives; and determines the number of stock options and the terms
of such options to be awarded to the Company's executives and eligible
employees. Philip D. Feltman, as Chairman, and Robert L. Steiler currently
comprise the Board's Compensation Committee.
The Audit Committee recommends to the Board of Directors the engagement
of independent auditors for the ensuing year; reviews the scope of the annual
audit; reviews with auditors the results of the audit engagement, including
review of the financial statements and the management letter; and reviews the
scope of and compliance with the Company's internal controls. The Audit
Committee has reviewed and discussed the audited financial statements with the
Company's management. In addition, the Audit Committee has discussed with, and
has received from, the Company's independent auditors all matters and written
disclosures contemplated by the rule on Audit Committee Reports implemented by
the Securities and Exchange Commission. Based on the foregoing, the Audit
Committee recommended to the Board that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year 2001
for filing with the United States Securities and Exchange Commission. The Board
has adopted a Written Charter ("Charter") for the Audit Committee. A copy of the
Charter was attached as an appendix to the Company's proxy statement for the
Company's Annual Meeting of Shareholders held on March 1, 2001.
6
Alan P. Sklar, as Chairman, and Ronald Shindler currently comprise the
Board's Audit Committee. Both Messrs. Sklar and Shindler are "independent"
members of the Audit Committee, as independence is defined under Rule
4200(a)(15) of Listing Standards of the National Association of Securities
Dealers, Inc. (the "NASD").
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Securities and Exchange Commission has implemented a rule that
requires companies to disclose in their proxy statements information with
respect to reports that are required to be filed pursuant to Section 16 of the
Securities Exchange Act of 1934, as amended, by directors, officers and 10%
shareholders of each company, if any of those reports are not filed timely.
Based solely on a review of the copies of such reports furnished to the Company
and on representations that no other reports were required during the fiscal
year ended June 30, 2001, the Company has determined that all required filings
were made in a timely manner.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
The following table summarizes all compensation paid by the Company in
each of the last three fiscal years for the Company's executive officers
currently serving as such whose annual compensation exceeded $100,000.
Annual Compensation Long Term
------------------------------------------------ Compensation
Name and -------------
Principal Position Year Salary($)(1) Bonus($) Other($)(2) Options
---------------------------- ----- --------------- -------- ----------- -------------
Zachary M. Richardson, 2001 170,878 0 83,200(3) 40,556
President 2000 161,114 0 59,900(4) 40,626
1999 119,000 0 13,200 79,890
John C. Lucy, III 2001 172,262 0 14,348(5) 40,556
Chief Executive Officer 2000 161,451 0 16,800(6) 40,626
1999 119,000 0 25,200 79,890
(1) Includes medical insurance reimbursements.
(2) Includes car allowances and other miscellaneous benefits.
(3) Includes $13,200 for car allowances. Also, Mr. Richardson sold his home
at the request of the Company and incurred expenses in connection with
this sale. In fiscal year 2001, the Company reimbursed Mr. Richardson
$70,000 for his out of pocket costs.
(4) Includes $13,200 for car allowances and $16,800 for reimbursement of
income taxes paid. Also, as noted in footnote 3 above, Mr. Richardson
sold his home at the request of the Company and incurred expenses in
connection with this sale. In fiscal year 2000, the Company reimbursed
Mr. Richardson for closing costs in connection with this sale, which
totaled $29,900.
(5) Includes $13,200 for car allowances and other miscellaneous benefits,
and $1,148 for payment of Mr. Lucy's Guardian Life policy.
(6) Includes $13,200 for car allowances and other miscellaneous benefits,
and $3,600 for reimbursement of closing costs incurred in connection
with the purchase of Mr. Lucy's home.
7
The following table sets forth information concerning individual grants
of stock options made during the fiscal year ended June 30, 2001 to each of the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
NUMBER OF SHARES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR BASE
NAME GRANTED(#) IN FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE
---- ------------------ ------------------- --------------- ---------------
Zachary M. Richardson 40,556 (1) 34% 2.25 7/24/10
John C. Lucy, III 40,556 (1) 34% 2.25 7/24/10
(1) Options to purchase 8,111 shares vest each year, beginning July 1, 2001
and continuing through July 1, 2005.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number Of
Securities Value Of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options Options
On Value at FY-End (#) at FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- --- --- ------------- -------------
Zachary M. Richardson 0 0 529,426/76,819 $0/$0
John C. Lucy, III 0 0 523,394/76,819 $0/$0
COMPENSATION OF DIRECTORS
The Chairman of the Board is paid a monthly retainer of $1,000 and all
other directors are paid a monthly retainer of $500. The directors are paid
$1,000 per board meeting day and $500 per teleconference meeting plus all
related business expenses. All audit committee members are paid $250 per
quarter. All directors are granted 30,000 ten-year options when they are
appointed or elected to the board and may be granted additional options for each
additional year they are on the board at the then market value. These options
vest immediately upon grant and, when services are terminated, all unexercised
options are forfeited. See also "Stock Option Plans."
8
EMPLOYMENT AGREEMENTS
In November 1998, the Company entered into five-year employment
agreements (the "Employment Agreements") with Zachary M. Richardson and John C.
Lucy, III. Pursuant to the terms of these Employment Agreements, each executive
is entitled to receive (i) annual base compensation of $156,000, with increases
in future years by the percentage increase of the Consumer Price Index and (ii)
a bonus up to 100% of base salary based on the increase in pre-tax earnings per
share over the prior year. For the fiscal year ending June 30, 2001, Mr. Lucy
agreed to waive the bonus with no other effect on the existing employment
agreement, and Mr. Richardson informed the Board of Directors in October 2001
that he would be willing to forego the payment of a cash bonus for a greater
equity incentive in the form of the grant of additional stock options with no
other effect on the existing employment agreement. The Board agreed, and in this
regard granted him options to purchase 209,344 shares of the Company's common
stock. The Employment Agreements also provide for annual grants of common stock
options commencing in fiscal 2000 equal to 1% of the then outstanding number of
common shares at an exercise price of fair market value at date of grant, and
the granting of 150,000 stock appreciation rights that vest only upon a "Change
of Control" as defined in the Employment Agreements.
During the term of the Employment Agreements, should there be a Change
of Control of the Company as that term is defined therein, the Company, at its
sole option, may terminate the Employment Agreements upon 30 days prior written
notice and thereafter will be obligated to pay the executives the balance of the
compensation payable under the Employment Agreements, had they not been
terminated prior to their expiration, together with an additional sum equal to
299% of Executives' annual base compensation. The Employment Agreements also
contain non-competition and confidentiality provisions.
The Company's Board of Directors terminated the employment of Mr.
Richardson as President of the Company effective March 15, 2002. Prior to the
date of termination, Mr. Richardson notified the Company in writing that he
would consider any such termination to be a breach of his Employment Agreement
and that the Company would owe him approximately $675,000. The Company disagrees
with Mr. Richardson's contention and would defend vigorously against any claim
brought by Mr. Richardson in this regard.
STOCK OPTION PLANS
Pallet Management has adopted two combined stock option and
appreciation rights plans to attract and to induce officers, directors and key
employees of the Company to remain with the Company. The 1997 Omnibus Stock
Option Plan (the "1997 Plan") was approved in August, 1997, and an aggregate of
250,000 shares are reserved for issuance under the 1997 Plan. Pallet
Management's 1998 Omnibus Stock Option Plan (the "1998 Plan") became effective
on September 1, 1998, and an aggregate of 1,000,000 shares are currently
reserved for issuance under the 1998 Plan. The 1997 and 1998 Plans provide for
options which qualify as incentive stock options under Section 422(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as nonstatutory
options. For more information about the 1997 and 1998 Plans, generally, see
"Item 11. Executive Compensation," in the enclosed copy of the Company's Form
10-K for the fiscal year ended June 30, 2001. Also, see Proposal No. 2 of this
Proxy Statement relating to the proposed amendment of the 1998 Plan.
9
As of April 8, 2002, an aggregate of 6,394 options were outstanding
under the 1997 Plan with an exercise price of $2.00, and an aggregate of
1,000,000 options were outstanding under the 1998 Plan with exercise prices
ranging from $1.75 to $5.25. These options generally vest over a five-year
period and expire ten years from date of grant. From 1997 through 2001, the
Company granted Messrs. Lucy, III and Richardson options to acquire an aggregate
of 600,215 and 606,247 shares, respectively. See "Voting Security Ownership of
Certain Beneficial Owners and Management."
ACCELERATED OPTIONS
In August 1997, the Company jointly granted 1,000,000 options to
Messrs. Richardson and Lucy to re-allocate to other members of the Company's
management. Messrs. Richardson and Lucy immediately re-allocated approximately
one-third of these options to other members of the Company's management. If an
employee terminated employment with the Company, for any reason or no reason,
the options allocated to them would immediately revert back to Messrs.
Richardson and Lucy. The options provided that vesting would accelerate if the
Company achieved specified income before taxes, depreciation, amortization and
certain other charges at different measurement dates, which milestones were
determined based on management's internal projections through fiscal 1999. All
three milestones were met and the options vested according to the accelerated
schedule. The options expire in August 2002. See "Voting Security Ownership of
Certain Beneficial Owners and Management."
The following table summarizes the terms of these vested but
unexercised options as of June 30, 2001:
NAME EXERCISE PRICE VESTED EXPIRATION DATE
---- -------------- ------ ---------------
Zachary M. Richardson $1.50 172,412 August 20, 2002
$1.75 128,613
$2.25 135,400
John C. Lucy, III $1.50 172,412 August 20, 2002
$1.75 128,613
$2.25 135,400
Other Employees $1.50 55,175 August 20, 2002
$1.75 42,775
$2.25 29,200
------
1,000,000
10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Company created its Compensation Committee during fiscal 2001.
Philip D. Feltman, as Chairman, and Robert L. Steiler served on during fiscal
2001, and currently comprise, the Board's Compensation Committee. Mr. Steiler is
also the sole owner of a company that provides consulting services to the
Company for compensation. See "Certain Relationships and Related Transactions."
Mr. Steiler abstains from voting on issues concerning such compensation.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL COMPENSATION POLICY. The three principal components of the
Compensation Committee's executive compensation are salary, bonus and stock
options. The components are designed to facilitate fulfillment of the
compensation objectives of the Compensation Committee, which objectives include
(i) attracting and retaining competent management, (ii) recognizing individual
initiative and achievement, (iii) rewarding management for short and long term
accomplishments and (iv) aligning management compensation with the achievement
of the Company's goals and performance.
The Compensation Committee endorses the position that equity ownership
by management is beneficial in aligning management's and shareholders' interest
in the enhancement of shareholder value. Base salaries for new management
employees are determined initially by evaluating the responsibilities of the
position held and the experience of the individual, and by reference to the
competitive marketplace for managerial talent, including a comparison of base
salaries for comparable positions at similar companies of comparable sales and
capitalization. Annual salary adjustments are determined by evaluating (i) the
performance of and responsibilities assumed by the executive, (ii) the
competitive marketplace and (iii) the performance of the Company. The
Compensation Committee does not utilize any specific formula to determine
compensation based on Company performance.
The Compensation Committee periodically reviews the Company's existing
management compensation programs on an ongoing basis, including (i) meetings
with the President to consider and set mutually agreeable performance standards
and goals for members of senior management and/or the Company, as appropriate or
as otherwise required pursuant to any such officer's employment agreement and
(ii) modifications to such compensation programs as appropriate, to ensure
alignment with the philosophy and established standards and goals of the
Compensation Committee.
COMPENSATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER. The Company had
entered into employment agreements with both Mr. Zachary M. Richardson, its
President, and Mr. John C. Lucy, III, its Chief Executive Officer. Each of their
employment agreements provides for bonuses of up to 100% of base salary based on
the increase in pretax earnings per share over the prior year. See "Employment
Agreements." Aside from Company performance, other factors
11
which influence the compensation paid to Messrs. Richardson and Lucy include
executive responsibilities and performance, and compensation levels at
comparable companies.
Philip D. Feltman, Chairman
Robert L. Steiler
PERFORMANCE GRAPH
COMPARE CUMULATIVE TOTAL RETURN
AMONG PALLET MANAGEMENT SYSTEMS, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Pallet Management Systems, Inc. 100.00 70.00 430.00 210.00 125.00 52.00
SIC Code Index 100.00 144.49 151.84 114.39 85.48 40.48
NASDAQ Market Index 100.00 120.46 159.68 223.77 336.71 186.46
Assumes $100 invested on July 1, 1996
Assumes Dividend Reinvested
Fiscal Year Ending June 30, 2001
[GRAPHIC OMMITTED]
12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Lewis Management Group ("LMG"), a firm that provides manufacturing
consulting services to the Company, is owned by Robert L. Steiler, a Director of
the Company. Under a consulting agreement between LMG and the Company, the
Company paid LMG $25,000 per month from July 2000 through November 2000 and the
Company paid LMG or Mr. Steiler directly for continued consulting services
$5,000 per month from December 2000 through June 2001. The total amount paid by
the Company to LMG and Mr. Steiler for consulting services, inclusive of
expenses, was $162,483 during fiscal year 2001.
The Lewis Management Group ("LMG") employed Ed Carr. Mr. Carr acted in
the capacity for the Company as the Director of Manufacturing Operations from
July 2000 until June 2001. The Company began paying Integrated Consulting
Associates, Inc., which is Mr. Carr's consulting company, for his consulting
services directly beginning in December 2000 at the rate of $20,000 per month.
The total amount paid by the Company to Integrated Consulting Associates, Inc.,
inclusive of expenses, was $147,065 during fiscal year 2001. Mr. Carr also
received warrants for 10,000 shares on May 17, 2001 with a $3.09 exercise price.
The Company discontinued Mr. Carr's consulting services in August 2001.
Clary Lumber Company, Inc., a North Carolina corporation ("Clary"),
which is owned by the family of John C. Lucy, Jr., a principal shareholder and
former Director of Pallet Management, and his son, John C. Lucy III, who is
Pallet Management's CEO, sold $2,285,000, $2,633,000 and $2,359,000 of pallets
and lumber to the Company during the fiscal years 2001, 2000 and 1999,
respectively. Lumber purchases from Clary amounted to 4.4%, 5.6% and 8% of the
Company's lumber purchases for fiscal years 2001, 2000 and 1999, respectively.
After procedures were performed by the Company's auditors at the request of the
Company for fiscal year 2000, the Company believes that these transactions were
made at prices comparable to vendors other than Clary in the ordinary course of
business.
13
VOTING SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
----------------------------------------
The following table sets forth, as of April 8, 2002, the beneficial
ownership of the voting securities of the Company, all of which voting
securities consist of shares of common stock, by each person beneficially owning
more than 5% of such securities, by each of the directors, director nominees and
executive officers of the Company, and by the directors and executive officers
of the Company as a group.
NAME AND PERCENT OF
ADDRESS OF AMOUNT OF BENEFICIAL CLASS
BENEFICIAL OWNER (1) OWNERSHIP OF STOCK OUTSTANDING
---------------------------------------- -------------------------------- --------------------
Robert L. Steiler 86,000 (2) 2.0%
John C. Lucy, III 708,773 (3) 15.0%
Marc S. Steinberg 11,500 (4) *
Philip D. Feltman 67,600 (5) 1.6%
Ira M. Goldberg 30,000 (6) *
Michael D. Karsch 30,000 (6) *
Richard J. Katz 59,300 (7) 1.4%
Zachary M. Richardson 917,879 (8) 19.0%
Daniel M. Schultz 30,000 (6) *
Ronald D. Shindler 75,000 (9) 1.8%
Alan P. Sklar 50,000 (10) 1.2%
All Officers and Directors 2,066,052 (11) 36.2%
as a Group (11 persons)
Cromwell Group (12) 754,050 (13) 18.0%
David Davidson 453,550 (14) 10.8%
John C. Lucy Jr. (15) 675,696 (16) 15.5%
* Less than 1%
(1) The address of director and officers listed above, except for Mr. John
C. Lucy, III, is 2855 N. University Drive - Suite 510, Coral Springs,
Florida 33065. The address for Mr. John C. Lucy, III is 2900 Highwood
Blvd., Suite 200, Raleigh, North Carolina 27604.
14
(2) This figure includes 1,000 shares owned of record by Mr. Steiler and
options to acquire 85,000 shares, which options are exercisable within
60 days from the record date. It excludes options to acquire 25,000
shares, which options are not exercisable within 60 days from the
record date.
(3) This figure includes 182,097 shares owned of record by Mr. Lucy and his
children and options to acquire 526,676 shares, which options are
exercisable within 60 days from the record date. This figure excludes
options to acquire 76,819 shares, which options are not exercisable
within 60 days from the record date. This figure also excludes
beneficial ownership of Mr. Lucy Jr., the father of Mr. Lucy III.
Together, Mr. Lucy III and Mr. Lucy Jr. (including Clary, see footnote
10 below) own 682,793 shares of record and options and warrants to
acquire 701,676 shares, which options and warrants are exercisable
within 60 days from the record date, or 28.3% beneficial ownership of
the securities of the Company.
(4) This figure represents options to acquire 11,500 shares, which options
are exercisable within 60 days from the record date. It excludes
options to acquire 36,000 shares, which options are not exercisable
within 60 days from the record date.
(5) This figure includes 22,600 shares owned of record by Mr. Feltman and
options to acquire 45,000 shares, which options are exercisable within
60 days from the record date. It excludes options to acquire 15,000
shares, which options are not exercisable within 60 days from the
record date.
(6) This figure represents options to acquire 30,000 shares, which options
are exercisable within 60 days from the record date.
(7) This figure includes 29,300 shares owned of record by Mr. Katz and
options to acquire 30,000 shares, which options are exercisable within
60 days from the record date.
(8) This figure includes 303,203 shares owned of record by Mr. Richardson
and options to acquire 614,676 shares, which options are exercisable
within 60 days from the record date. It excludes options to acquire
76,819 shares, which options are not exercisable within 60 days from
the record date.
(9) This figure represents options to acquire 75,000 shares, which options
are exercisable within 60 days from the record date. It excludes
options to acquire 15,000 shares, which options are not exercisable
within 60 days from the record date.
(10) This figure includes 5,000 shares owned of record by Mr. Sklar and
options to acquire 45,000 shares, which options are exercisable within
60 days from the record date. It excludes options to acquire 15,000
shares, which options are not exercisable within 60 days from the
record date.
(11) This figure includes 543,200 shares owned of record by the Company's
directors and executive officers as a group, and options to acquire
1,522,852 shares as a group, which options are exercisable within 60
days from the record date. This figure excludes options to acquire
259,638 shares as a group, which options are not exercisable within 60
days from the record date.
15
(12) The "Cromwell Group" consists of D.L. Cromwell LLC, a Florida limited
liability company ("Cromwell"), David Davidson ("Davidson"), Lloyd
Beirne ("Beirne"), and Lawrence and Connie Loscalzo (the "Loscalzos").
Cromwell is a holding company for D.L. Cromwell Investments, Inc., a
registered broker-dealer engaged in the securities business. Davidson
and Beirne might be deemed to control Cromwell. The Loscalzos are
individuals and clients of D.L. Cromwell Investments, Inc. Although
Cromwell and the Loscalzos do not jointly own any securities of the
Company, they would likely act as a group in voting their shares of the
Company's common stock. The address of Cromwell and Messrs. Davidson
and Beirne is 1200 North Federal Highway, Boca Raton, Florida 33432.
The address of the Loscalzos is 1 Bouton Point, Lloyd Harbor, New York
11743. The information disclosed by the Company about Cromwell and the
Loscalzos is based upon a Schedule 13D jointly filed by Cromwell and
the Loscalzos with the United States Securities and Exchange Commission
on October 3, 2001, and updated information supplied by Mr. Davidson.
(13) To be read in conjunction with footnotes (12) above and (14) below,
Cromwell owns 332,050 shares, or 7.9%, of the Company's common stock,
the Loscalzos own 300,500 shares, or 7.2%, of the Company's common
stock and Mr. Davidson directly or indirectly beneficially owns an
additional 121,500 shares, or 2.9%, of the Company's common stock
besides the shares owned by Cromwell. Although Cromwell, Davidson and
the Loscalzos do not jointly own any securities of the Company, they
wouldlikely act as a group in voting their shares of the Company's
common stock.
(14) This figure includes 45,000 shares owned by Mr. Davidson and 332,050
shares held by Cromwell, as well as 50,000 shares held by MidSouth
Ltd., 1,000 shares held by MidSouth LLC and 25,500 shares held by
Rothchild Capital Holdings, in each of which Mr. Davidson's wife has an
ownership interest.
(15) The address of Mr. John C. Lucy, Jr. is 4755 Liberty Road, Dolphin,
Virginia 23843.
(16) This figure includes 450,696 shares owned of record by Mr. Lucy Jr.,
the father of Mr. Lucy III, and options to acquire 125,000 shares,
which options are exercisable within 60 days from the record date. This
figure also includes 50,000 shares owned of record by Clary Lumber
Company, Inc., a North Carolina corporation ("Clary"), and warrants to
acquire 50,000 shares, which warrants are exercisable within 60 days
from the record date. Mr. Lucy Jr. owns two-thirds of Clary, with the
other one-third ownership shared between Mr. Lucy III and his sister.
This figure does not include beneficial ownership of Mr. Lucy III.
Together, Mr. Lucy Jr. (including Clary) and Mr. Lucy III own 682,793
shares of record and options and warrants to acquire 701,676 shares,
which options and warrants are exercisable within 60 days from the
record date, or 28.3% beneficial ownership of the securities of the
Company.
16
PROPOSALS TO THE SHAREHOLDERS
-----------------------------
The Board has approved the following proposals for presentation to the
Company's Shareholders:
1. ELECTION OF DIRECTORS
The Board has nominated the following individuals to serve as Directors
of the Company until the Company's 2003 Annual Meeting of Shareholders and until
their respective successors have been elected and qualified: David Davidson, Ira
M. Goldberg, Michael D. Karsch, Richard J. Katz, Ronald Shindler, Alan P. Sklar
and Robert L. Steiler. All of the nominees named above, with the exception of
Mr. Davidson, are currently incumbent Directors of the Company and their
biographical information is set forth in "MANAGEMENT - Directors and Executive
Officers."
DAVID DAVIDSON, age 42, is a co-founder and has been Chairman and Chief
Executive Officer of D.L. Cromwell Investments, Inc., a registerd broker-dealer
engaged in the securities business ("Cromwell Investments"),since 1995. Prior to
that time, he had been a registered representative with several other
broker-dealers since 1983. He has primarily concentrated his efforts to trading
securities since the formation of Cromwell Investments. Cromwell Investments has
been the subject of several administrative proceedings brought by certain
regulatory authorities having jurisdiction over its business. There are
currently no restrictions upon it conduct of business from any of those
proceedings. Mr. Davidson has Series 7 and 24 licenses from the NASD. He
graduated from Boston University with a B.A. degree in Business Administration.
It is intended that the votes will be cast pursuant to the accompanying
proxy for the seven nominees named above, unless otherwise directed. The Board
has no reason to believe that any of the nominees will become unavailable to
serve if elected. However, if any nominee should be unavailable, then proxies
solicited by the Board will be voted for the election of a substitute nominee
designated by the Board.
Proxies cannot be voted for a greater number of persons than the seven
nominees named above. The Directors will be elected by a plurality of the votes
cast, either in person or by proxy, at the Meeting. Votes cast as abstentions
will not be counted as votes for or against the election of the Directors and
therefore will have no effect on the number of votes necessary to elect the
Directors. So-called "broker non-votes" (brokers failing to vote by proxy shares
of the Company's Common Stock held in nominee name for customers) will not be
counted at the Meeting and also will have no effect on the number of votes
necessary to elect a Director.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE PROPOSED NOMINEES FOR ELECTION TO
THE BOARD.
2. APPROVAL OF AMENDMENTS TO 1998 OMNIBUS STOCK INCENTIVE PLAN
The Company's 1998 Omnibus Stock Incentive Plan (the "Plan") became
effective on September 1, 1998. The purpose of the Plan is to enable the Company
to offer to its Directors, officers and other key employees an incentive to
continue in the employ of the Company and to increase their identification with
the interests of the Company's shareholders through additional ownership of the
Company's Common Stock. The Plan is administered by the Company's Compensation
Committee, or in lieu thereof, the Board of Directors.
17
Options granted under the Plan may or may not be "incentive stock
options" ("Incentive Options") within the meaning of Section 422(b) of the
Internal Revenue Code of 1986 ("Code"), as amended, depending upon the decision
of the Compensation Committee on the date of the grant. The exercise price of an
option granted under the Plan may not be less than 100% of the fair market value
of the Company's Common Stock at the date of the grant (110% of such fair market
value if the grant is an Incentive Option to an employee who owns more than 10%
of the Company's outstanding Common Stock). The period in which options may be
exercised is limited to no more than 10 years after the date of the grant (and
no more than 5 years after the date of the grant for Incentive Options if the
grant is made to an employee who owns more than 10% of the Company's outstanding
Common Stock). Under the Plan, if any shares of Common Stock that are subject to
an option cease to be subject to the option, such shares shall again be
available for distribution in connection with future grants under the Plan.
As of April 8, 2002, (i) an aggregate of 1,000,000 options were
outstanding under the Plan with exercise prices of $1.75 to $5.25, and (ii) the
market price of a share of Common Stock was $0.40, as reported on the OTC
Bulletin Board(R) under the symbol "PALT" (the quotation is an over-the-market
quotation and, accordingly, reflects inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions). To
date, the Company has not registered any of the underlying shares of Common
Stock that may be obtained upon exercise of options issued under the Plan
pursuant to the Securities Act of 1933, as amended. For information regarding
the ownership of options by the Management of the Company, see "Voting Security
Ownership of Certain Beneficial Owners and Management" and "Director and
Executive Officer Compensation."
The Board has adopted, subject to the approval of the Company's
shareholders, two amendments to the Plan. Section 11 of the Plan requires the
approval of the Company's shareholders in order to approve the amendments to the
plan, and Section 422(b) of the Code requires that incentive stock options be
granted pursuant to a plan which is approved by the shareholders of the granting
corporation. Therefore the Company is requesting the approval of its
shareholders for the amendments to the Plan.
AMENDMENT NO. 1
Amendment No. 1 would change Section 11 of the Plan, entitled
"Effective Date of the Plan" ("Section 11"). As currently written, Section 11
requires that the shares of Common Stock issuable under the Plan be registered
with the Securities and Exchange Commission prior to the exercise of any options
granted pursuant to the Plan. Amendment No. 1 to the Plan would change that
provision to require compliance with the applicable requirements of the federal
securities laws in connection with the exercise of any such options. Amendment
No. 1, therefore, would change the language of Section 11 to read as follows:
"11. EFFECTIVE DATE OF THE PLAN. This Plan shall be effective as of
September 1, 1998 and shall be submitted to the shareholders of the
Company for approval. No Option or Stock Appreciation Right shall be
exercisable and no Company Stock shall be issued under the Plan until
(i) the Plan has been approved by the Company's shareholders, (ii) the
requirements of any applicable federal securities laws have been met,
and (iii) the requirements of any applicable state securities laws have
been met."
18
AMENDMENT NO. 2
Amendment No. 2 would increase the aggregate number of shares of Common
Stock that may be awarded under the Plan to 1,500,000 shares. An aggregate of
500,000 shares of the Company's Common Stock were originally reserved for
issuance under the Plan. Pursuant to a proposal adopted by the Company and
approved by its shareholders on December 16, 1999, the Company subsequently
amended the Plan to reserve an aggregate of 1,000,000 shares of the Company's
Common Stock for issuance under the Plan, which amount is currently reserved to
date (subject to adjustment as provided in the Plan). The Board of Directors
believes that the purposes of the Plan and the best interests of the Company
will be furthered by increasing the aggregate number of shares that may be
awarded. The Board of Directors wishes to ensure the continued availability of
Common Stock that may be awarded to all current and future Directors, Executive
Officers and employees.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
3. RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
It is intended that the votes will be cast pursuant to the accompanying
proxy for the ratification of Kaufman, Rossin & Co. ("KR&C"), as the Company's
independent auditor, unless otherwise directed. KR&C's service as the Company's
independent auditor began with the audited financial statements for 1999.
The following table sets forth the aggregate fees billed by KR&C to the
Company for 2001:
Annual Audit Fees $42,500
Financial Information Systems Design
and Implementation Fees $ 0
All Other Fees $21,614
Total $64,114
----- -------
Based on the foregoing, the Company's Audit Committee believes that the
provision of services to the Company by KR&C is compatible with maintaining
KR&C's independence.
No member of KR&C or any associate thereof has any financial interest
in the Company or its subsidiaries. By mutual agreement, a member of that firm
will not attend the Meeting and therefore will not have the opportunity to make
a statement or be available to respond to questions.
19
Shareholder approval of the Company's auditor is not required under
Florida law. The Board is submitting its selection of KR&C to its Shareholders
for ratification in order to determine whether the Shareholders generally
approve of the Company's auditor. If the selection of KR&C is not approved by
the Shareholders, the Board will reconsider its selection.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
4. OTHER MATTERS
The Board is not aware of any other business that may come before the
meeting. However, if additional matters properly come before the meeting, then
proxies will be voted at the discretion of the proxy-holders.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at, and included in the
Company's proxy statement and proxy relating to, the fiscal 2003 Annual Meeting
of Shareholders of the Company must be received by the Company no later than
December 20, 2002, at its principal executive offices, located at 2855
University Drive, Suite 510, Coral Springs, Florida 33065. Shareholder proposals
intended to be presented at, but not included in the Company's proxy statement
and proxy for, that meeting must be received by the Company no later than March
5, 2003, at the foregoing address; otherwise, such proposals will be subject to
the grant of discretionary authority contained in the Company's form of proxy to
vote on them.
ADDITIONAL INFORMATION
A copy of the Company's Form 10-K for the fiscal year ended June 30,
2001 is being provided to Shareholders with this Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
Ronald Shindler, Chairman of the Board
Coral Springs, Florida
April 19, 2002
20
FORM OF PROXY
PROXY FOR ANNUAL MEETING OF
PALLET MANAGEMENT SYSTEMS, INC.
2855 UNIVERSITY DRIVE, SUITE 510, CORAL SPRINGS, FLORIDA 33065
(954) 340-1290
SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS OF
PALLET MANAGEMENT SYSTEMS, INC.
THE UNDERSIGNED hereby appoint(s) Michael D. Karsch and Ronald
Shindler, or either of them, with full power of substitution, to vote at the
Annual Meeting of Shareholders of Pallet Management Systems, Inc., a Florida
corporation (the "Company"), to be held on May 13, 2002, beginning at 1:00 P.M.
Eastern Daylight Time, at the Company's corporate headquarters located at 2855
University Drive, Suite 510, Coral Springs, Florida 33065, or any adjournment
thereof, all shares of the common stock which the undersigned possess(es) and
with the same effect as if the undersigned was personally present, as follows:
PROPOSAL (1): ELECT DIRECTORS: DAVID DAVIDSON, IRA M. GOLDBERG, MICHAEL D. KARSCH, RICHARD J. KATZ,
RONALD SHINDLER, ALAN P. SKLAR AND ROBERT L. STEILER.
( ) For All Nominees Listed Above ( ) Withhold Authority to Vote
(except as marked to the contrary below) for All Nominees Listed Above
-------------------------------------------------------------------
(To withhold vote for any nominee or nominees, print the name(s) above.)
PROPOSAL (2): APPROVE AMENDMENTS TO THE COMPANY'S 1998 OMNIBUS STOCK INCENTIVE PLAN.
( ) For ( ) Against ( ) Abstain
PROPOSAL (3): RATIFY SELECTION OF KAUFMAN, ROSSIN & CO. AS THE COMPANY'S INDEPENDENT AUDITOR.
( ) For ( ) Against ( ) Abstain
PROPOSAL (4): TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
( ) In their discretion, the proxy-holders are ( ) Withhold Authority
authorized to vote upon such other business
as may properly come before the meeting or
any adjournment thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND IN THE DISCRETION
OF THE PROXIES NOMINATED HEREBY ON ANY OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING.
(Please sign exactly as name appears hereon. If the stock is registered in the
names of two or more persons, then each should sign. Executors, administrators,
trustees, guardians, attorneys and corporate officers should include their
capacity or title.)
Please sign, date and promptly return this
Proxy in the enclosed envelope.
--------------------------------- -----------------------------
Signature Date
--------------------------------- -----------------------------
Signature Date
2
APPENDIX
--------
PALLET MANAGEMENT SYSTEMS, INC.
1998 OMNIBUS STOCK INCENTIVE PLAN
EFFECTIVE AS OF SEPTEMBER 1, 1998, AS AMENDED
PALLET MANAGEMENT SYSTEMS, INC.
1998 OMNIBUS STOCK INCENTIVE PLAN
EFFECTIVE AS OF SEPTEMBER 1, 1998, AS AMENDED
1. Purpose. The purpose of the Pallet Management Systems, Inc. 1998
Omnibus Stock Incentive Plan (the "Plan") is to further the long-term stability,
continuing growth and financial success of Pallet Management Systems, Inc. (the
"Company") by attracting and retaining key employees, directors and selected
advisors of the Company through the use of stock incentives. It is believed that
ownership of Company Stock will stimulate the efforts of those employees,
directors and selected advisors upon whose judgment and interest the Company is
and will be largely dependent for the successful conduct of its business. It is
also believed that Incentive Awards granted to eligible persons under this Plan
will strengthen their desire to remain with the Company and will further the
identification of those persons' interests with those of the Company's
shareholders.
2. Definitions. As used in the Plan, the following terms have the
meanings indicated:
(a) "Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Applicable Withholding Taxes" means the aggregate amounts
of federal, state and local income and payroll taxes that the Company
is required to withhold in connection with any exercise of a
Nonstatutory Stock Option or Stock Appreciation Right, or the award of
Restricted Stock.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence of either of the
following events: (i) a third person, including a "group" as defined in
Section 13(d)(3) of the Act, becomes, or obtains the right to become,
the beneficial owner of Company securities having 20% or more of the
combined voting, power of the then outstanding securities of the
Company that may be cast for the election of directors to the Board of
the Company (other than as a result of an issuance of securities
initiated by the Company in the ordinary course of business); or (ii)
as the result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sale of assets or
contested election, or any combination,. of the foregoing,
transactions, the persons who were directors of the Company before such
transactions shall cease to constitute a majority of the Board or of
the board of directors of any successor to the Company.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Committee" means the committee appointed by the Board as
described under Section 14.
(g) "Company" means Pallet Management Systems, Inc., a Florida
corporation.
(h) "Company Stock" means shares of voting common stock of the
Company subject to adjustment as provided in Section 13.
(i) "Date of Grant" means the date on which an Incentive Award
is granted by the Committee.
(j) "Disability" or "Disabled" means, as to an Incentive Stock
Option, a Disability within the meaning of Code section 22(e)(3). As to
all other forms of Incentive Awards, the Committee shall determine
whether a Disability exists and such determination shall be conclusive.
(k) "Employee" means an employee of the Company, or of any
Parent or Subsidiary of the Company.
(l) "Fair Market Value" means, as of a relevant date, (i) if
the Company Stock is traded on an exchange, the closing price of the
Company Stock on such day on the exchange on which it generally has the
greatest trading volume, (ii) if the Company Stock is traded on the
over-the-counter market, the average between the closing bid and asked
prices on such day as reported by NASDAQ, or (iii) if sales prices or
bid and asked prices are not available for such day, the fair market
value shall be determined by the Committee using any reasonable method
in good faith.
(m) "Incentive Award" means, collectively, the award of an
Option, Stock Appreciation Right, Restricted Stock, or Performance
Award under the Plan.
(n) "Incentive Stock Option" means an Option intended to meet
the requirements of, and qualify for favorable federal income tax
treatment under, Code section 422.
(o) "Insider" means a person subject to section 16 of the Act.
(p) "Non-Employee Director" means a member of the Board who is
not an Employee.
(q) "Nonstatutory Stock Option" means an Option that does not
meet the requirements of Code section 422 or, even if meeting the
requirements of Code section 422, is not intended to be an Incentive
Stock Option and is so designated.
(r) "Option" means a right to purchase Company Stock granted
under the Plan, at a price determined in accordance with the Plan.
(s) "Parent" means, with respect to any corporation, a parent
of that corporation within the meaning of Code section 424(e).
A-2
(t) "Participant" means any Employee, Non-Employee Director or
Selected Advisor who receives an Incentive Award under the Plan.
(u) "Performance Award" means an award which is contingent
upon the performance of the Company or which is contingent upon the
individual performance of the Participant.
(v) "Reload Feature" means a feature of an Option described in
a Participant's stock option agreement that authorizes the automatic
grant of a Reload Option in accordance with the provisions of Section
9(e).
(w) "Reload Option" means an Option automatically granted to a
Participant equal to the number of shares of already owned Company
Stock delivered by the Participant in payment of the exercise price of
an Option having a Reload Feature.
(x) "Restricted Stock" means Company Stock awarded upon the
terms and subject to the restrictions set forth in Section 6.
(y) "Restricted Stock Award" means an award of Restricted
Stock granted under the Plan.
(z) "Rule 16b-3" means Rule 16b-3 adopted pursuant to section
16(b) of the Act. A reference in the Plan to Rule 16b-3 shall include a
reference to any corresponding rule (or number redesignation) of any
amendments to Rule 16b-3 adopted after the effective date of the Plan's
adoption.
(aa) "Selected Advisor" means any person who has been retained
to provide services to the Company (other than as an Employee, a member
of the Board or a member of the board of directors of any Subsidiary or
Parent of the Company), and who is selected by the Committee to be
eligible to receive Incentive Awards under the Plan.
(bb) "Stock Appreciation Right" means a right to receive
amounts from the Company awarded upon the terms and subject to the
restrictions set forth in Section 9.
(cc) "Subsidiary" means, with respect to any corporation, a
subsidiary of that corporation within the meaning of Code section
424(f).
(dd) "10% Shareholder" means a person who owns, directly or
indirectly, stock possessing more than 10 % of the total combined
voting power of all classes of stock of the Company or any Parent or
Subsidiary of the Company. Indirect ownership of stock shall be
determined in accordance with Code section 424(d).
3. General. Incentive Awards may be granted under the Plan in the form
of Options, Stock Appreciation Rights, Restricted Stock, and Performance Awards.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options. The provisions of the Plan referring to Insiders or Rule 16b-3
shall apply only to Participants who are subject to section 16 of the Act.
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4. Stock. Subject to Section 13 of the Plan, there shall be reserved
for Issuance under the Plan an aggregate of 1,500,000 shares of Company Stock,
which shall be authorized but unissued shares. No more than 50,000 shares of
Company Stock may be allocated to Incentive Awards and no more than 300,000
shares of Company Common Stock may be allocated to Non-Incentive Awards that are
granted to any one Employee during a single calendar year. Shares that have not
been issued and shares allocable to options or portions thereof that expire or
otherwise terminate unexercised after the effective date of the PMSI Omnibus
Stock Plan - 1995 or the 1997 Omnibus Stock Incentive Plan may be added as an
Incentive Award under this Plan. Shares that have not been issued under this
Plan and that are allocable to Incentive Awards or portions thereof that expire
or otherwise terminate unexercised may again be subjected to an Incentive Award
under this Plan. Similarly, if any shares of Restricted Stock issued pursuant to
the Plan are reacquired by the Company as a result of a forfeiture of such
shares pursuant to the Plan, such shares may than be subjected to an Incentive
Award under the Plan. For purposes of determining the number of shares that are
available for Incentive Awards under this Plan, such number shall include the
number of shares surrendered by an optionee or retained by the Company in
payment of Applicable Withholding Taxes upon exercise of an Option.
5. Eligibility.
(a) All present and future Employees and Selected Advisors
shall be eligible to receive Incentive Awards under the Plan. The
Committee shall have the power and complete discretion, as provided in
Section 14, to select which Employees and Selected Advisors shall
receive Incentive Awards and to determine for each such Participant the
terms, conditions and nature of the award, and the number of shares to
be allocated to each Participant as part of each Incentive Award.
(b) All present and future Non-Employee Directors shall be
eligible to receive Non- Statutory Options under the Plan. Non-Employee
Directors shall not be entitled to receive any other form of Incentive
Award under the Plan.
(c) The grant of an Incentive Award shall not obligate the
Company or any Parent or Subsidiary of the Company to pay a Participant
any particular amount of remuneration, to continue the employment or
other service relationship of the Participant after the grant, or to
make further grants to the Participant at any time thereafter.
6. Restricted Stock Awards for Employees and Selected Advisors.
(a) Whenever the Committee deems it appropriate to grant a
Restricted Stock Award, notice shall be given to the Participant
stating the number of shares of Restricted Stock for which the
Restricted Stock Award is granted and the terms and conditions to which
the Restricted Stock Award is subject. This notice, when accepted in
between the Company and the writing by the Participant, shall become an
award agreement between the Company and the Participant. A Restricted
Stock Award may be made by the Committee in its discretion without cash
consideration.
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(b) Restricted Stock issued pursuant to the Plan shall be
subject to the following restrictions:
(i) None of such shares may be sold, assigned,
transferred, pledged, hypothecated, or otherwise encumbered or
disposed of until the restrictions on such shares shall have
lapsed or shall have been removed pursuant to paragraph (d) or
(e) below.
(ii) The restrictions on such shares must remain in
effect and may not lapse for a period of two years beginning
on the Date of Grant, except as provided under paragraph (d)
or (e) in the case of Disability, death or a Change in
Control.
(iii) If a Participant ceases to be employed by the
Company or a Parent or Subsidiary of the Company, the
Participant shall forfeit to the Company any shares of
Restricted Stock, the restrictions on which shall not have
lapsed or shall not have been removed pursuant to paragraph
(d) or (e) below, on the date such Participant shall cease to
be so employed.
(iv) The Committee may establish such other
restrictions on such shares that the Committee deems
appropriate, including, without limitation, events of
forfeiture.
(c) Upon the acceptance by a Participant of a Restricted Stock
Award, such Participant shall, subject to the restrictions set forth in
paragraph (b) above, have all the rights of a shareholder with respect
to the shares of Restricted Stock subject to such Restricted Stock
Award, including, but not limited to, the right to vote such shares of
Restricted Stock and the right to receive all dividends and other
distributions paid thereon. Certificates representing Restricted Stock
shall bear a legend referring to the restrictions set forth in the Plan
and the Participant's award agreement.
(d) The Committee shall establish as to each Restricted Stock
Award the terms and conditions upon which the restrictions set forth in
paragraph (b) above shall lapse. Such terms and conditions may include,
without limitation, the lapsing of such restrictions as a result of the
Disability or death of the Participant, or the occurrence of a Change
of Control.
(e) Notwithstanding the forfeiture provisions of paragraph
(b)(iii) above, the Committee may at any time, in its sole discretion,
accelerate the time at which any or all restrictions will lapse or
remove any and all such restrictions.
(f) Each Participant shall agree at the time his Restricted
Stock Award is granted, and as a condition thereof, that the Company
shall deduct from any payments of any kind otherwise due from the
Company to such Participant the aggregate amount of any Applicable
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Withholding Taxes with respect to the shares of Restricted Stock
subject to the Restricted Stock Award or that such Participant will pay
to the Company, or make arrangements satisfactory to the Company
regarding the payment to the Company of, the aggregate amount of any
such taxes. Arrangements satisfactory to the Company may, in the sole
discretion of the Company, include the obtaining of a loan from the
Company to pay such taxes. Until such amount has been paid or
arrangements satisfactory to the Company have been made, no stock
certificates free of a legend reflecting the restrictions set forth in
paragraph (b) above shall be issued to such Participant. If Restricted
Stock is being issued to a Participant without the use of a stock
certificate, the restrictions set forth in paragraph (b) shall be
communicated to the Participant in the manner required by law.
(g) As an alternative to making a cash payment to the Company
to satisfy Applicable Withholding Taxes, the Committee may establish
procedures permitting the Participant to elect to (a) deliver shares of
already owned Company Stock or (b) have the Company retain that number
of shares of Company Stock that would satisfy all or a specified
portion of the Applicable Withholding Taxes arising in the year the
Incentive Award becomes subject to tax. Any such election shall be made
only in accordance with procedures established by the Committee. The
Committee has the express authority to change any election procedure it
establishes at any time.
7. Stock Options for Employees and Selected Advisors.
(a) Whenever the Committee deems it appropriate to grant
Options, notice shall be given to the eligible Employee or Selected
Advisor stating the number of shares for which Options are granted, the
Option price per share, whether the Options are Incentive Stock Options
or Nonstatutory Stock Options, the extent, if any, to which Stock
Appreciation Rights are granted, and the conditions to which the grant
and exercise of the Options are subject. This notice, when duly
accepted in writing by the Participant, shall become a stock option
agreement between the Company and the Participant.
(b) Incentive Stock Options may only be awarded to Employees
of the Company. "Tandem stock options" (where two stock options are
issued together and the exercise of one option affects the right to
exercise the other option) may not be issued in connection with
Incentive Stock Options. The exercise price of shares of Company Stock
covered by an Incentive Stock Option shall be not less than 100% of the
Fair Market Value of such shares on the Date of Grant; provided that if
an Incentive Stock Option is granted to an Employee who, at the time of
the grant, is a 10% Shareholder, then the exercise price of the shares
covered by the Incentive Stock Option shall be not less than 110 % of
the Fair Market Value of such shares on the Date of Grant.
(c) The exercise price of shares of Company Stock covered by a
Nonstatutory Stock Option shall be not less than 85% of the Fair Market
Value of such shares on the Date of Grant. Notwithstanding the
foregoing, Nonstatutory Stock Options shall not be less than 100% of
the Fair Market Value of such shares on the Date of Grant if the
Committee intends for such Options to qualify under Code section
162(m).
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(d) Options may be exercised in whole or in part at such times
as may be specified by the Committee in the Participant's stock option
agreement; provided that the exercise provisions for Incentive Stock
Options shall in all events not be more liberal than the following
provisions:
(i) No Incentive Stock Option may be exercised after
the first to occur of:
(x) Ten years (or, in the case of an
incentive Stock Option granted to a 10% Shareholder,
five years) from the Date of Grant,
(y) Three months following the date of the
Participant's termination of employment with the
Company and any Parent or Subsidiary of the Company
for reasons other than death or Disability; or
(z) One year following the date of the
Participant's termination of employment by reason of
death or Disability.
(ii) Except as otherwise provided in this paragraph,
no Incentive Stock Option may be exercised unless the
Participant is employed by the Company or a Parent or
Subsidiary of the Company at the time of the exercise and has
been so employed at all times since the Date of Grant. If a
Participant's employment is terminated other than by reason of
death or Disability at a time when the Participant holds an
Incentive Stock Option that is exercisable (in whole or in
part), the Participant may exercise any or all of the
exercisable portion of the Incentive Stock Option (to the
extent exercisable on the date of such termination) within
three months after the Participant's termination of
employment. If a Participant's employment is terminated by
reason of his Disability at a time when the Participant holds
an Incentive Stock Option that is exercisable (in whole or in
part), the Participant may exercise any or all of the
exercisable portion of the Incentive Stock Option (to the
extent exercisable on the date of Disability) within one year
after the Participant's termination of employment. If a
Participant's employment is terminated by reason of his death
at a time when the Participant holds an Incentive Stock Option
that is Exercisable (in whole or in part), the Incentive Stock
Option may be exercised (to the extent exercisable on the date
of death) within one year after the Participant's death by the
person to whom the Participant's rights under the Incentive
Stock Option shall have passed by will or by the laws of
descent and distribution.
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(iii) An Incentive Stock Option, by its terms, shall
be exercisable in any calendar year only to the extent that
the aggregate Fair Market Value (determined at the Date of
Grant) of the Company Stock with respect to which Incentive
Stock Options are exercisable by the Participant for the first
time during the calendar year does not exceed $100,000 (the
"Limitation Amount"). The foregoing Limitation Amount shall be
adjusted to the extent required by any amendment to or
modification of Code section 422. Incentive Stock Options
granted after December 31, 1986 under the Plan and all other
plans of the Company and any Parent or Subsidiary of the
Company shall be aggregated for purposes of determining
whether the Limitation Amount has been exceeded. The Committee
may impose such conditions as it deems appropriate on an
Incentive Stock Option to ensure that the foregoing
requirement is met. If Incentive Stock Options exercisable by
the Participant for the first time during any calendar year
exceed the Limitation Amount, the excess Options will be
treated as Nonstatutory Stock Options to the extent permitted
by law.
(e) The Committee may, in its discretion, provide that an
Option granted to an Insider will not be exercisable by the Insider
within the first six months after it is granted.
(f) The Committee may, in its discretion, grant Options that
by their terms become fully exercisable upon a Change of Control
notwithstanding other conditions or, exercisability in the stock option
agreement, and, in such event, paragraph (e) shall not apply.
8. Stock Appreciation Rights and Performance Awards for Employees and
Selected Advisors.
(a) Whenever the Committee deems it appropriate, Stock
Appreciation Rights may be granted in connection with all or any part
of an Option, either concurrently with the grant of the Option or, if
the Option is a Nonstatutory Stock Option, by an amendment to the
Option at any time thereafter during the term of the Option. Stock
Appreciation Rights may be exercised in whole or in part at such times
and under such conditions as may be specified by the Committee in the
Participant's stock option agreement. The following provisions apply to
all Stock Appreciation Rights that are granted in connection with
Options:
(i) Stock Appreciation rights shall entitle the
Participant, upon exercise of all or any part of the Stock
Appreciation Rights, to surrender to the Company unexercised
that portion of the underlying Option relating to the same
number of shares of Company Stock as is covered by the Stock
Appreciation Rights (or the portion of the Stock Appreciation
Rights so exercised) and to receive in exchange from the
Company an amount equal to the excess of (x) the Fair Market
Value on the date of exercise of the Company Stock covered by
the surrendered portion of the underlying Option over (y) the
exercise price of the Company Stock covered by the surrendered
portion of the underlying Option. The Committee may limit the
amount that the Participant will be entitled to receive upon
exercise of the Stock Appreciation Right.
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(ii) Upon the exercise of a Stock Appreciation Right
and surrender of the related portion of the underlying Option,
the Option, to the extent it surrendered, shall not thereafter
be exercisable.
(iii) The Committee may, in its discretion, grant
Stock Appreciation Rights in connection with Options which by
their terms become fully exercisable upon a Change of Control,
which Stock Appreciation Rights shall only be exercisable
following a Change of Control. The underlying Option may
provide that such Stock Appreciation Rights shall be payable
solely in cash. The terms of the underlying Option shall
provide the method by which fair market value of the Company
Stock on the date of exercise shall be calculated based on one
of the following alternatives:
(x) the Fair Market Value of the Company
Stock as of the business day immediately preceding
the day of exercise;
(y) the highest Fair Market Value of the
Company Stock during the 90 days immediately
preceding the Change of Control; or
(z) the greater of (x) or (y).
(iv) Subject to any further conditions upon exercise
imposed by the Committee, a Stock Appreciation Right shall be
exercisable only to the extent that the related Option is
exercisable, and shall expire no later than the date on which
the related Option expires.
(v) A Stock Appreciation Right may only be exercised
at a time when the fair market value of the Company Stock
covered by the Stock Appreciation Right exceeds the exercise
price of the Company Stock covered by the underlying Option.
(b) Whenever the Committee deems it appropriate, Stock
Appreciation Rights may be granted without related Options. The terms
and conditions of the award shall be set forth in a stock appreciation
rights agreement between the Company and the Participant. The following
provisions apply to all Stock Appreciation Rights that are granted
without related Options:
(i) Stock Appreciation Rights shall entitle the
Participant, upon the exercise of all or any part of the Stock
Appreciation Rights, to receive from the Company an amount
equal to the excess of (x) the Fair Market Value on the date
of exercise of the Company Stock covered by the Stock
Appreciation Rights over (y) the Fair Market Value on the Date
of Grant of the Company Stock covered by the Stock
Appreciation Rights. The Committee may limit the amount that
the Participant may be entitled to receive upon exercise of
the Stock Appreciation Right.
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(ii) Stock Appreciation Rights shall be exercisable,
in whole or in part, at such times as the Committee shall
specify in the Participant's stock appreciation rights
agreement.
(c) The manner in which the Company's obligation arising upon
the exercise of a Stock Appreciation Right shall be paid shall be
determined by the Committee and shall be set forth in the Participant's
stock option agreement (if the Stock Appreciation Rights are related to
an Option) or stock appreciation rights agreement. The Committee may
provide for payment in Company Stock or cash, or a fixed combination of
Company Stock or cash, or the Committee may reserve the right to
determine the manner of payment at the time the Stock Appreciation
Right is exercised. Shares of Company Stock issued upon the exercise of
a Stock Appreciation Right shall be valued at their Fair Market Value
on the date of exercise.
(d) Performance Awards may be granted to Employees and
Selected Advisors under this Plan from time to time based on such terms
and conditions as the Committee deems appropriate provided that such
awards shall not be inconsistent with the terms and purposes of this
Plan. Performance Awards are awards which are contingent upon the
performance of the Company or which are contingent upon the individual
performance of the Participant. Performance Awards may be in the form
of performance units, performance shares, and such other forms of
performance awards which the Committee shall determine. The Committee
shall determine the performance measurements and criteria for such
performance awards.
9. Method of Exercise of Options and Stock Appreciation Rights.
(a) Options and Stock Appreciation Rights may be exercised by
the Participant giving written notice of the exercise to the Company
stating the number of shares the Participant has elected to purchase
under the Option or the number of Stock Appreciation Rights he has
elected to exercise. In the case of a purchase of shares under an
Option, such notice shall be effective only if accompanied by the
exercise price in full paid in cash; provided that, if the terms of an
Option so permit, the Participant may (i) deliver shares of Company
Stock (valued at their Fair Market Value on the date of exercise) in
satisfaction of all or any part of the exercise price, (ii) deliver a
properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company, from the
sale or loan proceeds with respect to the sale of Company Stock or a
loan secured by Company Stock, the amount necessary to pay the exercise
price and, if required by the Committee, Applicable Withholding, Taxes,
or (iii) deliver an interest bearing promissory note, payable to the
Company, in payment of all or part of the exercise price together with
such collateral as may be required by the Committee at the time of
exercise. The interest rate under any such promissory note shall be
equal to the minimum interest rate required at the time to avoid
imputed interest under the Code.
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(b) The Company may place on any certificate representing
Company Stock issued upon the exercise of an Option or a Stock
Appreciation Right any legend deemed desirable by the Company's counsel
to comply with federal or state securities laws, and the Company may
require of the Participant a customary written indication of his
investment intent. Until the Participant has made any required payment,
including any Applicable Withholding Taxes, and has had issued to him a
certificate for the shares of Company Stock acquired, he shall possess
no shareholder rights with respect to the shares.
(c) As an alternative to making a cash payment to the Company
to satisfy Applicable Withholding Taxes, the Committee may establish
procedures permitting the Participant to elect to (a) deliver shares of
already owned Company Stock or (b) have the Company retain that number
of shares of Company Stock that would satisfy all or a specified
portion of the Applicable Withholding Taxes of the Participant arising
in the year the Incentive Award becomes subject to tax. Any such
election shall be made only in accordance with procedures established
by the Committee. The Committee has the express authority to change any
election procedure it establishes at any time.
(d) Notwithstanding anything herein to the contrary, if the
Company is subject to section 16 of the Act, Options and Stock
Appreciation Rights shall always be granted and exercised in such a
manner as necessary to conform to the provisions of Rule 16b-3.
(e) If a Participant exercises an Option that has a Reload
Feature by delivering already owned shares of Company Stock in payment
of the exercise price, the Participant shall automatically be granted a
Reload Option. At the time the Option with a Reload Feature is awarded,
the Committee may impose such restrictions on the Reload Option as it
deems appropriate, but in any event the Reload Option shall be subject
to the following restrictions:
(i) The exercise price of shares of Company Stock
covered by a Reload Option shall be not less than 100% of the
Fair Market Value of such shares on the Date of Grant of the
Reload Option;
(ii) If and to the extent required by Rule 16b-3, or
if so provided in the option agreement, a Reload Option shall
not be exercisable within the first six months after it is
granted; provided that, subject to the terms of the
Participant's stock option agreement, this restriction shall
not apply if the Participant becomes Disabled or dies during
the six-month period;
(iii) The Reload Option shall be subject to the same
restrictions on exercisability imposed on the underlying
Option (possessing file Reload Feature) that was exercised
unless the Committee specifies different limitations;
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(iv) The Reload Option shall not be exercisable until
the expiration of any retention holding period imposed on the
disposition of any shares of Company Stock covered by the
underlying Option (possessing the Reload Feature) that was
exercised;
(v) The Reload Option shall not have a Reload
Feature. The Participant shall not be entitled to make payment
of the exercise price other than in cash unless provisions for
an alternative payment method are included in the
Participant's stock option agreement or are agreed to in
writing by the Company with the approval of the Committee
prior to the exercise of the Option.
10. Nontransferability of Incentive Awards. Incentive Awards shall not
be transferable unless so provided in the award agreement or an amendment to the
award agreement.
11. Effective Date of the Plan. This Plan shall be effective as of
September 1, 1998 and shall be submitted to the shareholders of the Company for
approval. No Option or Stock Appreciation Right shall be exercisable and no
Company Stock shall be issued under the Plan until (i) the Plan has been
approved by the Company's shareholders, (ii) the requirements of any applicable
federal securities laws have been met, and (iii) the requirements of any
applicable state securities laws have been met.
12. Termination, Modification, Change. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on August 31, 2008 .
No Incentive Awards shall be granted under the Plan after its termination. The
Board may terminate the Plan or may amend the Plan in such respects as it shall
deem advisable. The Board may unilaterally amend the Plan and Incentive Awards
as it deems appropriate to ensure compliance with Rule 16b-3 and to cause
Incentive Awards to meet the requirements of the Code, including Code section
422, and regulations thereunder. Except as provided, in the preceding sentence,
a termination or amendment of the Plan shall not, without the consent of the
Participant, adversely affect a Participant's rights under an Incentive Award
previously granted to him.
13. Change in Capital Structure.
(a) The number of shares reserved for issuance under the Plan,
the terms of Incentive Awards, and all computations under the Plan
shall be appropriately adjusted by the Committee should the Company
effect one or more stock dividends, stock splits, subdivisions or
consolidations of shares, or other similar changes in capitalization,
or if the par value of Company Stock is altered. If the adjustment
would produce fractional shares with respect to any unexercised Option,
the Committee may adjust appropriately the number of shares covered by
the Option so as to eliminate the fractional shares.
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(b) If the Company is a party to a consolidation or merger in
which the Company is not the surviving corporation, a transaction that
results in the acquisition of substantially all of the Company's
outstanding stock by a single person or entity, or a sale or transfer
of substantially all of the Company's assets, the Committee may take
such actions with respect to outstanding Incentive Awards as the
Committee deems appropriate.
(c) Any determination made or action taken under this Section
14 by the Committee shall be final and conclusive and may be made or
taken without the consent of any Participant.
14. Administration of the Plan. The Plan shall be administered by a
Committee, which shall be appointed by the Board, and which shall consist of not
less than two such members of the Board. Each member of the Committee shall
qualify as a "non-employee director" for 14 purposes of Rule 16b-3 and as an
"outside director" for purposes of Code section 162(m) and the regulations
thereunder. The Committee shall have general authority to construe and interpret
the terms of the Plan and the respective award agreements under the Plan, to
impose any limitation or condition upon an Incentive Award that the Committee
deems appropriate to achieve the objectives of the Incentive Award and the Plan.
The determination of the Committee with respect to any matter under the Plan to
be acted upon by the Committee shall be conclusive and binding. Without
limitation and in addition to powers set forth elsewhere in the Plan, the
Committee shall have the following specific authority:
(a) The Committee shall have the power and complete discretion
to determine (i) which eligible Employees and Selected Advisors shall
receive an Incentive Award and the nature of the Incentive Award, (ii)
the number of shares of Company Stock to be covered by each Incentive
Award, (iii) whether Options shall be Incentive Stock Options or
Nonstatutory Stock Options, (iv) when, whether and to what extent Stock
Appreciation Rights shall be granted in connection with Options, (v)
the Fair Market Value of Company Stock, (vi) the time or times when an
Incentive Award shall be granted, (vii) whether an Incentive Award
shall become vested over a period of time and when it shall be fully
vested, (viii) when Options and Stock Appreciation Rights may be
exercised, (x) whether a Disability exists, (x) the manner in which
payment will be made upon the exercise of Options or Stock Appreciation
Rights, (xi) conditions relating to the length of time before
disposition of Company Stock received upon the exercise of Options or
Stock Appreciation Rights is permitted, (xii) procedures for the
withholding or delivery of Company Stock to satisfy Applicable
Withholding Taxes, (xiii) the terms and conditions applicable to
Restricted Stock Awards, (xiv) the terms and conditions on which
restrictions upon Restricted Stock shall lapse, (xv) whether to
accelerate the time at which any or all restrictions with respect to
Restricted Stock will lapse or be removed, (xvi) notice provisions
relating to the sale of Company Stock acquired under the Plan, and
(xvii) any additional requirements relating to Incentive Awards that
the Committee deems appropriate. The Committee shall have the power to
amend the terms of previously granted Incentive Awards so long as the
terms as amended are consistent with the terms of the Plan and provided
that the consent of the Participant is obtained with respect to any
amendment that would be detrimental to the Participant, except that
such consent will not be required if such amendment is for the purpose
of complying with Rule 16b-3 or any requirement of the Code applicable
to the Incentive Award.
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(b) The Committee may adopt rules and regulations for carrying
out the Plan. The interpretation and construction of any rules or
regulations adopted by the Committee shall be final and conclusive. The
Committee may consult with counsel, who may be counsel to the Company,
and shall not incur any liability for any action taken in good faith in
reliance upon the advice of counsel.
(c) The Committee may delegate to the officers or employees of
the Company and deliver such instruments and documents, to do all such
acts and things, and to take all such other steps deemed necessary,
advisable or convenient for the effective administration of the Plan in
accordance with its terms and purpose, except that the Committee may
not delegate any discretionary authority with respect 'to substantive
decisions or functions regarding the Plan, nor as to Incentive Awards
thereunder as those relate to Insiders, including but not limited to
decisions regarding the timing, eligibility, pricing, amount or other
material term of such Awards.
(d) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by
a majority of the members present Any action may be taken by a written
instrument signed by all of the members, and any action so taken shall
be fully effective as if it had been taken at a meeting.
(e) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the Committee.
Notwithstanding this Section 14 or any other provision of the Plan to the
contrary, any action required or permitted to be performed by the Committee may
be performed by the entire Board to the extent necessary or appropriate to
satisfy Rule 16b-3, as determined in the discretion of the Board.
15. Notice. All notices and other communications required or permitted
to be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows: (a) if to the Company - at its principal business address to the
attention of the Secretary; (b) if to any Participant - at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.
16. Interpretation. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his
delegate relating to the qualification of Incentive Stock Options under the
Code. If any provision of the Plan conflicts with any such regulation or ruling,
then that provision of the Plan shall be void and of no effect. As to all
Incentive Stock Options and all Nonstatutory Stock Options with an exercise
price of at least 100% of Fair Market Value of the Company Stock on the Date of
Grant, this Plan shall be interpreted for such Options to be excluded from
applicable employee remuneration for purposes of Code section 162(m).
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IN WITNESS WHEREOF, the Company has caused the Plan to be executed this
1st day of September 1, 1998.
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