0000940180-01-500318.txt : 20011010
0000940180-01-500318.hdr.sgml : 20011010
ACCESSION NUMBER: 0000940180-01-500318
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20011114
FILED AS OF DATE: 20011009
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: D & K HEALTHCARE RESOURCES INC
CENTRAL INDEX KEY: 0000888914
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122]
IRS NUMBER: 431465483
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-20348
FILM NUMBER: 1753923
BUSINESS ADDRESS:
STREET 1: 8000 MARYLAND AVENUE
STREET 2: SUITE 920
CITY: ST. LOUIS
STATE: MO
ZIP: 63105
BUSINESS PHONE: 3147273485
MAIL ADDRESS:
STREET 1: 8000 MARYLAND AVENUE
STREET 2: SUITE 920
CITY: ST. LOUIS
STATE: MO
ZIP: 63105
FORMER COMPANY:
FORMER CONFORMED NAME: D & K WHOLESALE DRUG INC/DE/
DATE OF NAME CHANGE: 19930328
DEF 14A
1
ddef14a.txt
DEFINITIVE NOTICE & PROXY STATEMENT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2)
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240,14a-11(c) or (S) 240,14a-12
D & K HEALTHCARE RESOURCES, INC.
----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11,
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of tranaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[_] 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statment No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
Sec 1913 (3-99)
[LOGO] D&K HEALTHCARE RESOURCES, INC.
October 9, 2001
DEAR FELLOW STOCKHOLDERS:
Our Annual Meeting of Stockholders will be held at The Ritz-Carlton, 100
Carondelet Plaza, St. Louis, Missouri, 63105, at 10:00 A.M., local time, on
Wednesday, November 14, 2001. The Notice of Annual Meeting of Stockholders,
Proxy Statement and Proxy Card which accompany this letter outline fully
matters on which action is expected to be taken at the Annual Meeting.
We cordially invite you to attend the Annual Meeting. Even if you plan to
be present at the meeting, you are requested to date, sign and return the
enclosed Proxy Card in the envelope provided to ensure that your shares will be
voted. The mailing of an executed Proxy Card will not affect your right to vote
in person should you later decide to attend the Annual Meeting.
Sincerely,
J. HORD ARMSTRONG, III
Chairman of the Board, Chief
Executive
Officer and Treasurer
8000 Maryland Avenue, Suite 920
St. Louis, MO 63105
Tel: (314) 727-3485
Fax: (314) 727-5759
D & K HEALTHCARE RESOURCES, INC.
8000 Maryland Avenue, Suite 920
St. Louis, Missouri 63105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD NOVEMBER 14, 2001
Dear Stockholder:
The Annual Meeting of Stockholders of D & K Healthcare Resources, Inc. (the
"Company") will be held at The Ritz-Carlton, 100 Carondelet Plaza, St. Louis,
Missouri, 63105, on Wednesday, November 14, 2001, at 10:00 A.M., local time,
for the following purposes:
1. To elect three Class III directors to hold office for a term of three
years.
2. To consider and vote upon a proposal to approve the D&K Healthcare
Resources, Inc. 2001 Long Term Incentive Plan.
3. To transact any and all other business that may properly come before
the meeting or any adjournment thereof.
These items are more fully described in the following Proxy Statement,
which is hereby made a part of this Notice. Only stockholders of record of the
Company at the close of business on September 21, 2001 are entitled to notice
of, and to vote at, the meeting or any adjournment thereof.
By order of the Board of Directors,
LEONARD R. BENJAMIN
Vice President, General Counsel and
Secretary
October 9, 2001
D & K HEALTHCARE RESOURCES, INC.
8000 Maryland Avenue, Suite 920
St. Louis, Missouri 63105
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 14, 2001
-----------------
GENERAL INFORMATION
This Proxy Statement is furnished to the stockholders of D & K HEALTHCARE
RESOURCES, INC. (the "Company") in connection with the solicitation of proxies
for use at the Annual Meeting of Stockholders to be held at The Ritz-Carlton,
100 Carondelet Plaza, St. Louis, Missouri, 63105, at 10:00 A.M., local time, on
Wednesday, November 14, 2001, and at all adjournments thereof (the "Annual
Meeting"), for the purposes set forth in the preceding Notice of Annual Meeting
of Stockholders. The mailing address of the Company is 8000 Maryland Avenue,
Suite 920, St. Louis, Missouri 63105, and its telephone number is (314)
727-3485.
This Proxy Statement, the Notice of Annual Meeting and the accompanying
Proxy Card were first mailed to the stockholders of the Company on or about
October 9, 2001.
The proxy reflected on the accompanying Proxy Card is being solicited by
the Board of Directors of the Company. A proxy may be revoked at any time
before it is voted by filing a written notice of revocation or a later-dated
Proxy Card with the Secretary of the Company at the principal offices of the
Company or by attending the Annual Meeting and voting the shares in person.
Attendance alone at the Annual Meeting will not of itself revoke a proxy. Proxy
Cards that are properly executed, timely received and not revoked will be voted
in the manner indicated thereon at the Annual Meeting and any adjournment
thereof.
The Company will bear the entire expense of soliciting proxies. Proxies
will be solicited by mail initially. The directors, executive officers and
employees of the Company may also solicit proxies personally or by telephone or
other means but such persons will not be specially compensated for such
services. In addition, the Company has retained D.F. King & Co. to assist in
the solicitation of proxies on its behalf for a fee of $5,000 plus reasonable
out-of-pocket expenses.
Only stockholders of record at the close of business on September 21, 2001
are entitled to notice of, and to vote at, the Annual Meeting. On such date,
there were 7,117,961 shares of the Company's Common Stock, $.01 par value
("Common Stock"), issued and outstanding.
Each outstanding share of the Common Stock is entitled to one vote on each
matter to be acted upon at the Annual Meeting. A quorum is required for votes
taken at the Annual Meeting to be deemed valid. A quorum shall be attained if
holders of a majority of the shares of Common Stock issued and outstanding are
present at the Annual Meeting in person or by proxy. After a quorum has been
established, the vote of the holders of a majority of the shares of Common
Stock present in person or by proxy shall be required for the election of
directors and any other matter which is submitted to a vote of stockholders at
the Annual Meeting. Stockholders do not have the right to cumulate votes in the
election of directors.
Shares subject to abstentions will be treated as shares that are present at
the Annual Meeting for purposes of determining the presence of a quorum, and as
voted for purposes of determining the base number of shares voting on a
particular proposal. Accordingly, abstentions will have the same effect as a
vote withheld on the election of directors or a vote against other matters
submitted to the stockholders for a vote, as the case may be. If a broker or
other nominee holder indicates on the Proxy Card that it does not have
discretionary authority to vote the shares it holds of record on a proposal,
those shares will not be considered as present for purposes of determining a
quorum or as voted for purposes of determining the approval of the stockholders
on a particular proposal.
2
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following persons were known to management of the Company to be the
beneficial owners of five percent or more of the Company's outstanding Common
Stock as of September 21, 2001:
Number of Shares Percent of Outstanding
Name and Address of Beneficial Owner Beneficially Owned Common Stock(1)
------------------------------------ ------------------ ----------------------
J. Hord Armstrong, III 374,930(2) 5.2%
8000 Maryland Avenue
Suite 920
St. Louis, Missouri 63105
--------
(1) The percentage calculations are based upon 7,117,961 shares of the
Company's Common Stock that were issued and outstanding as of September 21,
2001.
(2) Includes 108,333 shares issuable pursuant to stock options that are
exercisable currently or within 60 days; does not include 10,000 shares
that are owned by Mr. Armstrong's wife, as to which shares Mr. Armstrong
has no voting or investment power and as to which Mr. Armstrong disclaims
beneficial ownership. See "Security Ownership By Management."
3
ITEM 1. ELECTION OF DIRECTORS
At the Annual Meeting, three individuals will be elected to serve as Class
III directors of the Company for a term of three years. Except as otherwise
directed by the stockholder on the Proxy Card, the persons named as proxies on
the accompanying Proxy Card intend to vote all duly executed proxies received
by the Board of Directors for the election of J. Hord Armstrong, III, Richard
F. Ford, and Thomas F. Patton as Class III directors. Messrs. Armstrong and
Ford and Dr. Patton are each currently a director of the Company. If for any
reason Messrs. Armstrong or Ford or Dr. Patton becomes unavailable for
election, which is not now anticipated, the persons named on the accompanying
Proxy Card will vote for such substitute nominee as designated by the Board of
Directors. The Board of Directors recommends a vote "FOR" the election of J.
Hord Armstrong, III, Richard F. Ford, and Thomas F. Patton as Class III
directors.
The name, age, principal occupation or position and other directorships
with respect to Messrs. Armstrong and Ford and Dr. Patton and the directors
whose terms of office will continue after the Annual Meeting are set forth
below.
CLASS I--TO CONTINUE IN OFFICE UNTIL 2002
Harvey C. Jewett, IV, age 53, has served as one of our directors since
1997. Mr. Jewett was the Chairman of Jewett Drug Co. from August 1988 until we
acquired it in June 1999. He has also served as the President and Chief
Operating Officer of the Rivett Group, L.L.C. since October 1988. He also
serves as a director of the University of South Dakota Foundation and the
College of Saint Benedict.
Louis B. Susman, age 63, has served as director of the Company since
November 1998. Mr. Susman previously served as an advisory director of the
Company between June 1998 and November 1998. Mr. Susman currently is Managing
Director and Vice Chairman of Investment Banking of Salomon Smith Barney. Mr.
Susman has been employed by Salomon Smith Barney in various executive
capacities since 1989 and also serves as a director of U.S. Can Corporation.
Martin D. Wilson, age 40, has served as President and Chief Operating
Officer of the Company since January 1996, as Secretary from August 1993 to
April 1999 and as director since 1997. Mr. Wilson previously served as
Executive Vice President, Finance and Administration of the Company from May
1995 to January 1996, as Vice President, Finance and Administration of the
Company from April 1991 to May 1995 and as Controller of the Company from March
1988 to April 1991. Prior to joining the Company, Mr. Wilson was associated
with KPMG Peat Marwick, a public accounting firm.
CLASS II--TO CONTINUE IN OFFICE UNTIL IN 2003
Robert E. Korenblat, age 61, has served as a director of the Company since
1997 and is the President and Chief Executive Officer of Pharmaceutical Buyers,
Inc., a Colorado-based group purchasing organization in which the Company holds
a 70% ownership interest ("PBI"). Mr. Korenblat additionally served as Vice
President of PBI from 1989 to 1991. Mr. Korenblat was elected a director of the
Company in connection with the Company's investment in PBI.
Bryan H. Lawrence, age 59, has served as a director of the Company since
its founding in December 1987. Since September, 1997, Mr. Lawrence has been a
member of Yorktown Partners
4
LLC, which manages certain investment partnerships. Prior thereto, he was a
Managing Director of Dillon, Read & Co., Inc., an investment banking firm, for
more than the preceding five years. Mr. Lawrence also serves as a director of
Vintage Petroleum, Inc., TransMontaigne Oil Company, Carbon Energy Corporation,
Hallador Petroleum Company and certain other companies in the energy industry
in which Yorktown partnerships hold equity interests.
James M. Usdan, age 51, has served as a director of the Company since 1997.
Since 2001, Mr. Usdan has served as President and Chief Executive Officer of
Castle Dental Centers, Inc. From 1998 to 2001, Mr. Usdan was President and
Chief Executive Officer of Comprehensive Medical Imaging, Inc., a long term
acute care hospital management company. Prior thereto, he was the President and
Chief Executive Officer of RehabCare Group, Inc., a St. Louis-based provider of
rehabilitation, outpatient and therapist staffing services for more than the
preceding five years. Mr. Usdan is also a director of Metro One
Telecommunications, Inc.
CLASS III--TO BE ELECTED FOR A TERM EXPIRING IN 2004
J. Hord Armstrong, III, age 60, has served as Chairman of the Board, Chief
Executive Officer and Treasurer and as a director of the Company since December
1987. Prior to joining the Company, Mr. Armstrong served as Vice President and
Chief Financial Officer of Arch Mineral Corporation, a coal mining and sales
corporation, from 1981 to 1987 and as its Treasurer from 1978 to 1981. Mr.
Armstrong serves as a Trustee of the St. Louis College of Pharmacy.
Richard F. Ford, age 65, has served as a director of the Company since its
founding in December 1987. Mr. Ford has been engaged in venture capital
investing as a general partner of affiliates of Gateway Venture Partners II,
L.P. in St. Louis, Missouri, since 1984. Mr. Ford also serves as a director of
Stifel Financial Corporation, CompuCom Systems, Inc. and TALX Corporation.
Thomas F. Patton, Ph.D., age 52, has served as a director of the Company
since 1997. Dr. Patton is President of the St. Louis College of Pharmacy and
has served in that capacity since June 1994. From April 1993 until January 1994
and from January 1994 until May 1994, Dr. Patton served as Executive Director
of Pharmaceutical Research and Development and as Vice President of
Pharmaceutical Research and Development, respectively, at Dupont-Merck
Pharmaceutical Co., a manufacturer of pharmaceutical products. From March 1990
through March 1993, Dr. Patton served as Director and Senior Director of
Pharmaceutical Research and Development at Merck and Co., Inc., a manufacturer
of pharmaceutical products. Dr. Patton's career also includes tenures as
Professor of Pharmaceutical Chemistry and Pharmacy Practice at the University
of Kansas, Associate Director of Control Development at the Upjohn Co., a
pharmaceutical company, and Vice President of Operations at Oread Laboratories,
Inc., a pharmaceutical company.
BOARD OF DIRECTORS AND COMMITTEES
During fiscal 2001, the Board of Directors of the Company met five times
and all of the directors attended at least 75% of the meetings of the Board of
Directors and committees of which such director was a member during fiscal
2001.
The Board of Directors has a standing Audit Committee and Stock Option and
Compensation Committee. The members of the Audit Committee are Messrs. Ford,
Susman and Usdan. The primary
5
purpose of the Audit Committee is to assist the Board of Directors in
fulfilling its responsibility to oversee management's conduct of the Company's
financial reporting process, including overviewing the financial reports and
other financial information provided by the Company to any governmental or
regulatory body, the public or other users thereof, the Company's systems of
internal accounting and financial controls, and the annual independent audit of
the Company's financial statements. The Audit Committee met twice in fiscal
2001.
The Stock Option and Compensation Committee is composed of Messrs. Ford,
Lawrence and Susman. The primary purpose of the Stock Option and Compensation
Committee is to review and determine the salaries, bonuses and other
compensation payable to corporate officers and to administer the Company's
Amended and Restated 1992 Long Term Incentive Plan. The Stock Option and
Compensation Committee met twice during fiscal 2001.
DIRECTORS' FEES
Non-employee directors currently receive annual retainers of $10,000 for
serving as directors and fees of $1,000 for each meeting of the Board attended
($500 if attended telephonically). Effective November 14, 2001, non-employee
directors' fees will be increased to $15,000 for serving as directors and
$1,500 for each meeting of the Board attended ($750 if attended
telephonically). In addition, the Board has granted options to one non-employee
director of 10,000 shares of Common Stock, exercisable at the rate of 33% per
year over the three years following the date of the grant.
Harvey C. Jewett, IV, who is a Class I director, is party to a Consulting
Agreement with the Company. Mr. Jewett is also the managing member of and holds
an equity interest in Jewett Family Investments, L.L.C., which is party to a
lease agreement with Jewett Drug Co., a subsidiary of the Company, for the
lease of property located in Aberdeen, South Dakota. See "Certain
Transactions."
6
OWNERSHIP BY MANAGEMENT
The following table indicates as of September 21, 2001, to the knowledge of
the Company, the beneficial ownership of the Company's Common Stock by each
person who is a director or nominee for director and the persons named in the
Summary Compensation Table, individually, and all directors and executive
officers as a group:
Number of Shares
Beneficially
Name Owned(1)(2) Percent(3)
---- ---------------- ----------
J. Hord Armstrong, III(4)................................... 374,930 5.2%
Richard F. Ford............................................. 8,000 *
Harvey C. Jewett............................................ 255,556 3.6%
Robert E. Korenblat(5)...................................... 2,000 *
Bryan H. Lawrence(6)........................................ 34,984 *
Thomas F. Patton(7)......................................... 500 *
Louis B. Susman............................................. 3,000 *
James M. Usdan(8)........................................... 1,700 *
Martin D. Wilson(9)......................................... 102,332 1.4%
Leonard R. Benjamin(10)..................................... 23,000 *
Thomas S. Hilton(11)........................................ 38,000 *
Brian G. Landry(12)......................................... 36,000 *
All directors and executive officers as a group (12 persons) 880,002 11.9%
--------
*Less than 1%.
(1)Represents sole voting and investment power unless otherwise noted.
(2)For purposes of this table, each director or executive officer is deemed to
beneficially own shares of Common Stock issuable pursuant to options,
warrants or other convertible securities that are exercisable by such
director or executive officer currently or within 60 days.
(3)The percentage calculations are based upon 7,117,961 shares of the
Company's Common Stock that were issued and outstanding as of September 21,
2001 and, for each director or executive officer or the group, the number
of shares subject to options exercisable by such director or executive
officer or the group within 60 days.
(4)Includes 108,333 shares issuable pursuant to stock options that are
exercisable currently or within 60 days; does not include 10,000 shares
that are owned by Mr. Armstrong's wife, as to which Mr. Armstrong disclaims
beneficial ownership.
(5)Does not include 2,000 shares held in a trust by Mr. Korenblat's wife, as
to which Mr. Korenblat disclaims beneficial ownership.
(6)Includes 6,666 shares issuable pursuant to stock options that are
exercisable currently or within 60 days. Does not include 4,000 shares
owned by Mr. Lawrence's wife, as to which Mr. Lawrence disclaims beneficial
ownership.
(7)Does not include 500 shares owned by Dr. Patton's wife, as to which Dr.
Patton disclaims beneficial ownership.
(8)Does not include 1,000 shares that are owned by Mr. Usdan's wife, as to
which Mr. Usdan disclaims beneficial ownership.
(9)Includes 99,332 shares issuable pursuant to stock options that are
exercisable currently or within 60 days.
7
(10)Includes 23,000 shares issuable pursuant to stock options that are
exercisable currently or within 60 days.
(11)Includes 33,000 shares issuable pursuant to stock options that are
exercisable currently or within 60 days.
(12)Includes 34,000 shares issuable pursuant to stock options that are
exercisable currently or within 60 days.
8
REPORT OF THE STOCK OPTION AND COMPENSATION
COMMITTEE REGARDING EXECUTIVE COMPENSATION
General
The Company's executive compensation program is administered by the Stock
Option and Compensation Committee of the Board of Directors (the "Committee")
which is composed of Messrs. Ford, Lawrence and Susman.
The Company's executive compensation policy is designed and administered to
provide a competitive compensation program that will enable the Company to
attract, motivate, reward and retain executives who have the skills, education,
experience and capabilities required to discharge their duties in a competent
and efficient manner. The Company's compensation policy is based on the
principle that the financial rewards to the executive should be aligned with
the financial interests of the stockholders by striving to create a suitable
long-term return on their investment through earnings from operations and
prudent management of the Company's business and operations.
The Company's executive compensation strategy consists of salary and
long-term incentive compensation. The following is a summary of the policies
underlying each element.
Annual Compensation
The annual compensation salary for individual executive officers of the
Company is based upon the level and scope of the responsibility of the office,
the pay levels of similarly positioned executive officers among companies
competing for the services of such executives and a consideration of the level
of experience and performance profile of the particular executive officer.
Based upon its review and evaluation, the Committee determines the salary to be
paid to each executive officer.
In addition to salary, each executive has the potential to receive an
annual incentive award based upon the achievement of certain performance
criteria. The target amount for such awards for achievement of the performance
criteria is based upon a percentage of the executive's then annual salary. In
August 2001 the Committee, after considering the Company's strong performance
in fiscal 2001 and successful secondary offering, granted additional
discretionary bonuses for each executive officer. It is the intention of the
Committee that in the future a portion of any annual bonuses awarded to
executive officers and other key employees would be made in stock of the
Company. Ownership of the stock would vest in the employee three years after
the date of grant provided that the employee was then still in the employ of
the Company.
Long Term Incentive Compensation
The Committee believes that long-term incentive compensation is the most
effective way of tying executive compensation to increases in stockholder
value. The Company's long-term incentive programs authorize the grant of
stock-based awards, thereby providing a means through which executive officers
will be given incentives to continue high quality performance with the Company
over a long period of time while allowing such executive officers to build a
meaningful investment in the Company's Common Stock.
To provide long-term incentive compensation to executive officers and other
key personnel, the Company maintains the Amended and Restated 1992 Long Term
Incentive Plan (the "Incentive Plan").
9
The Committee has a policy of awarding stock options from time to time based
upon competitive practices, continuing progress or achievement of goals of the
Company and individual performance. All stock options awards are made with
option exercise prices equal to the fair market value of the underlying stock
at the time of grant. Participants benefit only when and to the extent the
stock price increases after the option grant. However, the number of shares
available to be granted under the Incentive Plan has been virtually exhausted.
Accordingly the Company is seeking approval of the 2001 Long Term Incentive
Plan so that incentive awards will continue to be available. The Company also
maintains an executive retirement benefit plan to provide supplemental
pre-retirement life insurance and supplemental retirement income to certain key
employees. The life insurance benefit is calculated at three times annual
salary. The supplemental retirement income benefit is a non-qualified defined
contribution plan. Contributions to the plan are discretionary by the Company.
Each participant can allocate the contributions in their account from
investment fund alternatives offered by the Company. In November 1999, the
Committee initiated a long-term incentive program under which participants
would be granted, at the Committee's option, Company stock or cash, or a
combination thereof, based upon the total return of Company stock relative to
the total return of stocks in the Russell 2000 Index for the period beginning
in November 1999 and ending June 30, 2002. With the consent of the program's
participants, the program was terminated in July 2001 and the participants were
paid a cash award that the Committee considered fair and appropriate.
Compensation of Chief Executive Officer
Mr. Armstrong's minimum salary and bonus for fiscal 2001 were determined by
the Committee in the same manner as is used by the Committee for executive
officers generally. The Committee believes that Mr. Armstrong's compensation is
competitive within the industry and, when combined with Mr. Armstrong's
significant ownership of the Company's Common Stock, provides incentives for
performance which are aligned with the financial interests of the stockholders
of the Company.
Code Section 162(m)
The Committee has considered Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), regarding qualifying compensation paid to the
Company's executive officers for deductibility. The Committee intends to make
every effort to ensure that all compensation awarded to the Company's
executives is fully deductible for income tax purposes. The Committee may in
the future deem it advisable to take certain action to preserve the
deductibility of executive compensation under Section 162 (m).
THE STOCK OPTION AND COMPENSATION COMMITTEE
Richard F. Ford Bryan H. Lawrence Louis B. Susman
10
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation for each of the last three
fiscal years of the executive officers of the Company whose annual salaries and
other reportable compensation exceeded $100,000 for fiscal 2001.
Summary Compensation Table
Long Term
Annual Compensation Compensation
- -------------------------------- ----------------------
Awards Payouts
- ---------- ----------
Other All
Annual Securities Other
Name and Principal Compen- Underlying LTIP Compen-
Position Year Salary Bonus sation(1) Options Payouts(2) sation(3)
------------------ ---- -------- -------- --------- ---------- ---------- ---------
J. Hord Armstrong, III. 2001 $475,000 $387,500 $ 2,087 75,000 $529,000 $59,646
Chairman of the 2000 437,500 112,500 1,870 33,333(4) -- 45,336
Board, Chief 1999 278,239 137,500 2,316 33,333(4) -- 58,246
Executive Officer and
Treasurer
Martin D. Wilson....... 2001 $350,000 $282,500 $ 1,584 50,000 $305,000 $43,943
President and Chief 2000 293,749 60,000 2,200 16,667(4) -- 33,196
Operating Officer 1999 201,264 80,000 1,933 16,667(4) -- 38,848
Leonard R. Benjamin(5). 2001 $170,000 $101,000 $ 4,703 33,000 $111,000 $24,481
Vice President, 2000 160,000 24,000 4,225 -- -- 18,295
General Counsel and 1999 35,111 10,000 855 15,000(4) -- 5,029
Secretary
Thomas S. Hilton(6).... 2001 $208,000 $132,800 $13,008 33,000 $177,000 $28,847
Senior Vice President 2000 200,000 35,000 11,609 -- -- 23,581
and Chief Financial 1999 77,917 49,500 4,198 15,000(4) -- 12,571
Officer
Brian D. Landry........ 2001 $145,000 $ 93,500 $ 4,677 24,000 $ 41,000 $22,391
Vice President and 2000 118,125 50,000 10,980 -- -- 15,557
Chief Information 1999 100,000 4,154 1,978 -- -- 15,536
Officer
--------
(1) Includes compensation in connection with automobile expenses for fiscal
2001 and 2000, respectively, as follows: Mr. Armstrong--$2,087 and $1,870;
Mr. Wilson--$1,584 and $2,200; Mr. Benjamin--$4,703 and $4,225; Mr.
Hilton--$7,641 and $6,482 and Mr. Landry--$4,677 and $1,597. Also includes
compensation to Mr. Hilton for club memberships for fiscal 2001 and 2000,
respectively, of $5,367 and $5,127. Also includes compensation to Mr.
Landry for moving expenses for fiscal 2000 of $9,383.
11
(2) The LTIP program was terminated in July 2001 with the consent of the
program's 12 participants. All LTIP payouts consisted of cash awards
approved by the Stock Option and Compensation Committee.
(3) Includes contributions made to a defined contribution executive retirement
plan funded by split-dollar life insurance policies for fiscal 2001 as
follows: Mr. Armstrong--$52,426; Mr. Wilson--$38,630; Mr.
Benjamin--$18,763; Mr. Hilton--$22,957; and Mr. Landry--$16,004. Also
includes contributions made to the Company's 401(k) plan for fiscal 2001 as
follows: Mr. Armstrong--$7,220; Mr. Wilson--$5,313; Mr. Benjamin--$5,719;
Mr. Hilton--$5,890 and Mr. Landry--$6,387.
(4) These options were canceled in May 2000.
(5) Mr. Benjamin joined the Company in April 1999.
(6) Mr. Hilton joined the Company in January 1999.
The following table sets forth information concerning stock option grants
made in fiscal 2001 to the individuals named in the Summary Compensation Table.
Options were granted at fair market value on the date of grant, became
exercisable six months after the date of grant and generally expire ten years
after the date of grant.
Option Grants in Fiscal 2001
Potential Realizable
Value at Assumed
Annual Rate of
Stock Price
Appreciation For
Individual Grants Value 0ption Term(1)
------------------------------- --------------------
Percent of
Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price Expiration
Name Granted Year Per Share Date 5% 10%
---- ---------- ---------- --------- ---------- -------- ----------
J. Hord Armstrong, III 75,000 14.7% $ 13.00 11/29/10 $613,172 $1,553,899
Martin D. Wilson...... 50,000 9.8% $ 13.00 11/29/10 $408,782 $1,035,933
Leonard R. Benjamin... 18,000 6.5% $ 13.00 11/29/10 $147,161 $ 372,936
15,000 $21.375 2/14/11 $201,639 $ 510,994
Thomas S. Hilton...... 18,000 6.5% $ 13.00 11/29/10 $147,161 $ 372,936
15,000 $21.375 2/14/11 $201,639 $ 510,994
Brian G. Landry....... 24,000 4.7% $ 13.00 11/29/10 $196,215 $ 497,248
--------
(1) Potential realizable value is calculated based on the term of the option at
the time of grant. The 5% and 10% assumed annual rates of compounded stock
price appreciation are mandated by rules of the Securities and Exchange
Commission. Potential realizable value does not represent the Company's
prediction of its stock price performance and does not take into account
appreciation for the fair value of the Common Stock from the date of grant
to date. There can be no assurance that the actual stock price appreciation
over the term of the option will equal or exceed the assumed 5% and 10%
levels.
12
The following table sets forth information concerning the number of
exercisable and unexercisable stock options at June 30, 2001 as well as the
value of such stock options having an exercise price lower than the last
reported trading price on June 30, 2001 ("in-the-money" options) held by the
executive officers named in the Summary Compensation Table.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
Number of
Securities
Underlying Value of
Unexercised Unexercised In-
Options at The-Money
Shares Fiscal Year- Options at Fiscal
Acquired End Year-End(1)
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
---- -------- -------- ------------- -----------------
J. Hord Armstrong, III -- -- 108,333/-- $ 2,796,240/--
Martin D. Wilson...... -- -- 120,865/-- $ 3,497,489/--
Leonard R. Benjamin... -- -- 18,000/15,000 $357,750/$278,550
Thomas S. Hilton...... -- -- 18,000/15,000 $357,750/$278,550
Brian G. Landry....... -- -- 41,000/-- $ 1,366,850/--
--------
(1) Based on a price per share of $36.85, the closing sale price of the Common
Stock on June 29, 2001.
Employment Agreements with Named Executive Officers
In August and September, 2000, the Company entered into separate employment
agreements with J. Hord Armstrong, III, Martin D. Wilson and Thomas S. Hilton,
each of which expires September 15, 2003, August 28, 2003 and August 31, 2003,
respectively. The employment agreements are subject to successive one year
renewal terms following expiration of the initial term unless notice of
non-renewal is given by either party 90 days before the end of the then current
term. Under the employment agreements, Mr. Armstrong serves as Chairman of the
Board and Chief Executive Officer in exchange for annual base compensation of
$475,000, Mr. Wilson serves as President and Chief Operating Officer of the
Company in exchange for annual base compensation of $350,000 and Mr. Hilton
serves as Senior Vice President and Chief Financial Officer of the Company in
exchange for annual base compensation of $208,000, each subject to annual
adjustment by the Board. In addition, each executive is entitled to receive a
bonus based upon certain performance criteria established by the Board.
In the event the Company chooses not to renew any such executive's
employment or terminates the employment of any such executive for reasons other
than for cause, the Company is obligated to continue to pay salary and benefits
for at least the remainder of the term of the subject employment agreement, and
not less than 24 months in the case of Mr. Armstrong, 18 months in the case of
Mr. Wilson and 12 months in the case of Mr. Hilton. The Company is also
obligated to pay a prorated annual bonus (computed at 100% of targeted
performance).
Each employment agreement also provides that if the executive's employment
is terminated by the Company without cause or is not renewed by the Company in
anticipation of or within two years following a "change in control" (as defined
in the agreement), the Company will be required to pay the executive a lump-sum
cash amount equal to (i) two times the sum of his then current salary and an
13
annual bonus (computed at 100% of targeted performance) for the entire year,
plus (ii) the executive's prorated annual bonus (computed at 100% of targeted
performance) for the year in which termination occurs. The Company will also
continue to provide benefits, or the cash equivalent, for 24 months after
termination. The Company will also, with certain exceptions, reimburse the
executive for any legal fees and disbursements incurred by him in connection
with enforcing his rights under his employment agreement.
In the event the Company chooses not to renew any such executive's
employment or terminates the employment of any such executive for reasons other
than for cause, whether or not in anticipation of a change in control, the
executive would also be entitled to receive a prorated contribution under the
Company's executive retirement benefit plan for the year in which termination
occurs and outplacement assistance. In addition, all unvested options granted
to the executive under the Company's Amended and Restated 1992 Long Term
Incentive Plan (the "Incentive Plan") vest as of the termination date. The
terminated executive has twelve months following the date of termination to
exercise all options under the Plan.
Each executive may terminate his employment agreement for "good reason" (as
defined in the agreement), in which case the executive would be entitled to the
benefits he would receive upon termination by the Company without "cause." Each
executive has agreed to refrain from disclosing information confidential to the
Company during the term of his employment and thereafter, and has agreed not to
engage in activities competitive with the Company during the term of his
employment and for two years thereafter in the case of Mr. Armstrong, for
eighteen months thereafter in case of Mr. Wilson and for one year thereafter in
the case of Mr. Hilton.
Long Term Incentive and Stock Option Plans
Pursuant to the Company's Incentive Plan, the Stock Option and Compensation
Committee (the "Committee") may grant to officers and key employees of the
Company and its subsidiaries (i) options to purchase shares of the Common Stock
("Stock Options"), which may or may not qualify as incentive stock options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code, as
amended, (ii) stock appreciation rights ("SARs"), (iii) restricted shares of
the Company's Common Stock ("Restricted Stock"), and (iv) performance awards
("Performance Awards"). Pursuant to the Company's 1993 Stock Option Plan (the
"Option Plan" and, collectively with the Incentive Plan, the "Plans"), the
Committee or the full Board of Directors may grant to key employees of the
Company who are not "reporting persons" subject to Section 16 of the Exchange
Act and to certain other persons performing services for the Company Stock
Options which do not qualify as ISOs. The Board of Directors has reserved
850,000 and 350,000 shares of Common Stock for issuance pursuant to the
Incentive Plan and the Option Plan, respectively, of which, as of September 21,
2001, an aggregate of 616,165 shares are subject to currently outstanding Stock
Options and 17,069 shares remain available for grant or issuance under the
Plans.
The Plans are administered by the Committee. The Committee has the
authority to (i) select individuals to receive grants under the Plans, (ii)
establish the terms of grants and (iii) interpret the Plans.
Generally, Stock Options are granted to purchase shares of Common Stock at
a purchase price established by the Committee or the Board of Directors at not
less than the Fair Market Value (as
14
defined in the Plans) of the Common Stock on the date of grant, and the term of
such Stock Options shall not exceed ten years from date of grant. The Committee
may grant SARs giving the holder thereof a right to receive, at the time of
surrender, Common Stock equal in value to the difference between the Fair
Market Value of the Common Stock at the date of surrender of the SARs and the
"Base Price" established by the Committee at the time of grant, which may not
be less than Fair Market Value of the Common Stock on the date of grant. SARs
may be issued in conjunction with Stock Options. The Committee may also issue
shares of Common Stock either as a stock bonus or at a purchase price of less
than Fair Market Value, subject to any restrictions or conditions which may be
specified by the Committee at the time of grant. The Committee may also issue
Performance Awards consisting of shares of Common Stock, monetary units payable
in cash or a combination thereof. These grants would result in the issuance,
without payment therefor, of Common Stock or the payment of cash upon the
achievement of certain pre-established performance criteria during a specified
performance period not to exceed five years. The number of shares available to
be granted under the Incentive Plan has been virtually exhausted. Accordingly
the Company is seeking approval of the 2001 Long Term Incentive Plan so that
incentive awards will continue to be available.
In November 1999 the Committee initiated a long-term incentive program (the
"LTIP") pursuant to the Incentive Plan under which participants would be
granted Company Common Stock or cash or a combination thereof, at the Company's
discretion, based upon the total return of the Company's Common Stock relative
to the total return of stocks in the Russell 2000 Index for the period
beginning in November 11, 1999 and ending June 30, 2002 (the "Incentive
Period"). At the commencement of the Incentive Period, the market closing price
for the Common Stock was $16.50 per share. Rewards under that program are
subject to the total return (consisting of stock price appreciation plus any
dividends paid during the Incentive Period, or "Return") of the Company's
Common Stock (the "Company Return") being at least equal to the 50th percentile
in Return of stocks on the Russell 2000 Index during the Incentive Period (the
"Russell Return"). With the consent of the program's twelve participants, the
program was terminated in July 2001 and the participants were paid a cash award
in August 2001 that the Committee considered fair and appropriate in an
aggregate amount of $1,455,000. In fiscal 2001, the Committee did not award any
rights to participate in the LTIP.
Certain Transactions
In November 1995, the Company acquired approximately 50% of the capital
stock of PBI and Massachusetts Mutual Life Insurance Company and certain of its
affiliates (collectively, "MassMutual") concurrently acquired 30% of the
outstanding voting and nonvoting capital stock of PBI and purchased senior
secured notes and senior secured convertible notes of PBI in principal amounts
of $5.5 million and $1.3 million, respectively. Robert E. Korenblat, a director
of the Company, is also a director, executive officer and shareholder of PBI.
Pursuant to its ownership of PBI capital stock, the Company received cash
dividends from PBI of $350,000 and $450,000 in fiscal 2000 and 2001,
respectively.
In connection with the Company's investment in PBI, the Company entered
into an agreement pursuant to which MassMutual is entitled to exchange shares
of capital stock of PBI owned by it at fair market value for, at the Company's
discretion, cash or shares of Common Stock at an exchange ratio based upon the
then market value of the Common Stock. In addition, MassMutual may require the
Company to register under the Securities Act shares of Common Stock issuable to
it (and MassMutual may require the Company to register 530,978 shares of Common
Stock currently owned by it) or to
15
include such shares in any registration statement the Company proposes to file
under the Securities Act, with certain exceptions. Messr. Korenblat was elected
director of the Company in connection with the Company's investment in PBI. In
August, 2001, Mr. Korenblat elected to exchange all of his capital stock in PBI
for 20,000 shares of the Company's Common Stock.
In fiscal 1996, PBI entered into an Employment Agreement (the "Employment
Agreement") with Robert E. Korenblat. The Employment Agreement had an initial
term expiring on December 31, 1998, but is automatically renewable on December
31 of each year until terminated by notice of either party, in which case it
will expire on the December 31 which is two full years after the date of such
notice. The Employment Agreement was automatically renewed for an additional
term expiring December 31, 2000. Pursuant to the Employment Agreement, Mr.
Korenblat serves as President and Chief Executive Officer of PBI with an annual
base salary of not less than $350,000, which is increased, but not decreased,
each year to reflect increases in the Consumer Price Index. The Employment
Agreement also provides for certain benefits and an annual bonus based on
achievement of certain operating profit and other goals established by PBI's
Board of Directors, which bonus may not exceed, in the aggregate, 180% of base
salary. For PBI's fiscal year ended December 31, 2000, PBI paid Mr. Korenblat a
salary of $409,690 plus bonus compensation of $126,110. The Employment
Agreement also contains a non-competition covenant pursuant to which Mr.
Korenblat agrees not to compete with PBI or the Company in the United States,
Puerto Rico or any other country where PBI may do business for a period of two
years after termination of Mr. Korenblat's employment. Mr. Korenblat was paid
$50,000 each April 15 and October 15 through October 15, 1999 in consideration
of his covenant not to compete.
In June 1999, the Company entered into a Consulting Agreement (the
"Consulting Agreement") with Harvey C. Jewett, IV. The Consulting Agreement has
an initial term expiring on May 31, 2002, but is automatically renewable for
successive one year terms unless earlier terminated by notice of either party.
Pursuant to the Consulting Agreement, Mr. Jewett provides consultation,
instruction and advice to the Company in connection with the operations,
management, sales, marketing and financial matters of Jewett Drug Co. in
exchange for monthly compensation of $10,000 and reimbursement of expenses. The
Consulting Agreement may be terminated by either the Company or Mr. Jewett upon
30 days' prior written notice. The Consulting Agreement also contains a
non-competition covenant pursuant to which Mr. Jewett agrees not to compete
with the Company in the United States during the term of the Consulting
Agreement and for a period of two years thereafter.
In June 1999, Jewett Drug Co., our subsidiary ("Jewett Drug"), entered into
a First Amendment to Lease (the "Amendment") with Jewett Family Investments,
L.L.C., a South Dakota limited liability company ("JFI"), for the lease of
property located in Aberdeen, South Dakota. The Amendment requires Jewett Drug,
as lessee, to pay an aggregate of $80,000 annually to JFI. The lease expires
June 30, 2006. Harvey C. Jewett, IV, a director of the Company, is the managing
member of JFI. Mr. Jewett holds less than a 5% equity interest in JFI, the
balance of which is owned by Mr. Jewett's immediate family members.
The Company believes that the transactions set forth above were made on
terms not less favorable to the Company than would have been obtained from
unaffiliated third parties. All future transactions (including loans) between
the Company and its officers, directors, principal stockholders and affiliates
are required to be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors and must be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
16
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is composed of three independent directors as defined
by National Association of Securities Dealers. The Audit Committee operates
under a written charter adopted by the Board of Directors, a copy of which is
attached hereto as Exhibit A.
We have reviewed and discussed with management the Company's consolidated
financial statements as of and for the fiscal year ended June 30, 2001.
We have discussed with the independent public accountants the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees.
We have received and reviewed the written disclosures and the letter from
the independent public accountants required by Independence Standard No. 1,
Independence Discussions with Audit Committees and have discussed with the
independent public accountants their independence.
During fiscal year 2001, the Company retained its independent public
accountants, Arthur Andersen, to provide audit services of $220,000, financial
information systems services of $30,450 and other services of $243,983 of which
$73,233 related to tax matters and $135,000 related to the Company's secondary
offering. The Audit Committee has determined that the nature and extent of
non-audit services provided by Arthur Andersen is compatible with maintaining
auditor independence.
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2001, to be filed with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
Richard F. Ford, Chairman Louis B. Susman James M. Usdan
17
ITEM 2. PROPOSAL TO APPROVE
THE D & K HEALTHCARE RESOURCES, INC.
2001 LONG TERM INCENTIVE PLAN
The Board of Directors has adopted the D & K Healthcare Resources, Inc.
2001 Long Term Incentive Plan (the "Plan") and has directed that the Plan be
submitted to the stockholders for approval. The affirmative vote of the holders
of a majority of the shares of Common Stock represented in person or by proxy
at the Annual Meeting is required for approval of the Plan. A copy of the Plan
is attached as Appendix A to this Proxy Statement, and the following
description of the Plan is qualified in its entirety by reference to Appendix
A.
Effective with approval of this Plan by the shareholders of the Company, no
further awards shall be granted under the Company's Amended and Restated 1992
Long Term Incentive Plan and 1993 Stock Option Plan (collectively "Prior
Plans"). Nothing contained in the Plan will affect awards made under the Prior
Plans and the provisions of the Prior Plans shall continue to control with
respect to any outstanding awards granted thereunder.
The Board of Directors believes that the Plan is appropriate and will
enhance the purpose and flexibility of the Company's business objectives by
improving the ability of the Company to continue to provide incentives to its
key employees, directors and consultants and induce qualified individuals to
serve as or remain, employees, directors and consultants of the Company and to
promote the best interests of the Company. In particular, the Board of
Directors believes that through Stock Options (defined below) and other Common
Stock based compensation, the interests of Company officers, directors,
employees and consultants in maximizing the Company's performance, and the
return on the Common Stock, will be more closely aligned with the interests of
the Company's stockholders.
The Plan will be administered by the Stock Option and Compensation
Committee by majority action thereof, unless otherwise determined by the Board
of Directors of the Company. The Committee is authorized in its discretion to
determine the individual officers and employees to whom the benefits will be
granted, the type and amount of such benefits and the terms of the benefit
grants, as well as to interpret the Plan and to make all other determinations
necessary or advisable for the administration of the Plan to the extent not
contrary to the express provisions of the Plan. Grants of benefits under the
Plan to non-employee directors of the Company may also be made by the
Committee.
Under the terms of the Plan, key employees and consultants of the Company
and its subsidiaries and non-employee directors as determined in the discretion
of the Committee will be eligible to receive: (a) stock options ("Stock
Options") exercisable into shares of Common Stock which may or may not qualify
as incentive stock options within the meaning of Section 422 of the Internal
Revenue Code, as amended, (b) Stock Appreciation Rights, (c) restricted shares
of Common Stock ("Restricted Stock"), and (d) performance awards ("Performance
Awards"). It is the intention of the Committee that in the future a portion of
any annual bonuses awarded to executive officers and other key employees would
be made in stock of the Company pursuant to the Plan. Ownership of the stock
would vest in the employee three years after the date of grant provided that
the employee was then still in the employ of the Company.
Stock Options. Stock Options granted under the Plan shall entitle the
holder thereof to purchase the Company's Common Stock at a purchase price
established therefor by the Committee, which price
18
shall not be less than the Fair Market Value (as defined in the Plan) of Common
Stock on the date of grant. Stock Options are exercisable as follows:
Period of Time from Percentage of Shares
Date of Grant Exercisable
------------- -----------
One Year 33 1/3 percent
Two Years 66 2/3 percent
Three Years 100 percent
When an Optionholder dies, becomes disabled (as defined in the Plan), or
retires from the Company, his or her Stock Options shall become fully
exercisable at such time.
The term of a Stock Option is five years from the date of grant. A Stock
Option must be exercised within a specified period of time following an
Optionholder's termination of employment with the Company, but in any event
before the expiration of the term of the Option. However, if a holder of an
Incentive Stock Option (as defined in the Plan) dies while in the employment of
the Company, the Option must be exercised within a period of time ending on the
earlier of (i) three months following the Optionholder's death or (ii) the
expiration of the term of the Option. If the Optionholder of a Non-Qualified
Stock Option (any Stock Option which is not an Incentive Stock Option) dies,
the Option generally must be exercised within a period of time ending on the
earlier of (i) the date eighteen months following the date of death, or such
shorter period specified in the Option Agreement, or (ii) the expiration of the
term of the Option. In the event an Optionholder's employment with the Company
terminates on account of Disability, the Option must be exercised within a
period of time ending on the earlier of (i) the date ending twelve months
following such termination of employment or (ii) the expiration of the term of
the Option.
For any employee, the aggregate fair market value of Common Stock subject
to any Incentive Stock Options that are exercisable for the first time in any
calendar year may not exceed $100,000.
An Optionholder may exercise a Stock Option with cash, Common Stock or any
combination thereof.
Stock Appreciation Rights. The Committee may grant stock appreciation
rights ("SARs") giving the holder thereof rights to receive, at the time of
surrender, Common Stock or cash equal in value to the difference between the
Fair Market Value of such stock at the date of surrender of the SAR and the
"Base Price" established by the Committee therefor at the time of grant,
subject to any limitation imposed by the Committee on appreciation. The "Base
Price" shall not be less than the Fair Market Value of the Common Stock on the
date of the grant of the SAR. A SAR may be granted either independent of, or in
conjunction with, any Stock Option. If granted in conjunction with a Stock
Option, at the discretion of the Committee, a SAR may either be surrendered (a)
in lieu of the exercise of such Stock Option, (b) in conjunction with the
exercise of such Stock Option, or (c) upon expiration of such Stock Option. The
term of any SAR shall be established by the Committee, but in no event shall
such term exceed five years from the date of grant.
Restricted Stock. The Committee may issue shares of Common Stock either as
a stock bonus or at a purchase price of less than fair market value, subject to
the restrictions or conditions specified by the Committee at the time of grant.
During the period of restriction, holders of Restricted Stock shall be entitled
to receive all dividends and other distributions made in respect of such stock
and to vote such stock without limitation.
19
Performance Awards. The Committee may grant Performance Awards consisting
of shares of the Company's Common Stock, monetary units payable in cash or a
combination thereof. These grants would result in the issuance, without payment
therefor, of Common Stock or the payment of cash upon the achievement of
certain pre-established performance criteria (such as period of employment,
return on average total capital employed, earnings per share, return on
stockholders' equity or total stockholder return relative to stockholder return
on a broad market index) during a specified performance period not to exceed
ten years. The participating employee shall have no right to receive dividends
on or to vote any shares subject to Performance Awards until the award is
actually earned and the shares are issued.
The Plan is to remain in effect until (a) all Common Stock reserved under
the Plan shall have been purchased or acquired, (b) the Board terminates the
Plan, or (c) November 14, 2006, whichever shall first occur. The Board, in its
sole discretion may terminate the Plan at any time and from time to time may
amend or modify the Plan; provided, however, that no such action of the Board
may, without the approval of the stockholders of the Company, change: (i) the
maximum number of shares for which options may be granted under the Plan; (ii)
the provisions of the Plan regarding the "Base Price" of awards; (iii) the
maximum period during which a Stock Option may be granted; or (iv) the class of
employees entitled to participate in the Plan. No amendment, modification or
termination of the Plan shall in any manner adversely affect any award
theretofore granted under the Plan, without the consent of the participant
affected thereby.
General
(a) Change of Control. In the event there is a change of control of the
Company, the Stock awards of a Participant whose employment with the Company or
its successor is involuntarily terminated (for a reason other than Cause) or
who voluntarily resigns from the Company or its successor for Good Reason (as
defined in the Plan) within one year of the change of control, shall be fully
vested and exercisable as of the date of termination of employment.
(b) Rescission of Stock Awards. If an employee, within one year of his
termination of employment, competes with the Company or makes an unauthorized
disclosure of Company confidential information, his unexercised Stock Awards
shall be cancelled and forfeited. Furthermore, the exercise of or payment for a
Stock Award shall be rescinded if the award holder competes with the Company or
makes an unauthorized disclosure of confidential Company information. In this
event, the Company may require the award holder to pay the Company the gain
realized from or payment for the reward within ten days of the Company's
notification of the holder of such rescission. The Company must notify the
award holder of a rescission within two years of the exercise by or payment to
the award holder.
Federal Income Tax Consequences
No income will be realized by a participating officer, director, consultant
or employee on the grant of a Stock Option or upon the award of Restricted
Stock, and the Company will not be entitled to a deduction at such time. If an
Optionholder exercises an Incentive Stock Option and does not dispose of the
shares acquired within two years from the date of the grant, or within one year
from the date of exercise of the Option, no income will be realized by the
Optionholder at the time of exercise; the Company will not be entitled to a
deduction by reason of the exercise. The Optionholder's tax basis in
20
the shares will equal the exercise price of the Option, however, the difference
between the Fair Market Value of the shares subject to the Option and the
exercise price may, in some cases, be subject to the alternative minimum tax.
If an Optionholder disposes of the shares acquired pursuant to an Incentive
Stock Option within two years from the date of grant of the option or within
one year from the date of exercise of the option, the holder will realize
ordinary income at the time of disposition which will equal the excess, if any,
of the lesser of (a) the amount realized on the disposition, or (b) the Fair
Market Value of the shares on the date of exercise, over the Optionholder's
basis in the shares. The Company generally will be entitled to a deduction in
an amount equal to such income in the year of the disqualifying disposition.
Upon the exercise of a Non-Qualified Option, the excess, if any, of the
Fair Market Value of the Stock on the date of exercise over the purchase price
is ordinary income to the holder as of the date of exercise. The Company
generally will be entitled to a deduction equal to such excess amount in the
year of exercise. The Optionholder's basis in shares acquired pursuant to a
Non-Qualified Option will equal the Fair Market Value of the shares on the date
of exercise.
Subject to a voluntary election by the grantee of restricted stock under
Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
such grantee will realize ordinary income as a result of the award of
Restricted Stock at the time the restrictions expire on such shares. An
election pursuant to Section 83(b) of the Code would have the effect of causing
the holder to realize income in the year in which such award was granted. The
amount of income realized will be the difference between the Fair Market Value
of the shares on the date such restrictions expire (or on the date of issuance
of the shares, in the event of a Section 83(b) election) over the purchase
price, if any, of such shares. The Company generally will be entitled to a
deduction equal to the income realized in the year in which the grantee is
required to report such income. The grantee's tax basis in the shares will
equal the Fair Market Value of the stock on the day the restrictions expire or,
in the event of a Section 83(b) election, the Fair Market Value of the shares
on the date of grant.
An employee will realize income as a result of a Performance Award at the
time the award is issued or paid. The amount of income realized by the
participant will be equal to the fair market value of the shares on the date of
issuance, in the case of a stock award, and to the amount of the cash paid, in
the event of a cash award. The Company will be entitled to a corresponding
deduction equal to the income realized in the year of such issuance or payment.
The employee's tax basis in shares received pursuant to a Performance Award
shall equal the Fair Market Value of the shares on the date they are
transferred to the employee.
The Board of Directors recommends a vote "FOR" the proposal to approve the
D & K Healthcare Resources, Inc. 2001 Long Term Incentive Plan.
21
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for the period beginning March 29, 1996
and ending June 29, 2001, with the cumulative return of the NASDAQ Stock
Market--U.S. Index and an industry peer group. The industry peer group of
companies selected by the Company is made up of the Company's publicly held
competitors in the wholesale drug industry: Amerisource Health Corporation,
Bergen Brunswig Corporation, Cardinal Health, Inc. and McKesson HBOC, Inc. The
composition of the Company's peer group has been changed to reflect the
elimination of Bindley-Western, which was acquired by Cardinal Health, Inc. in
2000. The comparisons reflected in the table and graph, however, are not
intended to forecast the future performance of the Common Stock and may not be
indicative of such future performance.
[CHART]
D & K HEALTHCARE PERFORMANCE GRAPH
D & K Healthcare Peer Group Nasdaq
3/29/1996 100 100 100
3/28/1997 52.24 128.83 113.73
6/30/1998 256.72 245.93 137.15
6/30/1999 285.07 186.65 248.97
6/30/2000 124.63 176.95 368.1
6/29/2001 440.99 275.4 199.54
Cumulative Total Return
-----------------------------------------------
3/29/96 3/28/97 6/30/98 6/30/99 6/30/00 6/29/01
------- ------- ------- ------- ------- -------
D&K HEALTHCARE RESOURCES, INC. 100 52.24 256.72 285.07 124.63 440.99
NASDAQ STOCK MARKET (U.S.).... 100 113.73 137.15 248.97 368.10 199.54
PEER GROUP.................... 100 128.83 245.93 186.65 176.95 275.40
22
APPOINTMENT OF AUDITORS
Arthur Andersen LLP served as the Company's independent public accountants
for fiscal 2001 and has been selected by the Board of Directors to continue in
such capacity during fiscal 2002. The Board of Directors anticipates that
representatives of Arthur Andersen LLP will be present at the Annual Meeting of
Stockholders with an opportunity to make a statement if the representatives
desire to do so and to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with by those parties during the fiscal year ended June
30, 2001.
PROPOSALS OF STOCKHOLDERS
Under applicable regulations of the SEC, all proposals of stockholders to
be considered for inclusion in the proxy statement for, and to be considered
at, the 2002 Annual Meeting of Stockholders must be received at the offices of
the Company, c/o Secretary, 8000 Maryland Avenue, Suite 920, St. Louis,
Missouri 63105 by not later than June 5, 2002. The Company's By-laws also
prescribe certain time limitations and procedures regarding prior written
notice to the Company by stockholders, which limitations and procedures must be
complied with for proposals of stockholders to be included in the Company's
proxy statement for, and to be considered at, such annual meeting. Any
stockholder who wishes to make such a proposal should request a copy of the
applicable provisions of the Company's By-laws from the Secretary of the
Company.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not intend to present, nor has it been informed that other persons
intend to present, any matters for action at the Annual Meeting, other than
those specifically referred to herein. If, however, any other matters should
properly come before the Annual Meeting, it is the intention of the persons
named on the Proxy Card to vote the shares represented thereby in accordance
with their judgment as to the best interest of the Company on such matters.
J. HORD ARMSTRONG, III
Chairman of the Board, Chief Executive
Officer and Treasurer
23
EXHIBIT A
AUDIT COMMITTEE CHARTER
Purpose
The primary purpose of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") in fulfilling its responsibility to
oversee management's conduct of the Company's financial reporting process,
including by overviewing the financial reports and other financial information
provided by the Company to any governmental or regulatory body, the public or
other users thereof, the Company's systems of internal accounting and financial
controls, and the annual independent audit of the Company's financial
statements.
In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and the power to retain
outside counsel, auditors or other experts for this purpose. The Board and the
Committee are in place to represent the Company's shareholders; accordingly,
the outside auditor is ultimately accountable to the Board and the Committee.
The Committee shall review the adequacy of this Charter on an annual basis.
Membership
The Committee shall be comprised of not less than three members of the
Board, and the Committee's composition will meet the requirements of the Audit
Committee Policy of the National Association of Securities Dealers.
Accordingly, all of the members will be directors:
Who have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company; and
Who are financially literate or who become financially literate within
a reasonable period of time after appointment to the Committee. In
addition, at least one member of the Committee will have accounting or
related financial management expertise.
Key Responsibilities
The Committee's job is one of oversight and it recognizes that the
Company's management is responsible for preparing the Company's financial
statements and that the outside auditors are responsible for auditing those
financial statements. Additionally, the Committee recognizes that financial
management (including the internal audit staff), as well as the outside
auditors, have more time, knowledge and more detailed information on the
Company than do Committee members; consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special
assurance as to the Company's financial statements or any professional
certification as to the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Committee may diverge from this
guide as appropriate given the circumstances.
24
The Committee shall review with management and the outside auditors the
audited financial statements to be included in the Company's Annual Report on
Form 10-K (or the Annual Report to Shareholders if distributed prior to the
filing of Form 10-K) and review and consider with the outside auditors the
matters required to be discussed by Statement of Auditing Standards ("SAS") No.
61.
As a whole, or through the Committee chair, the Committee shall review with
the outside auditors the Company's interim financial results to be included in
the Company's quarterly reports to be filed with Securities and Exchange
Commission and the matters required to be discussed by SAS No. 61; this review
will occur prior to the Company's filing of the Form 10-Q.
The Committee shall discuss with management and the outside auditors the
quality and adequacy of the Company's internal controls.
The Committee shall:
request from the outside auditors annually, a formal written statement
delineating all relationships between the auditor and the Company
consistent with Independence Standards Board Standard Number 1;
discuss with the outside auditors any such disclosed relationships and
their impact on the outside auditor's independence; and
recommend that the Board take appropriate action to oversee the
independence of the outside auditor.
The Committee, subject to any action that may be taken by the full Board,
shall have the ultimate authority and responsibility to select (or nominate for
shareholder approval), evaluate and, where appropriate, replace the outside
auditor.
25
APPENDIX A
D & K HEALTHCARE RESOURCES, INC.
2001 LONG TERM INCENTIVE PLAN
1. Purposes.
(a) Eligible Stock Award Recipients. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) Available Stock Awards. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) Stock Appreciation Rights, (iv) Performance Awards and (v)
Restricted Stock.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and
its Affiliates.
(d) Prior Plans. Effective with approval of this Plan by the shareholders
of the Company, no further awards shall be granted under the Company's Amended
and Restated 1992 Long Term Incentive Plan and 1993 Stock Option Plan
(collectively "Prior Plans"). However, nothing herein shall affect awards made
under the Prior Plan before such approval and the provisions of the Prior Plans
shall continue to control with respect to any outstanding awards granted
thereunder.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Award Date" means the date established by the Committee the for the
grant of a Stock Award.
(c) "Base Price" means a price fixed by the Committee, which shall not be
less than the Fair Market Value of a share of Common Stock on the date of grant
of a Stock Award with respect to such Stock.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the committee or committees established by the Board
in accordance with Section 3(c). All references herein to "Committee" shall be
deemed to be to the Board when the Board has not established the Committee
pursuant to Section 3(c).
(g) "Common Stock" means authorized and unissued shares of the $.01 par
value common stock of the Company or reacquired shares of the Company's $.01
par value common stock held in its Treasury.
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(h) "Company" means D & K Healthcare Resources, Inc., a Delaware
corporation.
(i) "Consultant" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board or the board
of directors of an Affiliate. However, the term "Consultant" shall not include
either Directors who are not compensated by the Company for their services as
Directors or Directors who are merely paid a director's fee by the Company for
their services as Directors.
(j) "Continuous Service" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's service with the Company or an Affiliate. For example, a
change in status from an Employee of the Company to a Consultant of an
Affiliate or a Director will not constitute an interruption of Continuous
Service. The Committee or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(k) "Corporate Transaction" means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:
(i) a sale, lease, license or other disposition of all or substantially
all of the consolidated assets of the Company and its Affiliate;
(ii) a sale or other disposition of at least ninety percent (90%) of
the outstanding securities of the Company;
(iii) a merger, consolidation or similar transaction following which
the Company is not the surviving corporation; or
(iv) a merger, consolidation or similar transaction following which the
Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger,
consolidation or similar transaction into other property, whether in the
form of securities, cash or otherwise.
(l) "Director" means a member of the Board.
(m) "Disability" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code, as determined by the
Committee in good faith, upon receipt of and reliance on sufficient competent
medical advice.
(n) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
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(p) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the mean
between the bid and asked prices, if no closing price is reported) as
quoted on such exchange or market (or the exchange or market with the
greatest volume of trading in the Common Stock) on the last market trading
day prior to the day of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable. If fair market
value is to be determined as of a day when the securities markets are not
open, the Fair Market Value on that day shall be the Fair Market Value on
the preceding day when the markets are open.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Committee.
(q) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option
granted pursuant to a Stock Award. Each Option Agreement shall be subject to
the terms and conditions of the Plan. References to Option Agreement shall also
include the following ancillary documents: Notice of Exercise and Grant Notice.
(v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "Outside Director" means a Director who either (i) is not a current
Employee of the Company or a member of an "affiliated group" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former Employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an Officer of the Company or an "affiliated
corporation" at any time and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(x) "Participant" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(y) "Performance Award" means a right as determined by the Committee to
receive a deferred payment of cash, Common Stock or some combination thereof
based on performance during a Performance Period as provided in Section 7(c).
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(z) "Performance Period" means a period of not more than five years
established by the Committee during which certain performance goals set by the
Committee are to be met.
(aa) "Plan" means this D & K Healthcare Resources, Inc. 2001 Long Term
Incentive Plan.
(bb) "Reporting Person" means any person who is required to file reports
pursuant to the provisions of Section 16 of the Exchange Act and Rule 16a-2
promulgated thereunder.
(cc) "Restricted Stock" means shares of Common Stock, which may be subject
to certain restrictions, which are granted pursuant to a Stock Award.
(dd) "Restricted Stock Awards" means a Stock Award granted to a Participant
to receive or purchase shares of Restricted Stock.
(ee) "Retirement" means termination of employment with eligibility for
normal, early or disability retirement benefits under the terms of any pension
plan adopted by the Company and specified by the Committee, as amended and in
effect at the time of such termination of employment.
(ff) "Stock Appreciation Right" or "SAR" means the right to receive a
payment from the Company equal to the excess of the Fair Market Value of a
share of Common Stock at the date of exercise over the Base Price. In the case
of a Stock Appreciation Right which is granted in conjunction with an Option,
the Base Price shall be the Option exercise price.
(gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(hh) "Securities Act" means the Securities Act of 1933, as amended.
(ii) "Stock Award" means any right granted under the Plan, including an
Option, Stock Appreciation Right, Performance Award, and Restricted Stock.
(jj) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
(kk) "Ten Percent Stockholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan unless and
until the Board delegates administration to a Committee, as provided in Section
3(c).
(b) Powers of Board. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall
be granted; what type or
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combination of types of Stock Award shall be granted; the provisions of
each Stock Award granted (which need not be identical), including the time
or times when a person shall be permitted to receive Common Stock pursuant
to a Stock Award; and the number of shares of Common Stock with respect to
which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) To terminate or suspend the Plan as provided in Section 13.
(v) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) Delegation to Committee. The Board may delegate administration of the
Plan to a Committee or Committees. The term "Committee" shall apply to any
person, persons, committee or committees to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any
of the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may from time to time in its discretion, fix and change the number of
members of a Committee, remove members of a Committee, appoint members of a
Committee in substitution for or in addition to members previously appointed;
and fill vacancies however caused in a Committee. The Board may abolish a
Committee at any time and revest in the Board the administration of the Plan.
Notwithstanding the foregoing, any grant of an Option, Performance, SAR or
Restricted Stock Award to a Reporting Person must be made by the Board or a
Committee comprised solely of two or more Outside Directors.
(d) Effect of Board's Decision. All determinations, interpretations and
constructions made by the Board or the Committee in good faith shall not be
subject to review by any person and shall be final, binding and conclusive on
all persons.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate five hundred
thousand (500,000) shares of Common Stock.
(b) Reversion of Shares to the Share Reserve. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Stock Award shall revert to and again become available for issuance under the
Plan.
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(c) Source of Shares. The shares of Common Stock subject to the Plan may be
unissued shares or reacquired shares, bought on the market or otherwise.
5. Eligibility.
(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b) Ten Percent Stockholders. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is
at least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant.
(c) Award Date. All Stock Awards granted under the Plan shall be granted as
of an Award Date. All Stock Awards are subject to the terms and conditions set
forth in the applicable Stock Award Agreement. Within thirty days after each
Award Date, the Company shall notify the Participant of the grant of the Stock
Award, and shall hand deliver or mail to the Participant a Stock Award
Agreement, duly executed by and on behalf of the Company, with the request that
the Participant execute the Agreement within thirty days after the date of
mailing or delivery by the Company of the Agreement to the Participant. If the
Participant shall fail to execute the written Stock Award Agreement within said
thirty-day period, his or her Stock Award shall be automatically terminated.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Committee shall deem appropriate. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and, if certificates are issued, a separate certificate or
certificates will be issued for shares of Common Stock purchased on exercise of
each type of Option. The provisions of separate Options need not be identical,
but each Option shall include (through incorporation of provisions hereof by
reference in the Option Agreement or otherwise) the substance of each of the
following provisions:
(a) Term. No Option shall be exercisable after the expiration of five
(5) years from the date it was granted.
(b) Exercise Price of an Option. Subject to the provisions of Section
5(b) regarding Ten Percent Stockholders, the exercise price of each Option
shall be not less than one hundred percent (100%) of the Fair Market Value
of the Common Stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, an Option may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes
and regulations, either (i) in cash at the time the Option is exercised or
(ii) at the discretion of the Committee at the time of the grant of the
Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by
delivery to the Company of other Common Stock, (2) pursuant to a deferred
payment or other similar arrangement with the Optionholder, or (3) in any
other form of legal consideration that may be acceptable to the Committee.
Unless otherwise specifically provided in the Option Agreement, the
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purchase price of Common Stock acquired pursuant to an Option that is paid
by delivery to the Company of other Common Stock acquired, directly or
indirectly from the Company, shall be paid only by shares of the Common
Stock of the Company that have been held for more than six (6) months (or
such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company
is incorporated in Delaware, payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by
deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) Delivery of Certificate. After the exercise of an Option, as
provided above, the Company shall within a reasonable time deliver to the
person exercising the Option a certificate or certificates issued in the
name of the person who exercised the Option and such additional name, or
names, if any, as may be requested (subject to the general policy of the
Company as to registration of shares), for the appropriate number of shares
of Common Stock, without liability to the person exercising the Option for
any transfer or issue tax, state or Federal, then payable. Each Option
granted under the Plan shall be subject to the requirement that, if at any
time the Committee shall determine, in its discretion, that the listing,
registration or qualification of the shares of Common Stock subject to such
Option upon any securities exchange or under any state or Federal law, or
the consent or approval of any governmental regulatory body, is necessary
or desirable, as a condition of, or in connection with, the granting of
such Option or the issue or purchase of shares of Common Stock thereunder,
no such Option may be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained free of any conditions not acceptable to the Committee.
An Optionee under an Option granted under the Plan shall have no rights
as a shareholder with respect to any shares of Common Stock covered by an
Option except to the extent that one or more certificates for such shares
shall have been delivered to him upon due exercise of an Option as above
provided.
(e) Transferability of an Incentive Stock Option. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory
Stock Option shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Optionholder only by the
Optionholder. Notwithstanding the foregoing, the Optionholder may, by
delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(g) Vesting Generally. Except as provided in Sections 10(a) and 11(c),
Option grants shall become exercisable as follows:
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Period of Time from Percentage of Shares
Date of Grant Exercisable
------------- -----------
One year from date of grant 33- 1/3 percent
Two years from date of grant 66 2/3 percent
Three years from date of grant 100 percent
(h) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's
Disability or, in the case of an Optionholder of a Nonstatutory Stock
Option, the Optionholder's death), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination) but only within such period of time
specified in the Option Agreement. Provided, however, that the Optionholder
of an Incentive Stock Option may exercise such Option within such period of
time ending on the earlier of (i) the date three (3) months following
termination of the Optionholder's Continuous Service or (ii) the expiration
of the term specified in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
in the Option Agreement, the Option shall terminate.
Notwithstanding the preceding, the exercise period for a Nonstatutory
Stock Option shall be extended to twelve (12) months in the event the
Optionholder terminates employment due to Retirement.
(i) Disability of Optionholder. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability,
the Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer
or shorter period specified in the Option Agreement) or (ii) the expiration
of the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate.
(j) Death of Optionholder of Nonstatutory Stock Option. In the event
(i) the Continuous Service of an Optionholder of a Nonstatutory Option
terminates as a result of such Optionholder's death or (ii) such
Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of such Optionholder's Continuous Service
for a reason other than death, then the Option may be exercised (to the
extent such Optionholder was entitled to exercise such Option as of the
date of death) by such Optionholder's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person
designated to exercise the Option upon such Optionholder's death pursuant
to Section 6(e) or 6(f), but only within the period ending on the earlier
of (1) the date eighteen (18) months following the date of death (or such
longer or shorter period specified in the Option Agreement) or (2) the
expiration of the term of such Option as set forth in the Option Agreement.
If, after death, the Option is not exercised within the time specified
herein, the Option shall terminate.
(k) Cancellation and Rescission of Stock Awards. Unless the Award
Agreement specifies otherwise, the Committee may cancel any unexpired,
unpaid, or deferred Stock Awards at any time if the Participant is not in
compliance with all other applicable provisions of the Stock Award
Agreement, the Plan and with the following conditions:
(i) A Participant, within one year following his termination of
employment with the Company, shall not, within the geographical areas
where the Company does business, render services for any organization
or engage directly or indirectly in any business which, in the
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judgment of the Committee, is or becomes competitive with the Company,
or which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or in
conflict with the interests of the Company. For Participants whose
employment has terminated, the determination shall be based on the
Participant's position and responsibilities while employed by the
Company, the Participant's post-employment responsibilities and
position with the other organization or business, the extent of past,
current and potential competition or conflict between the Company and
the other organization or business, the effect on the Company's
customers, suppliers and competitors and such other considerations as
are deemed relevant given the applicable facts and circumstances. A
Participant who has retired shall be free, however, to purchase as an
investment or otherwise, stock or other securities of such organization
or business so long as they are listed upon a recognized securities
exchange or traded over-the-counter, and such investment does not
represent a substantial investment to the Participant or a greater than
ten (10) percent equity interest in the organization or business.
(ii) A Participant shall not, without prior written authorization
from the Company, disclose to anyone outside the Company, or use in
other than the Company's business, any confidential information or
material, as defined in the Company's policy regarding confidential
information and intellectual property, relating to the business of the
Company, acquired by the Participant either during or after employment
with the Company.
(iii) A Participant, pursuant to the Company's policy regarding
confidential information and intellectual property, shall disclose
promptly and assign to the Company all right, title and interest in any
invention or idea, patentable or not, made or conceived by the
Participant during employment by the Company, relating in any manner to
the actual or anticipated business, research or development work of the
Company and shall do anything reasonably necessary to enable the
Company to secure a patent where appropriate in the United States and
in foreign countries.
(iv) Upon exercise, payment or delivery pursuant of a Stock Award,
the Participant shall, upon request by the Company, certify on a form
acceptable to the Committee that he or she is in compliance with the
terms and conditions of the Plan. Failure to comply with all of the
provisions of this Section 6(k) within 120 days prior to and during the
twelve month period following the Participant's termination of
employment with the Company shall cause such exercise, payment or
delivery to be rescinded. The Company shall notify the Participant in
writing of any such rescission within two years after such exercise,
payment or delivery. Within ten days after receiving such a notice from
the Company, the Participant shall pay to the Company the amount of any
gain realized or payment received as a result of the rescinded
exercise, payment or delivery pursuant to a Stock Award. Such payment
shall be made either in cash or by returning to the Company the number
of shares of Common Stock that the Participant received in connection
with the rescinded exercise, payment or delivery.
7. Provisions of Stock Awards Other than Options.
(a) Stock Appreciation Rights. Stock Appreciation Rights may be granted
which, at the discretion of the Committee, may be surrendered (1) in lieu of
exercise of an Option, (2) in conjunction with the exercise of an Option, (3)
upon lapse of an Option, (4) independent of an Option, or (5) each of the above
in connection with a previously awarded Option under the Plan. If the Option
referred to in (1), (2), or (3) above qualified as an Incentive Stock Option
pursuant to Section 422 of the Code, the
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related SAR shall comply with the applicable provisions of the Code and the
regulations issued thereunder. At the time of grant, the Committee may
establish in its sole discretion, a maximum amount per share which will be
payable upon surrender of a SAR, and may impose such conditions on surrender of
a SAR (including, without limitation, the right of the Committee to limit the
time of surrender to specified periods) as may be required to satisfy the
requirements of Rule 16b-3 (or any successor rule), under the Exchange Act. At
the discretion of the Committee, payment for SARs may be made in cash or Common
Stock, or in a combination.
(i) Surrender of SARs in Lieu of Exercise of Options. SARs
surrenderable in lieu of exercise of Options may be surrendered for all or
part of the shares of Common Stock subject to the related Option upon the
surrender of the right to exercise an equivalent number of Options. A SAR
may be surrendered only with respect to the shares of Common Stock for
which its related Option is then exercisable. Upon surrender of a SAR in
lieu of exercise of an Option, shares of Common Stock equal to the number
of SARs surrendered shall no longer be available for Awards under the Plan,
provided that if SARs are surrendered for cash, shares of Common Stock
equal to the number of SARs surrendered shall be restored to the number of
shares of Common Stock available for issuance under the Plan.
(ii) Surrender of SARs in Conjunction with Exercise of Options. SARs
surrenderable in conjunction with the exercise of Options shall be deemed
to be surrendered upon the exercise of the related Options, and shares of
Common Stock equal to the sum of the number of shares of Common Stock
acquired by exercise of the Option plus the number of SARs surrendered
shall no longer be available for Stock Awards under the Plan, provided that
if SARs are surrendered for cash, shares of Common Stock equal to the
number of SARs surrendered shall be restored to the number of shares
available for issuance under the Plan.
(iii) Surrender of SARs Upon Lapse of Options. SARs surrenderable upon
lapse of Options shall be deemed to have been surrendered upon the lapse of
the related Options as to the number of shares of Common Stock subject to
the Options. Shares of Common Stock equal to the number of SARs deemed to
have been surrendered shall not be available again for Stock Awards under
the Plan, provided that if SARs are surrendered for cash, shares of Common
Stock equal to the number of SARs surrendered shall be restored to the
number of shares Common Stock available for issuance under the Plan.
(iv) Surrender of SARs Independent of Options. SARs surrenderable
independent of Options may be surrendered upon whatever terms and
conditions the Committee in its sole discretion, imposes upon the SARs, and
shares of Common Stock equal to the number of SARs surrendered shall no
longer be available for Awards under the Plan, provided that if SARs are
surrendered for cash, shares of Common Stock equal to the number of SARs
surrendered shall be restored to the number of shares available for
issuance under the Plan.
(b) Restricted Stock Awards. Each Restricted Stock Award shall be in such
form and shall contain such terms and conditions as the Committee shall deem
appropriate. The terms and conditions of the Restricted Stock Award Agreements
may change from time to time, and the terms and conditions of separate
Restricted Stock Award Agreements need not be identical, but each Restricted
Stock Award Agreement shall include (through incorporation of provisions hereof
by reference in the agreement or otherwise) the substance of each of the
following provisions:
(i) Purchase Price. The purchase price, if any, under each Restricted
Stock Award Agreement shall be such amount as the Committee shall determine
and designate in such Restricted Stock Award Agreement;
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(ii) Consideration. The purchase price of Common Stock acquired
pursuant to a Restricted Stock Award Agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Committee,
according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be
acceptable to the Committee in its discretion; provided, however, that at
any time that the Company is incorporated in Delaware, then payment of the
Common Stock's "par value," as defined in the Delaware General Corporation
Law, shall not be made by deferred payment;
(iii) Vesting. Shares of Common Stock acquired under a Restricted Stock
Award Agreement may, but need not, be subject to a repurchase option in
favor of the Company in accordance with a vesting schedule to be determined
by the Committee.;
(iv) Restrictions. Restricted Stock received or acquired pursuant to a
Restricted Stock Award Agreement may be subject to (a) restrictions on the
sale or other disposition thereof, (b) rights of the Company to reacquire
such Restricted Stock at the purchase price, if any, originally paid
therefor upon either termination of the Participant's status as an
Employee, Director or Consultant within specified periods or failure of the
Company to achieve performance goals (which may include any one or more of
the following: return on total capital employed, earnings per share, return
on stockholders' equity, and other appropriate criteria) established by the
Committee, (c) representation by the employee that he or she intends to
acquire Restricted Stock for investment and not for resale, and (d) such
other restrictions, conditions and terms as the Committee deems
appropriate.
(v) Dividends. The Participant shall be entitled to all dividends paid
with respect to Restricted Stock during any period the Restricted Stock is
subject to restrictions and shall not be required to return any such
dividends to the Company in the event of the forfeiture of the Restricted
Stock.
(vi) The Participant shall be entitled to vote the Restricted Stock
during any period the Restricted Stock is subject to restrictions.
(vii) The Committee shall determine whether Restricted Stock is to be
delivered to the Participant with an appropriate legend imprinted on the
certificate of if the shares of such stock are to be deposited in escrow
pending removal of the restrictions.
(viii) Transferability. Rights to acquire shares of Common Stock under
the Restricted Stock Agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the Restricted
Stock Agreement, as the Committee shall determine in its discretion, so
long as Common Stock awarded under the Restricted Stock Agreement remains
subject to the terms of the Restricted Stock Agreement.
(c) Performance Awards. Performance Awards shall consist of Common Stock,
monetary units or some combination thereof, to be issued without any payment
therefor, in the event that certain performance goals established by the
Committee are achieved during a specified period of time. The goals established
by the Committee may include any one or more of the following: continued
service with the Company, return on average total capital employed, earnings
per share, return on stockholders' equity, and such other goals as may be
established by the Committee. In the event the minimum Corporate goal is not
achieved at the conclusion of the specified time period, no payment shall be
made to the Participant. Actual payment of the award earned shall be in cash or
in Common Stock or in a combination of both, in a single sum or in periodic
installments, all as the Committee in its sole discretion determines. If Common
Stock is used, the Participant shall not have the right to vote and receive
dividends until the goals are achieved and the actual shares of Common Stock
are issued.
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8. Covenants of the Company.
Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to
any such Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
Common Stock under the Plan, the Company shall be relieved from any liability
for failure to issue and sell Common Stock upon exercise of such Stock Awards
unless and until such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. Miscellaneous.
(a) Acceleration of Exercisability and Vesting. The Committee shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) Stockholder Rights. No Participant shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any shares of Common
Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and for any reason, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the
Company or an Affiliate or (iii) the service of a Director pursuant to the
bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.
(d) Incentive Stock Option Limitation. To the extent that the aggregate
Fair Market Value (determined at the time of grant) of Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all Incentive Stock Option
plans of the Company and its Affiliates) exceeds one hundred thousand dollars
($100,000), or such higher limit as set forth by applicable law, the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) Withholding Obligations. To the extent provided by the terms of a Stock
Award Agreement, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of Common Stock
under a Stock Award by any of the following means (in addition to
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the Company's right to withhold from any compensation paid to the Participant
by the Company) or by a combination of such means: (i) tendering a cash
payment; (ii) authorizing the Company to withhold shares of Common Stock from
the shares of Common Stock otherwise issuable to the Participant as a result of
the exercise or acquisition of Common Stock under the Stock Award, provided,
however, that no shares of Common Stock are withheld with a value exceeding the
minimum amount of tax required to be withheld by law; or (iii) delivering to
the Company owned and unencumbered shares of Common Stock.
11. Adjustments Upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in, or other event
occurs with respect to, the Common Stock subject to the Plan, or subject to any
Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by
the Company), the Plan will be appropriately adjusted in the class(es) and
maximum number of securities subject to the Plan pursuant to Section 4(a) and
4(b) and the maximum number of securities subject to award to any person
pursuant to Section 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of securities and price per
share of Common Stock subject to such outstanding Stock Awards. The Committee
shall make such adjustments, and its determination shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a transaction "without receipt of consideration" by the
Company.)
(b) Dissolution or Liquidation. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to the completion of such dissolution or liquidation.
(c) Corporate Transaction. In the event Participant's employment with the
Company is terminated within twelve months of a Corporate Transaction by the
Company for a reason other than Cause or by the Participant for Good Reason,
the vesting and exercise period of such Participant's Stock Awards shall be
accelerated in full to the date of such termination of employment. For purposes
of this Subsection 11.c, these terms have the following meanings:
(i) "Good Reason". With respect to any Participant, (A) the assignment
to the Participant of any duties or any other action by the Company which
results in a significant diminution in the Participant's position,
authority, duties or responsibilities, excluding for this purpose an
isolated, unsubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof
given by the Participant; (B) any material reduction in the Participant's
compensation from the Company, opportunity to earn annual bonuses, or other
compensation or employee benefits, other than as a result of an isolated
and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Participant;
(C) the elimination of the Participant's position with the Company which
results in a significant diminution of his authority, duties or
responsibilities; or (D) any purported termination of the Plan otherwise
than as expressly permitted by the Plan. For purposes of the Plan, any good
faith determination of "Good Reason" made by the Participant shall be
conclusive.
(ii) "Cause". With respect to any Participant: (A) the willful and
continued failure of the Participant to perform substantially the
Participant's duties with the Company (other than any
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such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered by the
Company to the Participant which specifically identifies the manner in
which the Participant has not substantially performed the Participant's
duties, or (B) the willful engaging by the Participant in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company. For purposes of this definition, no act or failure to act on the
part of the Participant shall be considered "willful" unless it is done, or
omitted to be done, by the Participant in bad faith or without reasonable
belief that the Participant's action or omission was in the best interests
of the Company.
In the event of a Corporate Transaction, any surviving corporation or
acquiring corporation may assume any or all Stock Awards outstanding under the
Plan or may substitute similar stock awards for Stock Awards outstanding under
the Plan (it being understood that similar stock awards include awards to
acquire the same consideration paid to the stockholders or the Company, as the
case may be, pursuant to the Corporate Transaction). Notwithstanding the
preceding, the Committee shall in any event, retain the discretion to take any
other action with respect to such Stock Awards as it may equitably determine.
12. Amendment of the Plan and Stock Awards.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective
unless approved by the stockholders of the Company to the extent required by
applicable law.
(b) Stockholder Approval. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) Contemplated Amendments. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
(e) Amendment of Stock Awards. The Committee at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Committee requests the consent of the Participant and
(ii) the Participant consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Termination. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated by the Board, the Plan shall terminate on the
day before the fifth (5th) anniversary of the
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date the Plan is approved by the stockholders of the Company. No Stock Awards
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. Effective Date of Plan.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
15. Choice of Law.
The law of the State of Delaware shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state's conflict of laws rules.
This Plan is hereby adopted on behalf of the Company this 25th day of
September, 2001.
D & K HEALTHCARE RESOURCES, INC.
/S/ J. HORD ARMSTRONG, III
By __________________________________
J. Hord Armstrong, III
Chairman and Chief Executive
Officer
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D & K HEALTHCARE RESOURCES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /_/
[ ]
1. Election of three Class III Directors for a term of
three years -- For Withold For All
Nominees: 01-J. Hord Armstrong, III All All Except
02-Richard F. Ford / / / / / /
03-Thomas F. Patton
------------------------------------
(Except Nominee(s) written above)
2. Approval of the Company's 2001 Long Term For Against Abstain
Incentive Plan. / / / / / /
3. To transact any and all other business, including For Against Abstain
adjournment of the meeting, which may properly / / / / / /
come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder(s). If no direction is made, this proxy will be
voted "FOR" the election of all of the nominees for director listed in Item 1,
"FOR" approval of the Company's 2001 Long Term Incentive Plan and "FOR" the
grant of discretionary authority.
Dated:____________________________, 2001
SIGN HERE ________________________________________
(Please sign exactly as name appears hereon)
SIGN HERE ________________________________________
(Executors, administrators, turstees, etc. should so
indicate when signing)
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FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN AND DATE THIS PROXY CARD AND
REUTRN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
PROXY PROXY
D & K HEALTHCARE RESOURCES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, NOVEMBER 14, 2001
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints J. HORD ARMSTRONG, III and MARTIN D.
WILSON, and each of them, with or without the other, proxies with full power of
substitution to vote as designated below, all shares of stock of D & K
Healthcare Resources, Inc. (the "Company") that the undersigned signatory hereof
is entitled to vote at the Annual Meeting of Stockholders of the Company to be
held at The Ritz-Carlton, 100 Carondelet Plaza, St. Louis, Missouri 63105, on
Wednesday, November 14, 2001, at 10:00 a.m., and all adjournments thereof, all
in accordance with and as more fully described in the Notice and accompanying
Proxy Statement for such meeting, receipt of which is hereby acknowledged.
PLEASE MARK, SIGN AND DATE THIS PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side)
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