SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check the appropriate box:
|_| Preliminary Information Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14A-6(e)(2))
|X| Definitive Information Statement
Pharma-Bio Serv, Inc.
(Name of Registrant as Specified In Its Charter)
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|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
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PHARMA-BIO SERV, INC.
373 Mendez Vigo, Suite 110
Dorado, Puerto Rico 00646
NOTICE OF PROPOSED ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
April 17, 2006
NOTICE IS HEREBY GIVEN that the Pharma-Bio Serv, Inc., a Delaware
corporation, will solicit the consent of holders of its common stock on or after
April 17, 2006, with respect to the following proposals:
(1) The election of five directors to serve until the 2007 annual meeting of
stockholders and until their successors are elected and qualified;
(2) The approval of the restated certificate of incorporation;
(3) The approval of the 2005 Long-Term Incentive Plan;
(4) The approval of the selection of Kevane Soto Pasarell Grant Thornton, LLC
as the Corporation's independent certified public accountant for the
fiscal year ending October 31, 2006
Our board of directors has fixed the close of business on March 10, 2006,
as the record date for the determination of stockholders entitled to consent to
the actions described above. A list of stockholders eligible to consent to the
proposal will be available for inspection during normal business hours for
purposes germane to the proposed action during the ten days prior to April 17,
2006 at the offices of the Corporation, 373 Mendez Vigo, Suite 110, Dorado,
Puerto Rico 00646.
The enclosed information statement contains information pertaining to the
matters to be acted upon.
WE ARE NOT ASKING YOU FOR A PROXY,
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
By order of the Board of Directors
Nelida Plaza
Secretary
Dorado, Puerto Rico
March 27, 2006
PHARMA-BIO SERV, INC.
373 Mendez Vigo, Suite 110
Dorado, Puerto Rico 00646
INFORMATION STATEMENT
Proposed Action by Written Consent of Stockholders
April 17, 2006
GENERAL INFORMATION
WE ARE NOT ASKING YOU FOR A PROXY,
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This information statement is being furnished in connection with the
proposed action by written consent of stockholders without a meeting of a
proposal to approve the actions described in this information statement. We are
mailing this information statement to our stockholders on or about March 27,
2006.
What action is being taken by written consent.
We will seek consent to the following action:
o The election of five directors to the board of directors to serve
until the next annual meeting of stockholders and until their
successors are elected and qualified;
o A proposal to approve of our Restated Certificate of Incorporation;
o A proposal to approve our 2005 Long-Term Incentive Plan; and
o A proposal to approve the selection of Kevane Soto Pasarell Grant
Thornton, LLC as our independent certified public accountant for the
year ending October 31, 2006.
Who is entitled to give written consent?
March 10, 2006 is the record date for determining who is eligible to give
written consent. Each share of common stock is entitled to one vote.
How many shares of common stock were outstanding on March 10, 2006?
On March 10, 2006, there were 2,301,800 shares of common stock
outstanding.
What vote is required to elect directors and to approve the other proposals
described in this information statement?
We will be seeking the written consent of the approval of a majority of
the outstanding shares of common stock entitled to give such consent. Two
stockholders, Elizabeth Plaza, who is our president, chief executive officer and
a director, and San Juan Holdings, Inc., who owned, in the aggregate, more than
76% of the outstanding shares on the record date, have advised us that they will
give such consent.
Who is paying the cost of this solicitation?
We will pay for preparing, printing and mailing this information
statement. Our costs are estimated at $10,000.
ELECTION OF DIRECTORS
Our directors are elected annually by the stockholders to serve until the
next annual meeting of stockholders and until their respective successors are
duly elected. Our bylaws provide that the number of directors comprising the
whole board shall be determined from time to time by the board. The size of the
board for the ensuing year is five directors. Our board of directors is
recommending that the five incumbent directors named below be re-elected. If any
nominee becomes unavailable for any reason, a situation which is not
anticipated, a substitute nominee may be proposed by the board, and any shares
represented by proxy will be voted for the substitute nominee, unless the board
reduces the number of directors.
None of our directors were elected at a meeting for which we solicited
proxies. Mr. Perlysky was elected at director at the time of our organization in
2004. The other directors were elected in January 2006 in connection with our
acquisition of Plaza Consulting Group, Inc.
The following table sets forth certain information concerning the nominees
for director:
Name Age Position with Us Director Since
---- --- ---------------- --------------
Elizabeth Plaza 42 President, chairman of the board and director 2006
Kirk Michel(1) 50 Director 2006
Dov Perlysky 42 Director 2004
Howard Spindel(1) 60 Director 2006
Irving Wiesen(1) 51 Director 2006
----------
(1) Member of the audit and compensation committees.
Elizabeth Plaza has been president and sole director of Plaza since 1997,
and she has been our president and chief executive officer since January 25,
2006. Ms. Plaza holds a B.S. in Pharmaceutical Sciences, magna cum laude, from
the School of Pharmacy of the University of Puerto Rico. She was the 2003
recipient of Ernst & Young's Entrepreneur of the Year Award in Health Science, a
40 under 40 Caribbean Business Award recipient in 2002 and the 2003 recipient of
the Puerto Rico Powerful Business Women Award. Ms. Plaza is a registered
Pharmacist.
Kirk Michel, a director since January 25, 2006, has been a managing
director of KEMA Advisors, Inc., a boutique financial advisory firm located in
Hillsborough, North Carolina since 2002. KEMA Advisors provides financial
advisory services to middle market companies and governmental agencies. From
1995 to 2002, Mr. Michel was the co-founder and a managing director of Bahia
Group Holdings, LLC which provided corporate finance, public finance and merger
and acquisition services to middle market companies and governmental agencies.
Mr. Michel holds a M.B.A. degree from the Columbia University Graduate School of
Business and a B.A. in Economics from Northwestern University.
Dov Perlysky has been a director of Lawrence Consulting Group since it was
founded in 2004 and was president from its organization in 2004 until January
2006. He has been the managing member of Nesher, LLC a private investment firm
since 2000. On January 25, 2006, in connection with the reverse acquisition, Mr.
Perlysky resigned as president and became a consultant to us. From 1998 until
2002, Mr. Perlysky was a vice president in the Private Client Group of Laidlaw
Global Securities, a registered broker-dealer. He received his B.S. in
Mathematics and Computer Science from the University of Illinois in 1985 and a
Masters in Management from the JL Kellogg Graduate School of Northwestern
University in 1991. Mr. Perlysky is a director of Engex, Inc., a closed-end
mutual fund.
Howard Spindel, a director since January 25, 2006, has been a consultant
with Integrated Management Solutions, a securities industry consulting and
recruitment firm which he founded, since 1985. In this capacity, he has also
acted as a financial and operations principal, general securities principal,
registered representative and options principal for several broker-dealers
during this period. He is also a director of Engex, Inc., a closed-end mutual
fund. Mr. Spindel received a B.S. in accounting from Hunter College.
2
Irving Wiesen, a director since January 25, 2006, has practiced as an
attorney specializing in food and drug law and regulation in the pharmaceutical
and medical device industries for more than twenty-five years. For more than the
past five years he has been of counsel to the New York law firms, Ullman,
Shapiro and Ullman, LLP and Cohen, Tauber, Spievack & Wagner. Prior to that, Mr.
Wiesen was a partner in the New York food and drug law firm, Bass & Ullman, and
also served as division counsel of Boehringer Ingelheim Pharmaceuticals, Inc.
Mr. Wiesen represents pharmaceutical, medical device and biotechnology companies
in all aspects of FDA regulation, corporate practice and compliance, litigation
and allied commercial transactions. Mr. Wiesen received his J.D. degree from the
New York University School of Law and holds an M.A. in English Literature form
Columbia University and a B.A., cum laude, from Yeshiva University.
Our directors are elected for a term of one year.
Elizabeth Plaza and Nelida Plaza, our vice president and secretary, are
sisters. There is no other family relationship among our officers and directors.
Our certificate of incorporation provide that the personal liability of
our directors is limited to the extent set forth in Section 102(b)(7) of the
Delaware General Corporation Law. That provision states that a corporation may
include in its certificate of incorporation a provision which eliminates or
limits the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director: (i) For any breach of the director's duty of loyalty to the
corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
section 174 of the General Corporation Law, which prohibits unlawful dividends
or stock purchase or redemption, or (iv) for any transaction from which the
director derived an improper personal benefit.
Directors' Compensation
Pursuant to the 2005 long-term incentive plan, each newly-elected
independent director receives at the time of his or her election, a five-year
option to purchase 25,000 shares of common stock at the market price on the date
of his or her election. In addition, the plan provides for the annual grant to
each independent director of an option to purchase 5,000 shares of common stock
on first trading day of each calendar year, commencing in 2007.
Board of Directors and Committee Meetings
Our business, property and affairs are managed by or under the direction
of the board of directors. Members of the board are kept informed of our
business through discussion with the chief executive and financial officers and
other officers, by reviewing materials provided to them and by participating at
meetings of the board and its committees.
Since January 25, 2006, our board of directors has had two committees -
the audit committee and the compensation committee. Kirk Michel, Howard Spindel
and Irving Wiesen, each of whom is an independent director, are the members of
both committees. Mr. Spindel is the audit committee financial expert. Neither
committee met prior to February 2006. Prior to January 25, 2006, Mr. Perlysky
was our sole director.
Our audit committee will be involved in discussions with our independent
auditor with respect to the scope and results of our year-end audit, our
quarterly results of operations, our internal accounting controls and the
professional services furnished by the independent auditor.
Our board of directors has adopted a written charter for the audit
committee which the audit committee reviews and reassesses for adequacy on an
annual basis. A copy of the Audit Committee's current charter is attached to
this proxy statement as Appendix A.
3
The compensation committee serves as the stock option committee for our
stock option plan, and it reviews and approves any employment agreements with
management and changes in compensation for our executive officers.
Communications with our Board of Directors
Any stockholder who wishes to send a communication to our board of
directors should address the communication either to the board of directors or
to the individual director c/o Ms. Elizabeth Plaza, president and CEO,
Pharma-Bio Serv, Inc., 373 Mendez Vigo, Suite 110, Dorado, Puerto Rico 00646.
Ms. Plaza will forward the communication either to all of the directors, if the
communication is addressed to the board, or to the individual director, if the
communication is directed to a director.
Nominees for Director
Any stockholder who wants to nominate a candidate for election to the
board must deliver timely notice to our secretary at our principal executive
offices. In order to be timely, the notice must be delivered
o in the case of an annual meeting, not less than 120 days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders, although if we did not hold an annual meeting or the
annual meeting is called for a date that is not within 30 days of
the anniversary date of the prior year's annual meeting, the notice
must be received a reasonable time before we begin to print and mail
our proxy materials; and
o in the case of a special meeting of stockholders called for the
purpose of electing directors, the notice must be received a
reasonable time before we begin to print and mail our proxy
materials.
The stockholder's notice to the secretary must set forth:
o as to each person whom the stockholder proposes to nominate for
election as a director (a) his name, age, business address and
residence address, (b) his principal occupation and employment, (c)
the number of shares of our common stock are owned beneficially or
of record by him and (d) any other information relating to the
nominee that would be required to be disclosed in a proxy statement
or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act, and the rules and regulations of the
Commission thereunder; and
o as to the stockholder giving the notice (a) his name and record
address, (b) the number of shares of common stock of the corporation
which are owned beneficially or of record by him, (c) a description
of all arrangements or understandings between the stockholder and
each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by
the stockholder, (d) a representation by him that he is a holder of
record of our stock entitled to vote at such meeting and that he
intends to appear in person or by proxy at the meeting to nominate
the person or persons named in his notice and (e) any other
information relating to the stockholder that would be required to be
disclosed in a proxy statement or other filings required to be made
in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules
and regulations of the Commission thereunder.
The notice delivered by a stockholder must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected. The stockholder must be a stockholder of record on the date
on which he gives the notice described above and on the record date for the
determination of stockholders entitled to vote at the meeting.
Any person who desires to nominate a candidate for director at our 2007
annual meeting should provide the information required not later than December
15, 2006.
4
OUR RESTATED CERTIFICATE OF INCORPORATION
Our board of directors has proposed that we adopt the restated certificate
of incorporation, and we are seeking consent to the adoption of the restated
certificate of incorporation. The following discussion is a summary of the key
changes affected by the restated certificate of incorporation, but this summary
is qualified in its entirety by reference to the full text of the restated
certificate of incorporation, a copy of which is included as Appendix B to this
proxy statement.
Increase our authorized capital stock
Our certificate of incorporation presently provides for 12,000,000 shares
of capital stock, of which 2,000,000 shares are preferred stock and 10,000,000
shares are common stock. We have the power to fix the voting powers,
designations, powers, preferences and/or restrictions thereof, if any, with
respect to each such class or series of preferred stock and the number of shares
constituting each such class or series, and to increase or decrease the number
of shares of any such class or series to the extent permitted by Delaware law.
The restated certificate of incorporation increases the number of shares
of authorized preferred stock to 10,000,000 and the number of authorized shares
of common stock to 50,000,000 shares. The par value of the preferred stock and
the common stock, which is $.0001 per share, is not changed. In addition to the
general authority to determine voting powers, designations, powers, preferences
and/or restrictions thereof, if any, with respect to each such class or series
of preferred stock, the restated certificate of incorporation also gives
specific authority to set:
(i) the designation of such series;
(ii) the dividend rate of such series, the conditions and dates upon which
such dividends shall be payable, the preference or relation which such dividends
shall bear to the dividends payable on any other class or classes or of any
other series of capital stock, whether such dividends shall be cumulative or
non-cumulative, and whether such dividends may be paid in shares of any class or
series of our capital stock or our other securities;
(iii) whether the shares of such series shall be subject to redemption by
us, and, if made subject to such redemption, the times, prices and other terms
and conditions of such redemption;
(iv) the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
(v) whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes or series of our capital
stock or our other securities, and, if provision be made for conversion or
exchange, the times, prices, rates, adjustment and other terms and conditions of
such conversion or exchange;
(vi) the extent, if any, to which the holders of the shares of such series
shall be entitled to vote, as a class or otherwise, with respect to the election
of the directors or otherwise, and the number of votes to which the holder of
each share of such series shall be entitled;
(vii) the restrictions, if any, on the issue or reissue of any additional
shares or series of preferred stock; and
(viii) the rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of, us.
The adoption of the amendment would not effect any change in our
outstanding common stock or preferred stock; however, by the terms of the
certificate of designation which sets forth the rights, preferences, privileges
and limitations on the holders of our series A convertible preferred stock, upon
the filing of the restated certificate of incorporation, each share of series A
convertible preferred stock would automatically become and be converted into
13.616 shares of common stock. There are 1,175,000 shares of series A
convertible preferred stock outstanding which would be converted into 15,998,800
shares of common stock.
5
In addition to the 2,301,800 shares of common stock outstanding and the
15,998,800 shares of common stock issuable upon conversion of the series A
convertible preferred stock, we have reserved the following shares of common
stock:
o 5,539,892 shares of common stock reserved for issuance pursuant to
outstanding warrants, other than the warrants issued in our January
2006 private placement.
o 7,999,400 shares of common stock issuable upon exercise of the
warrants issued in the January 2006 private placement; o 2,500,000
shares reserved for issuance pursuant to the 2005 long-term
incentive plan.
Pursuant to the agreement by we acquired Plaza Consulting Group in the
reverse acquisition, we agreed that we would issue 100 shares of common stock to
each of Plaza's eligible employees. Such shares will not be issued until we are
eligible to use a Form S-8 registration statement in connection with the
issuance of such shares. We may not be able to use Form S-8 until March 27,
2006. Approximately 16,500 shares of common stock may be issued pursuant to this
program.
Accordingly, we require an increase in authorized capital stock both to
enable us to permit all of the holders of our options and warrants to exercise
these rights.
The rights of the holders of common stock will not be affected by the
amendment. However, as a result of the increase in authorized common stock,
additional shares of common stock will be immediately issued, which will result
in dilution to the holders of the common stock. The increase in the number of
authorized common stock and preferred stock will give the board of directors the
power to issue additional shares of either common stock or preferred stock.
Our board of directors has authority to issue authorized and unissued
shares of capital stock of any class without obtaining approval from the holders
of the common stock. The holders of our common stock and preferred stock do not
have preemptive rights. Under the amended articles of incorporation, our board
of directors has broad authority to issue shares of preferred stock in one or
more series and to determine such matters as the dividend rate and preference,
voting rights, conversion privileges, redemption provisions, liquidation
preferences and other rights of each series. Each share of common stock is
entitled to one vote. The holders of any series of preferred stock issued in the
future will be entitled to such voting rights as may be specified by our board
of directors.
Because of the broad powers granted to our board of directors to issue
shares of preferred and common stock and determine the rights, preferences and
privileges of the holders of such series, the board has the power to issue
shares of preferred stock in a manner which could be used as a defensive measure
against a hostile takeover or to keep the board of directors in power. However,
our board of directors has no present plans to issue shares for such purpose.
Our board of directors believes it will benefit the stockholders to have
additional unreserved shares available for issuance in order that adequate
shares may be available for the possible issuance of common stock, convertible
preferred stock or convertible debt securities in connection with a possible
financing of the Company's business or an acquisition or to provide incentives
for executive personnel, although we have no plans, arrangements, understanding
or commitments with respect to the issuance of such shares.
6
Limitation on Liability
Our certificate of incorporation presently provides that the personal
liability of our directors is limited to the extent set forth in Section
102(b)(7) of the Delaware General Corporation Law. That provision states that a
corporation may include in its certificate of incorporation a provision which
eliminates or limits the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director: (i) For any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) under section 174 of the General Corporation Law, which prohibits unlawful
dividends or stock purchase or redemption, or (iv) for any transaction from
which the director derived an improper personal benefit. Our restated
certificate of incorporation includes the language of Section 102(b)(7), and
does not change the liability of directors.
Indemnification
Our certificate of incorporation presently provides that we may indemnify
our officers and directors to the maximum extent permitted by Section 145 of the
Delaware General Corporation Law. The restated certificate of incorporation
includes a similar provision, but it also provides that these provision provide
a contractual right of the indemnified party against us and expressly permits us
to obtain officers and directors liability insurance.
Right to Amend Bylaws
Our restated certificate of incorporation gives the board of directors,
the power to make, adopt, alter, amend or repeal from time to time our bylaws,
subject to the right of the stockholders to alter and repeal bylaws made by the
board and subject to the provisions of any bylaw limiting the right of the board
to make certain modifications to the bylaws.
APPROVAL OF THE 2005 LONG-TERM INCENTIVE PLAN
The board of directors believes that in order to attract and retain the
services of executive and other key employees, it is necessary for us to have
the ability and flexibility to provide a compensation package which compares
favorably with those offered by other companies. Accordingly, in October 2005,
the board of directors adopted, subject to stockholder approval, the 2005
long-term incentive plan, covering 2,500,000 shares of common stock. Set forth
below is a summary of the 2005 plan, as amended, but this summary is qualified
in its entirety by reference to the full text of the 2005 plan, a copy of which
is included as Appendix C to this proxy statement.
The 2005 plan provides for the grant of incentive and non-qualified
options, stock grants, stock appreciation rights and other equity-based
incentives to employees, including officers, and consultants. The 2005 plan is
to be administered by a committee of independent directors. In the absence of a
committee, the plan is administered by the board of directors. The 2005 plan is
administered by the compensation committee. Independent directors are not
eligible for discretionary options. However, each newly elected independent
director receives at the time of his or her election, a five-year option to
purchase 25,000 shares of common stock at the market price on the date of his or
her election. In addition, the plan provides for the annual grant of an option
to purchase 5,000 shares of common stock on the first trading day of January in
each year, commencing January 2007. The options to directors have a term of five
years and become exercisable cumulatively as to 50% of the shares subject to the
option six months from the date of grant and as to the remaining 50% 18 months
from the date of grant. Pursuant to this provision, on January 25, 2006, options
to purchase 25,000 shares at $.7344 per share, being the fair market value on
the date of grant, were automatically granted to Messrs. Kirk Michel, Howard
Spindel and Irving Wiesen. These option grants are subject to stockholder
approval of the 2005 plan.
Options intended to be incentive stock options must be granted at an
exercise price per share which is not less than the fair market value of the
common stock on the date of grant and may have a term which is not longer than
ten years. If the option holder holds 10% of our common stock, the exercise
price must be at least 110% of the fair market value on the date of grant and
the term of the option cannot exceed five years. On January 25, 2006, we granted
incentive stock options to purchase an aggregate of 1,400,000 shares of common
stock at an exercise price of $.7344 per share, to 41 employees. These options
are subject to stockholder approval of the 2005 plan.
7
Federal Income Tax Consequences
The following is a brief summary of the federal income tax consequences as
of the date hereof with respect to awards under the 2005 plan for participants
who are both citizens and residents of the United States. This description of
the federal income tax consequences is based upon law and Treasury
interpretations in effect on the date of this proxy statement (including
proposed and temporary regulations which may be changed when finalized), and it
should be understood that this summary is not exhaustive, that the law may
change and further that special rules may apply with respect to situations not
specifically discussed herein, including federal employment taxes, foreign,
state and local taxes and estate or inheritance taxes. In particular, this
discussion does not deal with the tax status of option grants or other
equity-based incentives under the tax laws of the Commonwealth of Puerto Rico.
Accordingly, participants are urged to consult with their own qualified tax
advisors.
Non-Qualified Options
No taxable income will be realized by the participant upon the grant of a
non-qualified option. On exercise, the excess of the fair market value of the
stock at the time of exercise over the option price of such stock will be
compensation and (i) will be taxable at ordinary income tax rates in the year of
exercise, (ii) will be subject to withholding for federal income tax purposes
and (iii) generally will be an allowable income tax deduction to us. The
participant's tax basis for stock acquired upon exercise of a non-qualified
option will be equal to the option price paid for the stock, plus any amounts
included in income as compensation. If the participant pays the exercise price
of an option in whole or in part with previously-owned shares of common stock,
the participant's tax basis and holding period for the newly-acquired shares is
determined as follows: As to a number of newly-acquired shares equal to the
number of previously-owned shares used by the participant to pay the exercise
price, no gain or loss will be recognized by the participant on the date of
exercise and the participant's tax basis and holding period for the
previously-owned shares will carry over to the newly-acquired shares on a
share-for-share basis, thereby deferring any gain inherent in the
previously-owned shares. As to each remaining newly acquired share, the
participant's tax basis will equal the fair market value of the share on the
date of exercise and the participant's holding period will begin on the day
after the exercise date. The participant's compensation income and our deduction
will not be affected by whether the exercise price is paid in cash or in shares
of common stock. Special rules, discussed below under "Incentive Stock Options -
Disposition of Incentive Option Shares," will apply if a participant surrenders
previously-owned shares acquired upon the exercise of an incentive option that
have not satisfied certain holding period requirements in payment of any or all
of the exercise price of a non-qualified option.
Disposition of Option Shares
When a sale of the acquired shares occurs, a participant will recognize
capital gain or loss equal to the difference between the sales proceeds and the
tax basis of the shares. Such gain or loss will be treated as capital gain or
loss if the shares are capital assets. The capital gain or loss will be
long-term capital gain or loss treatment if the shares have been held for more
than 12 months. There will be no tax consequences to us in connection with a
sale of shares acquired under an option.
Incentive Stock Options
The grant of an ISO will not result in any federal income tax to a
participant. Upon the exercise of an incentive option, a participant normally
will not recognize any income for federal income tax purposes. However, the
excess of the fair market value of the shares transferred upon the exercise over
the exercise price of such shares (the "spread") generally will constitute an
adjustment to income for purposes of calculating the alternative minimum tax of
the participant for the year in which the option is exercised. As a result of
the exercise a participant's federal income tax liability may be increased. If
the holder of an incentive stock option pays the exercise price, in full or in
part, with shares of previously acquired common stock, the exchange should not
affect the incentive stock option tax treatment of the exercise. No gain or loss
should be recognized on the exchange and the shares received by the participant,
equal in number to the previously acquired shares exchanged therefor, will have
the same basis and holding period as the previously acquired shares. The
participant will not, however, be able to utilize the old holding period for the
purpose of satisfying the incentive stock option holding period requirements
described below. Shares received in excess of the number of previously acquired
shares will have a basis of zero and a holding period, which commences as of the
date the common stock is issued to the participant upon exercise of the
incentive option. If an exercise is effected using shares previously acquired
through the exercise of an incentive stock option, the exchange of the
previously acquired shares will be considered a disposition of such shares for
the purpose of determining whether a disqualifying disposition has occurred.
8
Disposition of Incentive Option Shares
If the incentive option holder disposes of the stock acquired upon the
exercise of an incentive stock option (including the transfer of acquired stock
in payment of the exercise price of another incentive stock option) either
within two years from the date of grant or within one year from the date of
exercise, the option holder will recognize ordinary income at the time of such
disqualifying disposition to the extent of the difference between the exercise
price and the lesser of the fair market value of the stock on the date the
incentive option is exercised or the amount realized on such disqualifying
disposition. Any remaining gain or loss is treated as a short-term or long-term
capital gain or loss, depending on how long the shares were held prior to the
disqualifying disposition. In the event of such disqualifying disposition, the
incentive stock option alternative minimum tax treatment described above may not
apply (although, where the disqualifying disposition occurs subsequent to the
year the incentive stock option is exercised, it may be necessary for the
participant to amend his return to eliminate the tax preference item previously
reported).
Our Deduction
We are not entitled to a tax deduction upon either exercise of an
incentive option or disposition of stock acquired pursuant to such an exercise,
except to the extent that the option holder recognized ordinary income in a
disqualifying disposition.
Stock Grants
A participant who receives a stock grant under the 2005 plan generally
will be taxed at ordinary income rates on the fair market value of shares when
they vest, if subject to vesting or other restrictions, or, otherwise, when
received. However, a participant who, within 30 days after receiving such
shares, makes an election under Section 83(b) of the Code, will recognize
ordinary income on the date of issuance of the stock equal to the fair market
value of the shares on that date. If a Section 83(b) election is made, the
holding period for the shares will commence on the day after the shares are
received and no additional taxable income will be recognized by the participant
at the time the shares vest. However, if shares subject to a Section 83(b)
election are forfeited, no tax deduction is allowable to the participant for the
forfeited shares. Taxes are required to be withheld from the participant at the
time and on the amount of ordinary income recognized by the participant. We will
be entitled to a deduction at the same time and in the same amount as the
participant recognizes income.
Stock Appreciation Rights
The grant of stock appreciation rights will not result in any federal
income tax to a participant. Upon the exercise of a stock appreciation or
phantom stock right, a participant will recognize ordinary income in an amount
equal to the cash or the fair market value of the stock, if any, received by the
participant. At such time, we will be entitled to a tax deduction for the amount
of income recognized by the participant. To date, we have not granted stock
appreciation rights under any of our plans.
9
SELECTION OF INDEPENDENT AUDITOR
We are seeking consent to the selection of Kevane Soto Pasarell Grant
Thornton, LLC ("Kevane") as our independent public accountant for the year
ending October 31, 2006. The audit committee has approved the selection of
Kevane as our independent public accountant.
Kevane has been the independent accountant for Plaza Consulting Group
prior to our acquisition of Plaza in January 2006, and its report on the
financial statements of Plaza Consulting Group at October 31, 2005 and for the
two years then ended is included in our report on Form 8-K relating to our
acquisition of Plaza Consulting Group in a transaction accounted for as a
reverse acquisition.
At no time since its engagement by Plaza has Kevane Soto Pasarell Grant
Thornton, LLC had any direct or indirect financial interest in or any connection
with us, with Plaza Consulting Group or with any of our respective subsidiaries
other than as independent accountant.
Our former auditor was Raich Ende Malter & Co. LLP ("Raich Ende"), who was
replaced on March 6, 2006. Raich Ende was our independent accountant since
August 25, 2005. From that date until the termination of Raich Ende's
engagement, there were no disagreements with Raich Ende, whether or not
resolved, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
Audit Fees
General
We were billed by Kevane during 2005 as follows: $22,000 for the audit of
Plaza Consulting Group's financial statements for the fiscal year ended October
31, 2005, $9,500 for review of the financial statement for the nine months ended
July 31, 2005, and $15,941 for services relating to the reverse merger.
Our total fees to Raich Ende were $25,323, which covered the audit for our
fiscal year ended June 30, 2005 and the period from inception (January 14, 2004)
to June 30, 2004 and review of our quarterly financial statements.
Independence of Auditor
Our audit committee has determined that the provision of services by
Kevane other than for audit related services is compatible with maintaining the
independence of Kevane as our independent accountant.
BENEFICIAL OWNERSHIP OF SECURITIES AND SECURITY OWNERSHIP OF MANAGEMENT
The following table provides information at to shares of common stock
beneficially owned as of January 31, 2006 by:
o each director;
o each officer named in the summary compensation table;
o each person owning of record or known by us, based on information
provided to us by the persons named below, to own beneficially at
least 5% of our common stock; and
o all directors and executive officers as a group.
10
Shares of Common Stock
Name Beneficially Owned Percentage
---- ------------------ ----------
Elizabeth Plaza 1,150,000 50.0%
373 Mendez Vigo, Suite 110
Dorado, Puerto Rico 00646
San Juan Holdings, Inc. 3,100,000 64.6%
MCS Plaza, Suite #305
255 Ponce de Leon Ave.
Hato Rey, PR 00917
Dov Perlysky 1,200,000 36.8%
445 Central Avenue, Suite 305
Cedarhurst, New York 11516
Kirk Michel -- 0%
Howard Spindel -- 0%
Irving Wiesen -- 0%
All officers and directors as a group (two 2,350,000 67.1%
individuals owning stock)
Except as otherwise indicated each person has the sole power to vote and
dispose of all shares of common stock listed opposite his name. Each person is
deemed to own beneficially shares of common stock which are issuable upon
exercise or warrants or options or upon conversion of convertible securities if
they are exercisable or convertible within 60 days of January 31, 2006.
The shares of series A preferred stock are not convertible into common
stock and the warrants issued in the January 2006 private placement are not
exercisable until we amend our certificate of incorporation to increase our
authorized common stock. Accordingly, for purpose of the principal stockholders'
table, the shares of common stock issuable upon conversion of the series A
preferred stock and upon exercise of the warrants are not deemed to be
beneficially owned by the holders of the preferred stock or warrants as of
January 31, 2006.
The shares owned by San Juan Holdings, Inc. include 2,500,000 shares of
common stock issuable upon exercise of a warrant. The exercise price of the
warrant is $.06 per share. San Juan Holdings also owns 75,000 shares of series A
preferred stock, which are convertible into 1,020,200 shares of common stock,
and warrants to purchase 255,300 shares of common stock at $1.10 per share and
255,300 shares of common stock at $1.65 per share. Shares beneficially owned by
San Juan Holdings do not include 275,724 shares of common stock issuable upon
exercise of a warrant held by RD Capital Group, Inc., an affiliate of San Juan
Holdings.
KEMA Advisors, Inc., of which Kirk Michel is the sole owner, owns 25,000
shares of series A preferred stock, and warrants to purchase 85,100 shares of
common stock at $1.10 per share and 85,100 shares of common stock at $1.65 per
share.
The shares beneficially owned by Dov Perlysky are owned by Krovim, LLC.
Mr. Perlysky is the manager of Nesher, LLC, which is the manager of Krovim. Mr.
Perlysky disclaims beneficial interest in the shares owned by Krovim.
MANAGEMENT
The following table sets forth certain information with respect to our
executive officers.
Name Age Position
---- --- --------
Elizabeth Plaza 42 President, chairman of the board and director
Mark Fazio 50 Executive vice president and chief operating officer
Nelida Plaza 38 Vice president and secretary
Antonio L. Martinez 37 Chief financial officer
11
Information concerning Ms. Elizabeth Plaza is included under "Election of
Directors."
Nelida Plaza has been vice president of operations of Plaza since January
2004 and has been our vice president and secretary since January 25, 2006. In
July 2000, Ms. Plaza joined Plaza as a project management consultant. Prior
thereto, she was a unit operations leader and safety manager at E.I. Dupont De
Nemours where she was involved with the development, support and audit of
environmental, safety and occupational health programs. Ms. Plaza holds a M.S.
in Environmental Management from the University of Houston in Clear Lake and a
B.S. in Chemical Engineering from the University of Puerto Rico.
Mark Fazio has been executive vice president and chief operating officer
since February 2006. Mr. Fazio is also the general partner of Fazio Enterprises,
LP, a commercial real estate and development company. From 2005 until February
2006, Mr. Fazio was general manager of Thermo-IVS compliance Services, a
division of Thermo Electron Corporation, a company that provided laboratory
products and services. From 2003 until 2005, Mr. Fazio was vice president and
general manager of Kendro-IVS Compliance Services, a division of Kendro LP,
which provided laboratory products and services. During From 1995 until 2003, he
was president and chief executive officer of IVS Inc., a company which is in a
business similar to ours.
Antonio L. Martinez has been our interim chief financial officer since
January 25, 2006. Mr. Martinez is a certified public accountant and, for the
past ten years, he has owned his own accounting firm. Mr. Martinez has performed
accounting services for Plaza since 2003.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers, directors and persons who own more than ten percent of a
registered class of our equity securities to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission. Based solely upon our review of the copies of the forms we have
received, we believe that all reporting persons complied on a timely basis with
all filing requirements applicable to them with respect to transactions during
the year ended December 31, 2005.
Compensation
SUMMARY COMPENSATION TABLE
Prior to the reverse acquisition, we did not pay any compensation to any
executive officers. Set forth below is information for Plaza's chief executive
officer and each of its other officers whose compensation exceeded $100,000 for
the fiscal year ended October 31, 2005.
Fiscal Other
Name and Position Year Salary Compensation
----------------- ---- ------ ------------
Elizabeth Plaza, president and chief executive 2005 -- $281,500
officer
Nelida Plaza, vice president 2005 $84,723 54,688
No bonuses were paid to any of the officers and no stock or other equity
compensation was provided to any of the officers. Other compensation for
Elizabeth Plaza represents payment of her child care and tuition, and other
family and other personal expenses. Other compensation for Nelida Plaza
represents $48,688 of child care and tuition and other family and personal
expenses and a $6,000 automobile allowance.
Prior to the reverse acquisition, Plaza was taxed as a Subchapter N
corporation under the Puerto Rico tax law, which is similar to treatment as an S
Corporation under the Internal Revenue Code. As a result, Elizabeth Plaza was
taxed on Plaza's income. We did not pay Elizabeth Plaza any salary during the
year ended October 31, 2005, since we distributed $8.0 million to Ms. Plaza with
respect to that year. Since Plaza continued to be treated as an Subchapter N
corporation until the reverse acquisition, Ms. Plaza will be taxed on Plaza's
income from November 1, 2005 until January 24, 2006.
12
Employment Agreements
On January 25, 2006, we entered into employment agreements with Elizabeth
Plaza and Nelida Plaza. Our agreement with Elizabeth Plaza provides that Ms.
Plaza will serve as our president and chief executive officer for a period of 18
months, for which she will receive a salary at the annual rate of $250,000. For
18 months thereafter, Ms. Plaza will serve as a consultant for which she will
receive compensation at the annual rate of $75,000. During the term of her
employment, we will also provide Ms. Plaza with an automobile allowance at the
annual rate of $24,828, discretionary bonuses and stock options or other
equity-based incentives as shall be determined by our compensation committee,
except that her bonus shall not be less than 4% nor more than 50% of her salary.
If we terminate Ms. Plaza's employment other than for cause or as a result of
her death or disability, we are required to pay Ms. Plaza the balance of her
compensation for her employment terms and her consulting term and other
benefits, including a pro rata portion of the bonus that would have been paid to
her, and her obligations under her non-competition provision terminate.
Our agreement with Nelida Plaza provides that Ms. Plaza will serve as vice
president for a term of three years for which she will receive annual
compensation at the annual rate of $150,000. She is also entitled to such bonus
compensation as is determined by the compensation committee, not to exceed 50%
of her salary. We also agreed to make the lease payments on the automobile she
currently leases. Such payment are at the annual rate of approximately $11,600.
If we terminate Ms. Plaza's employment other than for cause or as a result of
her death or disability, we are required to pay Ms. Plaza the balance of her
compensation for her employment terms and her consulting term and other
benefits, including a pro rata portion of the bonus that would have been paid to
her, and her obligations under her non-competition provision terminate.
Consulting Agreement
On January 26, 2006, we entered into a one-year consulting agreement with
Dov Perlysky, pursuant to which we agreed to pay Mr. Perlysky a 5% commission on
business generated by Mr. Perlysky's efforts.
Stock Incentive Plans
See "Approval of the 2005 Long-Term Incentive Plan" for information
relating to the 2005 plan, which is our only equity-based incentive plan.
RELATED PARTY TRANSACTIONS
On January 25, 2006, pursuant to the agreement by which we acquired Plaza
Consulting Group, Elizabeth Plaza, as the sole stockholder of Plaza, received at
the closing $10,000,000 plus 1,150,000 shares of common stock. In addition, we
will pay Ms. Plaza three payments, each in the amount of $2,750,000, on January
25, 2007, 2008 and 2009.
San Juan Holdings represented Plaza Consulting Group and Elizabeth Plaza
in connection with the reverse acquisition. For such services, we issued 600,000
shares of common stock and warrants to purchase 2,500,000 shares of common
stock, with an exercise price of $.06 per share, to San Juan Holdings. In our
private placement of series A preferred stock and warrants, San Juan Holdings
purchased three units. The purchase price for the three units was $750,000. The
broker, which is an affiliate of San Juan Holdings, waived the commission and
non-accountable expense allowance with respect to such sales, and as a result,
San Juan Holdings purchased, for a net payment of $652,500, 75,000 shares of
series A preferred stock and warrants to purchase 255,300 shares of common stock
at $1.10 per share and 255,300 shares of common stock at $1.65 per share. We
also paid an affiliate of San Juan Holdings a broker's commission and
non-accountable expense allowance of $195,000 for sales made to other purchasers
in the private placement, and we issued to the affiliate three-year warrants to
purchase an aggregate of 275,724 shares of common stock at an exercise price of
$.7344 per share.
KEMA Advisors, Inc., of which Kirk Michel, a director, is the sole owner,
purchased for $250,000 in the January 2006 private placement, 25,000 shares of
series A preferred stock, and warrants to purchase 85,100 shares of common stock
at $1.10 per share and 85,100 shares of common stock at $1.65 per share.
13
In January 2006, we acquired certain assets of a United States based
company that performs consulting services for the pharmaceutical and biotech
industries from Mark Fazio for $300,000. Mr. Fazio has since become our
executive vice president and chief operating officer. The acquired assets
include a client list and a validation compliance service business. One-third of
the purchase price was paid in January 2006, one-third is payable on March 31,
2006 and one-third is payable on June 30, 2006. We also hired eleven former
employees of the business.
FINANCIAL STATEMENTS
A copy of our Form 8-K with a report date of January 25, 2006, which was
filed on January 31, 2006, our Form 10-KSB for the year ended June 30, 2005 and
our Form 10-QSB for the three months ended January 31, 2006, without exhibits,
accompany this proxy statement. Stockholders are referred to the reports for
financial and other information about us.
Additional copies of our Form 10-KSB for the year ended June 30, 2005, the
10-QSB for the three months ended January 31, 2006 and the Form 8-K relating to
the acquisition of Plaza may be obtained without charge by writing to Ms. Nelida
Plaza, Secretary, Pharma-Bio Serv, Inc., 373 Mendez Vigo, Suite 110, Dorado,
Puerto Rico 00646. Exhibits will be furnished upon request and upon payment of a
handling charge of $.25 per page, which represents our reasonable cost on
furnishing such exhibits. The Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http//www.sec.gov.
OTHER MATTERS
Deadline for Submission of Stockholder Proposals for the 2007 Annual Meeting
Proposals of stockholders intended to be presented at the 2007 Annual
Meeting of Stockholders pursuant to SEC Rule 14a-8 must be received at our
principal office not later than December 15, 2006 to be included in the proxy
statement for that meeting.
In addition, in order for a stockholder proposal to be presented at our
meeting without it being included in our proxy materials, notice of such
proposal must be delivered to the Secretary of our company at our principal
offices no later than December 31, 2006. If notice of any stockholder proposal
is received after December 31, 2006, then the notice will be considered untimely
and we are not required to present such proposal at the 2007 annual meeting. If
the board of directors chooses to present a proposal submitted after December
31, 2006 at the 2007 annual meeting, then the persons named in proxies solicited
by the board of directors for the 2007 annual meeting may exercise discretionary
voting power with respect to such proposal.
By Order of the Board of Directors
Elizabeth Plaza
President and Chief Executive Officer
March 27, 2006
14
Appendix A
PHARMA-BIO SERV, INC.
AUDIT COMMITTEE CHARTER
Purpose
The Audit Committee is appointed by the Board of Directors (the "Board")
to: (1) assist the Board in monitoring (a) the integrity of the financial
reporting process, systems of internal controls and financial statements and
reports of the Pharma-Bio Serv, Inc. (the "Company"), (b) the performance of the
Company's internal audit function, and (c) the compliance by the Company with
legal and regulatory requirements; and (2) be directly responsible for the
appointment, compensation and oversight of the Company's independent auditor
employed by the Company for the purpose of preparing or issuing an audit report
or related work (the "Outside Auditor").
Committee Membership
The Audit Committee shall consist of no fewer than three members, as
determined annually by the Board; provided, however, that in the event the
Company has less than three independent directors, as hereinafter defined, the
Audit Committee shall have such number of members as equals the number of
independent directors. The members of the Audit Committee shall meet the
independence and expertise requirements of the principal stock exchange or
market on which the Company's securities are traded and Section 10A(m)(3) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations of the Securities and Exchange Commission (the "Commission");
provided, however, that if the Company's securities are not traded on an
exchange or market which has a definition of independence, then independence
shall be determined in accordance with the rules of the Nasdaq Stock Market.
Audit Committee members shall not serve simultaneously on the audit committees
of more than two other public companies without the approval of the full Board.
The members of the Audit Committee shall be appointed annually by the
Board. Audit Committee members may be replaced by the Board at any time. The
Board shall designate the Chairman or Chairwoman ("Chairperson") of the Audit
Committee.
Committee Authority and Responsibilities
The basic responsibility of the members of the Audit Committee is to
exercise their business judgment to act in what they reasonably believe to be in
the best interests of the Company and its stockholders. In discharging that
obligation, members should be entitled to rely on the honesty and integrity of
the Company's senior executives and its outside advisors and auditors, to the
fullest extent permitted by law.
The Audit Committee shall prepare any report which required by the rules
of the Commission to be included in the Company's proxy statement for its annual
meeting.
The Audit Committee shall be responsible directly for the appointment
(subject, if applicable, to stockholder ratification), retention, termination,
compensation and terms of engagement, evaluation, and oversight of the work of
the Outside Auditor (including resolution of disagreements between management
and the Outside Auditor regarding financial reporting). The Outside Auditor
shall report directly to the Audit Committee.
15
The Audit Committee shall oversee the integrity of the audit process,
financial reporting and internal accounting controls of the Company, oversee the
work of the Company's management, internal auditors (the "Internal Auditors")
and the Outside Auditor in these areas, oversee management's development of, and
adherence to, a sound system of internal accounting and financial controls,
review whether the Internal Auditors and the Outside Auditor objectively assess
the Company's financial reporting, accounting practices and internal controls,
and provide an open avenue of communication among the Outside Auditor, the
Internal Auditors and the Board. It is the responsibility of:
o management of the Company and the Outside Auditor, under the
oversight of the Audit Committee and the Board, to plan and conduct
financial audits and to determine that the Company's financial
statements and disclosures are complete and accurate in accordance
with generally accepted accounting principles ("GAAP") and
applicable rules and regulations and fairly present, in all material
respects, the financial condition of the Company;
o management of the Company, under the oversight of the Audit
Committee and the Board, to assure compliance by the Company with
applicable legal and regulatory requirements; and
o the Internal Auditors, under the oversight of the Audit Committee
and the Board, to review the Company's internal transactions and
accounting which do not require involvement in the detailed
presentation of the Company's financial statements.
The Audit Committee shall pre-approve all audit services and non-audit
services (including the fees and terms thereof) to be performed for the Company
by the Outside Auditor to the extent required by and in a manner consistent with
applicable law.
The Audit Committee shall meet as often as it determines necessary or
appropriate, but not less frequently than quarterly. The Chairperson shall
preside at each meeting and, in the absence of the Chairperson, one of the other
members of the Audit Committee shall be designated as the acting chair of the
meeting. The Chairperson (or acting chair) may direct appropriate members of
management and staff to prepare draft agendas and related background information
for each Audit Committee meeting. To the extent practical, any background
materials, together with the agenda for the meeting, should be distributed to
the Audit Committee members in advance of the meeting. All meetings of the Audit
Committee shall be held pursuant to the by-laws of the Company with regard to
notice and waiver thereof, and written minutes of each meeting, in the form
approved by the Audit Committee, shall be duly filed in the Company records.
Reports of meetings of the Audit Committee shall be made to the Board at its
next regularly scheduled meeting following the Audit Committee meeting
accompanied by any recommendations to the Board approved by the Audit Committee.
The Audit Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate.
The Audit Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal, accounting or other
advisers. The Company shall provide for appropriate funding, as determined by
the Audit Committee, for payment of compensation to the Outside Auditor for the
purpose of rendering or issuing an audit report and to any advisers employed by
the Audit Committee, subject only to any limitations imposed by applicable rules
and regulations. The Audit Committee may request any officer or associate of the
Company or the Company's outside counsel or Outside Auditor to attend a meeting
of the Audit Committee or to meet with any members of, or consultants to, the
Audit Committee. The Audit Committee shall meet with management, the Internal
Auditors and the Outside Auditor in separate executive sessions at least
quarterly to discuss matters for which the Audit Committee has responsibility.
16
The Audit Committee shall make regular reports to the Board. The Audit
Committee shall review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval. The Audit Committee
shall annually review its own performance.
In performing its functions, the Audit Committee shall undertake those
tasks and responsibilities that, in its judgment, would contribute most
effectively to and implement the purposes of the Audit Committee. In addition to
the general tasks and responsibilities noted above, the following are the
specific functions of the Audit Committee:
Financial Statement and Disclosure Matters
1. Review and discuss with management, and to the extent the Audit Committee
deems necessary or appropriate, the Internal Auditors and the Outside
Auditor, the Company's disclosure controls and procedures that are
designed to ensure that the reports the Company files with the Commission
comply with the Commission's rules and forms.
2. Review and discuss with management, the Internal Auditors and the Outside
Auditor the annual audited financial statements, including disclosures
made in management's discussion and analysis, and recommend to the Board
whether the audited financial statements should be included in the
Company's Form 10-K.
3. Review and discuss with management, the Internal Auditors and the Outside
Auditor the Company's quarterly financial statements, including
disclosures made in management's discussion and analysis, prior to the
filing of its Form 10-Q, including the results of the Outside Auditor's
reviews of the quarterly financial statements.
4. Review and discuss quarterly reports from the Outside Auditor on:
(a) All critical accounting policies and practices to be used;
(b) All alternative treatments within GAAP for policies and practices
related to material items that have been discussed with management,
including ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the Outside Auditor;
(c) The internal controls adhered to by the Company, management, and the
Company's financial, accounting and internal auditing personnel, and
the impact of each on the quality and reliability of the Company's
financial reporting; and
(d) Other material written communications between the Outside Auditor
and management, such as any management letter or schedule of
unadjusted differences.
5. Discuss in advance with management the Company's practice with respect to
the types of information to be disclosed and the types of presentations to
be made in earnings press releases, including the use, if any, of "pro
forma" or "adjusted" non-GAAP information, as well as financial
information and earnings guidance provided to analysts and rating
agencies.
17
6. Review and discuss with management, the Internal Auditors and the Outside
Auditor:
(a) Significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial
statements;
(b) The clarity of the financial disclosures made by the Company;
(c) The development, selection and disclosure of critical accounting
estimates and the analyses of alternative assumptions or estimates,
and the effect of such estimates on the Company's financial
statements;
(d) Potential changes in GAAP and the effect such changes would have on
the Company's financial statements;
(e) Significant changes in accounting principles, financial reporting
policies and internal controls implemented by the Company;
(f) Significant litigation, contingencies and claims against the Company
and material accounting issues that require disclosure in the
Company's financial statements;
(g) Information regarding any "second" opinions sought by management
from an independent auditor with respect to the accounting treatment
of a particular event or transaction;
(h) Management's compliance with the Company's processes, procedures and
internal controls;
(i) The adequacy and effectiveness of the Company's internal accounting
and financial controls and the recommendations of management, the
Internal Auditors and the Outside Auditor for the improvement of
accounting practices and internal controls; and
(j) Any difficulties encountered by the Outside Auditor or the Internal
Auditors in the course of their audit work, including any
restrictions on the scope of activities or access to requested
information, and any significant disagreements with management.
7. Discuss with management and the Outside Auditor the effect of regulatory
and accounting initiatives as well as off balance sheet structures and
aggregate contractual obligations on the Company's financial statements.
8. Discuss with management the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies.
9. Discuss with the Outside Auditor the matters required to be discussed by
Statement on Auditing Standards ("SAS") No. 61 relating to the conduct of
the audit. In particular, discuss:
18
(a) The adoption of, or changes to, the Company's significant internal
auditing and accounting principles and practices as suggested by the
Outside Auditor, Internal Auditors or management; and
(b) The management letter provided by the Outside Auditor and the
Company's response to that letter.
10. Receive and review disclosures made to the Audit Committee by the
Company's Chief Executive Officer and Chief Financial Officer during their
certification process for the Company's Form 10-K and Form 10-Q, to the
extent required to be included in the certification process, about (a) any
significant deficiencies in the design or operation of internal controls
or material weakness therein, (b) any fraud involving management or other
associates who have a significant role in the Company's internal controls
and (c) any significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date
of their evaluation.
Oversight of the Company's Relationship with the Outside Auditor
11. Review the experience and qualifications of the senior members of the
Outside Auditor team.
12. Obtain and review a report from the Outside Auditor at least annually
regarding (a) the Outside Auditor's internal quality-control procedures,
(b) any material issues raised by the most recent internal quality-control
review, or peer review, of the firm, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years
respecting one or more independent audits carried out by the firm, (c) any
steps taken to deal with any such issues, and (d) all relationships
between the Outside Auditor and the Company, including the written
disclosures and the letter required by Independence Standards Board
Standard 1, as that standard may be modified or supplemented from time to
time.
13. Evaluate the qualifications, performance and independence of the Outside
Auditor, including considering whether the Outside Auditor's quality
controls are adequate and the provision of non-audit services is
compatible with maintaining the Outside Auditor's independence, and taking
into account the opinions of management and the Internal Auditor. The
Audit Committee shall present its conclusions to the Board.
14. Oversee the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible for
reviewing the audit to the extent that rotation is required under the
rules of the Commission, and oversee the rotation of other audit partners,
in accordance with the rules of the Commission.
15. Recommend to the Board policies for the Company's hiring of present and
former associates of the Outside Auditor who have participated in any
capacity in the audit of the Company, in accordance with the rules of the
Commission.
16. To the extent the Audit Committee deems necessary or appropriate, discuss
with the national office of the Outside Auditor issues on which they were
consulted by the Company's audit team and matters of audit quality and
consistency.
19
17. Discuss with management, the Internal Auditors and the Outside Auditor any
accounting adjustments that were noted or proposed by the Outside Auditor,
but were not adopted or reflected.
18. Meet with management, the Internal Auditors and the Outside Auditor prior
to the audit to discuss and review the scope, planning and staffing of the
audit.
19. Obtain from the Outside Auditor the information required to be disclosed
to the Company by generally accepted auditing standards in connection with
the conduct of an audit.
20. Require the Outside Auditor to review the financial information included
in the Company's Form 10-QSB in accordance with the rules of the
Commission prior to the Company filing such reports with the Commission
and to provide to the Company for inclusion in the Company's Form 10-QSB
any reports of the Outside Auditor required by such rules.
Oversight of the Company's Internal Audit Function
21. Take such steps to reasonably ensure that the Company has an internal
audit function.
22. Review and concur in the appointment, replacement, reassignment or
dismissal of the senior internal auditing executive, and the compensation
package for such person.
23. Review the significant reports to management prepared by the internal
auditing department and management's responses.
24. Communicate with management and the Internal Auditors to obtain
information concerning internal audits, accounting principles adopted by
the Company, internal controls of the Company, management, and the
Company's financial and accounting personnel, and review the impact of
each on the quality and reliability of the Company's financial statements.
25. Evaluate the internal auditing department and its impact on the accounting
practices, internal controls and financial reporting of the Company.
26. Discuss with the Outside Auditor the internal audit department's
responsibilities, budget and staffing and any recommended changes in the
planned scope of the internal audit.
Compliance Oversight Responsibilities
27. Obtain from the Outside Auditor the reports required to be furnished to
the Audit Committee under Section 10A of the Exchange Act and obtain from
the Outside Auditor any information with respect to illegal acts in
accordance with Section 10A.
28. Obtain reports from management, the Company's senior internal auditing
executive and the Outside Auditor concerning whether the Company and its
subsidiary/foreign affiliated entities are in compliance with applicable
legal requirements and the any applicable code of ethics.
29. Obtain and review reports and disclosures of insider and affiliated party
transactions. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations and
the applicable code of ethics.
20
30. Establish procedures for (a) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and (b) the confidential,
anonymous submission by associates of the Company of concerns regarding
questionable accounting or auditing matters.
31. Discuss with management and the Outside Auditor any correspondence between
the Company and regulators or governmental agencies and any associate
complaints or published reports that raise material issues regarding the
Company's financial statements or accounting policies.
32. Discuss with the Company's counsel legal matters that may have a material
impact on the financial statements or the Company's compliance policies.
Additional Responsibilities
33. If required by the rules of the Commission or the regulations of the
principal stock exchange or market on which the Company's securities are
traded, prepare annually a report for inclusion in the Company's proxy
statement relating to its annual stockholders meeting.
34. Conduct or authorize investigations into any matters within the Audit
Committee's scope of responsibilities.
35. Review the Company's Related-Party Transaction Policy and recommend any
changes to the Compensation, Nominating and Governance Committee and then
to the Board for approval. Review and determine whether to approve or
ratify transactions covered by such policy, as appropriate.
21
Appendix B
RESTATED CERTIFICATE OF INCORPORATION
OF
PHARMA-BIO SERV, INC.
Pharma-Bio Serv, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
1. The Certificate of Incorporation of the Corporation was filed with the
Secretary of State on January 14, 2004 under the name Lawrence Consulting Group,
Inc.
2. The name of the Corporation was changed to Pharma-Bio Serv, Inc. by a
Certificate of Ownership and Merger of Pharma-Bio Serv, Inc. into Lawrence
Consulting Group, Inc. which was filed with the Secretary of State on February
27, 2006.
3. The Certificate of Incorporation of the Corporation is hereby amended
and restated to read as follows:
FIRST: The name of the Corporation is Pharma-Bio Serv, Inc. (the
"Corporation").
SECOND: The address of its registered office in the State of Delaware is
2711 Centerville Road, Suite 400 Wilmington, Delaware, 19808. The name of its
registered agent at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: (a) The total number of shares of capital stock which this
Corporation is authorized to issue is sixty million (60,000,000) shares, of
which:
(i) ten million (10,000,000) shares shall be designated as
Preferred Stock, and shall have a par value of $.0001 per share;
(ii) fifty million (53,000,000) shares shall be designated as
Common Stock, and shall have a par value of $.0001 per share; and
(b) The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of Preferred Stock in
one or more series, with such voting powers, full or limited, or without voting
powers and with such designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
providing for the issue thereof adopted by the Board of Directors and as are not
stated and expressed in this Certificate of Incorporation, or any amendment
thereto, including (but without limiting the generality of the foregoing) the
following:
(i) the designation of such series;
(ii) the dividend rate of such series, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any other class or
classes or of any other series of capital stock, whether such dividends shall be
cumulative or noncumulative, and whether such dividends may be paid in shares of
any class or series of capital stock or other securities of the Corporation;
22
(iii) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to such redemption, the
times, prices and other terms and conditions of such redemption;
(iv) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(v) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes or
series of capital stock or other securities of the Corporation, and, if
provision be made for conversion or exchange, the times, prices, rates,
adjustment and other terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of the shares of
such series shall be entitled to vote, as a class or otherwise, with respect to
the election of the directors or otherwise, and the number of votes to which the
holder of each share of such series shall be entitled;
(vii) the restrictions, if any, on the issue or reissue of any
additional shares or series of Preferred Stock; and
(viii) the rights of the holders of the shares of such series
upon the dissolution of, or upon the distribution of assets of, the Corporation.
(c) No holder of any stock of the Corporation of any class or series
now or hereafter authorized, shall, as such holder, be entitled as of right to
purchase or subscribe for any shares of stock of the Corporation of any class or
any series now or hereafter authorized, or any securities convertible into or
exchangeable for any such shares, or any warrants, options, rights or other
instruments evidencing rights to subscribe for, or purchase, any such shares,
whether such shares, securities, warrants, options, rights or other instruments
be unissued or issued and thereafter acquired by the Corporation.
FIFTH: Election of directors need not be by ballot unless the By-laws of
the Corporation shall so provide.
SIXTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
23
SEVENTH: (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter, a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in Paragraph (b) of this Article SEVENTH, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Article SEVENTH shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director of officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article SEVENTH
or otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under Paragraph (a)
of this Article SEVENTH is not paid in full by the Corporation within thirty
(30) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim, and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard or conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article SEVENTH shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
24
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
EIGHTH: In furtherance and not in limitation of the powers conferred upon
the Board of Directors by law, the Board of Directors shall have power to make,
adopt, alter, amend or repeal from time to time By-laws of the Corporation,
subject to the right of the stockholders entitled to vote with respect thereto
to alter and repeal By-laws made by the Board of Directors and subject to the
provisions of any By-law limiting the right of the Board of Directors to make
certain modifications to the By-laws.
4. Upon the filing of this Restated Certificate of Incorporation, each of
the presently outstanding shares of Series A Convertible Preferred Stock, par
value $.0001 per share ("Series A Preferred Stock"), will, in accordance with
the provisions of the Certificate of Designation creating the Series A Preferred
Stock, automatically, without any action on the part of the holder, become and
be converted into 13.616 shares of Common Stock, and the shares of Series A
Preferred Stock shall have the status of authorized but unissued shares of
Preferred Stock, without designation as to series until such stock is once more
designated as part of a particular series by the Corporation's Board of
Directors.
5. This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of Delaware.
6. The capital of the Corporation will not be reduced under or by reason
of any amendment herein certified.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its president this th day of April, 2006.
---------------------------
Elizabeth Plaza, President
25
Appendix C
PHARMA-BIO SERV, INC.
2005 Long-Term Incentive Plan
1. Purpose; Definitions.
The purpose of the Pharma-Bio Serv, Inc. 2005 Long-Term Incentive Plan
(the "Plan") is to enable Pharma-Bio Serv, Inc. (the "Company") to attract,
retain and reward key employees of the Company and its Subsidiaries and
Affiliates, and others who provide services to the Company and its Subsidiaries
and Affiliates, and strengthen the mutuality of interests between such key
employees and such other persons and the Company's stockholders, by offering
such key employees and such other persons incentives and/or other equity
interests or equity-based incentives in the Company, as well as
performance-based incentives payable in cash.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any corporation, partnership, limited liability
company, joint venture or other entity, other than the Company and its
Subsidiaries, that is designated by the Board as a participating employer under
the Plan, provided that the Company directly or indirectly owns at least 20% of
the combined voting power of all classes of stock of such entity or at least 20%
of the ownership interests in such entity.
(b) "Board" means the Board of Directors of the Company.
(c) "Book Value" means, as of any given date, on a per share basis (i) the
stockholders' equity in the Company as of the last day of the immediately
preceding fiscal year as reflected in the Company's consolidated balance sheet,
subject to such adjustments as the Committee shall specify at or after grant,
divided by (ii) the number of then outstanding shares of Stock as of such
year-end date, as adjusted by the Committee for subsequent events.
(d) "Cause" means a felony conviction of a participant, or the failure of
a participant to contest prosecution for a felony, or a participant's willful
misconduct or dishonesty, or breach of trust or other action by which the
participant obtains personal gain at the expense of or to the detriment of the
Company or conduct which results in civil or criminal liability or penalties,
including penalties pursuant to a consent decree, order or agreement, on the
part of the Company; provided, however, that if the participant has an
Employment Agreement with the Company, a Subsidiary or Affiliate which includes
a definition of "cause," then "cause" shall have the meaning as defined in such
Employment Agreement.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(f) "Commission" means the Securities and Exchange Commission or any
successor thereto.
(g) "Committee" means the Committee referred to in Section 2 of the Plan.
If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board.
(h) "Company" means Pharma-Bio Serv, Inc., a Delaware corporation, or any
successor corporation.
(i) "Deferred Stock" means an award made pursuant to Section 8 of the Plan
of the right to receive Stock at the end of a specified deferral period.
(j) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan; provided that if the
participant has an Employment Agreement with the Company, a Subsidiary or
Affiliate which includes a definition of "disability," then "disability" shall
have the meaning as defined in such Employment Agreement.
(k) "Early Retirement" means retirement, with the express consent for
purposes of the Plan of the Company at or before the time of such retirement,
from active employment with the Company and any Subsidiary or Affiliate pursuant
to the early retirement provisions of the applicable pension plan of such
entity.
26
(l) "Employment Agreement" shall mean an employment or consulting
agreement or other agreement pursuant to which the participant performs services
for the Company or a Subsidiary or Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
from time to time, and any successor thereto.
(n) "Fair Market Value" means, as of any given date, the market price of
the Stock as determined by or in accordance with the policies established by the
Committee in good faith; provided, that, in the case of an Incentive Stock
Option, the Fair Market Value shall be determined in accordance with the Code
and the Treasury regulations under the Code.
(o) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
(p) "Independent Director" shall mean a "non-employee director" as set
forth in Rule 16b-3 of the Commission pursuant to the Exchange Act or any
successor definition adopted by the Commission; provided that in the event that
said rule (or successor rule) shall not have such a definition, the term
Independent Director shall mean a director of the Company who is not otherwise
employed by the Company or any Subsidiary or Affiliate; provided, however, an
Independent Director shall also be an independent director as determined by the
rules or regulations of the principal stock exchange or market on which the
Stock is traded or, if the Stock is not listed or traded on such exchange, as
defined under the rules of the Nasdaq Stock Market.
(q) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(r) "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Affiliate on or after age 65 or such other age as
is designated by the Company, Subsidiary or Affiliate as the normal retirement
age.
(s) "Other Stock-Based Award" means an award under Section 10 of the Plan
that is valued in whole or in part by reference to, or is otherwise based on,
Stock.
(t) "Plan" means this Pharma-Bio Serv, Inc. 2005 Long-Term Incentive Plan,
as hereinafter amended from time to time.
(u) "Restricted Stock" means an award of shares of Stock that is subject
to restrictions under Section 7 of the Plan.
(v) "Retirement" means Normal Retirement or Early Retirement.
(w) "Stock" means the common stock, par value $.0001 per share, of the
Company or any class of common stock into which such common stock may hereafter
be converted or for which such common stock may be exchanged pursuant to the
Company's certificate of incorporation or as part of a recapitalization,
reorganization or similar transaction.
(x) "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 of the Plan to surrender to the Company all (or a
portion) of a Stock Option in exchange for an amount equal to the difference
between (i) the Fair Market Value, as of the date such award or Stock Option (or
such portion thereof) is surrendered, of the shares of Stock covered by such
Stock Option (or such portion thereof), subject, where applicable, to the
pricing provisions in Section 6(b)(ii) of the Plan and (ii) the aggregate
exercise price of such Stock Option or base price with respect to such award (or
the portion thereof which is surrendered).
(y) "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock and Deferred Stock, if the Committee so
determines) granted pursuant to Section 5 of the Plan.
(z) "Stock Purchase Right" means the right to purchase Stock pursuant to
Section 9 of the Plan.
(aa) "Subsidiary" means any corporation or other business association,
including a partnership (other than the Company) in an unbroken chain of
corporations or other business associations beginning with the Company if each
of the corporations or other business associations (other than the last
corporation in the unbroken chain) owns equity interests (including stock or
partnership interests) possessing 50% or more of the total combined voting power
of all classes of equity in one of the other corporations or other business
associations in the chain. The Board may elect to treat as a Subsidiary an
entity in which the Company possesses less than 50% of the total combined voting
power of all classes of equity if, under generally accepted accounting
principles, the Company may include the financial statements of such entity as
part of the Company's consolidated financial statements (other than as a
minority interest or other single line item).
27
In addition, the terms "Change in Control," "Potential Change in Control"
and "Change in Control Price" shall have meanings set forth, respectively, in
Sections 11(b), (c) and (d) of the Plan.
2. Administration.
(a) The Plan shall be administered by a Committee of not less than two
directors all of whom shall be Independent Directors, who shall be appointed by
the Board and who shall serve at the pleasure of the Board. If and to the extent
that no Committee exists which has the authority to administer the Plan, the
functions of the Committee specified in the Plan shall be exercised by the
Board.
(b) The Committee shall have full authority to grant, pursuant to the
terms of the Plan, to officers and other persons eligible under Section 4 of the
Plan, provided that Independent Directors shall not be eligible for options or
other benefits pursuant to the Plan other than as provided in Sections 4(b) and
4(c) of the Plan: Stock Options, Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Stock Purchase Rights and/or Other Stock-Based Awards. In
particular, the Committee shall have the authority:
(i) to select the officers and other eligible persons to whom Stock
Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock
Purchase Rights and/or Other Stock-Based Awards may from time to time be granted
pursuant to the Plan;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock, Deferred Stock, Stock Purchase Rights and/or Other Stock-Based Awards, or
any combination thereof, are to be granted pursuant to the Plan, to one or more
eligible persons;
(iii) to determine the number of shares to be covered by each such
award granted pursuant to the Plan;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted under the Plan, including, but not
limited to, the share price or exercise price and any restriction or limitation,
or any vesting, acceleration or waiver of forfeiture restrictions regarding any
Stock Option or other award and/or the shares of Stock relating thereto, based
in each case on such factors as the Committee shall, in its sole discretion,
determine;
(v) to determine whether, to what extent and under what
circumstances a Stock Option may be settled in cash, Restricted Stock and/or
Deferred Stock under Section 5(b)(x) or (xi) of the Plan, as applicable, instead
of Stock;
(vi) to determine whether, to what extent and under what
circumstances Option grants and/or other awards under the Plan and/or other cash
awards made by the Company are to be made, and operate, on a tandem basis with
other awards under the Plan and/or cash awards made outside of the Plan in a
manner whereby the exercise of one award precludes, in whole or in part, the
exercise of another award, or on an additive basis;
(vii) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the election of the
participant, including any provision for any determination or method of
determination of the amount (if any) deemed be earned on any deferred amount
during any deferral period;
(viii) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Stock purchased by exercising such Rights; and
28
(ix) to determine an aggregate number of awards and the type of
awards to be granted to eligible persons employed or engaged by the Company
and/or any specific Subsidiary, Affiliate or division and grant to management
the authority to grant such awards, provided that no awards to any person
subject to the reporting and short-swing profit provisions of Section 16 of the
Exchange Act may be granted awards except by the Committee.
(c) In the event that any officers or other participants have Employment
Agreements with the Company which provide for the grant of options to such
participants, unless the Committee or the Board otherwise determines, the
options shall be treated for all purposes as if they were granted pursuant to
this Plan as long as there is a sufficient number of shares available for grant
pursuant to this Plan.
(d) The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan and any agreements relating thereto, and otherwise
to supervise the administration of the Plan.
(e) All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Company and Plan participants.
3. Stock Subject to Plan.
(a) The total number of shares of Stock reserved and available for
distribution under the Plan shall be two million five hundred thousand
(2,500,000) shares of Stock. In the event that awards are granted in tandem such
that the exercise of one award precludes the exercise of another award then, for
the purpose of determining the number of shares of Stock as to which awards
shall have been granted, the maximum number of shares of Stock issuable pursuant
to such tandem awards shall be used.
(b) Subject to Section 6(b)(v) of the Plan, if any shares of Stock that
have been optioned cease to be subject to a Stock Option, or if any such shares
of Stock that are subject to any Restricted Stock or Deferred Stock award, Stock
Purchase Right or Other Stock-Based Award granted under the Plan are forfeited
or any such award otherwise terminates without a payment being made to the
participant in the form of Stock, such shares shall again be available for
distribution in connection with future awards under the Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, stock distribution, reverse
split, combination of shares or other change in corporate structure affecting
the Stock, such substitution or adjustment shall be made in the aggregate number
of shares reserved for issuance under the Plan, in the base number of shares, in
the number and option price of shares subject to outstanding Options granted
under the Plan, in the number and purchase price of shares subject to
outstanding Stock Purchase Rights under the Plan, and in the number of shares
subject to other outstanding awards granted under the Plan as may be determined
to be appropriate by the Committee, in its sole discretion, provided that the
number of shares subject to any award shall always be a whole number, and
provided that the treatment of such options and rights shall be consistent with
the nature of the event. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
4. Eligibility.
(a) Officers and other key employees and directors of, and consultants and
independent contractors to, the Company and its Subsidiaries and Affiliates (but
excluding, except as to Sections 4(b) and 4(c) of the Plan, Independent
Directors) who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company and/or its Subsidiaries and
Affiliates are eligible to be granted awards under the Plan.
(b) On each the first trading day in January of each year, commencing in
2007, each person who is a Independent Director on such date shall automatically
be granted a Non-Qualified Stock Option to purchase five thousand (5,000) shares
of Stock (or such lesser number of shares of Stock as remain available for grant
at such date under the Plan, divided by the number of Independent Directors at
such date). Such Stock Options shall be exercisable at a price per share equal
to the greater of the Fair Market Value on the date of grant or the par value of
one share of Stock. The Non-Qualified Stock Options granted pursuant to this
Section 4(b) and pursuant to Section 4(c) of the Plan shall become exercisable
cumulatively as to fifty percent (50%) of the shares subject thereto six months
from the date of grant and as to the remaining fifty percent (50%), eighteen
months from the date of grant, and shall expire on the earlier of (i) five years
from the date of grant, or (ii) seven (7) months from the date such Independent
Director ceases to be a director if such Independent Director ceases to be a
director other than as a result of his death or Disability. The provisions of
this Section 4(b) and said Section 4(c) may not be amended more than one (1)
time in any six (6) month period other than to comply with changes in the Code
or the Employee Retirement Income Security Act ("ERISA") or the rules
thereunder.
29
(c) At the time an Independent Director is first elected to the Board,
such person shall automatically be granted a Non-Qualified Stock Option to
purchase twenty five thousand (25,000) shares of Stock (or such lesser number of
shares of Stock as remain available for grant at such date under the Plan,
divided by the number of Independent Directors who are elected as directors at
such date). Such Stock Options shall be exercisable at a price per share equal
to the greater of the Fair Market Value on the date of grant or the par value of
one share of Stock.
5. Stock Options.
(a) Administration. Stock Options may be granted alone, in addition to or
in tandem with other awards granted under the Plan and/or cash awards made
outside of the Plan. Any Stock Option granted under the Plan shall be in such
form as the Committee may from time to time approve. Stock Options granted under
the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified
Stock Options. The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights).
(b) Option Grants. Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee, in
its sole discretion, shall deem desirable:
(i) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of grant.
(ii) Option Term. The term of each Stock Option shall be fixed by
the Committee, but no Stock Option shall be exercisable more than ten (10) years
after the date the Option is granted.
(iii) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee at or after grant. If the Committee provides, in its sole
discretion, that any Stock Option is exercisable only in installments, the
Committee may waive such installment exercise provisions at any time at or after
grant in whole or in part, based on such factors as the Committee shall, in its
sole discretion, determine.
(iv) Method of Exercise.
(A) Subject to whatever installment exercise provisions apply
under Section 5(b)(iii) of the Plan, Stock Options may be exercised in whole or
in part at any time during the option period, by giving written notice of
exercise to the Company specifying the number of shares to be purchased. Such
notice shall be accompanied by payment in full of the purchase price, either by
check, note or such other instrument, securities or property as the Committee
may accept. As and to the extent determined by the Committee, in its sole
discretion, at or after grant, payments in full or in part may also be made in
the form of Stock already owned by the optionee or, in the case of the exercise
of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock subject to
an award hereunder (based, in each case, on the Fair Market Value of the Stock
on the date the option is exercised, as determined by the Committee).
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(B) If payment of the option exercise price of a Non-Qualified
Stock Option is made in whole or in part in the form of Restricted Stock or
Deferred Stock, the Stock issuable upon such exercise (and any replacement
shares relating thereto) shall remain (or be) restricted or deferred, as the
case may be, in accordance with the original terms of the Restricted Stock award
or Deferred Stock award in question, and any additional Stock received upon the
exercise shall be subject to the same forfeiture restrictions or deferral
limitations, unless otherwise determined by the Committee, in its sole
discretion, at or after grant.
(C) No shares of Stock shall be issued until full payment
therefor has been received by the Company. In the event of any exercise by note
or other instrument, the shares of Stock shall not be issued until such note or
other instrument shall have been paid in full, and the exercising optionee shall
have no rights as a stockholder until such payment is made.
(D) Subject to Section 5(b)(iv)(C) of the Plan, an optionee
shall generally have the rights to dividends or other rights of a stockholder
with respect to shares subject to the Option when the optionee has given written
notice of exercise, has paid in full for such shares, and, if requested, has
given the representation described in Section 14(a) of the Plan.
(v) Non-Transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(vi) Termination by Death. Subject to Section 5(b)(ix) of the Plan
with respect to Incentive Stock Options, if an optionee's employment by the
Company and any Subsidiary or Affiliate terminates by reason of death, any Stock
Option held by such optionee may thereafter be exercised, to the extent such
option was exercisable at the time of death or on such accelerated basis as the
Committee may determine at or after grant (or as may be determined in accordance
with procedures established by the Committee), by the legal representative of
the estate or by the legatee of the optionee under the will of the optionee, for
a period of one year (or such other period as the Committee may specify at
grant) from the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter.
(vii) Termination by Reason of Disability or Retirement. Subject to
Section 5(b)(ix) of the Plan with respect to Incentive Stock Options, if an
optionee's employment by the Company and any Subsidiary or Affiliate terminates
by reason of a Disability or Normal or Early Retirement, any Stock Option held
by such optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of termination or on such accelerated basis as the
Committee may determine at or after grant (or as may be determined in accordance
with procedures established by the Committee), for a period of one year (or such
other period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is the shorter; provided, however, that, if the
optionee dies within such one-year period (or such other period as the Committee
shall specify at grant), any unexercised Stock Option held by such optionee
shall thereafter be exercisable to the extent to which it was exercisable at the
time of death for a period of one year from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of Disability or
Normal or Early Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(viii) Other Termination. Unless otherwise determined by the
Committee (or pursuant to procedures established by the Committee) at or after
grant, if an optionee's employment by the Company and any Subsidiary or
Affiliate terminates for any reason other than death, Disability or Normal or
Early Retirement, the Stock Option shall thereupon terminate; provided, however,
that if the optionee is involuntarily terminated by the Company or any
Subsidiary or Affiliate without Cause, including a termination resulting from
the Subsidiary, Affiliate or division in which the optionee is employed or
engaged, ceasing, for any reason, to be a Subsidiary, Affiliate or division of
the Company, such Stock Option may be exercised, to the extent otherwise
exercisable on the date of termination, for a period of three months (or seven
months in the case of a person subject to the reporting and short-swing profit
provisions of Section 16 of the Exchange Act) from the date of such termination
or until the expiration of the stated term of such Stock Option, whichever is
shorter.
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(ix) Incentive Stock Options.
(A) Anything in the Plan to the contrary notwithstanding, no
term of the Plan relating to Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the optionee(s) affected, to disqualify any Incentive
Stock Option under such Section 422.
(B) To the extent required for "incentive stock option" status
under Section 422(d) of the Code (taking into account applicable Treasury
regulations and pronouncements), the Plan shall be deemed to provide that the
aggregate Fair Market Value (determined as of the time of grant) of the Stock
with respect to which Incentive Stock Options are exercisable for the first time
by the optionee during any calendar year under the Plan and/or any other stock
option plan of the Company or any Subsidiary or parent corporation (within the
meaning of Section 425 of the Code) shall not exceed $100,000. If Section 422 is
hereafter amended to delete the requirement now in Section 422(d) that the plan
text expressly provide for the $100,000 limitation set forth in Section 422(d),
then this Section 5(b)(ix)(B) shall no longer be operative and the Committee may
accelerate the dates on which the incentive stock option may be exercised.
(C) To the extent permitted under Section 422 of the Code or
the applicable regulations thereunder or any applicable Internal Revenue Service
pronouncement:
(I) If (x) a participant's employment is terminated by reason
of death, Disability or Retirement and (y) the portion of any Incentive Stock
Option that is otherwise exercisable during the post-termination period
specified under Sections 5(b)(vi) and (vii) of the Plan, applied without regard
to the $100,000 limitation contained in Section 422(d) of the Code, is greater
than the portion of such option that is immediately exercisable as an "incentive
stock option" during such post-termination period under Section 422, such excess
shall be treated as a Non-Qualified Stock Option; and
(II) if the exercise of an Incentive Stock Option is
accelerated by reason of a Change in Control, any portion of such option that is
not exercisable as an Incentive Stock Option by reason of the $100,000
limitation contained in Section 422(d) of the Code shall be treated as a
Non-Qualified Stock Option.
(x) Buyout Provisions. The Committee may at any time offer to buy
out for a payment in cash, Stock, Deferred Stock or Restricted Stock an option
previously granted, based on such terms and conditions as the Committee shall
establish and communicate to the optionee at the time that such offer is made.
(xi) Settlement Provisions. If the option agreement so provides at
grant or is amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the shares to
be issued with respect to the spread value of an exercised Option take the form
of Deferred or Restricted Stock which shall be valued on the date of exercise on
the basis of the Fair Market Value (as determined by the Committee) of such
Deferred or Restricted Stock determined without regard to the deferral
limitations and/or forfeiture restrictions involved.
6. Stock Appreciation Rights.
(a) Grant and Exercise.
(i) Stock Appreciation Rights may be granted in conjunction with all
or part of any Stock Option granted under the Plan. In the case of a
Non-Qualified Stock Option, such rights may be granted either at or after the
time of the grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant of such Stock
Option.
(ii) A Stock Appreciation Right or applicable portion thereof
granted with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option,
subject to such provisions as the Committee may specify at grant where a Stock
Appreciation Right is granted with respect to less than the full number of
shares covered by a related Stock Option.
32
(iii) A Stock Appreciation Right may be exercised by an optionee,
subject to Section 6(b) of the Plan, in accordance with the procedures
established by the Committee for such purpose. Upon such exercise, the optionee
shall be entitled to receive an amount determined in the manner prescribed in
said Section 6(b). Stock Options relating to exercised Stock Appreciation Rights
shall no longer be exercisable to the extent that the related Stock Appreciation
Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of this Section 6 and Section 5 of
the Plan; provided, however, that any Stock Appreciation Right granted to an
optionee subject to Section 16(b) of the Exchange Act subsequent to the grant of
the related Stock Option shall not be exercisable during the first six months of
its term, except that this special limitation shall not apply in the event of
death or Disability of the optionee prior to the expiration of the six-month
period. The exercise of Stock Appreciation Rights held by optionees who are
subject to Section 16(b) of the Exchange Act shall comply with Rule 16b-3
thereunder to the extent applicable.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash and/or shares of Stock equal in
value to the excess of the Fair Market Value of one share of Stock over the
option price per share specified in the related Stock Option multiplied by the
number of shares in respect of which the Stock Appreciation Right shall have
been exercised, with the Committee having the right to determine the form of
payment. When payment is to be made in shares of Stock, the number of shares to
be paid shall be calculated on the basis of the Fair Market Value of the shares
on the date of exercise. When payment is to be made in cash, such amount shall
be based upon the Fair Market Value of the Stock on the date of exercise,
determined in a manner not inconsistent with Section 16(b) of the Exchange Act
and the rules of the Commission thereunder.
(iii) Stock Appreciation Rights shall be transferable only when and
to the extent that the underlying Stock Option would be transferable under
Section 5(b)(v) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related shall
be deemed to have been exercised only to the extent of the number of shares
issued under the Stock Appreciation Right at the time of exercise based on the
value of the Stock Appreciation Right at such time.
(v) In its sole discretion, the Committee may grant Stock
Appreciation Rights that become exercisable only in the event of a Change in
Control and/or a Potential Change in Control, subject to such terms and
conditions as the Committee may specify at grant; provided that any such Stock
Appreciation Rights shall be settled solely in cash.
(vi) The Committee, in its sole discretion, may also provide that,
in the event of a Change in Control and/or a Potential Change in Control, the
amount to be paid upon the exercise of a Stock Appreciation Right shall be based
on the Change in Control Price, subject to such terms and conditions as the
Committee may specify at grant.
7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either alone,
in addition to or in tandem with other awards granted under the Plan and/or cash
awards made outside of the Plan. The Committee shall determine the eligible
persons to whom, and the time or times at which, grants of Restricted Stock will
be made, the number of shares to be awarded, the price (if any) to be paid by
the recipient of Restricted Stock, subject to Section 7(b) of the Plan, the time
or times within which such awards may be subject to forfeiture, and all other
terms and conditions of the awards. The Committee may condition the grant of
Restricted Stock upon the attainment of specified performance goals or such
other factors as the Committee may, in its sole discretion, determine. The
provisions of Restricted Stock awards need not be the same with respect to each
recipient.
33
(b) Awards and Certificates.
(i) The prospective recipient of a Restricted Stock award shall not
have any rights with respect to such award unless and until such recipient has
executed an agreement evidencing the award and has delivered a fully executed
copy thereof to the Company, and has otherwise complied with the applicable
terms and conditions of such award.
(ii) The purchase price for shares of Restricted Stock may be equal
to or less than their par value and may be zero.
(iii) Awards of Restricted Stock must be accepted within a period of
60 days (or such shorter period as the Committee may specify at grant) after the
award date, by executing a Restricted Stock Award Agreement and paying the
price, if any, required under Section 7(b)(ii).
(iv) Each participant receiving a Restricted Stock award shall be
issued a stock certificate in respect of such shares of Restricted Stock. Such
certificate shall be registered in the name of such participant, and shall bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such award.
(v) The Committee shall require that (A) the stock certificates
evidencing shares of Restricted Stock be held in the custody of the Company
until the restrictions thereon shall have lapsed, and (B) as a condition of any
Restricted Stock award, the participant shall have delivered a stock power,
endorsed in blank, relating to the Restricted Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of the Plan and the award agreement,
during a period set by the Committee commencing with the date of such award (the
"Restriction Period"), the participant shall not be permitted to sell, transfer,
pledge or assign shares of Restricted Stock awarded under the Plan. Within these
limits, the Committee, in its sole discretion, may provide for the lapse of such
restrictions in installments and may accelerate or waive such restrictions in
whole or in part, based on service, performance and/or such other factors or
criteria as the Committee may determine, in its sole discretion.
(ii) Except as provided in this Section 7(c)(ii) and Section 7(c)(i)
of the Plan, the participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a stockholder of the Company, including
the right to vote the shares and the right to receive any regular cash dividends
paid out of current earnings. The Committee, in its sole discretion, as
determined at the time of award, may permit or require the payment of cash
dividends to be deferred and, if the Committee so determines, reinvested,
subject to Section 14(e) of the Plan, in additional Restricted Stock to the
extent shares are available under Section 3 of the Plan, or otherwise
reinvested. Stock dividends, splits and distributions issued with respect to
Restricted Stock shall be treated as additional shares of Restricted Stock that
are subject to the same restrictions and other terms and conditions that apply
to the shares with respect to which such dividends are issued, and the Committee
may require the participant to deliver an additional stock power covering the
shares issuable pursuant to such stock dividend, split or distribution. Any
other dividends or property distributed with regard to Restricted Stock, other
than regular dividends payable and paid out of current earnings, shall be held
by the Company subject to the same restrictions as the Restricted Stock.
(iii) Subject to the applicable provisions of the award agreement and this
Section 7, upon termination of a participant's employment or other services with
the Company and any Subsidiary or Affiliate for any reason during the
Restriction Period, all shares still subject to restriction will vest, or be
forfeited, in accordance with the terms and conditions established by the
Committee at or after grant.
34
(iv) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
certificates for an appropriate number of unrestricted shares, and other
property held by the Company with respect to such Restricted Shares, shall be
delivered to the participant promptly.
(d) Minimum Value Provisions. In order to better ensure that award
payments actually reflect the performance of the Company and service of the
participant, the Committee may provide, in its sole discretion, for a tandem
Stock Option or performance-based or other award designed to guarantee a minimum
value, payable in cash or Stock to the recipient of a Restricted Stock award,
subject to such performance, future service, deferral and other terms and
conditions as may be specified by the Committee.
8. Deferred Stock.
(a) Administration. Deferred Stock may be awarded either alone, in
addition to or in tandem with other awards granted under the Plan and/or cash
awards made outside of the Plan. The Committee shall determine the eligible
persons to whom and the time or times at which Deferred Stock shall be awarded,
the number of shares of Deferred Stock to be awarded to any person, the duration
of the period (the "Deferral Period") during which, and the conditions under
which, receipt of the Stock will be deferred, and the other terms and conditions
of the award in addition to those set forth in Section 8(b). The Committee may
condition the grant of Deferred Stock upon the attainment of specified
performance goals or such other factors or criteria as the Committee shall, in
its sole discretion, determine. The provisions of Deferred Stock awards need not
be the same with respect to each recipient.
(b) Terms and Conditions. The shares of Deferred Stock awarded pursuant to
this Section 8 shall be subject to the following terms and conditions:
(i) Subject to the provisions of the Plan and the award agreement
referred to in Section 8(b)(vi) of the Plan, Deferred Stock awards may not be
sold, assigned, transferred, pledged or otherwise encumbered during the Deferral
Period. At the expiration of the Deferral Period (or the Elective Deferral
Period referred to in Section 8(b)(v) of the Plan, where applicable), share
certificates representing the shares covered by the Deferred Stock award shall
be delivered to the participant or his legal representative.
(ii) Unless otherwise determined by the Committee at grant, amounts
equal to any dividends declared during the Deferral Period with respect to the
number of shares covered by a Deferred Stock award will be paid to the
participant currently, or deferred and deemed to be reinvested in additional
Deferred Stock, or otherwise reinvested, all as determined at or after the time
of the award by the Committee, in its sole discretion.
(iii) Subject to the provisions of the award agreement and this
Section 8, upon termination of a participant's employment with the Company and
any Subsidiary or Affiliate for any reason during the Deferral Period for a
given award, the Deferred Stock in question will vest, or be forfeited, in
accordance with the terms and conditions established by the Committee at or
after grant.
(iv) Based on service, performance and/or such other factors or
criteria as the Committee may determine, the Committee may, at or after grant,
accelerate the vesting of all or any part of any Deferred Stock award and/or
waive the deferral limitations for all or any part of such award.
(v) A participant may elect to further defer receipt of an award (or
an installment of an award) for a specified period or until a specified event
(the "Elective Deferral Period"), subject in each case to the Committee's
approval and to such terms as are determined by the Committee, all in its sole
discretion. Subject to any exceptions adopted by the Committee, such election
must generally be made at least twelve months prior to completion of the
Deferral Period for such Deferred Stock award (or such installment).
(vi) Each award shall be confirmed by, and subject to the terms of,
a Deferred Stock agreement executed by the Company and the participant.
(c) Minimum Value Provisions. In order to better ensure that award
payments actually reflect the performance of the Company and service of the
participant, the Committee may provide, in its sole discretion, for a tandem
Stock Option or performance-based or other award designed to guarantee a minimum
value, payable in cash or Stock to the recipient of a deferred stock award,
subject to such performance, future service, deferral and other terms and
conditions as may be specified by the Committee.
35
9. Stock Purchase Rights.
(a) Awards and Administration. The Committee may grant eligible
participants Stock Purchase Rights which shall enable such participants to
purchase Stock (including Deferred Stock and Restricted Stock):
(i) at its Fair Market Value on the date of grant;
(ii) at a percentage of such Fair Market Value on such date, such
percentage to be determined by the Committee in its sole discretion;
(iii) at an amount equal to Book Value on such date; or
(iv) at an amount equal to the par value of such Stock on such date.
The Committee shall also impose such deferral, forfeiture and/or other
terms and conditions as it shall determine, in its sole discretion, on such
Stock Purchase Rights or the exercise thereof. The terms of Stock Purchase
Rights awards need not be the same with respect to each participant. Each Stock
Purchase Right award shall be confirmed by, and be subject to the terms of, a
Stock Purchase Rights Agreement.
(b) Exercisability. Stock Purchase Rights shall generally be exercisable
for such period after grant as is determined by the Committee not to exceed
sixty (60) days. However, the Committee may provide, in its sole discretion,
that the Stock Purchase Rights of persons potentially subject to Section 16(b)
of the Exchange Act shall not become exercisable until six months and one day
after the grant date, and shall then be exercisable for ten trading days at the
purchase price specified by the Committee in accordance with Section 9(a) of the
Plan.
10. Other Stock-Based Awards.
(a) Administration.
(i) Other awards of Stock and other awards that are valued in whole
or in part by reference to, or are otherwise based on, Stock ("Other Stock-Based
Awards"), including, without limitation, performance shares, convertible
preferred stock (to the extent a series of preferred stock has been or may be
created by, or in accordance with a procedure set forth in, the Company's
certificate of incorporation), convertible debentures, warrants, exchangeable
securities and Stock awards or options valued by reference to Fair Market Value,
Book Value or performance of the Company or any Subsidiary, Affiliate or
division, may be granted either alone or in addition to or in tandem with Stock
Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock or Stock
Purchase Rights granted under the Plan and/or cash awards made outside of the
Plan.
(ii) Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which such
award shall be made, the number of shares of Stock to be awarded pursuant to
such awards, and all other conditions of the awards. The Committee may also
provide for the grant of Stock upon the completion of a specified performance
period. The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient.
36
(b) Terms and Conditions. Other Stock-Based Awards made pursuant to this
Section 10 shall be subject to the following terms and conditions:
(i) Subject to the provisions of the Plan and the award agreement
referred to in Section 10(b)(v) of the Plan, shares of Stock subject to awards
made under this Section 10 may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which the shares are issued, or, if
later, the date on which any applicable restriction, performance or deferral
period lapses.
(ii) Subject to the provisions of the Plan and the award agreement
and unless otherwise determined by the Committee at grant, the recipient of an
award under this Section 10 shall be entitled to receive, currently or on a
deferred basis, interest or dividends or interest or dividend equivalents with
respect to the number of shares covered by the award, as determined at the time
of the award by the Committee, in its sole discretion, and the Committee may
provide that such amounts (if any) shall be deemed to have been reinvested in
additional Stock or otherwise reinvested.
(iii) Any award under Section 10 and any Stock covered by any such
award shall vest or be forfeited to the extent so provided in the award
agreement, as determined by the Committee, in its sole discretion.
(iv) In the event of the participant's Retirement, Disability or
death, or in cases of special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of the remaining limitations
(if any) imposed with respect to any or all of an award pursuant to this Section
10.
(v) Each award under this Section 10 shall be confirmed by, and
subject to the terms of, an agreement or other instrument by the Company and by
the participant.
(vi) Stock (including securities convertible into Stock) issued on a
bonus basis under this Section 10 may be issued for no cash consideration.
11. Change in Control Provisions.
(a) Impact of Event. In the event of a "Change in Control," as defined in
Section 11(b) of the Plan, or a "Potential Change in Control," as defined in
Section 11(c) of the Plan, except to the extent otherwise determined by the
Committee or the Board at or after grant (subject to any right of approval
expressly reserved by the Committee or the Board at the time of such
determination), the following acceleration and valuation provisions shall apply:
(i) Any Stock Appreciation Rights outstanding for at least six
months and any Stock Options awarded under the Plan not previously exercisable
and vested shall become fully exercisable and vested and any Incentive Stock
Options may, with the consent of the holders thereof, be treated as
Non-Qualified Stock Options.
(ii) The restrictions and deferral limitations applicable to any
Restricted Stock, Deferred Stock, Stock Purchase rights and Other Stock-Based
Awards, in each case to the extent not already vested under the Plan, shall
lapse and such shares and awards shall be deemed fully vested.
(iii) The value of all outstanding Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock, Stock Purchase Rights and Other
Stock-Based Awards, in each case to the extent vested (including such rights
which shall have become vested pursuant to Sections 11(a)(i) and (ii) of the
Plan), shall be purchased by the Company ("cashout") in a manner determined by
the Committee, in its sole discretion, on the basis of the "Change in Control
Price" as defined in Section 11(d) of the Plan as of the date such Change in
Control or such Potential Change in Control is determined to have occurred or
such other date as the Committee may determine prior to the Change in Control,
unless the Committee shall, contemporaneously with or prior to any particular
Change of Control or Potential Change of Control, determine that this Section
11(a)(iii) shall not be applicable to such Change in Control or Potential Change
in Control.
(b) Definition of "Change in Control." For purposes of Section 11(a) of
the Plan, a "Change in Control" means the happening of any of the following
after the completion of the acquisition of Plaza Consulting Group, Inc., a
Puerto Rico corporation (the "Acquisition Effective Date"):
(i) When any "person" (as defined in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d) and 14(d) of the Exchange Act, including a
"group" as defined in Section 13(d) of the Exchange Act, but excluding the
Company and any Subsidiary and any employee benefit plan sponsored or maintained
by the Company or any Subsidiary and any trustee of such plan acting as trustee)
directly or indirectly becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act, as amended from time to time), of securities of the
Company representing thirty percent (30%) or more of the combined voting power
of the Company's then outstanding securities; provided, however, that a Change
of Control shall not arise if such acquisition is approved by the board of
directors or if the board of directors or the Committee determines that such
acquisition is not a Change of Control or if the board of directors authorizes
the issuance of the shares of Stock (or securities convertible into Stock or
upon the exercise of which shares of Stock may be issued) to such persons; or
37
(ii) When, during any period of twenty-four consecutive months
during the existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any reason
other than death, Disability or Retirement to constitute at least a majority
thereof, provided, however, that a director who was not a director at the
beginning of such 24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such director was elected
by, or on the recommendation of, or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either actually (because
they were directors at the beginning of such 24-month period) or by prior
operation of this Section 11(b)(ii); provided, however, that all directors who
are elected to the board not later than six months after the Acquisition
Effective Date shall be deemed to be an Incumbent Director and shall be deemed
to have satisfied the 24-month requirement set forth in this Section 11(b)(ii);
or
(iii) The occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the Company or a
Subsidiary through purchase of assets, or by merger, or otherwise unless
approved by a majority of Incumbent Directors.
(c) Definition of Potential Change in Control. For purposes of Section
11(a) of the Plan, a "Potential Change in Control" means the happening of any
one of the following:
(i) The approval by stockholders of an agreement by the Company, the
consummation of which would result in a Change in Control of the Company as
defined in Section 11(b) of the Plan; or
(ii) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Company or a
Subsidiary or any Company employee benefit plan or any trustee of such plan
acting as such trustee) of securities of the Company representing five percent
or more of the combined voting power of the Company's outstanding securities and
the adoption by the Board of Directors of a resolution to the effect that a
Potential Change in Control of the Company has occurred for purposes of the
Plan.
(d) Change in Control Price. For purposes of this Section 11, "Change in
Control Price" means the highest price per share paid in any transaction
reported on the principal stock exchange on which the Stock is traded or the
average of the highest bid and asked prices as reported by the principal stock
exchange or market on which the Stock is traded, or paid or offered in any bona
fide transaction related to a Potential or actual Change in Control of the
Company at any time during the sixty-day period immediately preceding the
occurrence of the Change in Control (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the Committee
except that, in the case of Incentive Stock Options and Stock Appreciation
Rights relating to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the optionee exercises such Stock
Appreciation Rights, Incentive Stock Options or, where applicable, the date on
which a cashout occurs under Section 11(a)(iii).
12. Amendments and Termination.
(a) The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted or Deferred Stock award, Stock Purchase Right or Other Stock-Based
Award theretofore granted, without the optionee's or participant's consent, and
no amendment will be made without approval of the stockholders if such amendment
requires stockholder approval under state law or if stockholder approval is
necessary in order that the Plan comply with Rule 16b-3 of the Commission under
the Exchange Act or any substitute or successor rule or if stockholder approval
is necessary in order to enable the grant pursuant to the Plan of options or
other awards intended to confer tax benefits upon the recipients thereof.
(b) The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights or any holder without the holder's consent. The Committee may
also substitute new Stock Options for previously granted Stock Options (on a one
for one or other basis), including previously granted Stock Options having
higher option exercise prices.
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(c) Subject to the provisions of Sections 12(a) and (b) of the Plan, the
Board shall have broad authority to amend the Plan to take into account changes
in applicable securities and tax laws and accounting rules, as well as other
developments, and, in particular, without limiting in any way the generality of
the foregoing, to eliminate any provisions which are not required to included as
a result of any amendment to Rule 16b-3 of the Commission pursuant to the
Exchange Act.
13. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained in this Plan shall
give any such participant or optionee any rights that are greater than those of
a general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to awards under this Plan; provided, however, that, unless the Committee
otherwise determines with the consent of the affected participant, the existence
of such trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan.
14. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option or other award under the Plan to represent to and agree with the
Company in writing that the optionee or participant is acquiring the shares
without a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer. All certificates or shares of Stock or other
securities delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Commission, any stock exchange
upon which the Stock is then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan nor the grant of any award pursuant
to the Plan shall confer upon any employee of the Company or any Subsidiary or
Affiliate any right to continued employment with the Company or a Subsidiary or
Affiliate, as the case may be, nor shall it interfere in any way with the right
of the Company or a Subsidiary or Affiliate to terminate the employment of any
of its employees at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for Federal income tax purposes with
respect to any award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Stock, including Stock that is part
of the award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company and its Subsidiaries or Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the participant.
(e) The actual or deemed reinvestment of dividends or dividend equivalents
in additional Restricted Stock (or in Deferred Stock or other types of Plan
awards) at the time of any dividend payment shall only be permissible if
sufficient shares of Stock are available under Section 3 of the Plan for such
reinvestment (taking into account then outstanding Stock Options, Stock Purchase
Rights and other Plan awards).
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15. Effective Date of Plan.
he Plan shall be effective as of the date the Plan is approved by the
Board, subject to the approval of the Plan by a majority of the votes cast by
the holders of the Company's Stock at the next annual or special meeting of
stockholders. Any grants made under the Plan prior to such approval shall be
effective when made (unless otherwise specified by the Committee at the time of
grant), but shall be conditioned on, and subject to, such approval of the Plan
by such stockholders.
16. Term of Plan.
Stock Option, Stock Appreciation Right, Restricted Stock award, Deferred
Stock award, Stock Purchase Right or Other Stock-Based Award may be granted
pursuant to the Plan, until ten (10) years from the date the Plan was approved
by the Board, unless the Plan shall be terminated by the Board, in its
discretion, prior to such date, but awards granted prior to such termination may
extend beyond that date.
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