UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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RULE 14A-6(E)(2)
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VCA ANTECH, INC.
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(Name of Registrant as Specified in Its Charter)
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VCA ANTECH, INC.
12401 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064-1022
WWW.VCAANTECH.COM
[VCA ANTECH, INC. LOGO]
April 27, 2006
Dear Fellow Stockholder:
Our 2006 Annual Meeting will be held on Monday, June 5, 2006 at our
corporate offices located at 12401 West Olympic Boulevard, Los Angeles,
California 90064-1022. Details regarding the meeting and the business to be
conducted are more fully described in the accompanying Notice of 2006 Annual
Meeting of Stockholders and Proxy Statement.
Your vote is important. Whether or not you plan to attend the meeting, I
urge you to vote your shares as soon as possible. Instructions on the proxy card
will tell you how to cast your vote. The Proxy Statement explains more about
proxy voting. Please read it carefully.
Thank you for your continued support of our company.
Sincerely,
/s/ Robert L. Antin
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Robert L. Antin
CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
VCA ANTECH, INC.
_____________________________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
_____________________________________________________
TIME................................................. 10:00 a.m. Pacific Time on Monday, June 5, 2006
PLACE................................................ 12401 West Olympic Boulevard
Los Angeles, California 90064-1022
ITEMS OF BUSINESS.................................... (1) To elect two Class I members of the Board of
Directors for a term of three years.
(2) To ratify the appointment of KPMG LLP as our
independent registered public accounting firm for
the year ending December 31, 2006.
(3) To approve the VCA Antech, Inc. 2006 Equity
Incentive Plan.
(4) To transact any other business as may properly
come before the Annual Meeting and any adjournment
or postponement.
RECORD DATE.......................................... You can vote if, at the close of business on April 7,
2006, you were a stockholder of the Company.
PROXY VOTING......................................... All stockholders are cordially invited to attend the
Annual Meeting in person. However, to ensure your
representation at the Annual Meeting, you are urged
to vote promptly by signing and returning the enclosed
proxy card. If you hold your shares in street name, you
may also access the World Wide Web site indicated on
your proxy card to vote via the Internet.
/s/ Tomas W. Fuller
April 27, 2006 ------------------------------------------------------
Tomas W. Fuller
CHIEF FINANCIAL OFFICER, VICE PRESIDENT AND SECRETARY
TABLE OF CONTENTS
PAGE
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QUESTIONS AND ANSWERS 1
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Q: Who may vote at the Annual Meeting? 1
Q: What items of business will be voted on at the Annual Meeting? 1
Q: How does the Board of Directors recommend that I vote? 1
Q: How can I vote my shares in person at the Annual Meeting? 1
Q: How can I vote my shares without attending the Annual Meeting? 2
Q: What happens if additional matters are presented at the Annual Meeting? 2
Q: What happens if I do not give specific voting instructions? 2
Q: What happens if I abstain? 3
Q: What is the quorum requirement for the Annual Meeting? 3
Q: How can I change my vote after I return my proxy card? 3
Q: What is the voting requirement to approve each of the items? 3
Q: Where can I find the voting results of the Annual Meeting? 3
Q: How can I obtain a separate set of proxy materials? 4
Q: Who pays for the cost of this proxy solicitation? 4
Q: Is there a list of stockholders entitled to vote at the Annual Meeting? 4
Q: Are copies of the proxy materials and annual report available electronically? 4
Q: What is the deadline to propose actions for consideration at next year's annual meeting? 4
Q: How do I recommend a candidate for election as a director? 5
Q: How can I communicate with the Board of Directors? 5
CORPORATE GOVERNANCE 6
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Corporate Governance Guidelines 6
Code of Ethics 6
Committee responsibilities 6
Independence 6
Stockholder communication 6
Director attendance at Annual Meetings 7
Executive sessions 7
Outside advisors 7
Director education 7
ITEM 1: ELECTION OF DIRECTORS 8
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Nominees 8
MANAGEMENT 9
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Directors and Executive Officers 9
FURTHER INFORMATION REGARDING THE BOARD OF DIRECTORS 10
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Composition 10
Meetings and Committees 10
Audit Committee 11
Compensation Committee 11
Nominating and Corporate Governance Committee 11
Director Attendance 12
Directors' Compensation 12
Compensation Committee Interlocks and Insider Participation 13
ITEM 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC 14
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ACCOUNTING FIRM
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AUDIT AND NON-AUDIT FEES 15
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Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services 15
REPORT OF AUDIT COMMITTEE 16
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ITEM 3: PROPOSAL TO APPROVE VCA ANTECH, INC. 2006 EQUITY INCENTIVE PLAN 18
Purpose of our 2006 Equity incentive Plan 18
Summary of our 2006 Equity Incentive Plan 18
Federal Income Tax Consequences of the Plan 23
New Plan Benefits 26
EXECUTIVE COMPENSATION 27
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Summary Compensation Table 27
Option Grants in Fiscal 2005 28
Aggregated Option Exercises in Fiscal 2005 and Option Values at Fiscal Year-End 28
Summary of Equity Compensation Plan 29
Employment and Severance Agreements 29
REPORT OF COMPENSATION COMMITTEE 32
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PERFORMANCE GRAPH 34
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CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS 35
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Transactions with Zoasis Corporation 35
Legal Services 35
Section 16(a) Beneficial Ownership Reporting Compliance 35
PRINCIPAL STOCKHOLDERS 36
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APPENDIX A: AUDIT COMMITTEE CHARTER
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APPENDIX B: VCA ANTECH, INC. 2006 EQUITY INCENTIVE PLAN
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VCA ANTECH, INC.
12401 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064-1022
PROXY STATEMENT
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Our Board of Directors is soliciting proxies to be voted at the 2006 Annual
Meeting of Stockholders, which we refer to as the "Annual Meeting," to be held
on June 5, 2006. Your vote is very important. For this reason, our Board of
Directors is requesting that you permit your common stock to be represented at
the Annual Meeting by the proxies named on the enclosed proxy card. This Proxy
Statement contains important information for you to consider when deciding how
to vote on the matters brought before the Annual Meeting. Please read it
carefully.
Proxy materials, which include the Proxy Statement, proxy card and the
Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which we
refer to as the "2005 Annual Report," were mailed to our stockholders by us
beginning April 27, 2006. In this Proxy Statement, VCA Antech, Inc. is referred
to as the "Company," "VCA," "we," "us" and "our."
QUESTIONS AND ANSWERS
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Q: WHO MAY VOTE AT THE ANNUAL MEETING?
A: You may vote your VCA common stock at the Annual Meeting if our records
show that you owned your shares of common stock at the close of business on
April 7, 2006, which we refer to as the "Record Date." At that time, there
were 82,943,441 shares of common stock outstanding, and approximately 134
holders of record. Each share of common stock is entitled to one vote on
each matter properly brought before the Annual Meeting.
Q: WHAT ITEMS OF BUSINESS WILL BE VOTED ON AT THE ANNUAL MEETING?
A: There are three items of business scheduled to be voted on at the Annual
Meeting:
o Election of two members to the Board of Directors;
o Ratification of the appointment of KPMG LLP as our independent
registered public accounting firm for the year ending December 31,
2006; and
o Approval of our 2006 Equity Incentive Plan.
We will also consider other business that comes properly before the Annual
Meeting.
Q: HOW DOES THE BOARD OF DIRECTORS RECOMMEND THAT I VOTE?
A: Our Board of Directors recommends that you vote:
o "FOR" the election of each of VCA's two nominees to the Board of
Directors;
o "FOR" ratification of the appointment of KPMG LLP as our independent
registered public accounting firm for the year ending December 31,
2006; and
o "FOR" approval of the VCA Antech, Inc. 2006 Equity Incentive Plan.
Q HOW CAN I VOTE MY SHARES IN PERSON AT THE ANNUAL MEETING?
A. If your shares are registered directly in your name with U.S. Stock
Transfer Corporation, our "Transfer Agent," you are considered the
stockholder of record with respect to those shares and the proxy materials,
including the proxy card, are being sent directly to you by VCA. As the
stockholder of record, you have the right to vote in person at the meeting.
If you choose to do so, you can bring the enclosed proxy card or vote using
the ballot provided at the Annual Meeting. Even if you plan to attend the
Annual Meeting, we
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recommend that you vote your shares in advance as described below so that
your vote will be counted if you decide later on not to attend the Annual
Meeting.
Most stockholders of VCA hold their shares in street name through a broker,
bank or other nominee rather than directly in their own name. In that case,
you are considered the beneficial owner of shares held in street name, and
the proxy materials are being forwarded to you together with a voting
instruction card. As the beneficial owner, you are also invited to attend
the Annual Meeting. Because a beneficial owner is not the stockholder of
record, you may not vote these shares in person at the Annual Meeting
unless you obtain a "legal proxy" from the broker, trustee or nominee that
holds your shares, giving you the right to vote the shares at the meeting.
You will need to contact your broker, trustee or nominee to obtain a legal
proxy, and you will need to bring it to the Annual Meeting in order to vote
in person.
Q HOW CAN I VOTE MY SHARES WITHOUT ATTENDING THE ANNUAL MEETING?
A. Whether you hold shares in your name or through a broker, bank or other
nominee, you may vote without attending the Annual Meeting. You may vote by
granting a proxy or, for shares held through a broker, bank or other
nominee, by submitting voting instructions to that nominee. Instructions
for voting by using are on your proxy card. For shares held through a
broker, bank or other nominee, follow the instructions on the voting
instruction card included with your voting materials. If you provide
specific voting instructions, your shares will be voted as you have
instructed and as the proxy holders may determine within their discretion
with respect to any other matters that properly come before the Annual
Meeting.
A number of brokerage firms and banks offer Internet voting options.
Specific instructions to be followed by owners of shares of common stock
held in street name are set forth on the voting instruction card
accompanying your proxy card. The Internet voting procedures are designed
to authenticate stockholders' identities, to allow stockholders to give
their voting instructions and to confirm that stockholders' instructions
have been recorded properly. Stockholders voting via the Internet should
understand that there may be costs associated with electronic access, such
as usage charges from telephone companies and Internet access providers
that must be borne by the stockholder.
Q: WHAT HAPPENS IF ADDITIONAL MATTERS ARE PRESENTED AT THE ANNUAL MEETING?
A: Other than the three items of business described in this Proxy Statement,
we are not aware of any other business to be acted upon at the Annual
Meeting. If you grant a proxy, the persons named as proxies, Robert L.
Antin and Tomas W. Fuller, will have the discretion to vote your shares on
any additional matters properly presented for a vote at the Annual Meeting.
Q. WHAT HAPPENS IF I DO NOT GIVE SPECIFIC VOTING INSTRUCTIONS?
A. If you hold shares in your name, and you sign and return a proxy card
without giving specific voting instructions, the proxy holders will vote
your shares in the manner recommended by our Board of Directors on all
matters presented in this Proxy Statement, and, with respect to any other
matters that properly come before the Annual Meeting, as the proxy holders
may determine in their discretion.
If you hold your shares through a broker, bank or other nominee and you do
not provide your broker with specific voting instructions, under the NASDAQ
National Market Rules, your broker will have the authority to vote your
shares on routine matters, but not on non-routine matters. As a result:
o Your broker will have the authority to vote your shares with respect
to Item 1 (election of directors) and Item 2 (ratification of
independent registered public accounting firm) because these matters
are considered routine.
o Your broker will not have the authority to vote your shares with
respect to Item 3 (approval of our 2006 Equity Incentive Plan) because
this matter is considered non-routine.
As the items of business to be acted upon at the Annual Meeting include
both routine and non-routine matters, the broker may turn in a proxy card
for uninstructed shares that votes "FOR" the election of each of VCA's two
nominees to the Board of Directors and ratification of VCA's independent
registered public
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accounting firm, but expressly states that the broker is NOT voting on the
Item 3 (approval of our 2006 Equity Incentive Plan). The votes with respect
to Item 3 in this case are referred to as "broker non-votes." In tabulating
the voting result for any particular item, broker non-votes are not
considered votes cast affirmatively or negatively on that item. Broker
non-votes are counted as present for the purpose of determining the
existence of a quorum at the Annual Meeting.
Q. WHAT HAPPENS IF I ABSTAIN?
A. For purposes of determining whether the stockholders have approved matters
other than the election of directors, abstentions are treated as shares
present or represented and voting, so abstaining has the same effect as a
negative vote.
Q. WHAT IS THE QUORUM REQUIREMENT FOR THE ANNUAL MEETING?
A. A majority of VCA's outstanding shares as of the Record Date must be
present at the Annual Meeting in order to hold the Annual Meeting and
conduct business. This is called a quorum. Your shares will be counted for
purposes of determining if there is a quorum, whether representing votes
for, against, withheld or abstained, or broker non-votes, if you:
o are present and voting at the Annual Meeting; or
o have properly submitted a proxy card or voted over the Internet.
Q. HOW CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
A. You can revoke your proxy and change your vote at any time before the final
vote at the Annual Meeting. You may do this by:
o written notice to the Secretary of the Company;
o timely delivery of a valid, later-dated proxy or a later-dated vote on
the Internet; or
o if you are a record holder, voting by ballot at the Annual Meeting.
Q. WHAT IS THE VOTING REQUIREMENT TO APPROVE EACH OF THE ITEMS?
A.
Item 1--Election of directors The two people receiving the highest number of "FOR"
votes at the Annual Meeting will be elected
Item 2--Ratification of appointment of To be approved by the stockholders, this item must
independent registered public accounting firm receive the affirmative "FOR" vote of a majority of the
votes casts on this item at the Annual Meeting
Item 3--VCA Antech, Inc. 2006 Equity Incentive To be approved by the stockholders, this item must
Plan receive the affirmative "FOR" vote of a majority of the
votes cast on this item at the Annual Meeting
Q. WHERE CAN I FIND THE VOTING RESULTS OF THE ANNUAL MEETING?
A. The preliminary voting results will be announced at the Annual Meeting. The
final voting results will be tallied by our Transfer Agent and Inspector of
Elections and published in our Quarterly Report on Form 10-Q for the fiscal
quarter ending June 30, 2006.
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Q. HOW CAN I OBTAIN A SEPARATE SET OF PROXY MATERIALS?
A. To reduce the expense of delivering duplicate proxy materials to our
stockholders who may have more than one VCA common stock account, we are
delivering only one set of the 2005 Annual Report and the Proxy Statement
to certain stockholders who share an address, unless otherwise requested. A
separate proxy card is included in the proxy materials for each of these
stockholders. If you share an address with another stockholder and have
received only one set of proxy materials, you may write or call us to
request to receive a separate copy of these materials at no cost to you.
Similarly, if you share an address with another stockholder and have
received multiple copies of our proxy materials, you may write or call us
to request future delivery of a single copy of these materials. You may
contact us regarding these matters by writing or calling us at:
VCA Antech, Inc.
Attention: Investor Relations
12401 West Olympic Boulevard
Los Angeles, California 90064-1022
(310) 571-6500
Q. WHO PAYS FOR THE COST OF THIS PROXY SOLICITATION?
A. We will pay the costs of the solicitation of proxies. We may reimburse
brokerage firms and other persons representing beneficial owners of shares
for expenses incurred in forwarding the voting materials to their customers
who are beneficial owners and obtaining their voting instructions. In
addition to soliciting proxies by mail, our board members, officers and
employees may solicit proxies on our behalf, without additional
compensation, personally or by telephone.
Q. IS THERE A LIST OF STOCKHOLDERS ENTITLED TO VOTE AT THE ANNUAL MEETING?
A. The names of stockholders of record entitled to vote at the Annual Meeting
will be available at the Annual Meeting and for ten days prior to the
Annual Meeting for any purpose relevant to the Annual Meeting, between the
hours of 9:00 a.m. and 5:00 p.m., at our principal executive offices by
contacting the Secretary of the Company.
Q. ARE COPIES OF THE PROXY MATERIALS AND ANNUAL REPORT AVAILABLE
ELECTRONICALLY?
A. The Notice of Annual Meeting and Proxy Statement and the 2005 Annual
Report, which we refer to as the "Annual Report," are available on our web
site at http://investor.vcaantech.com.
Q. WHAT IS THE DEADLINE TO PROPOSE ACTIONS FOR CONSIDERATION AT NEXT YEAR'S
ANNUAL MEETING?
A. Any stockholder who intends to present a proposal at the 2007 Annual
Meeting for inclusion in our Proxy Statement and proxy card relating to our
2007 Annual Meeting must submit his, her or its proposal to VCA Antech,
Inc., c/o Office of Secretary, 12401 West Olympic Boulevard, Los Angeles,
California 90064 by December 28, 2006. SEC rules and regulations provide
that if the date of the Company's 2007 Annual Meeting is advanced or
delayed more than 30 days from the date of the 2006 Annual Meeting,
stockholder proposals intended to be included in the proxy materials for
the 2007 Annual Meeting must be received by the Company within a reasonable
time before the Company begins to print and mail the proxy materials for
the 2007 Annual Meeting. Upon determination by the Company that the date of
the 2007 Annual Meeting will be advanced or delayed by more than 30 days
from the date of the 2006 Annual Meeting, the Company will disclose that
change in the earliest possible Quarterly Report on Form 10-Q.
If a stockholder intends to present a proposal at our 2007 Annual Meeting,
but does not intend to have it included in our Proxy Statement, the
proposal must be delivered to our Secretary no earlier than March 7, 2007
and no later than April 6, 2007. If the date of our 2007 Annual Meeting is
advanced or delayed by more than 30 days from the date of the 2006 Annual
Meeting, the proposal must be delivered by the close of business on the
tenth day following the day we publicly announce the date of our 2007
Annual Meeting. Furthermore, if a stockholder who presents a proposal (or a
qualified representative of that stockholder) does not appear at the annual
meeting of stockholders to present the proposal, the proposal will be
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disregarded, notwithstanding that proxies in respect of the proposal may
have been received by the Company.
Q. HOW DO I RECOMMEND A CANDIDATE FOR ELECTION AS A DIRECTOR?
A. Stockholders who wish to recommend a candidate for election as a director
at our 2007 Annual Meeting must submit their recommendations no earlier
than March 7, 2007 and no later than April 6, 2007. Stockholders may
recommend candidates for consideration by the Board of Directors'
Nominating and Corporate Governance Committee by providing written notice
to VCA Antech, Inc., c/o Office of Secretary, 12401 West Olympic Boulevard,
Los Angeles, California 90064. The written notice must provide the
candidate's name, age, business and residence addresses, biographical data,
including principal occupation, qualifications, the number and class of our
shares, if any, beneficially owned by the candidate, and all other
information regarding candidates required by Section 14 of the Exchange Act
and the rules and regulations promulgated thereunder. A written statement
from the candidate consenting to be named as a candidate and, if nominated
and elected, to serve as a director should accompany any stockholder
recommendation. Any stockholder who wishes to recommend a nominee for
election as director must also provide his, her or its name and address,
the number and class of shares beneficially owned by the stockholder, a
description of all arrangements or understandings relating to the
nomination among the stockholder making the nomination, the proposed
nominee and any other person or persons (including their names), and all
other information regarding the stockholder required by Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder.
The Company will include a candidate recommended by a stockholder in its
Proxy Statement only if the Nominating and Corporate Governance Committee,
after evaluating the candidate, decides to propose the candidate to the
Board, and the Board nominates the candidate. Furthermore, if a stockholder
who recommends a nominee (or a qualified representative of that
stockholder) does not appear at the annual meeting of stockholders to
present the nomination, the nomination will be disregarded, notwithstanding
that proxies in respect of the nomination may have been received by the
Company.
Q. HOW CAN I COMMUNICATE WITH THE BOARD OF DIRECTORS?
A. Stockholders may communicate with the Board of Directors by sending a
letter to the Board of Directors of VCA Antech, Inc., c/o Office of the
Secretary, 12401 West Olympic Boulevard, Los Angeles, California 90064.
Each communication must contain a clear notation indicating that it is a
"Stockholder -- Board Communication" or "Stockholder -- Director
Communication," and each communication must identify the author as a
stockholder. The office of the Secretary will receive the correspondence
and forward it to the Chairman of the Board or to any individual director
or directors to whom the communication is directed, unless the
communication is unduly hostile, threatening, illegal, does not reasonably
relate to us or our business, or is similarly inappropriate. The office of
the Secretary has authority to discard any inappropriate communications or
to take other appropriate actions with respect to any inappropriate
communications.
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CORPORATE GOVERNANCE
Our business is managed by our employees under the direction and oversight of
the Board of Directors. Except for Mr. Antin, none of the members of our Board
of Directors is an employee of VCA. We keep the members of our Board of
Directors informed of our business through discussions with management,
materials we provide to them, visits to our offices and their participation in
Board of Directors and committee meetings.
We believe transparent, effective, and accountable corporate governance
practices are key elements of our relationship with our stockholders. To help
our stockholders understand our commitment to this relationship and our
governance practices, several of our key governance initiatives are summarized
below.
CORPORATE GOVERNANCE GUIDELINES
Our Board of Directors has adopted Corporate Governance Guidelines which govern,
among other things, criteria for membership on the Board of Directors, vacancies
on the Board of Directors, director responsibilities, director education, and
committee composition and charters. You can access these Corporate Governance
Guidelines, along with other materials such as committee charters, on our
website at http://investor.vcaantech.com.
CODE OF ETHICS
We have adopted a Code of Ethics and Business Conduct applicable to all of our
employees as well as our directors and executive officers. Our Code of Ethics
and Business Conduct is designed to set the standards of business conduct and
ethics and to help directors and employees resolve ethical issues. Our Code of
Ethics and Business Conduct applies to our Chief Executive Officer, Chief
Financial Officer, all other senior financial executives, our directors when
acting in their capacity as directors and to all of our employees. The purpose
of our Code of Ethics and Business Conduct is to ensure to the greatest possible
extent that our business is conducted in a consistently legal and ethical
manner. Employees may submit concerns or complaints regarding audit, accounting,
internal controls or other ethical issues on a confidential basis by means of an
anonymous toll-free telephone call or email. We investigate all concerns and
complaints. Our Code of Ethics and Business Conduct is posted on our website at
http://investor.vcaantech.com.
We intend to disclose on our website amendments to, or waivers from, any
provision of our Code of Ethics and Business Conduct which applies to our Chief
Executive Officer, Chief Financial Officer, Principal Accounting
Officer/Controller and persons performing similar functions and amendments to,
or waivers from, any provision which relates to any element of our Code of
Ethics and Business Conduct described in Item 406(b) of Regulation S-K.
COMMITTEE RESPONSIBILITIES
VCA has three committees of the Board of Directors: the Audit Committee, the
Compensation Committee and the Nominating and Corporate Governance Committee.
Each committee meets regularly and has a written charter approved by the Board
of Directors. See "Further Information Regarding Board of Directors - Meetings
and Committees" contained elsewhere in this Proxy Statement.
INDEPENDENCE
NASDAQ rules require listed companies to have a board of directors with at least
a majority of independent directors. Our Board of Directors has determined that
four of our five current directors are independent under the NASDAQ National
Market listing standards. Our independent directors are: John M. Baumer, John B.
Chickering, Jr., John Heil and Frank Reddick. In addition, all of the directors
currently serving on the Audit Committee, the Compensation Committee and the
Nominating and Corporate Governance Committee are independent under the NASDAQ
listing standards.
STOCKHOLDER COMMUNICATION
Stockholders may communicate with the Board of Directors by sending a letter to
the Board of Directors of VCA Antech, Inc., c/o Office of the Secretary, 12401
West Olympic Boulevard, Los Angeles, California 90064. Each communication must
contain a clear notation indicating that it is a "Stockholder -- Board
Communication" or
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"Stockholder -- Director Communication," and each communication must identify
the author as a stockholder. The office of the Secretary will receive the
correspondence and forward it to the Chairman of the Board or to any individual
director or directors to whom the communication is directed, unless the
communication is unduly hostile, threatening, illegal, does not reasonably
relate to us or our business, or is similarly inappropriate. The Office of the
Secretary has authority to discard any inappropriate communications or to take
other appropriate actions with respect to any inappropriate communications.
DIRECTOR ATTENDANCE AT ANNUAL MEETINGS
All directors are encouraged to attend VCA's Annual Meetings of stockholders.
Three of our directors attended our 2005 Annual Meeting of Stockholders.
EXECUTIVE SESSIONS
VCA's independent directors regularly meet in executive session without
management present.
OUTSIDE ADVISORS
The Board of Directors, the Audit Committee, the Compensation Committee and the
Nominating and Corporate Governance Committee may each retain outside advisors
and consultants of their choosing at VCA's expense.
DIRECTOR EDUCATION
On June 19-21, 2005, John B. Chickering, Jr. attended the (11th Annual)
Directors' College, which is an Institutional Shareholder Services accredited
director education program, held at Stanford Law School. Frank Reddick routinely
participates in continuing legal education programs on corporate governance and
board and board committee functions.
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ITEM 1: ELECTION OF DIRECTORS
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We have five members on our Board of Directors. Four of the five members of our
Board of Directors have been determined by our Board of Directors to meet the
independence requirements of the NASDAQ National Market listing standards.
As provided in our Amended and Restated Certificate of Incorporation, the Board
of Directors has been grouped into three classes, as nearly equal in number as
possible, which are elected for staggered terms. Our Class I directors will be
elected at this Annual Meeting and will hold office for three years until the
2009 Annual Meeting and thereafter until their successors are duly elected and
qualified. The terms of our Class II directors expire at our 2007 Annual
Meeting. The term of our Class III director expires at our 2008 Annual Meeting.
In accordance with our Corporate Governance Guidelines, any director appointed
to fill a vacant seat in a class other than the class of directors whose terms
expire at the next annual meeting of stockholders will stand for re-election at
the next annual meeting of stockholders.
Although we know of no reason why these nominees would not be able to serve, if
a nominee is unavailable for election, the proxies will vote your common stock
to approve the election of any substitute nominee proposed by our Nominating and
Corporate Governance Committee. The Board of Directors may choose to reduce the
size of the Board, as permitted by our Bylaws, provided we maintain the number
of independent directors required by the listing standards of the NASDAQ
National Market. The Board of Directors has no reason to believe that any of
VCA's nominees will be unwilling or unable to serve if elected as director.
NOMINEES
Each of our nominees for election as a Class I Director, John M. Baumer and
Frank Reddick, is currently a director, and each has agreed to be named in this
Proxy Statement and to serve if elected.
The Board of Directors proposes the following two candidates for election as
Class I directors:
CLASS I DIRECTOR NOMINEES
-------------------------
John M. Baumer
Frank Reddick
The principal occupation and certain other information about each nominee, our
other directors and our executive officers are set forth on the following pages.
A plurality of the votes cast is required for election as a director. All
proxies will be voted to approve the election of each nominee listed above
unless a contrary vote is indicated on the enclosed proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
NOMINEE IDENTIFIED ABOVE.
8
MANAGEMENT
----------
DIRECTORS AND EXECUTIVE OFFICERS
The following persons serve as our directors:
DIRECTORS AGE PRESENT POSITION
--------- --- -----------------
CLASS I DIRECTORS
-----------------
John M. Baumer............................... 38 Director
Frank Reddick................................ 53 Director
CLASS II DIRECTOR
-----------------
Robert L. Antin.............................. 56 Chairman of the Board
CLASS III DIRECTORS
-------------------
John B. Chickering, Jr....................... 57 Director
John Heil.................................... 53 Director
The following persons serve as our executive officers:
EXECUTIVE OFFICERS AGE PRESENT POSITION
------------------ --- ----------------
Robert L. Antin................................ 56 Chief Executive Officer and President
Arthur J. Antin............................... 59 Chief Operating Officer and Senior Vice President
Neil Tauber................................... 55 Senior Vice President of Development
Tomas W. Fuller............................... 48 Chief Financial Officer, Vice President and Secretary
Dawn R. Olsen................................. 47 Principal Accounting Officer, Vice President and
Controller
Our executive officers are appointed by and serve at the discretion of our Board
of Directors. Robert L. Antin and Arthur J. Antin are brothers. There are no
other family relationships between any director and/or any executive officer.
ROBERT L. ANTIN, one of our founders, has served as our Chairman of the Board,
Chief Executive Officer and President since our inception in 1986. From
September 1983 to 1985, Mr. Antin was President, Chief Executive Officer, a
director and co-founder of AlternaCare Corp., a publicly held company that
owned, operated and developed freestanding out-patient surgical centers. From
July 1978 until September 1983, Mr. Antin was an officer of American Medical
International, Inc., an owner and operator of health care facilities. Mr. Antin
received his MBA with a certification in hospital and health administration from
Cornell University.
JOHN M. BAUMER has served as our director since September 2000. Mr. Baumer is a
partner of Leonard Green & Partners, LP, where he has been employed since May
1999. Prior to joining Leonard Green & Partners, LP, he served as a Vice
President in the Corporate Finance Division of Donaldson, Lufkin & Jenrette
Securities Corporation, or DLJ, in Los Angeles. Prior to joining DLJ in 1995,
Mr. Baumer worked at Fidelity Investments and Arthur Andersen LLP. Mr. Baumer
currently serves on the boards of directors of FTD, Inc. and Leslie's Poolmart,
Inc. Mr. Baumer is a 1990 graduate of the University of Notre Dame. He received
his MBA from the Wharton School at the University of Pennsylvania.
JOHN B. CHICKERING, JR. has served as one of our directors since April 2004 and
previously served as a director from 1988 to 2000. Mr. Chickering is a certified
public accountant. Mr. Chickering is currently a private investor and
independent consultant. Mr. Chickering served in a variety of executive
positions within Time Warner, Inc. and Warner Bros., Inc., most recently as the
Vice President--Financial Administration for Warner Bros. International
Television Distribution until February 1996. Prior to his employment at Warner
Bros., Mr. Chickering served as a staff accountant at KPMG Peat Marwick from
August 1975 to June 1977. Mr. Chickering holds an MBA degree with emphasis in
accounting and finance from Cornell University.
9
JOHN HEIL has served as one of our directors since February 2002 and previously
served as a director from 1995 to 2000. Mr. Heil currently serves as President
of United Pet Group, Inc., a global manufacturer and marketer of pet supplies
and subsidiary of Spectrum Brands, Inc. Mr. Heil currently serves on Spectrum
Brands' Executive Committee. Prior to joining United Pet Group, Mr. Heil spent
twenty-five years with the H. J. Heinz Company in various executive and general
management positions including President and Managing Director of Heinz Pet
Products and President of Heinz Specialty Pet Foods. Mr. Heil holds a BA degree
in economics from Lycoming College.
FRANK REDDICK has served as one of our directors since February 2002. For more
than the past five years, Mr. Reddick has been a partner in Akin Gump Strauss
Hauer & Feld LLP, a global, full service law firm. Mr. Reddick serves on the
firm's national steering committee for the Corporate Finance & Mergers and
Acquisitions section. Mr. Reddick is principally engaged in the practice of
corporate and securities law, with a concentration on corporate finance, mergers
and acquisitions, joint ventures and other strategic alliances. Mr. Reddick
holds a JD from the University of California, Hastings College of the Law.
ARTHUR J. ANTIN, one of our founders, has served as our Chief Operating Officer
and Senior Vice President since our inception. From 1986 until June 2004, Mr.
Antin also served as our Secretary and as a director. From October 1983 to
September 1986, Mr. Antin served as Director of Marketing/Investor Relations of
AlternaCare Corp. At AlternaCare Corp., Mr. Antin developed and implemented
marketing strategies for a network of outpatient surgical centers. Mr. Antin
received an MA in Community Health from New York University.
NEIL TAUBER, one of our founders, has served as our Senior Vice President of
Development since our inception. From 1984 to 1986, Mr. Tauber served as the
Director of Corporate Development at AlternaCare Corp. At AlternaCare Corp., Mr.
Tauber was responsible for the acquisition of new businesses and syndication to
hospitals and physician groups. From 1981 to 1984, Mr. Tauber served as Chief
Operating Officer of MDM Services, a wholly owned subsidiary of Mediq, a
publicly held health care company, where he was responsible for operating and
developing a network of retail dental centers and industrial medical clinics.
Mr. Tauber holds an MBA from Wagner College.
TOMAS W. FULLER joined us in January 1988 and served as Vice President and
Controller until November 1990 when he became Chief Financial Officer. In June
2004, Mr. Fuller became Secretary. From 1980 to 1987, Mr. Fuller worked at
Arthur Andersen LLP, the last two years of which he served as audit manager. Mr.
Fuller received his BA in business/economics from the University of California
at Los Angeles.
DAWN R. OLSEN joined us in January 1997 as Vice President, Controller. In March
2004, Ms. Olsen became Principal Accounting Officer. From 1993 to 1996, Ms.
Olsen served as Senior Vice President, Controller of Optel, Inc., a privately
held telecommunications company. From 1987 to 1993, Ms. Olsen served as
Assistant Controller and later as Vice President, Controller of Qintex
Entertainment, Inc., a publicly held television film distribution and production
company. From 1981 to 1987, Ms. Olsen worked at Arthur Andersen LLP, the last
year of which she served as audit manager. Ms. Olsen currently serves on the
board of the Women's Leadership Council in Los Angeles. Ms. Olsen is a certified
public accountant and received her BS in business/accounting from California
State University, Northridge.
FURTHER INFORMATION REGARDING THE BOARD OF DIRECTORS
----------------------------------------------------
COMPOSITION
Four of the five members of our Board of Directors have been determined by our
Board of Directors to meet the independence requirements of the NASDAQ National
Market listing standards. We refer to each of these directors as an "independent
director."
MEETINGS & COMMITTEES
During fiscal 2005, the Board of Directors held six meetings and acted two times
by unanimous written consent. VCA's independent directors regularly meet in
executive session without management present.
The Board of Directors has an Audit Committee, a Compensation Committee and a
Nominating and Corporate Governance Committee, all of which are constituted
solely of independent directors.
10
AUDIT COMMITTEE
The Audit Committee consists of John M. Baumer, John B. Chickering, Jr.
(Chairman) and John Heil, each an independent director and each financially
literate as required by the NASDAQ National Market listing standards. Mr.
Chickering is the Chairman of the Audit Committee. Our Board of Directors has
determined that Messrs. Baumer, Chickering and Heil qualify as "audit committee
financial expert[s]" as that term is defined in Item 401(h) of Regulation S-K of
the Securities and Exchange Act of 1934. During fiscal 2005, the Audit Committee
held nine meetings.
Among other matters, the Audit Committee:
o engages and replaces the independent registered public accounting firm
as appropriate;
o evaluates the performance of, independence of and pre-approves all
services provided by the independent registered public accounting
firm;
o discusses with management, internal auditor and the independent
registered public accounting firm the quality of our accounting
principles and financial reporting; and
o oversees our internal controls.
Our Audit Committee charter is attached hereto as APPENDIX A and is posted on
our website at http://investor.vcaantech.com.
COMPENSATION COMMITTEE
The Compensation Committee consists of John M. Baumer, John B. Chickering, Jr.
and Frank Reddick (Chairman), each an independent director. During fiscal 2005,
the Compensation Committee held three meetings and acted two times by unanimous
written consent.
The principal responsibilities of the Compensation Committee are to:
o assist the Board of Directors in ensuring that a proper system of
long-term and short-term compensation is in place to provide
performance-oriented incentives to management, and that compensation
plans are appropriate and competitive and properly reflect the
objectives and performance of management and the Company;
o establish the compensation of all of our executive officers;
o prepare a report of the Compensation Committee for inclusion in the
Company's annual proxy statement; and
o administer the Company's equity incentive programs
Our Compensation Committee charter is posted on our website at
http://investor.vcaantech.com.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee consists of John M. Baumer,
John B. Chickering, Jr. and Frank Reddick (Chairman), each an independent
director. During fiscal 2005, the Nominating and Corporate Governance Committee
held one meeting.
The principal responsibilities of the Nominating and Corporate Governance
Committee are to:
11
o review the criteria for selection of new directors and nominees,
including the establishment of procedures for the review of potential
nominees proposed by stockholders and review with our Board of
Directors the desired mix of experience, skills and other qualities;
o propose to the Board of Directors a slate of nominees for election by
the stockholders at our Annual Meetings; and
o review and reassess the adequacy of the Corporate Governance
Guidelines and recommend any proposed changes to the Board of
Directors.
Our Nominating and Corporate Governance Committee charter is posted on our
website at http://investor.vcaantech.com.
In considering director candidates, the Nominating and Corporate Governance
Committee considers the entirety of each candidate's credentials and does not
have any specific minimum qualifications that must be met in order to be
recommended as a nominee. The Nominating and Corporate Governance Committee does
believe, however, that all members of the Board of Directors should have high
personal and professional ethics, integrity, practical wisdom and mature
judgment, no conflict of interest that would interfere with their performance as
a director of a public corporation, a commitment to serve on the Board of
Directors over a period of several years, a willingness to represent the best
interests of all stockholders and objectively appraise management performance
and sufficient time to devote to matters of the Board of Directors.
Our Nominating and Corporate Governance Committee may employ a variety of
methods for identifying and evaluating nominees for director, including
stockholder recommendations. The Nominating and Corporate Governance Committee
considers candidates recommended by our stockholders, provided that the
recommendations are made in accordance with the procedures required under our
Bylaws, as summarized in the "Questions and Answers" section of this Proxy
Statement. If vacancies are anticipated or otherwise arise, the Nominating and
Corporate Governance Committee will consider various potential candidates for
director who may come to the Nominating and Corporate Governance Committee's
attention through current members of the Board of Directors, professional search
firms or consultants, stockholders, or other persons. The Nominating and
Corporate Governance Committee may hire and pay a fee to consultants or search
firms to assist in the process of identifying and evaluating candidates. In
2005, no professional search firms or consultants were retained and,
accordingly, no fees were paid in this regard to professional search firms or
consultants in 2005. The Nominating and Corporate Governance Committee does not
evaluate candidates differently based on who made the recommendation for
consideration.
DIRECTOR ATTENDANCE
All incumbent directors, except for John Heil, attended 75% or more of all the
meetings of the Board of Directors. All incumbent directors attended 75% or more
of all the meetings of those committees on which they served in fiscal 2005. The
Company encourages, but does not require, all incumbent directors and director
nominees to attend our Annual Meetings of stockholders. Three of our directors
attended our 2005 Annual Meeting of Stockholders.
DIRECTORS' COMPENSATION
In March 2006, the Board of Directors adopted a new compensation program for its
non-employee directors. Our current non-employee director compensation program
is as follows:
ANNUAL RETAINER
We pay our non-employee directors $10,000 per year, paid quarterly in arrears,
$2,000 for each Board of Directors meeting attended in person or committee
meeting attended in person which is not held on the same day as a Board of
Directors meeting, including reimbursement for out-of-pocket expenses incurred
in attending, and $1,000 for each Board of Directors meeting attended
telephonically or committee meeting attended telephonically which is not held on
the same day as a Board of Directors meeting. We pay the Chairman of our Audit
Committee an additional $10,000 per year, paid quarterly in arrears. No employee
director receives compensation for his or her service as a member of our Board
of Directors.
12
STOCK OPTIONS
Upon appointment to the Board of Directors, each non-employee director receives
an initial grant of options to purchase 8,000 shares of common stock with an
exercise price equal to the closing market price of our common stock as quoted
by NASDAQ on the business day prior to the date of grant, which options vest in
thirty-six monthly installments beginning the first month after the date of
grant. If the date of grant is less than twelve months from the next annual
meeting of stockholders, the number of options granted will be reduced on a
pro-rata basis, based upon the number of months until the next annual meeting of
stockholders (e.g., if a non-employee director is appointed January 1 and the
next annual meeting of stockholders is April 1, that non-employee director will
receive options to purchase 2,000 shares of our common stock).
In addition, each non-employee director receives an annual automatic grant of
options to purchase 8,000 shares of common stock on the date of the annual
meeting of stockholders with an exercise price equal to the closing market price
of our common stock as quoted by NASDAQ on the business day prior to the date of
grant, which options vest in thirty-six monthly installments beginning the first
month after the date of grant. With respect to the grants to be made on the date
of the 2006 Annual Meeting, the option grant to each non-employee director shall
be increased or decreased on a pro-rata basis depending on whether the last
grant to that non-employee director was more or less than twelve months from the
date of the 2006 Annual Meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2005, the Compensation Committee of our Board of Directors
consisted of John B. Chickering, Jr., John M. Baumer and Frank Reddick. None of
these individuals was one of our officers or employees at any time during fiscal
2005. Mr. Reddick is a partner at Akin Gump Strauss Hauer & Feld LLP, which
provided legal services to us during fiscal 2005 and is providing legal services
to us in fiscal 2006. Nevertheless, Mr. Reddick is not disqualified from serving
as an independent director on our Board of Directors under the NASDAQ National
Market listing standards because of the relatively small amount of fees we paid
to Akin Gump Strauss Hauer & Feld LLP in fiscal years 2005, 2004 and 2003 in
relation to our total revenues and the total revenues of Akin Gump Strauss Hauer
& Feld LLP for those same periods. None of our executive officers served as a
member of the board of directors or compensation committee of any entity that
has or has had one or more executive officers serving as a member of our Board
of Directors or Compensation Committee.
13
ITEM 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
--------------------------------------------------------------------------------
The Audit Committee has engaged the firm of KPMG LLP to continue to serve as our
independent registered public accounting firm for the current fiscal year ending
December 31, 2006. KPMG LLP has served as VCA's principal independent registered
public accounting firm since June 14, 2002.
We are asking the stockholders to ratify the appointment of KPMG LLP as our
independent public accounting firm for the fiscal year ending December 31, 2006.
The ratification of KPMG LLP as the Company's independent registered public
accounting firm for the fiscal year ending December 31, 2006, will require the
affirmative vote of a majority of the shares of common stock present or
represented and entitled to vote at the Annual Meeting. All proxies will be
voted to approve the appointment unless a contrary vote is indicated on the
enclosed proxy card.
We anticipate that a representative of KPMG LLP will attend the Annual Meeting
for the purpose of responding to appropriate questions. The representative of
KPMG LLP will be afforded an opportunity to make a statement if he or she so
desires at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
14
AUDIT AND NON-AUDIT FEES
------------------------
The following table sets forth the aggregate fees billed to us by KPMG LLP, our
independent registered public accounting firm, for professional services
rendered during the fiscal years ended December 31, 2005 and 2004.
2005 2004
------------ ------------
Audit Fees $1,299,500 $1,043,848
Audit Related Fees (1) - 334,436
All Other Fees (2) 3,289 -
------------ ------------
Total $1,302,789 $1,378,284
----------------
(1) Consists of $102,356 for due diligence work related to the acquisition
of National PetCare Centers, Inc., $82,080 for due diligence work
related to the acquisition of Sound Technologies, Inc. and $150,000
for services in connection with our registration statement on Form S-3
and related prospectus filings in 2004.
(2) Consists of miscellaneous consulting services provided by KPMG LLP in
2005.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES
The Audit Committee is responsible for appointing, setting the compensation of
and overseeing the work of the independent registered public accounting firm. In
recognition of this responsibility, the Audit Committee has established a policy
with respect to the pre-approval of audit and permissible non-audit services and
fees provided by the independent registered public accounting firm. The Audit
Committee's pre-approval policy requires that all audit and permissible
non-audit services and fees be pre-approved by the Audit Committee. Specific
pre-approval is not required for permissible non-audit services provided that
they:
o do not, in the aggregate, amount to more than five percent of total
revenues paid by the Company to the independent registered public
accounting firm in the fiscal year in which the services are provided;
o were not recognized by the Company as non-audit services at the time
of the relevant engagement; and
o are promptly brought to the attention of the Audit Committee and
approved by the Audit Committee (or its designated representatives)
prior to the completion of the annual audit.
Pursuant to the pre-approval policy, the Audit Committee's Chairman is delegated
the authority to pre-approve audit services and fees, provided he reports those
approvals at the next meeting of the Audit Committee. The term of any
pre-approval granted by the Audit Committee with respect to a given service is
twelve months. All fees in excess of pre-approved levels require specific
pre-approval by the Audit Committee. All audit and permissible non-audit
services provided to us in 2005 were approved by the Audit Committee.
15
REPORT OF AUDIT COMMITTEE
-------------------------
THE INFORMATION IN THIS AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED TO BE
"SOLICITING MATERIAL," OR TO BE "FILED" WITH THE SECURITIES AND EXCHANGE
COMMISSION OR TO BE SUBJECT TO REGULATION 14A OR 14C AS PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR TO THE LIABILITIES OF SECTION 18 OF
THE SECURITIES AND EXCHANGE ACT OF 1934.
During fiscal year 2005, the Audit Committee consisted of Messrs. Baumer,
Chickering and Heil. Mr. Chickering is the Chairman of the Committee and a
financial expert. Messrs. Baumer and Heil are also financial experts. All
members of the Committee are independent within the meaning of the NASDAQ
listing standards.
The Committee is responsible for overseeing, on behalf of the Board of
Directors, the Company's accounting and financial reporting process and the
audits of VCA's financial statements. As set forth in its charter, the Committee
acts only in an oversight capacity and relies on the work and assurances of
management, which has the primary responsibility for the financial reporting
process, including the system of internal controls, and the financial
statements.
The Committee met nine times in person or by telephone during fiscal 2005.
During the course of some of these meetings, the Committee met and held
executive sessions with management, the internal auditor and the independent
registered public accounting firm regarding the fair and complete presentation
of the Company's results.
The Committee believes that a candid, substantive and focused dialogue with the
internal auditor and the independent registered public accounting firm is
fundamental to the Committee's oversight responsibilities. To support this
belief and as required by its charter, the Committee periodically, and at least
once a year, meets separately with the internal auditor and KPMG LLP, without
management present. In the course of its discussions in these meetings, the
Committee asked a number of questions intended to bring to light any areas of
potential concern related to VCA's financial reporting and internal controls.
The Committee has discussed significant accounting policies applied by the
Company in its financial statements, as well as alternative treatments.
Management represented to the Committee that the Company's consolidated
financial statements were prepared in accordance with generally accepted
accounting principles, and the Committee has reviewed and discussed the
consolidated financial statements with management and the independent registered
public accounting firm. The Committee discussed with the independent registered
public accounting firm matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication With Audit Committees).
The Committee reviewed and discussed with management the Company's policies with
respect to risk assessment and risk management.
The Committee received from KPMG LLP its attestation report on management's
assessment of internal control over financial reporting and its report on VCA's
internal control over financial reporting. The Committee reviewed and discussed
the results of management's assessment and KPMG LLP's attestation as part of its
oversight responsibility.
In addition, the Committee has received the written disclosures and the letter
from the independent registered public accounting firm required by the
Independence Standards Board Standard No. 1 (Independence Discussions With Audit
Committees), and the Committee has discussed with the independent registered
public accounting firm the independent accountant's independence from the
Company and its management. The Committee also has considered whether the
independent registered public accounting firm's provision of non-audit services
to the Company is compatible with the accountant's independence. The Committee
has concluded that the independent registered public accounting firm is
independent from the Company and its management.
The Committee discussed with the Company's independent registered public
accounting firm the overall scope and plans for its audit.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board of Directors approved, that
the audited financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2005, for filing with the Securities
and Exchange
16
Commission. In addition, the Committee has selected and engaged KPMG LLP as the
Company's independent registered public accounting firm for the fiscal year
ending December 31, 2006.
Audit Committee
JOHN M. BAUMER
JOHN B. CHICKERING, JR.
JOHN HEIL
17
ITEM 3: PROPOSAL TO APPROVE VCA ANTECH, INC. 2006 EQUITY INCENTIVE PLAN
--------------------------------------------------------------------------------
We are asking you to approve the VCA Antech, Inc. 2006 Equity Incentive Plan,
which we refer to as the "2006 Equity Incentive Plan" or the "Plan," as set
forth in APPENDIX B to this Proxy Statement. The Plan became effective upon
approval by the Board of Directors, but no award under the Plan may be exercised
(or, in the case of stock awards, granted) until the Plan is approved by the
stockholders of the Company. The Plan was unanimously approved by our Board of
Directors on March 7, 2006, which we refer to as the "Effective Date."
Subject to stockholder approval of the Plan, the Board has amended the Amended
and Restated 1996 Stock Incentive Plan and the 2001 Stock Incentive Plan, which
we refer to as the "Existing Plans," to provide that no additional awards may be
granted under the Existing Plans. The burn rate (i.e., the number of shares of
common stock covered by awards granted by the Company during the fiscal year
divided by the shares of common stock outstanding as set forth in the balance
sheet at fiscal year end) for fiscal years 2005, 2004 and 2003 was 1.89%, 2.72%
and 0.15%, respectively. Our Compensation Committee intends to limit awards
under the Plan so that, on any measurement date, the average burn rate over the
succeeding three fiscal years never exceeds the higher of (i) 2% of the
Company's outstanding common stock, or (ii) the mean plus one standard deviation
of the Company's Global Industry Classification Standards peer group burn rate.
As of the Effective Date, there were 6,040,274 shares subject to outstanding
options granted under the Existing Plans, which we refer to as "Prior
Outstanding Options," and there were an additional 383,000 shares that were
available for grant under the Existing Plans but which were not the subject of
outstanding options or other awards, which we refer to as "Available Shares."
The number of Available Shares shall be included as shares reserved for awards
under the Plan. In addition, shares of common stock underlying Prior Outstanding
Options shall also become available to increase the number of shares available
for awards under the Plan if the Prior Outstanding Options expire, are
forfeited, cancelled or terminated for any reason without being exercised in
full. Thus, the maximum aggregate number of shares of common stock that may be
issued under the Plan to our employees, directors and consultants and those of
our affiliates is (a) 6,000,000 newly authorized shares of common stock; plus
(b) 383,000 Available Shares; and (c) any shares of common stock underlying
Prior Outstanding Options that expire, are forfeited, cancelled or terminate for
any reason without having been exercised in full.
The awards granted under the Plan shall be exercisable upon approval of the Plan
by the affirmative vote of a majority of the shares of common stock present or
represented and entitled to vote at the Annual Meeting. All proxies will be
voted to approve the Plan unless a contrary vote is indicated on the enclosed
proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
2006 EQUITY INCENTIVE PLAN.
PURPOSE OF OUR 2006 EQUITY INCENTIVE PLAN
Approval of the 2006 Equity Incentive Plan is intended to enable VCA, and its
affiliates, to obtain and retain the services of the types of employees,
consultants and directors who will contribute to the Company's long range
success and to provide incentives that are linked directly to increases in share
value which will inure to the benefit of all of our stockholders.
SUMMARY OF OUR 2006 EQUITY INCENTIVE PLAN
The following summary of our 2006 Equity Incentive Plan is qualified by
reference to the full text of the Plan, which is attached as APPENDIX B to this
Proxy Statement.
ELIGIBILITY
The term "Awards" as used in this Item 3 of the Proxy Statement includes
incentive stock options, nonstatutory stock options, restricted awards,
performance awards, stock appreciation rights and 409A awards granted under the
Plan. Our employees, consultants and directors and those of our affiliates are
eligible for Awards, PROVIDED that incentive stock options may be granted only
to employees. All other Awards, including nonstatutory stock options, restricted
awards, performance awards, stock appreciation rights and 409A awards, may be
granted to our
18
employees, directors and consultants and those of our affiliates. In addition,
the maximum number of shares with respect to which Awards can be granted to any
employee in any fiscal year is limited to 500,000 shares.
ADMINISTRATION OF THE PLAN
The Board of Directors shall administer the Plan, until the Board of Directors
delegates the administration of the Plan to a committee. The Board of Directors
has delegated the administration of the Plan to the Compensation Committee, who
will administer the Plan with respect to Awards and to whom we refer as the
"Administrator."
The Administrator has the authority to:
o construe and interpret the Plan and apply its provisions;
o promulgate, amend, and rescind rules and regulations relating to the
administration of the Plan;
o authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the Plan;
o delegate its authority to one or more officers of the Company with
respect to Awards that do not involve the Company's chief executive
officer, or the four other highest compensated officers of the
Company, or "insiders" within the meaning of Section 16 of the
Exchange Act, subject to specified limits on the number of shares that
may be granted pursuant to that delegation;
o determine when Awards are to be granted under the Plan;
o from time to time, to select, subject to the limitations set forth in
this Plan, those people to whom Awards shall be granted;
o determine the number of shares of common stock to be made subject to
each Award;
o determine whether each option is to be an incentive stock option or a
nonstatutory stock option;
o prescribe the terms and conditions of each award, including, without
limitation, the exercise price and medium of payment, vesting
provisions and right of repurchase provisions, and to specify the
provisions of the award agreement relating to that grant or sale;
o amend any outstanding Awards, including for the purpose of modifying
the time or manner of vesting, or the term of any outstanding award,
subject to certain limitations;
o determine the duration and purpose of leaves of absences which may be
granted to a person without constituting termination of their
employment for purposes of the Plan, which periods shall be no shorter
than the periods generally applicable to employees under the Company's
employment policies;
o make decisions with respect to outstanding options that may become
necessary upon a change in corporate control or an event that triggers
anti-dilution adjustments; and
o exercise discretion to make any and all other determinations which it
determines to be necessary or advisable for administration of the
Plan.
The Administrator also may modify the purchase price or the exercise price of
any outstanding Award, PROVIDED that if the modification effects a repricing,
stockholder approval shall be required before the repricing is effective.
POTENTIAL DILUTION
As shown in the table on page 29 of this Proxy Statement, at December 31, 2005,
approximately 383,000 shares remained issuable under the Company's Existing
Plans. The total number of shares of common stock currently available for
issuance under the Plan, which includes (a) 6,000,000 newly authorized shares of
common stock plus
19
(b) 383,000 Available Shares, represent approximately 7.7% percent of the
Company's outstanding shares on March 31, 2006. This percentage does not include
any shares of common stock underlying Prior Outstanding Options that may expire,
be forfeited, cancelled or terminate for any reason without having been
exercised in full and, as a result, become available to increase the number of
shares of common stock available for Awards under the Plan. The closing price
per share of our common stock on March 31, 2006 as quoted on the NASDAQ Stock
Market's National Market was $28.48.
AWARDS AND TERMS
TYPES OF AWARDS
---------------
The following awards may be granted under the Plan: (i) options intended to
qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended, which we refer to as the "Code," (ii) non-qualified
stock options not specifically authorized or qualified for favorable federal
income tax consequences, (iii) restricted stock awards consisting of shares of
common stock that are subject to a substantial risk of forfeiture (vesting)
restriction for some period of time, (iv) unrestricted stock awards that are
free of any vesting restrictions, (v) performance awards entitling the recipient
to acquire shares of common stock or to vest in shares of common stock upon the
attainment of specified performance goals and (vi) stock appreciation rights.
OPTIONS
-------
o EXERCISE PRICE--Subject to certain exceptions, the exercise price
of an incentive stock option or a nonstatutory stock option,
which we refer to collectively as "options," shall be at least
100% of the fair market value of the common stock subject to that
option on the date that option is granted, PROVIDED that the
exercise price of an incentive stock option granted to a person
who owns stock possessing more than 10% of the total combined
voting power of all classes of our stock, or of any of our
affiliates, shall be at least 110% of the fair market value of
the common stock subject to that option on the date of grant.
o EXPIRATION DATE--No incentive stock option shall be exercisable
after the expiration of ten years from the date it was granted,
PROVIDED that an incentive stock option granted to a person who
owns stock possessing more than 10% of the total combined voting
power of all classes of our stock, or of any of our affiliates,
shall not be exercisable after the expiration of five years from
the date of grant.
o CONSIDERATION--The exercise price for common stock acquired
pursuant to an option shall be paid either (a) in cash or by
certified or bank check at the time the option is exercised or
(b) upon those terms as the Administrator shall approve. The
exercise price may be paid: (i) by delivery to the Company of
other common stock, duly endorsed for transfer to the Company,
with a fair market value on the date of delivery equal to the
exercise price due for the number of shares being acquired, or by
means of attestation whereby the participant identifies for
delivery specific shares of common stock that have been held for
more than six months (or a longer or shorter period of time
required to avoid a charge to earnings for financial accounting
purposes) that have a fair market value on the date of
attestation equal to the exercise price and receives a number of
shares of common stock equal to the difference between the number
of shares thereby purchased and the number of identified
attestation shares of common stock, which we refer to as a "Stock
for Stock Exchange;" (ii) during any period for which the common
stock is publicly traded, by a copy of instructions to a broker
directing the broker to sell the common stock for which the
option is exercised, and to remit to the Company the aggregate
exercise price of the options; and (iii) in any other form of
legal consideration that may be acceptable to the Administrator,
including without limitation with a full-recourse promissory
note, PROVIDED that during any period during which our common
stock is publicly traded, an exercise with a promissory note or
other transaction by a director or an executive officer that
involves or may involve a direct or indirect extension of credit
or arrangement of an extension of credit by us, or our
affiliates, in violation of Section 402(a) of the Sarbanes-Oxley
Act (codified as Section 13(k) of the Exchange Act) shall be
prohibited with respect to any Award under the Plan.
20
o VESTING--The standard forms of option and restricted award
agreements provide for 50% vesting on the fourth year anniversary
of the vesting commencement date and the remaining 50% vesting on
the fifth year anniversary of the vesting commencement date. The
Administrator may provide for an acceleration of vesting and
exercisability in the terms of any option agreement upon the
occurrence of any specified event.
o TRANSFERABILITY--An incentive stock option is only transferable
by will or by the laws of descent and distribution, and shall
only be exercisable during the lifetime of the optionholder by
the optionholder.
A nonstatutory stock option may be transferable to a permitted
transferee upon written approval by the Administrator to the
extent provided in the option agreement. If a nonstatutory stock
option does not provide for transferability, then the
nonstatutory stock option shall only be transferable by will or
by the laws of descent and distribution, and shall only be
exercisable during the lifetime of the optionholder by the
optionholder.
o TERMINATION--Unless otherwise provided in an option agreement or
in an employment agreement the terms of which have been approved
by the Administrator, in the event an optionholder's continuous
service with the Company or its affiliates terminates (other than
upon the optionholder's death or disability or termination by the
Company for cause), the optionholder may exercise his or her
option (to the extent that the optionholder was entitled to
exercise the option as of the date of termination) within that
period of time ending on the earlier of (a) the date three months
following the termination of the optionholder's continuous
service, or (b) the expiration of the term of the option as set
forth in the option agreement. Unless otherwise provided in an
option agreement or in an employment agreement, or subject to
certain other exceptions set forth in the Plan, outstanding
options that are not exercisable at the time an optionholder's
continuous service terminates for any reason other than for cause
(including an optionholder's death or disability) shall be
forfeited and expire at the close of business on the date of the
termination. If the optionholder's continuous service terminates
for cause, all outstanding options shall be forfeited (whether or
not vested) and expire as of the beginning of business on the
date of the termination for cause.
RESTRICTED AWARDS
-----------------
o PURCHASE PRICE--The Administrator shall determine the purchase
price, if any, of the restricted awards, which may be stated as
cash, property or prior services.
o CONSIDERATION--The consideration for common stock acquired
pursuant to a restricted award shall be paid either: (i) in cash
at the time of purchase; or (ii) in any other form of legal
consideration that may be acceptable to the Administrator in its
discretion including, without limitation, a recourse promissory
note, property or a Stock for Stock Exchange, or prior services
that the Administrator determines have a value at least equal to
the fair market value of the common stock.
o VESTING--Shares of common stock acquired under a restricted award
may be subject to a restricted period that specifies a right of
repurchase in favor of the Company in accordance with a vesting
schedule to be determined by the Administrator, or forfeiture in
the event the consideration was in the form of services. The
Administrator in its discretion may provide for an acceleration
of vesting in the terms of any restricted award, at any time,
including in the event a change in control occurs.
o TRANSFERABILITY--Shares of common stock acquired under a
restricted award shall not be transferable by the participant
until that time as the shares vest and the restrictions imposed
by the terms and conditions set forth in the award agreement
lapse.
o TERMINATION--Unless otherwise provided in a restricted award or
in an employment agreement the terms of which have been approved
by the Administrator, in the event a participant's continuous
service terminates for any reason, the Company may exercise its
right
21
of repurchase or otherwise reacquire, or the participant shall
forfeit the unvested portion of a restricted award acquired in
consideration of prior or future services, and any or all of the
shares of common stock held by the participant which have not
vested as of the date of termination under the terms of the
restricted award shall be forfeited and the participant shall
have no rights with respect to the award.
PERFORMANCE AWARDS
------------------
o PERFORMANCE GOALS--The Administrator in its sole discretion shall
determine the performance goals applicable to each Award and the
periods during which the performance is to be measured.
Performance goals shall be based on a pre-established objective
formula or standard that specifies the manner of determining the
number of shares under the performance award that will be granted
or will vest if the performance goal is attained. Performance
goals shall meet the requirements of Section 162(m) of the Code.
o TRANSFERABILITY--Performance awards and all rights with respect
to a performance award may not be sold, assigned, transferred,
pledged or otherwise encumbered.
o TERMINATION--A participant's rights in a performance award shall
automatically terminate upon the participant's termination of
employment (or business relationship) with the Company and its
affiliates for any reason.
o ACCELERATION--At any time prior to the participant's termination
of employment (or other business relationship) by us or our
affiliates, the Administrator may in its sole discretion
accelerate, waive, or amend any or all of the goals, restrictions
or conditions imposed under any performance award. The
Administrator in its discretion may provide for an acceleration
of vesting in the terms of any performance award at any time,
including in the event a change in control occurs.
STOCK APPRECIATION RIGHTS
-------------------------
o RESTRICTIONS ON GRANT--A stock appreciation right entitles the
holder to receive the appreciation in the value of the common
stock underlying the stock appreciation right. Stock appreciation
rights may be granted alone, or provided certain requirements are
met, in tandem with all or part of an option granted under the
Plan. A stock appreciation right may only be granted if the stock
appreciation right: (i) does not provide for the deferral of
compensation within the meaning of Section 409A of the Code; or
(ii) satisfies the requirements for nonqualified deferred
compensation under Section 409A of the Code.
o EXERCISE--The Administrator has discretion to settle the exercise
of a stock appreciation right in stock or in cash. Generally,
stock appreciation rights will be settled for stock and the
participant shall have no right to receive a cash settlement.
However, a participant may request that an exercise be settled in
cash by a written request filed with VCA's Secretary during the
period beginning on the third business day following the date of
release for publication by VCA of quarterly or annual summary
statements of earnings and ending on the twelfth business day
following that date. Upon exercise of a stock appreciation right,
the holder shall be entitled to receive from the Company, a
number of shares of common stock, or in the discretion of the
Administrator cash, with a value equal to the product of (i) the
excess of the fair market value, on the date of the written
request, of one share of common stock over the stock appreciation
right exercise price per share specified in the stock
appreciation right or its related option, multiplied by (ii) the
number of shares for which the stock appreciation right shall be
exercised.
o EXERCISE PRICE--The exercise price of a stock appreciation right
granted by itself shall be determined by the Administrator, but
shall not be less than 100% of the fair market value of one share
of common stock on the date of grant of the stock appreciation
right. A stock appreciation right granted with or subsequent to
the grant of an option and in conjunction therewith or in the
alternative thereto shall have the same exercise price as the
related option,
22
shall be transferable only upon the same terms and conditions as
the related option, and shall be exercisable only to the same
extent as the related option.
TERM
No award may be made under the Plan after March 6, 2016.
AMENDMENT OF THE PLAN
The Board of Directors may at any time amend or terminate the Plan, subject to
approval by our stockholders to the extent stockholder approval is necessary
under any applicable law or any NASDAQ listing standards. Subject to certain
exceptions, an amendment of the Plan shall not impair the rights under any award
granted before an amendment of the Plan unless (a) we request the consent of the
participants under the Plan and (b) the participants consent in writing.
However, the cancellation of an Award in exchange for cash equal to the fair
market value of vested stock, or, in the case of options, the difference between
the fair market value and the exercise price of the vested options that are
subject to exercise shall not be an impairment that requires consent.
AMENDMENT OF AWARDS
The Administrator may at any time amend the terms of one or more Awards,
provided that the Administrator may not effect any amendment which would
otherwise constitute an impairment of the rights under any award unless (a) the
Company requests the consent of the participant and (b) the participant consents
in writing. However, the cancellation of an Award in exchange for cash equal to
the fair market value of vested stock, or, in the case of options, the
difference between the fair market value and the exercise price of the vested
options that are subject to exercise shall not be an impairment that requires
consent.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following is a discussion of material U.S. federal income tax consequences
to participants in the Plan. This discussion is based on statutory provisions,
Treasury regulations thereunder, judicial decisions, and rulings of the Internal
Revenue Service in effect on the date of this Proxy Statement. This discussion
does not purport to be complete, and does not cover, among other things, state,
local, or foreign tax treatment of participation in the Plan. Furthermore,
differences in participants' financial situations may cause federal, state, and
local tax consequences of participation in the Plan to vary.
NON-QUALIFIED OPTIONS AND STOCK APPRECIATION RIGHTS. Under current federal
income tax law, the grant of a non-qualified option or a stock appreciation
right under the Plan will have no federal income tax consequences to the Company
or the optionee. Generally, upon exercise of a non-qualified stock option or a
stock appreciation right granted under the Plan, the excess of the fair market
value of the stock at the date of exercise over the option price, which we refer
to as the "Spread," is taxable to the participant as ordinary income. All
amounts taxable to a participant are deductible by the Company as compensation
expense. The deduction will be allowed for the taxable year of the Company which
includes the end of the taxable year in which the participant includes an amount
in income.
Code Section 162(m) generally denies a tax deduction to any publicly held
corporation for compensation that exceeds one million dollars paid to certain
senior executives in a taxable year, subject to an exception for "performance
based compensation" as defined in the Code and subject to certain transition
provisions. The Company currently has structured the Plan and stock option and
stock appreciation rights grants to senior executive officers who may be subject
to Section 162(m) in a manner that is intended to satisfy the performance-based
compensation exception. However, the Company reserves the authority to award
non-deductible compensation as it deems appropriate. In addition,
notwithstanding the Company's efforts, ambiguities and uncertainties regarding
the application and interpretation of Section 162(m) make it impossible to
provide assurance that performance-based compensation will, in fact, satisfy the
requirements for deductibility under Section 162(m). Thus, Section 162(m) could
limit the deductibility of compensation related to the exercise of options
granted under the Plan.
Generally, the shares received on exercise of an option or stock appreciation
right under the Plan are not subject to restrictions on transfer or risks of
forfeiture and, therefore, the participant will recognize income on the date of
exercise of a non-qualified stock option or stock appreciation right. However,
if the optionee is subject to Section 16(b) of the Exchange Act, the Section
16(b) restriction will be considered a substantial risk of forfeiture for tax
23
purposes. Under current law, employees who are either directors or officers of
the Company will be subject to restrictions under Section 16(b) of the Exchange
Act during their term of service and for up to six months after termination of
service. SEC Rule 16b-3 provides an exemption from the restrictions of Section
16(b) for the grant of derivative securities, such as stock options, under
qualifying plans. Because the Plan satisfies the requirements for exemption
under SEC Rule 16b-3, the grant of awards will not be considered a purchase and
the exercise of the awards to acquire the underlying shares of the Company
common stock will not be considered a purchase or a sale. Thus, ordinary income
will be recognized and the Spread will be measured on the date of exercise.
The taxable income resulting from the exercise of a non-qualified stock option
or a stock appreciation right will constitute wages subject to withholding and
the Company will be required to make whatever arrangements are necessary to
ensure that funds equaling the amount of tax required to be withheld are
available for payment, including the deduction of required withholding amounts
from the participant's other compensation and requiring payment of withholding
amounts as part of the exercise price. The tax basis for the Company common
stock acquired is the exercise price plus the taxable income recognized. A
participant will recognize gain or loss on the subsequent sale of shares
acquired upon exercise of a non-qualified stock option or a stock appreciation
right in an amount equal to the difference between the amount realized and the
tax basis of the shares. The gain or loss will be long-term or short-term
capital gain or loss, depending upon whether the shares have been held for more
than one year.
INCENTIVE STOCK OPTIONS. There will be no federal income tax consequences to the
Company or the employee as a result of the grant of an incentive stock option.
The optionee also will not recognize income when the incentive stock option is
exercised (subject to the alternative minimum tax rules discussed below).
However, incentive stock option treatment will only be available if the
participant has been an employee of the Company or its subsidiaries within three
months of the date of exercise. Generally, the Company receives no deduction at
the time of exercise.
In the event of a disposition of shares acquired upon exercise of an incentive
stock option, the tax consequences depend upon how long the employee has held
the shares. If the employee does not dispose of the shares within two years
after the incentive stock option was granted, or within one year after the
incentive stock option was exercised and shares were purchased, then the
participant must recognize only a long-term capital gain or loss. The Company is
not entitled to any deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding periods, then
he or she must recognize ordinary income in the year of disposition, which we
refer to as a "disqualifying disposition." The amount of the ordinary income
generally is determined under the rules applicable to non-qualified options (see
above) based on the Spread at the date of exercise. However, the ordinary income
will in no event exceed the amount of the gain realized on the sale, provided
that the disposition involves an arm's-length sale or exchange with an unrelated
party. Any gain in excess of the amount taxed as ordinary income will be treated
as capital gain. The Company, in the year of the disqualifying disposition, is
entitled to a deduction equal to the amount of ordinary income recognized by the
optionee.
The Spread under an incentive stock option is treated as an adjustment in
computing alternative minimum taxable income, which we refer to as "AMTI," for
the year of exercise. If a taxpayer's AMTI exceeds an exemption amount equal to
$58,000 in the case of a married individual filing a joint return ($40,250 in
the case of a single taxpayer), then the alternative minimum tax equals 26% of
the first $175,000 of the excess and 28% of the taxable excess that exceeds
$175,000, reduced by the amount of the regular federal income tax paid for the
same taxable year. The exemption amount is subject to reduction in an amount
equal to 25% of the amount by which AMTI exceeds $150,000 in the case of a
married individual filing a joint return ($112,500 in the case of a single
taxpayer). A subsequent disqualifying disposition of shares acquired upon
exercise of an incentive stock option will eliminate the AMTI adjustment if the
disposition occurs in the same taxable year as the exercise. A disqualifying
disposition in a subsequent taxable year will not affect the alternative minimum
tax computation in the earlier year.
PAYMENT OF OPTION EXERCISE PRICE IN SHARES. To the extent an optionee pays all
or part of the option exercise price of a non-qualified stock option by
tendering shares of common stock owned by the optionee, the tax consequences
described above apply except that no income will be recognized on the number of
shares of common stock received upon exercise which is equal to the number of
shares surrendered in payment of the option price and the exchanged shares will
have the same tax basis and holding periods as the shares surrendered. The
additional shares of common stock received upon exercise will have a tax basis
equal to the amount of ordinary income recognized on exercise and a holding
period which commences on the day following the date of recognition of the
income. Under Treasury regulations, if an optionee exercises an incentive stock
option by tendering shares of Company common stock
24
previously acquired by the exercise of an incentive stock option that have not
satisfied statutory holding period requirements, a disqualifying disposition
will occur and the optionee will recognize income and be subject to other basis
allocation and holding period requirements.
RESTRICTED STOCK AWARDS. Stock granted under the Plan may, in the determination
of the Administrator, be subject to rights of repurchase and other transfer
restrictions. The tax consequences of stock granted under the Plan depends on
whether the stock is subject to restrictions and if so, whether the restrictions
are deemed to create a "substantial risk of forfeiture" under Code Section 83
(for example, stock granted under the Plan which is subject to our right to
repurchase the stock at a price that is less than fair market value which right
lapses over a period of continued employment is considered a "substantial risk
of forfeiture" under Code Section 83).
If stock is not subject to a "substantial risk of forfeiture," the recipient
normally will recognize taxable ordinary income equal to the value of the stock
in the year in which the stock is granted less the amount paid for that stock.
If the stock is subject to a "substantial risk of forfeiture," the recipient
normally will recognize taxable ordinary income as and when the "substantial
risk of forfeiture" lapses in the amount of the fair market value of the shares
no longer subject to the "substantial risk of forfeiture" less the amount paid
for the stock. Upon disposition of the stock, the recipient will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for the stock plus any amount recognized as ordinary
income upon grant or vesting of the stock. The gain or loss will be long or
short-term depending on how long the recipient held the stock.
A recipient of stock subject to a "substantial risk of forfeiture" may make an
election under Code Section 83(b) to recognize ordinary income in the year the
recipient purchases the restricted stock, rather than waiting until the
"substantial risk of forfeiture" lapses. If the stock recipient makes a Section
83(b) election, the recipient will be required to recognize as ordinary income
in the year the recipient purchases the stock the difference, if any, between
the fair market value of the stock on the purchase date and the purchase price
paid. If the stock recipient makes a Section 83(b) election, the recipient will
not be required to recognize any income when the "substantial risk of
forfeiture" lapses.
Generally, with respect to employees, we are required to withhold from regular
wages or supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation,
we will generally be entitled to a business expense deduction equal to the
taxable ordinary income realized by the stock recipient.
COMPLIANCE WITH SECTION 409A OF THE CODE. Code Section 409A imposes requirements
on nonqualified deferred compensation plans. The requirements include the timing
of elections to defer, the timing of distributions and prohibitions on the
acceleration of distributions. Failure to satisfy these requirements may result
in the immediate taxation of the arrangement when there is substantial risk of
forfeiture, the imposition of an additional 20% income tax on the participant
and the possible imposition of penalty interest on the unpaid tax. Proposed
regulations generally provide that the type of equity incentives provided under
the Plan will not be considered nonqualified deferred compensation. However,
some awards could be covered by Section 409A of the Code. For example, the grant
or modification of a stock option or stock appreciation right with an exercise
price less than fair market value of the underlying common stock could
constitute nonqualified deferred compensation. In that event, the Administrator
normally would expect to design and administer that award in a manner that
ordinarily should avoid adverse federal income tax consequences under Section
409A of the Code to any affected participant. Notwithstanding the foregoing, the
Plan expressly provides that there is no commitment or guarantee that any
federal, state or local tax treatment will apply or be available to any person
who participates or is eligible to participate in the Plan.
In the event that a grant or award under the Plan is granted with an exercise
price less than the fair market value of the common stock subject to the grant
or award on the grant date (regardless of whether or not the exercise price is
intentionally or unintentionally priced at less than fair market value, or the
grant is materially modified and deemed a new grant at a time when the fair
market value exceeds the exercise price) or is otherwise determined to
constitute nonqualified deferred compensation within the meaning of Section 409A
of the Code, which we refer to as a "409A Award," then the following additional
conditions shall apply to the grant or award and shall supersede any contrary
provision of the Plan:
(1) A 409A Award shall not be exercisable or distributable until the
earlier of:
25
(a) A specified time or a fixed schedule set forth in the award
agreement or, if the award agreement does not specify a
fixed time or schedule, the date that is the fifth
anniversary of the award or grant date;
(b) Separation of service; PROVIDED, HOWEVER, that if the 409A
Award recipient is a "key employee" (as defined in Section
416(i) of the Code without regard to paragraph (5) thereof)
and the Company's stock is publicly traded on an established
securities market or otherwise, exercise or distribution may
not be made before the date which is six months after the
date of separation of service;
(c) The date of the participant's death;
(d) The date the participant becomes disabled;
(e) The occurrence of an unforeseeable financial emergency; or
(f) The occurrence of a change in control event.
(2) The term of a 409A Award shall expire and that award shall no
longer be exercisable on the date that is the later of: (a) 2 1/2
months after the end of the Company's taxable year in which the
409A Award first becomes exercisable or distributable and is not
subject to a substantial risk of forfeiture; or (b) 2 1/2 months
after the end of the 409A Award recipient's taxable year in which
the 409A Award first becomes exercisable or distributable and is
not subject to a substantial risk of forfeiture, but not later
than the earlier of (i) the expiration of ten years from the date
of the 409A Award was granted or (ii) the term specified in the
409A Award agreement.
(3) A 409A Award may not be accelerated or exercised prior to the
times noted above in paragraph (1), except (a) to an individual
other than the participant as may be necessary to comply with the
terms of a domestic relations order, (b) to comply with the terms
of a certificate of divestiture (as defined in Section 1043(b)(2)
of the Code) or (c) upon a change in control event or to
terminate the Plan or any 409A Award within 12 months of the
change in control event and cancel the 409A Award for
compensation.
NEW PLAN BENEFITS
The number of Awards (i) that would have been received by or allocated to our
executive officers, directors and employees for fiscal 2005 if the Plan had been
in effect and (ii) that will be received by or allocated to our executive
officers, directors and employees under the Plan is undeterminable because the
Awards under the Plan are discretionary.
26
EXECUTIVE COMPENSATION
----------------------
SUMMARY COMPENSATION TABLE
The following table sets forth, as to our Chief Executive Officer and as to each
of our other four most highly compensated executive officers whose compensation
exceeded $100,000 during the last fiscal year, information concerning all
compensation paid for services to us in all capacities for each of the three
years ended December 31 indicated below. We refer to these officers as the Named
Executive Officers.
ANNUAL COMPENSATION LONG-TERM
COMPENSATION;
AWARDS;
OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS (#)(2) COMPENSATION (3)
--------------------------- ---- ------ ----- ---------------- -------------- ----------------
Robert L. Antin (4)........... 2005 $562,432 $700,000 -- $1,487
Chairman of the Board, 2004 562,432 562,432 425,000 1,440
Chief Executive Officer 2003 540,800 540,800 -- 1,320
and President
Arthur J. Antin (4)........... 2005 459,476 445,500 -- 1,487
Chief Operating Officer and 2004 449,946 404,951 175,000 1,440
Senior Vice President 2003 432,640 389,376 -- 1,320
Neil Tauber (4)............... 2005 304,639 238,000 -- 1,487
Senior Vice President of 2004 295,152 206,606 175,000 1,440
Development 2003 268,320 187,824 -- 1,320
Tomas W. Fuller (4)........... 2005 280,367 238,000 -- 1,007
Chief Financial Officer, Vice 2004 264,368 185,058 175,000 1,440
President and Secretary 2003 254,200 177,940 -- 1,320
Dawn R. Olsen................. 2005 189,801 53,750 30,000 1,007
Principal Accounting Officer, 2004 183,040 60,000 40,000 1,186
Vice President & Controller 2003 173,325 27,456 -- 1,320
---------------
(1) In accordance with SEC rules, disclosure is omitted where total Other
Annual Compensation does not exceed $50,000. The Company provides each
of Robert L. Antin, Arthur J. Antin, Neil Tauber and Tomas W. Fuller
the use of a Company owned automobile and reimburses them for the cost
of their automobile insurance in connection with their use of the
vehicle. The table below sets forth the total cost (including both
business related and personal) to the Company of providing these
benefits:
NAME 2005 2004 2003
---- ---- ---- ----
Robert L. Antin $40,603 $33,713 $33,039
Arthur J. Antin 34,099 34,473 32,397
Neil Tauber 27,865 28,821 27,171
Tomas W. Fuller 9,497 18,780 20,025
For disclosure purposes, the annual cost of the Company owned automobile
was determined based on the Annual Lease Value as provided in the Code.
Pursuant to the terms of his employment agreement, Mr. Robert L. Antin is
reimbursed for entertainment related business expenses in connection with
the Company's entertainment of customers which principally include tickets
to cultural and sporting events, and totaled $65,544, $91,517 and $76,655
in 2005, 2004 and 2003, respectively. The costs of these activities are
incurred in connection with his entertainment of customers, vendors,
employees and strategic partners and are business-related and are not
maintained as
27
perquisites or otherwise for the personal benefit of Mr. Robert L. Antin.
As a result, the Company has not included these costs in the Other Annual
Compensation column.
Taking into account the portion of the automobile costs allocated to
personal use and the other perquisites provided to the executive officers,
the perquisites did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for any executive officer in any of 2005, 2004 and
2003 and consequently are not included in the Other Annual Compensation
column.
(2) All numbers reflect the number of shares of our common stock subject to
options granted during the fiscal year indicated.
(3) All Other Compensation consists of Company contributions to the 401(k)
Plan.
(4) For a description of the employment agreement between us and each officer,
see "Employment and Severance Agreements" below.
OPTION GRANTS IN FISCAL 2005
The following table sets forth certain information regarding the grant of stock
options made during the fiscal year ended December 31, 2005 to the Named
Executive Officers.
POTENTIAL
REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OR OPTION TERM(1)
NAME OPTION GRANTED FISCAL YEAR BASE PRICE EXPIRATION DATE 5% 10%
---- -------------- ----------- ----------- --------------- -- ---
Robert L. Antin............. -- -- -- -- -- --
Arthur J. Antin............. -- -- -- -- -- --
Neil Tauber................. -- -- -- -- -- --
Tomas W. Fuller............. -- -- -- -- -- --
Dawn R. Olsen............... 30,000 (2) 1.9% $23.68 10/21/12 $289,204 $673,969
------------
(1) The potential realizable value is based on the assumption that the common
stock appreciates at the annual rate shown (compounded annually) from the
date of grant until the expiration of the option term. These amounts are
calculated pursuant to applicable requirements of the Securities and
Exchange Commission and do not represent a forecast of the future
appreciation of the common stock.
(2) This option vested immediately on the date of grant, but is subject to
certain restrictions on the sale of the underlying shares of common stock.
AGGREGATED OPTION EXERCISES IN FISCAL 2005 AND OPTION VALUES AT FISCAL YEAR-END
The following table sets forth, for each of the Named Executive Officers,
certain information regarding the exercise of stock options to purchase shares
of our common stock during the fiscal year ended December 31, 2005, the number
of shares of common stock underlying stock options held at fiscal year end and
the value of options held at fiscal year end based on the last reported sales
price of our common stock on the NASDAQ Stock Market's National Market on
December 30, 2005 ($28.20 per share).
NAME SHARES NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT FISCAL
UPON VALUE YEAR END (#) YEAR END ($)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
Robert L. Antin........... -- -- 706,944 8,056 $9,717,213 $170,787
Arthur J. Antin........... -- -- 444,301 6,389 $7,546,166 $135,447
Neil Tauber............... 95,000 $1,755,275 309,722 2,778 $4,639,856 $58,894
Tomas W. Fuller........... -- -- 380,278 4,722 $6,151,894 $100,106
Dawn R. Olsen............. 20,000 $490,650 100,458 45,542 $1,725,430 $673,970
28
SUMMARY OF EQUITY COMPENSATION PLAN
The following table sets forth information concerning all equity compensation
plans and individual compensation arrangements in effect during the fiscal year
ended December 31, 2005.
NUMBER OF SECURITIES
NUMBER OF SECURITIES TO WEIGHTED AVERAGE REMAINING AVAILABLE FOR
BE ISSUED UPON EXERCISE EXERCISE PRICE OF FUTURE ISSUANCE UNDER
PLAN CATEGORY OF OUTSTANDING OPTIONS OUTSTANDING OPTIONS EQUITY COMPENSATION PLANS
------------- ----------------------- ------------------- -------------------------
Equity Compensation
Plans Approved by
Security Holders........... 6,089,731 $14.58 383,000
Equity Compensation
Plans Not Approved By
Security Holders........... -- -- --
6,089,731 $14.58 383,000
Total......................
EMPLOYMENT AND SEVERANCE AGREEMENTS
We have employment agreements with Robert L. Antin, Arthur J. Antin and Tomas W.
Fuller, and we have a severance agreement with Neil Tauber.
ROBERT L. ANTIN. Mr. Antin's employment agreement, dated as of November 27,
2001, provides for Mr. Antin to serve as our Chairman of the Board, Chief
Executive Officer and President for a term of five years from any given date,
such that there shall always be a minimum of at least five years remaining under
his employment agreement. The employment agreement provides for Mr. Antin to
receive an annual base salary of $520,000, subject to annual increase based on
comparable compensation packages provided to executives in similarly situated
companies, and to participate in a bonus plan based on annual performance
standards to be established by the compensation committee. Mr. Antin also is
entitled to specified perquisites.
If Mr. Antin's employment is terminated due to his death, the employment
agreement provides that we will pay Mr. Antin's estate his base salary during
the scheduled term of the employment agreement, accelerate the vesting of his
options and continue to provide family medical benefits. If Mr. Antin's
employment is terminated due to his disability, the employment agreement
provides that we will pay Mr. Antin his remaining base salary during the
remaining scheduled term of the employment agreement (reduced by any amounts
paid under long-term disability insurance policy maintained by us for the
benefit of Mr. Antin), accelerate the vesting of his options and continue to
provide specified benefits and perquisites. In the case of termination due to
death or disability, any unexercised options will remain exercisable for the
full term.
If Mr. Antin terminates the employment agreement for cause, if we terminate the
employment agreement without cause or in the event of a change of control, in
which event the employment of Mr. Antin terminates automatically, we will pay
Mr. Antin his remaining base salary during the remaining scheduled term of the
employment agreement plus an amount based on the greater of Mr. Antin's last
annual bonus or the average of all bonuses paid to Mr. Antin under the
employment agreement. In addition, we will accelerate the vesting of his options
and continue to provide specified benefits and perquisites. In these
circumstances, Mr. Antin may exercise his options immediately upon termination
and thereafter during the term of the option.
If Mr. Antin terminates the employment agreement without cause or we terminate
the employment agreement for cause, Mr. Antin is entitled to receive all accrued
and unpaid salary and other compensation and all accrued and unused vacation and
sick pay.
If any of the payments due Mr. Antin upon termination qualify as "excess
parachute payments" under the Code, Mr. Antin also is entitled to an additional
payment to cover the tax consequences associated with excess parachute payments.
29
In the event of a change of control and at our request, Mr. Antin is obligated
to continue to serve under the same terms and conditions of his employment
agreement for a period of up to 180 days following the termination date at his
then-current base salary.
ARTHUR J. ANTIN. Mr. Antin's employment agreement, dated as of November 27,
2001, provides for Mr. Antin to serve as our Chief Operating Officer, Senior
Vice President and Secretary for a term equal to three years from any given
date, such that there shall always be a minimum of at least three years
remaining under his employment agreement. The employment agreement provides for
Mr. Antin to receive an annual base salary of $416,000, subject to annual
increase based on comparable compensation packages provided to executives in
similarly situated companies, and to participate in a bonus plan based on annual
performance standards to be established by the compensation committee. Mr. Antin
also is entitled to specified perquisites.
If Mr. Antin's employment is terminated due to his death, the employment
agreement provides that we will pay Mr. Antin's estate his base salary during
the scheduled term of the employment agreement, accelerate the vesting of his
options and continue to provide family medical benefits. If Mr. Antin's
employment is terminated due to his disability, the employment agreement
provides that we will pay Mr. Antin his remaining base salary during the
remaining scheduled term of the employment agreement (reduced by any amounts
paid under long-term disability insurance policy maintained by us for the
benefit of Mr. Antin), accelerate the vesting of his options and continue to
provide specified benefits and perquisites. In the case of termination due to
death or disability, any unexercised options will remain exercisable for the
full term.
If Mr. Antin terminates the employment agreement for cause, if we terminate the
employment agreement without cause or in the event of a change of control, in
which event the employment of Mr. Antin terminates automatically, we will pay
Mr. Antin his remaining base salary during the remaining scheduled term of the
employment agreement plus an amount based on the greater of Mr. Antin's last
annual bonus or the average of all bonuses paid to Mr. Antin under the
employment agreement. In addition, we will accelerate the vesting of his options
and continue to provide specified benefits and perquisites. In these
circumstances, Mr. Antin may exercise his options immediately upon termination
and thereafter during the full term of the option.
If Mr. Antin terminates the employment agreement without cause or we terminate
the employment agreement for cause, Mr. Antin is entitled to receive all accrued
and unpaid salary and other compensation and all accrued and unused vacation and
sick pay.
If any of the payments due Mr. Antin upon termination qualify as "excess
parachute payments" under the Code, Mr. Antin also is entitled to an additional
payment to cover the tax consequences associated with excess parachute payments.
In the event of a change of control and at our request, Mr. Antin is obligated
to continue to serve under the same terms and conditions of his employment
agreement for a period of up to 180 days following the termination date at his
then-current base salary.
TOMAS W. FULLER. Mr. Fuller's employment agreement dated as of November 27,
2001, provides for Mr. Fuller to serve as our Chief Financial Officer, Vice
President and Assistant Secretary for a term equal to two years from any given
date, such that there shall always be a minimum of at least two years remaining
under his employment agreement. The employment agreement provides for Mr. Fuller
to receive an annual base salary of not less than $244,000, subject to annual
increase based on comparable compensation packages provided to executives in
similarly situated companies, and to participate in a bonus plan based on annual
performance standards to be established by the compensation committee.
If Mr. Fuller's employment is terminated due to his death, the employment
agreement provides that we will pay Mr. Fuller's estate his base salary during
the scheduled term of the employment agreement, accelerate the vesting of his
options and continue to provide family medical benefits. If Mr. Fuller's
employment is terminated due to his disability, the employment agreement
provides that we will pay Mr. Fuller his remaining base salary during the
remaining scheduled term of the employment agreement (reduced by any amounts
paid under long-term disability insurance policy maintained by us for the
benefit of Mr. Fuller), accelerate the vesting of his options and continue to
provide specified benefits and perquisites. In the case of termination due to
death or disability, any unexercised options will remain exercisable for the
full term.
30
If Mr. Fuller terminates the employment agreement for cause, if we terminate the
employment agreement without cause or in the event of a change of control, in
which event the employment of Mr. Fuller terminates automatically, we will pay
Mr. Fuller his remaining base salary during the remaining scheduled term of the
employment agreement plus an amount based on the greater of Mr. Fuller's last
annual bonus or the average of all bonuses paid to Mr. Fuller under the
employment agreement. In addition, we will accelerate the vesting of his options
and continue to provide specified benefits and perquisites. In these
circumstances, Mr. Fuller may exercise his options immediately upon termination
and thereafter for the full term of the option.
If Mr. Fuller terminates the employment agreement without cause or we terminate
the employment agreement for cause, Mr. Fuller is entitled to receive all
accrued and unpaid salary and other compensation and all accrued and unused
vacation and sick pay.
If any of the payments due Mr. Fuller upon termination qualify as "excess
parachute payments" under the Code, Mr. Fuller also is entitled to an additional
payment to cover the tax consequences associated with excess parachute payments.
In the event of a change of control and at our request, Mr. Fuller is obligated
to continue to serve under the same terms and conditions of his employment
agreement for a period of up to 180 days following the termination date at his
then-current base salary.
NEIL TAUBER. Mr. Tauber's employment agreement expired on September 20, 2004. On
March 3, 2003, we executed an agreement with Mr. Tauber which provides that,
following the expiration of the term of Mr. Tauber's Employment Agreement, if
Mr. Tauber's employment with us terminates for any reason other than for cause,
then we will pay Mr. Tauber the amount he would have earned as base salary
during the 12 months following the termination date (reduced by any amounts paid
under any long-term disability insurance policy maintained by us for the benefit
of Mr. Tauber) and continue to provide medical benefits for the 12 months
following the termination date.
31
REPORT OF COMPENSATION COMMITTEE
--------------------------------
THE INFORMATION IN THIS COMPENSATION COMMITTEE REPORT SHALL NOT BE DEEMED TO BE
"SOLICITING MATERIAL," OR TO BE "FILED" WITH THE SECURITIES AND EXCHANGE
COMMISSION OR TO BE SUBJECT TO REGULATION 14A OR 14C AS PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR TO THE LIABILITIES OF SECTION 18 OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
COMMITTEE MEMBERSHIP AND ORGANIZATION. The Compensation Committee currently is
comprised of three members, Messrs. Baumer, Chickering and Reddick. Each of the
members of the Committee is independent within the meaning of the applicable
Nasdaq listing standards. Mr. Reddick is the Chairman of the Committee.
PURPOSE. The Committee advises the Board of Directors regarding the policies
that govern the Company's compensation programs and the compensation of
executive officers, and administers the Company's cash bonus and stock incentive
plans. In connection with its deliberations, the Committee seeks the views of
the Chief Executive Officer with respect to appropriate compensation levels of
the executive officers.
COMPENSATION PHILOSOPHY. The compensation program for executive officers is
designed to attract, motivate, reward and retain highly skilled executive
officers who have the talent and experience necessary to advance the Company's
short- and long-term interests. It is our philosophy to provide a compensation
package that is competitive with similarly situated public companies and to
provide additional rewards to our management when they achieve corporate goals
and return value to stockholders.
TOTAL COMPENSATION. The principal elements of total compensation paid to
executive officers of the Company consist of:
o base salary;
o annual incentive cash bonuses; and
o periodic grants of stock options and other long-term incentive
compensation.
BASE SALARY. We review the base salary of each of our executive officers
annually. We last conducted that review for each executive officer (other than
our Chief Executive Officer) in August 2005 and approved increases in each of
their base salaries effective October 1, 2005. We considered the following
factors in determining the base salary for these officers:
o compensation levels of similarly positioned executive officers in
comparable companies;
o the performance of the Company as a whole;
o the performance of the business area or function for which the
executive officer is responsible; and
o qualitative factors reflecting the individual performance of the
particular executive officer.
Our next review of the base salaries of our executive officers is scheduled for
June 2006, with any increase to be effective on July 1, 2006. The compensation
committee did not review the base salary of Robert L. Antin, our Chairman of the
Board, Chief Executive Officer and President, in August 2005 and made no
adjustments to his base salary, all at his request. The Compensation Committee
intends to conduct a review of the base salary of Mr. Antin in 2006.
ANNUAL INCENTIVES. Our annual incentive program for executive officers consists
of cash bonuses and stock options and other equity awards which we believe
create a direct link between compensation and performance for our executive
officers. The actual amount of the annual bonus is determined by the
Compensation Committee in its discretion. In determining the size of bonuses
awarded for 2005, we considered the increase in revenues, EBITDA and EPS of the
Company in 2005 as compared to 2004 and the Company's Return on Equity and
Return on Assets for 2005.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. As discussed above, Robert L. Antin's
base compensation was unchanged in 2005 at $562,432, at his request. He received
a bonus in the amount of $700,000, which was determined after the Company's
performance in 2005 and, in particular, based on the factors discussed above.
32
STOCK OPTIONS AND AWARDS. We believe that awarding stock options to our
executive officers will motivate them to focus on the Company's long-term
performance. Stock option grants are generally made to an executive officer upon
commencement of service or entering into an employment agreement and
periodically during their tenure with the Company. We consider and approve
grants of stock options to the Company's directors and executive officers. All
grants of stock options shall have an exercise price not less than the fair
market value of our common stock on the date of grant. The fair market value of
our common stock is determined by the per share closing price of our common
stock on the day immediately preceding the date of grant. In 2005, we approved
an option grant for 30,000 shares of common stock, with an exercise price of
$23.68 per share, to the Company's Principal Accounting Officer. This option
vested immediately on the date of grant, but is subject to certain restrictions
on the sale of the underlying shares of common stock. No other options were
granted to the Company's executive officers in 2005.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE COMPENSATION.
Effective January 1, 1994, under Section 162(m) of the Code of 1986, as amended,
a public company generally will not be entitled to a deduction for
non-performance-based compensation paid to certain executive officers to the
extent that compensation exceeds $1.0 million. Special rules apply for
"performance-based" compensation, including the approval of the performance
goals by the stockholders of the Company.
Except with respect to a portion of the Company's Chief Executive Officer's
compensation, all compensation paid to the Company's employees in fiscal 2005
will be fully deductible. With respect to compensation to be paid to executive
officers in 2005 and future years, in certain instances that compensation may
exceed $1.0 million. However, in order to maintain flexibility in compensating
executive officers in a manner designed to promote varying corporate goals, the
Board of Directors has not adopted a policy that all compensation must be
deductible.
The Compensation Committee
JOHN M. BAUMER
JOHN B. CHICKERING, JR.
FRANK REDDICK
33
PERFORMANCE GRAPH
-----------------
The following graph sets forth the percentage change in cumulative total
stockholder return of our common stock for the following period: November 21,
2001 (the effective date of our initial public offering) to December 31, 2005.
These periods are compared with the cumulative returns of the NASDAQ Stock
Market (U.S. Companies) Index and the Russell 2000 Index. The comparison assumes
$100 was invested on November 21, 2001 in our common stock in each of the
foregoing indices. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
CUMULATIVE TOTAL RETURN
11/01 12/01 12/02 12/03 12/04 12/05
----- ----- ----- ----- ----- -----
VCA ANTECH, INC. 100.00 121.20 150.00 309.80 390.80 564.00
NASDAQ STOCK MARKET (U.S.) 100.00 115.13 81.44 121.34 131.95 135.00
RUSSELL 2000 100.00 114.39 90.96 133.94 158.49 165.71
34
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
----------------------------------------------------------
Except as disclosed in this Proxy Statement, neither our directors or executive
officers, nor any stockholder owning more than five percent of our issued
shares, nor any of their respective associates or affiliates, had any material
interest, direct or indirect, in any material transaction to which we were a
party during fiscal 2005, or which is presently proposed.
We believe, based on our reasonable judgment, but without further investigation,
that the terms of each of the following transactions or arrangements between us
and our affiliates, officers, directors or stockholders which were parties to
the transactions were, on an overall basis, at least as favorable to us as could
then have been obtained from unrelated parties.
See "Employment and Severance Agreements" for a summary of employment agreements
with certain of our executive officers.
TRANSACTIONS WITH ZOASIS CORPORATION
We incurred marketing expenses for vaccine reminders and other direct mail
services provided by Zoasis, a company that is majority owned by Robert L.
Antin, our Chief Executive Officer and Chairman. Arthur J. Antin, our Chief
Operating Officer, owns a 10% interest in Zoasis. We purchased services of
$1,100,000, $946,000 and $993,000 for the years ended December 31, 2005, 2004
and 2003, respectively. The pricing of these services is comparable to prices
paid by us to independent third parties for similar services.
We have granted to Zoasis a limited, royalty-free, non-exclusive license to
certain software that we own. In addition, we agreed not to grant any other
licenses in this software for a period of five years except that we may grant
licenses to our affiliates and subsidiaries. Both we and Zoasis have a right to
make modifications to the software, but all modifications and derivative works
are owned by us. The software is currently hosted at our expense at a third
party hosting facility for the benefit of both parties.
LEGAL SERVICES
The law firm of Akin Gump Strauss Hauer & Feld LLP currently provides, and
provided during fiscal year 2005, legal services to us. In 2005, the Company
paid Akin Gump Strauss Hauer & Feld LLP $1.3 million for legal services. Frank
Reddick, who joined us as a director in February 2002, is a partner in Akin Gump
Strauss Hauer & Feld LLP.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our executive
officers, directors and persons who own more than ten percent of a registered
class of our equity securities file reports of ownership and changes in
ownership with the SEC. Executive officers, directors and greater-than-ten
percent stockholders are required by SEC regulations to furnish us with all
Section 16(a) forms that they file. Based solely upon our review of copies of
the forms received by us and written representations from certain reporting
persons that they have complied or not complied with the relevant filings
requirements, we believe that, during the year ended December 31, 2005, all of
our executive officers, directors and greater-than-ten percent stockholders
complied with all Section 16(a) filing requirements, except for one Form 4 filed
by Neil Tauber. Mr. Tauber should have filed a Form 4 by March 17, 2005 in
connection with his exercise on March 11, 2005 of stock options covering 37,500
shares of our common stock. The Form 4 was filed on April 13, 2005.
35
PRINCIPAL STOCKHOLDERS
----------------------
The following table sets forth information regarding beneficial ownership of our
common stock as of March 31, 2006, by:
o each of our directors;
o each of our Named Executive Officers;
o all of our directors and Named Executive Officers as a group; and
o all other stockholders known by us to beneficially own more than 5% of
our outstanding common stock.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of the date as of which this
information is provided, and not subject to repurchase as of that date, are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person.
Except as indicated in the notes to this table, and except pursuant to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. Percentage ownership is based on 82,941,608 shares of common
stock outstanding on March 31, 2006. Unless otherwise indicated, the address for
each of the stockholders listed below is c/o VCA Antech, Inc., 12401 West
Olympic Boulevard, Los Angeles, California 90064.
NUMBER OF SHARES OF PERCENT OF
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OUTSTANDING
---------------------------------------
Select Equity Group, Inc. & Select Offshore Advisors, LLC (1)............. 6,233,345 7.5%
Franklin Resources, Inc. (2).............................................. 5,709,224 6.9
FMR Corp. (3)............................................................. 4,795,429 5.8
Robert L. Antin (4)....................................................... 2,793,960 3.3
Arthur J. Antin (5)....................................................... 863,185 1.0
Tomas W. Fuller (6)....................................................... 556,120 *
Neil Tauber (7)........................................................... 350,000 *
Dawn R. Olsen (8)......................................................... 113,667 *
John M. Baumer (9)........................................................ 15,000 *
John B. Chickering, Jr. (10).............................................. 25,000 *
John A. Heil (11)......................................................... 60,000 *
Frank Reddick (12)........................................................ 100,000 *
All directors and executive officers as a group
(9 persons) (13)....................................................... 4,876,932 5.7
* Indicates less than one percent.
------------------------
(1) Information based on a Schedule 13G/A filed on February 15, 2006 with
the Securities and Exchange Commission by Select Equity Group, Inc.
and certain related entities. According to the Schedule 13G/A: (a)
Select Equity Group, Inc. has sole voting and sole dispositive power
over 5,537,635 shares; and (b) Select Offshore Advisors, LLC has sole
voting and sole dispositive power over 695,710 shares. George S.
Loening is the controlling stockholder of each of these stockholders.
The address for each stockholder and George S. Loening is 380
Lafayette Street, 6th Floor, New York, New York 10003.
(2) Information based on a Schedule 13G/A filed on February 13, 2006 with
the Securities and Exchange Commission by Franklin Resources, Inc. and
certain related entities. According to the Schedule 13G/A: (a)
Franklin Advisors, Inc. has sole voting power over 5,401,328 shares
and sole dispositive power over 5,420,028 shares; (b) Franklin
Templeton Investments Corp. has sole voting and sole dispositive power
over 200,400 shares of common stock; (c) Templeton Asset Management
Ltd. has sole voting and sole dispositive power over 56,100 shares;
(d) Fiduciary Trust Company International has sole voting and sole
36
dispositive power over 30,000 shares; and (e) Franklin Templeton
Portfolio Advisors, Inc. has sole voting and sole dispositive power
over 2,696 shares. Franklin Resources, Inc. is the parent company of
these entities. Charles B. Johnson and Rupert H. Johnson, Jr. are the
principal stockholders of Franklin Resources, Inc. The address of each
entity and each principal stockholder is One Franklin Parkway, San
Mateo, California 94403-1906.
(3) Information based on Schedule 13G filed on February 14, 2006 with the
Securities and Exchange Commission by FMR Corp. and certain related
entities. According to the Schedule 13G: (a) Fidelity Management &
Research Company beneficially owns 4,790,169 shares as a result of
acting as an investment adviser to various investment companies
registered under Section 8 of the Investment Company Act of 1940; (b)
Fidelity Management Trust Company beneficially owns 5,200 shares as a
result of serving as investment manager of certain institutional
accounts; and (c) Strategic Advisers, Inc. beneficially owns 60 shares
as a result of providing investment advisory services to certain
individuals. FMR Corp. is the parent company of these entities and has
sole voting power over 24,860 shares and sole dispositive power over
4,795,429 shares. Edward C. Johnson 3d and certain members of his
family, collectively, may form a controlling group with respect to FMR
Corp. The address of each entity and Edward C. Johnson 3d is 82
Devonshire Street, Boston, Massachusetts 02109.
(4) Includes 715,000 shares of common stock reserved for issuance upon
exercise of stock options that are or will be exercisable on or before
May 30, 2006.
(5) Includes 450,690 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2006.
(6) Includes 385,000 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2006.
(7) Includes 312,500 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2006.
(8) Consists of 113,667 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2006.
(9) Consists of 15,000 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2006.
(10) Consists of 25,000 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2006.
(11) Consists of 60,000 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2006.
(12) Consists of 100,000 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2006.
(13) Includes 2,176,857 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
before May 30, 2006.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Tomas W. Fuller
-----------------------------------------
TOMAS W. FULLER
CHIEF FINANCIAL OFFICER, VICE PRESIDENT AND
SECRETARY
12401 West Olympic Boulevard
Los Angeles, California 90064-1022
April 27, 2006
37
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF VCA ANTECH, INC.
This Charter identifies the purpose, composition, meeting requirements,
committee responsibilities, annual charter review and investigations and studies
of the Audit Committee (the "COMMITTEE") of the Board of Directors (the "BOARD")
of VCA Antech, Inc., a Delaware corporation (the "COMPANY").
I. PURPOSE
The Committee has been established to:
o assist the Board of Directors in fulfilling its oversight
responsibility relating to:
o the annual independent audit of the Company's financial
statements, the engagement of the independent auditors and the
evaluation of the independent auditors' qualifications,
independence and performance;
o the integrity of the Company's financial statement and accounting
and financial reporting processes;
o the Company's compliance with legal and regulatory requirements;
and
o fulfillment of the other responsibilities set out herein.
o prepare the report required by the United States Securities and
Exchange Commission (the "SEC") for inclusion in the Company's annual
proxy statement;
o appoint, retain, compensate, evaluate and terminate the Company's
independent accountants;
o approve audit and non-audit services to be performed by the
independent accountants pursuant to the Committee's Pre-Approval
Policy; and
o perform such other functions as the Board may from time to time assign
to the Committee.
In performing its duties, the Committee shall seek to maintain an effective
working relationship with the Board, the independent accountants and management
of the Company.
II. COMPOSITION
The Committee shall be composed of at least three members (including a
Chairperson), all of whom shall be "independent directors," as such term is
defined in the rules and regulations of the SEC and the Nasdaq National Market.
The members of the Committee and the Chairperson shall be serve at the pleasure
of the Board. A Committee member (including the Chairperson) may be removed at
any time, with or without cause, by the Board. The Board may designate one or
more independent directors as alternate members of the Committee, who may
replace any absent or disqualified member or members at any meetings of the
Committee. No person may be made a member of the Committee if his or her service
on the Committee would violate any restriction on service imposed by any rule or
regulation of the SEC or any securities exchange or market on which shares of
the common stock of the Company are traded.
All members of the Committee shall have a working familiarity with basic finance
and accounting practices and must be able to read and understand fundamental
financial statements, including the Company's balance sheet, income statement
and cash flow statement at the time of appointment. Additionally, commencing
with the Company's 2004 Annual Stockholders' meeting, there will be at least one
member who has past employment experience in finance or accounting, requisite
professional certification in accounting, or other comparable
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experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer, or other senior officer with financial oversight
responsibilities, and at least one member of the Committee shall be an "audit
committee financial expert." Committee members may enhance their familiarity
with finance and accounting by participating in educational programs conducted
by the Company or an outside consultant. The Chairperson shall maintain regular
communication with the chief executive officer, chief financial officer and the
lead partner of the independent accountant.
III. MEETING REQUIREMENTS
The Committee shall meet as necessary, but at least four times each year, to
enable it to fulfill its responsibilities. The Committee shall meet at the call
of its Chairperson, preferably in conjunction with regular Board meetings. The
Committee may meet by telephone conference call or by any other means permitted
by law or the Company's bylaws. A majority of the members of the Committee shall
constitute a quorum. The Committee shall act on the affirmative vote of a
majority of members present at a meeting at which a quorum is present. Without a
meeting, the Committee may act by unanimous written consent of all members. The
Committee shall determine its own rules and procedures, including designation of
a chairperson pro tempore, in the absence of the Chairperson, and designation of
a secretary. The secretary need not be a member of the Committee and shall
attend Committee meetings and prepare minutes. The Committee shall keep written
minutes of its meetings, which shall be recorded or filed with the books and
records of the Company. Any member of the Board shall be provided with copies of
such Committee minutes if requested.
The Committee may ask members of management, employees, outside counsel, the
independent accountants, or others whose advice and counsel are relevant to the
issues then being considered by the Committee, to attend any meetings and to
provide such pertinent information as the Committee may request.
The Chairperson of the Committee shall be responsible for leadership of the
Committee, including preparing the agenda, presiding over Committee meetings,
making Committee assignments and reporting the Committee's actions to the Board
from time to time (but at least once each year) as requested by the Board.
As part of its responsibility to foster free and open communication, the
Committee should meet periodically with management, the internal auditors and
the independent accountants in separate executive sessions to discuss any
matters that the Committee or any of these groups believe should be discussed
privately. In addition, the Committee or at least its Chairperson should meet
with the independent accountants and management quarterly to review the
Company's financial statements prior to their public release consistent with the
provisions set forth below in Section IV.
IV. COMMITTEE RESPONSIBILITIES
In carrying out its responsibilities, the Committee's policies and procedures
should remain flexible to enable the Committee to react to changes in
circumstances and conditions so that it can fulfill its oversight
responsibilities. In addition to such other duties as the Board may from time to
time assign, the Committee shall have the following responsibilities:
A. OVERSIGHT OF THE FINANCIAL REPORTING PROCESSES
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1. In consultation with the independent accountants and the internal
auditors, review the integrity of the Company's financial
reporting processes, both internal and external.
2. Review and approve all related-party transactions.
3. Consider the independent accountant's judgments about the quality
and appropriateness of the Company's accounting principles as
applied in its financial reporting. Consider alternative
accounting principles and estimates.
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4. Annually review with management, and separately with the
independent accountants, major issues regarding the Company's
auditing and accounting principles and practices and its
presentation of financial statements, including the adequacy of
internal controls and special audit steps adopted in light of
material internal control deficiencies and any audit problems or
difficulties.
5. Discuss with management and legal counsel the status of pending
litigation, taxation matters, compliance policies and other areas
of oversight applicable to the legal and compliance area as may
be appropriate.
6. Meet at least annually with the chief financial officer, the
internal auditors and the independent accountants in separate
executive sessions.
7. Review all analyst reports and press articles about the Company's
accounting and disclosure practices and principles.
8. Review all analyses prepared by management and the independent
accountants of significant financial reporting issues and
judgments made in connection with the preparation of the
Company's financial statements, including any analysis of the
effect of alternative generally accepted accounting principle
("GAAP") methods on the Company's financial statements and a
description of any transactions as to which management obtained
Statement on Auditing Standards No. 50 letters.
9. Review with management and the independent accountants the effect
of regulatory and accounting initiatives, as well as off-balance
sheet structures, on the Company's financial statements.
10. Establish and conduct procedures for the receipt, retention and
treatment of complaints from the employees on accounting,
internal accounting controls or auditing matters, as well as for
confidential, anonymous submissions by employees of concerns
regarding questionable accounting or auditing matters.
11. Discuss with management the policies with respect to risk
assessment and risk management. Although it is management's duty
to assess and manage the Company's exposure to risk, the
Committee should discuss guidelines and policies to govern the
process by which risk assessment and management is handled and
review the steps management has taken to monitor and control the
Company's risk exposure.
12. Meet separately with management to discuss accounting and
auditing related issues.
13. Prepare regular reports to the Board of Directors on all matters
within the scope of the Committee's functions.
B. REVIEW OF DOCUMENTS AND REPORTS AND OTHER FUNCTIONS
---------------------------------------------------
1. The Committee shall review with management and the independent
auditors the Company's Annual Report on Form 10-K, including the
disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," their judgment
about the quality, not just acceptability, of accounting
principles, the reasonableness of significant judgments, the
clarity of the disclosures in the financial statements and the
adequacy of internal controls. The Committee shall also discuss
the results of the annual audit and any other matters required to
be communicated to the Committee by the independent auditors
under generally accepted auditing standards, applicable law or
listing standards, including matters required to be discussed by
Statement on Auditing Standards No. 61, as amended by Statement
on Auditing Standards No. 90. The Committee may discuss with the
national office of the independent auditors issues on which it
was consulted by the Company's audit team and matters of audit
quality and consistency. Based on such review and discussion, the
Committee shall make a determination whether to recommend
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to the Board of Directors that the audited financial statements
be included in the Company's Form 10-K.
2. The Committee shall review and discuss with management and the
independent auditors the quarterly financial information to be
included in the Company's Quarterly Reports on Form 10-Q,
including the disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and
shall discuss any other matters required to be communicated to
the Committee by the independent auditors under generally
accepted auditing standards, applicable law or listing standards.
The Committee shall also review and discuss the Company's
earnings press releases as well as the types of financial
information periodically provided to analysts and rating
agencies. The Committee shall also discuss the results of the
independent auditors' review of the Company's quarterly financial
information conducted in accordance with Statement on Auditing
Standards No. 71.
3. The Committee shall review with the Chief Executive Officer, the
Chief Financial Officer and the Company's legal counsel the
Company's disclosure controls and procedures and shall review
periodically, but in no event less frequently than quarterly,
management's conclusions about the effectiveness of such
disclosure controls and procedures, including any significant
deficiencies in, or material non-compliance with, such controls
and procedures.
4. The Committee shall review periodically with financial management
and independent auditors the effect of new or proposed regulatory
and accounting initiatives on the Company's financial statements
and other public disclosures. The Committee shall review with the
independent auditors any problems or difficulties the auditors
may have encountered in connection with the annual audit or
otherwise, any management letters provided to the Committee and
the Company's responses. Such review shall address any
difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access
to required information, any disagreements with management
regarding generally accepted accounting principles and other
matters, material adjustments to the financial statements
recommended by the independent auditors and adjustments that were
proposed but "passed," regardless of materiality.
5. The Committee shall prepare the report required to be included in
the Company's annual proxy statement, all in accordance with
applicable rules and regulations.
6. The Committee shall establish and maintain guidelines for the
Company's hiring of former employees of the independent auditors,
which shall meet the requirements of applicable law and listing
standards.
7. The Committee shall establish and maintain procedures for the
receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or
auditing matters and for the confidential, anonymous submission
by employees of the Company of concerns regarding questionable
accounting or auditing matters.
8. The Committee shall periodically review with management, the
Company's legal counsel and the independent auditors any
correspondence with, or other action by, regulators or
governmental agencies and any employee complaints or published
reports that raise concerns regarding the Company's financial
statements, accounting or auditing matters or compliance with the
Company's Code of Business Conduct. The Committee shall also meet
periodically, and may request to meet separately, with the
Company's principle outside counsel and other appropriate legal
staff of the Company to review material legal affairs of the
Company and the Company's compliance with applicable law and
listing standards.
9. The Committee shall review periodically, but no less frequently
than annually, a summary of the Company's transactions with
Directors and executive officers of the Company and with firms
that employ Directors, as well as any other material related
party transactions.
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C. INDEPENDENT ACCOUNTANT MATTERS
------------------------------
1. The Committee shall directly appoint, retain, compensate,
evaluate and terminate the Company's independent auditors. The
Committee shall have the sole authority to approve all engagement
fees to be paid to the independent auditors. The independent
auditor shall report directly to the Committee.
2. Meet with the independent accountants and the Company's financial
management to review the scope of the proposed external audit for
the current year.
3. On an annual basis, the Committee shall evaluate the independent
accountant's qualifications, performance and independence. To
assist in this undertaking, the Committee shall require the
independent accountants to submit a report (which report shall be
reviewed by the Committee) describing (a) the independent
accountant's internal quality-control procedures, (b) any
material issues raised by the most recent internal
quality-control review, or peer review, of the accounting firm or
by any inquiry or investigations by governmental or professional
authorities (within the preceding five years) respecting one or
more independent audits carried out by the independent
accountants, and any steps taken to deal with any such issues and
(c) all relationships the independent accountants have with the
Company and relevant third parties to determine the impact, if
any of such relationships on the independence of the independent
accountants. In making its determination, the Committee shall
consider not only auditing and other traditional accounting
functions performed by the independent accountants, but also
consulting, legal, information technology services and other
professional services rendered by the independent accountants and
its affiliates. The Committee shall also consider whether the
provision of any of these non-audit services is compatible with
the independence standards under the guidelines of the SEC and
other applicable authorities (including, possibly, the
Independence Standards Board and the Public Company Accounting
Oversight Board) and shall approve in advance any non-audit
services to be provided by the independent accountants.
4. Review on an annual basis the experience and qualifications of
the senior members of the external audit team. Discuss the
knowledge and experience of the independent accountants and the
senior members of the external audit team with respect to the
Company's industry. The Committee shall ensure the regular
rotation of the lead audit partner and audit review partner as
required by law and consider whether there should be a periodic
rotation of the Company's independent accountants.
5. Review the performance of the independent accountants and
terminate the independent accountants when circumstances warrant.
6. Review with the independent accountants any problems or
difficulties the auditors may have encountered and any
"management" or "internal control" letter provided by the
independent accountants and the Company's response to that
letter. Such review should include:
a. any difficulties encountered in the course of the audit
work, including any restrictions on the scope of activities
or access to required information and any disagreements with
management;
b. any accounting adjustments that were proposed by the
independent accountants that were not agreed to by the
Company;
c. communications between the independent accountants and its
national office regarding any issues on which it was
consulted by the audit team and matters of audit quality and
consistency;
d. any changes required in the planned scope of the internal
audit; and
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e. the responsibilities, budget and staffing of the Company's
internal audit function.
7. Communicate with the independent accountants regarding (a)
alternative treatments of financial information within the
parameters of GAAP, (b) critical accounting policies and
practices to be used in preparing the audit report and (c) such
other matters as the SEC and the Nasdaq National Market may
direct by rule or regulation.
8. Periodically consult with the independent accountants out of the
presence of management about internal controls and the fullness
and accuracy of the organization's financial statements.
9. Oversee the relationship with the independent accountants by
discussing with the independent accountants the nature and rigor
of the audit process, receiving and reviewing audit reports and
ensuring that the independent accountants have full access to the
Committee (and the Board) to report on any and all appropriate
matters.
10. Discuss with the independent accountants prior to the audit the
general planning and staffing of the audit.
11. Obtain a representation from the independent accountants that
Section 10A of the Securities Exchange Act of 1934 has been
followed.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountants.
V. ANNUAL CHARTER REVIEW
The Committee shall annually review and assess the adequacy of the scope and
content of this Charter. The Committee may recommend to the Board such changes
to this Charter as the Committee deems appropriate.
VI. INVESTIGATIONS AND STUDIES
The Committee shall have the authority and sufficient funding to retain
independent counsel, accounting or other consultants (without seeking Board
approval) to advise and assist the Committee. The Committee may conduct or
authorize investigations into or studies of matters within the Committee's scope
of responsibilities as described herein, and may retain, at the expense of the
Company, independent counsel or other consultants necessary to assist the
Committee in any such investigations or studies. The Committee shall have sole
authority to negotiate and approve the fees and retention terms of such
independent counsel or other consultants.
VII. MISCELLANEOUS
The Company shall give appropriate funding, as determined by the Committee, for
the payment of compensation to the outside auditor, legal, accounting or other
advisors employed by the Committee. Nothing contained in this Charter is
intended to expand applicable standards of liability under statutory or
regulatory requirements for the directors of the Company or members of the
Committee. The purposes and responsibilities outlined in this Charter are meant
to serve as guidelines rather than as inflexible rules and the Committee is
encouraged to adopt such additional procedures and standards as it deems
necessary from time to time to fulfill its responsibilities. This Charter, and
any amendments thereto, shall be displayed on the Company's web site and a
printed copy of such shall be made available to any stockholder of the Company
who requests it.
Recommended by the Audit Committee and approved by the Board of Directors on
April 25, 2006.
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APPENDIX B
VCA ANTECH, INC.
2006 EQUITY INCENTIVE PLAN
1. PURPOSE; ELIGIBILITY.
1.1 GENERAL PURPOSE. The name of this plan is the VCA Antech, Inc. 2006
Equity Incentive Plan (the "PLAN"). The purpose of the Plan is to
enable VCA Antech, Inc., a Delaware corporation (the "COMPANY"), and
any Affiliate to obtain and retain the services of the types of
Employees, Consultants and Directors who will contribute to the
Company's long range success and to provide incentives that are linked
directly to increases in share value which will inure to the benefit
of all stockholders of the Company.
1.2 ELIGIBLE AWARD RECIPIENTS. The persons eligible to receive Awards are
the Employees, Consultants and Directors of the Company and its
Affiliates.
1.3 AVAILABLE AWARDS. The purpose of the Plan is to provide a means by
which eligible recipients of Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the
granting of one or more of the following Awards: (a) Incentive Stock
Options, (b) Nonstatutory Stock Options, (c) Restricted Awards, (d)
Performance Awards and (e) Stock Appreciation Rights.
2. DEFINITIONS.
2.1 "409A AWARD" means an Award that is considered "nonqualified deferred
compensation" within the meaning of Section 409A of the Code and
SECTION 8 of this Plan.
2.2 "ADMINISTRATOR" means the Board or the Committee appointed by the
Board in accordance with SECTION 3.5.
2.3 "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f), respectively, of the Code.
2.4 "AWARD" means any right granted under the Plan, including an Incentive
Stock Option, a Nonstatutory Stock Option, a Restricted Award, a
Performance Award, a Stock Appreciation Right and a 409A Award.
2.5 "AWARD AGREEMENT" means a written agreement between the Company and a
holder of an Award evidencing the terms and conditions of an
individual Award grant. Each Award Agreement shall be subject to the
terms and conditions of the Plan.
2.6 "BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as that term is used
in Section 13(d)(3) of the Exchange Act), such "person" shall be
deemed to have beneficial ownership of all securities that such
"person" has the right to acquire by conversion or exercise of other
securities, whether such right is currently exercisable or is
exercisable only after the passage of time. The terms "Beneficially
Owns" and "Beneficially Owned" have a corresponding meaning.
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2.7 "BOARD" means the Board of Directors of the Company.
2.8 "CASHLESS EXERCISE" has the meaning set forth in SECTION 6.4.
2.9 "CAUSE" means, (a) with respect to any Participant who is a party to
an employment or service agreement or employment policy manual with
the Company or its Affiliates and such agreement or policy manual
provides for a definition of Cause, as defined therein and (b) with
respect to all other Participants, (i) the commission of, or plea of
guilty or no contest to, a felony or a crime involving moral turpitude
or the commission of any other act involving willful malfeasance or
material fiduciary breach with respect to the Company or an Affiliate,
(ii) conduct tending to bring the Company into substantial public
disgrace, or disrepute, (iii) gross negligence or willful misconduct
with respect to the Company or an Affiliate or (iv) material violation
of state or federal securities laws. The Administrator, in its
absolute discretion, shall determine the effect of all matters and
questions relating to whether a Participant has been discharged for
Cause.
2.10 "CHANGE IN CONTROL" shall mean:
(a) The direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially
all of the properties or assets of the Company to any "person"
(as that term is used in Section 13(d)(3) of the Exchange Act);
(b) The Incumbent Directors cease for any reason to constitute at
least a majority of the Board;
(c) The adoption of a plan relating to the liquidation or dissolution
of the Company; or
(d) Any "person" or "group" (as such terms are used in Section 13(d)
and 14(d) of the Exchange Act) becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
more than 35% of the combined voting power of the Company's then
outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); or
(e) The consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the
Company or any of its Subsidiaries that requires the approval of
the Company's stockholders, whether for such transaction or the
issuance of securities in the transaction (a "Business
Combination"), unless immediately following such Business
Combination: (1) 65% or more of the total voting power of (i) the
Surviving Corporation, or (ii) if applicable, the ultimate Parent
Corporation that directly or indirectly has beneficial ownership
of 100% of the voting securities eligible to elect directors of
the Surviving Corporation, is represented by Company Voting
Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares
into which such Company Voting Securities were converted pursuant
to such Business Combination), and such voting power among the
holders thereof is in substantially the same proportion as the
voting power of such Company Voting Securities among the holders
thereof immediately prior to the Business Combination, (2) no
person (other than any employee benefit plan (or related
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trust) sponsored or maintained by the Surviving Corporation or
the Parent Corporation), is or becomes the beneficial owner,
directly or indirectly, of more than 35% of the total voting
power of the outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (3) at least a
majority of the members of the board of directors of the Parent
Corporation (or if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business
Combination were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for
such Business Combination (any Business Combination which
satisfies all of the criteria specified in (1), (2) and (3) above
shall be deemed to be a "Non-Qualifying Transaction").
The foregoing notwithstanding, a transaction shall not constitute
a Change in Control if (i) its sole purpose is to change the
state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions
by the persons who held the Company's securities immediately
before such transaction; (ii) it constitutes a secondary public
offering that results in any security of the Company being listed
(or approved for listing) on any securities exchange or
designated (or approved for designation) as a national market
security on an interdealer quotation system; (iii) it constitutes
a change in Beneficial Ownership that results from a change in
ownership of an existing stockholder; or (iv) solely because 35%
or more of the total voting power of the Company's then
outstanding securities is acquired by (A) a trustee or other
fiduciary holding securities under one or more employee benefit
Plans of the Company or any Affiliate, or (B) any company which,
immediately prior to such Business Combination, is owned directly
or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock in the Company
immediately prior to such acquisition.
2.11 "CODE" means the Internal Revenue Code of 1986, as amended.
2.12 "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board to administer the Plan in accordance with
SECTION 3.5.
2.13 "COMMON STOCK" means the common stock, $0.001 par value per share of
the Company.
2.14 "COMPANY" means VCA Antech, Inc., a Delaware corporation.
2.15 "CONSULTANT" means any person, including an advisor, (a) engaged by
the Company or an Affiliate to render consulting or advisory services
and who is compensated for such services or who provides bona fide
services to the Company or an Affiliate pursuant to a written
agreement or (b) who is a member of the Board of Directors of an
Affiliate; PROVIDED THAT, except as otherwise permitted in SECTION
5.4(B) hereof, such person is a natural person and such services are
not in connection with the offer or sale of securities in a capital
raising transaction and do not directly or indirectly promote or
maintain a market for the Company's securities.
2.16 "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Participant's
Continuous Service shall not be deemed to have terminated merely
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because of a change in the capacity in which the Participant renders
service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders
such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status
from an Employee of the Company to a Consultant of an Affiliate or a
Director will not constitute an interruption of Continuous Service.
The Administrator or its delegate, in its sole discretion, may
determine whether Continuous Service shall be considered interrupted
in the case of any leave of absence approved by that party, including
sick leave, military leave or any other personal or family leave of
absence.
2.17 "COVERED EMPLOYEE" means the chief executive officer and the four
other highest compensated officers of the Company for whom total
compensation is or would be required to be reported to stockholders
under the Exchange Act, as determined for purposes of Section 162(m)
of the Code.
2.18 "DATE OF GRANT" means, provided the key terms and conditions of the
Award are communicated to the Participant within a reasonable period
of time following the Administrator's action, the date on which the
Administrator adopts a resolution, or takes other appropriate action,
expressly granting an Award to a Participant that specifies the key
terms and conditions of the Award and from which the Participant
begins to benefit from or be adversely affected by subsequent changes
in the Fair Market Value of the Company Common Stock or, if a
different date is set forth in such resolution, or determined by the
Administrator, as the Date of Grant, then such date as is set forth in
such resolution. In any situation where the terms of the Award are
subject to negotiation with the Participant, the Date of Grant shall
not be earlier than the date the key terms and conditions of the Award
are communicated to the Participant.
2.19 "DETRIMENTAL ACTIVITY" means: (a) violation of the terms of any
agreement with the Company concerning non-disclosure, confidentiality,
intellectual property, privacy or exclusivity; (b) disclosure of the
Company's confidential information to anyone outside the Company,
without prior written authorization from the Company, or in conflict
with the interests of the Company, whether the confidential
information was acquired or disclosed by the Participant during or
after employment by the Company; (c) failure or refusal to disclose
promptly or assign to the Company all right, title and interest in any
invention, work product or idea, patentable or not, made or conceived
by the Participant during employment by the Company, relating in any
manner to the interests of the Company or, the failure or refusal to
do anything reasonably necessary to enable the Company to secure a
patent where appropriate in the United States and in other countries;
(d) activity that is discovered to be grounds for or results in
termination of the Participant's employment for Cause; (e) any breach
of a restrictive covenant contained in any employment agreement, Award
Agreement or other agreement between the Participant and the Company,
during any period for which a restrictive covenant prohibiting
Detrimental Activity, or other similar conduct or act, is applicable
to the Participant during or after employment by the Company; (f) any
attempt directly or indirectly to induce any Employee of the Company
to be employed or perform services or acts in conflict with the
interests of the Company; (g) any attempt, in conflict with the
interests of the Company, directly or indirectly, to solicit the trade
or business of any current or prospective customer, client, supplier
or partner of the Company; (h) the conviction of, or guilty plea
entered by, the Participant for any felony or a crime involving moral
turpitude whether or not connected with the Company; or (i) the
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commission of any other act involving willful malfeasance or material
fiduciary breach with respect to the Company.
2.20 "DIRECTOR" means a member of the Board.
2.21 "DISABILITY" means that the Optionholder is unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment; PROVIDED, HOWEVER, for purposes of
determining the term of an Incentive Stock Option pursuant to SECTION
6.10 hereof, the term Disability shall have the meaning ascribed to it
under Code Section 22(e)(3). The determination of whether an
individual has a Disability shall be determined under procedures
established by the Administrator. Except in situations where the
Administrator is determining Disability for purposes of the term of an
Incentive Stock Option pursuant to SECTION 6.10 hereof within the
meaning of Code Section 22(e)(3), the Administrator may rely on any
determination that a Participant is disabled for purposes of benefits
under any long-term disability plan maintained by the Company or any
Affiliate in which a Participant participates.
2.22 "EFFECTIVE DATE" shall mean March 7, 2006, the date the Board adopted
the Plan.
2.23 "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute
"employment" by the Company or an Affiliate.
2.24 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.25 "EXISTING PLANS" mean the VCA Antech, Inc. Amended and Restated 1996
Stock Incentive Plan and the VCA Antech, Inc. 2001 Stock Incentive
Plan.
2.26 "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock as determined below. The Fair Market Value on any date on which
the Company's shares of Common Stock are registered under Section 12
of the Exchange Act and listed on the Nasdaq National Market shall be
the closing price of a share of Common Stock on the Nasdaq National
Market on such date, and thereafter (a) if the Common Stock is
admitted to quotation on the over the counter market or any
interdealer quotation system, the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked
prices of the Common Stock reported for such date or, if no bid and
asked prices were reported for such date, for the last day preceding
such date for which such prices were reported, (b) if the Common Stock
is admitted to trading on a national securities exchange or the Nasdaq
National Market or Nasdaq Small Cap Market, the Fair Market Value on
any date shall not be less than the closing price reported for the
Common Stock on such exchange or system for such date or, if no sales
were reported for such date, for the last date preceding the date on
which such a sale was reported or (c) in the absence of an established
market for the Common Stock, the Fair Market Value determined in good
faith by the Administrator and such determination shall be conclusive
and binding on all persons.
2.27 "FORM S-8" has the meaning set forth in SECTION 5.4(B).
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2.28 "FREE STANDING RIGHTS" has the meaning set forth in SECTION 7.3(A).
2.29 "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
2.30 "INCUMBENT DIRECTORS" means individuals who, on the Effective Date,
constitute the Board, provided that any individual becoming a Director
subsequent to the Effective Date whose election or nomination for
election to the Board was approved by a vote of at least two-thirds of
the Incumbent Directors then on the Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for Director without objection to such
nomination) shall be an Incumbent Director. No individual initially
elected or nominated as a director of the Company as a result of an
actual or threatened election contest with respect to Directors or as
a result of any other actual or threatened solicitation of proxies by
or on behalf of any person other than the Board shall be an Incumbent
Director.
2.31 "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on
any securities exchange or designated (or approved for designation)
upon notice of issuance as a national market security on an
interdealer quotation system.
2.32 "MARKET STAND-OFF" has the meaning set forth in SECTION 15.
2.33 "NASDAQ" means the National Association of Securities Dealers
Automated Quotation System, or any successor thereto.
2.34 "NON-EMPLOYEE DIRECTOR" means a Director who is a "non-employee
director" within the meaning of Rule 16b-3.
2.35 "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
2.36 "OFFICER" means (a) before the Listing Date, any person designated by
the Company as an officer and (b) on and after the Listing Date, a
person who is an officer of the Company within the meaning of Section
16 of the Exchange Act and the rules and regulations promulgated
thereunder.
2.37 "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
2.38 "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan and need not be identical.
2.39 "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding
Option.
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2.40 "OUTSIDE DIRECTOR" means a Director who is an "outside director"
within the meaning of Section 162(m) of the Code and Treasury
Regulations Section 1.162-27(e)(3).
2.41 "PARTICIPANT" means a person to whom an Award is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding
Award.
2.42 "PERFORMANCE AWARD" means Awards granted pursuant to SECTION 7.2.
2.43 "PERMITTED TRANSFEREE" means (a) any spouse, parents, siblings (by
blood, marriage or adoption) or lineal descendants (by blood, marriage
or adoption) of a Participant; (b) any trust or other similar entity
for the benefit of a Participant or the Participant's spouse, parents,
siblings or lineal descendants; PROVIDED, HOWEVER, that any transfer
made by a Participant to a Permitted Transferee may only be made if
the Permitted Transferee, prior to the time of transfer of stock,
agrees in writing to be bound by the terms of this Plan and provides
written notice to the Company of such transfer.
2.44 "PLAN" means this VCA Antech, Inc. 2006 Equity Incentive Plan.
2.45 "RELATED RIGHTS" has the meaning set forth in SECTION 7.3(A).
2.46 "RESTRICTED AWARD" means any Award granted pursuant to SECTION 7.1.
2.47 "RESTRICTED PERIOD" has the meaning set forth in SECTION 7.1.
2.48 "RIGHT OF REPURCHASE" means the Company's option to repurchase Common
Stock acquired under the Plan upon the Participant's termination of
Continuous Service pursuant to SECTION 11.7.
2.49 "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
2.50 "RULE 701" has the meaning set forth in SECTION 5.4(A).
2.51 "SAR AMOUNT" has the meaning set forth in SECTION 7.3(H).
2.52 "SAR EXERCISE PRICE" has the meaning set forth in SECTION 7.3(B).
2.53 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.54 "STOCK APPRECIATION RIGHT" means the right pursuant to an award
granted under SECTION 7.3 to receive an amount equal to the excess, if
any, of (A) the Fair Market Value, as of the date such Stock
Appreciation Right or portion thereof is surrendered, of the shares of
stock covered by such right or such portion thereof, over (B) the
aggregate SAR exercise price of such right or such portion thereof.
2.55 "STOCK FOR STOCK EXCHANGE" has the meaning set forth in SECTION 6.4.
2.56 "SURVIVING ENTITY" means the Company if immediately following any
merger, consolidation or similar transaction, the holders of
outstanding voting securities of the
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Company immediately prior to the merger or consolidation own equity
securities possessing more than 50% of the voting power of the entity
existing following the merger, consolidation or similar transaction.
In all other cases, the other entity to the transaction and not the
Company shall be the Surviving Entity. In making the determination of
ownership by the stockholders of an entity immediately after the
merger, consolidation or similar transaction, equity securities which
the stockholders owned immediately before the merger, consolidation or
similar transaction as stockholders of another party to the
transaction shall be disregarded. Further, outstanding voting
securities of an entity shall be calculated by assuming the conversion
of all equity securities convertible (immediately or at some future
time) into shares entitled to vote.
2.57 "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than 10%
of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY BOARD. The Plan shall be administered by the Board
unless and until the Board delegates administration to a Committee, as
provided in SECTION 3.5.
3.2 POWERS OF ADMINISTRATOR. The Administrator shall have the power and
authority to select and grant to Participants, Awards pursuant to the
terms of the Plan.
3.3 SPECIFIC POWERS. In particular, the Administrator shall have the
authority: (a) to construe and interpret the Plan and apply its
provisions; (b) to promulgate, amend, and rescind rules and
regulations relating to the administration of the Plan; (c) to
authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the Plan; (d) to
delegate its authority to one or more Officers of the Company with
respect to awards that do not involve Covered Employees or "insiders"
within the meaning of Section 16 of the Exchange Act; (e) to determine
when Awards are to be granted under the Plan; (f) from time to time to
select, subject to the limitations set forth in this Plan, those
Participants to whom Awards shall be granted; (g) to determine the
number of shares of Common Stock to be made subject to each Award; (h)
to determine whether each Option is to be an Incentive Stock Option or
a Nonstatutory Stock Option; (i) to prescribe the terms and conditions
of each Award, including, without limitation, the exercise price and
medium of payment, vesting provisions and Right of Repurchase
provisions, and to specify the provisions of the Award Agreement
relating to such grant or sale; (j) to amend any outstanding Awards,
including for the purpose of modifying the time or manner of vesting,
or the term of any outstanding Award; PROVIDED, HOWEVER, that if any
such amendment impairs a Participant's rights or increases a
Participant's obligations under his or her Award or creates or
increases a Participant's federal income tax liability with respect to
an Award, such amendment shall also be subject to the Participant's
consent (PROVIDED, HOWEVER, a cancellation of an Award where the
Participant receives a payment equal in value to the Fair Market Value
of the vested Award or, in the case of vested Options, the difference
between the Fair Market Value of the Common Stock subject to an Option
and the exercise price, shall not constitute an impairment of the
Participant's rights that requires consent); (k) to determine the
duration and purpose of leaves of absences which may be granted to a
Participant without constituting termination of their employment for
purposes of the Plan, which periods shall be no shorter than the
periods generally applicable to Employees under the Company's
employment policies; (l) to make decisions with respect to outstanding
Options that
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may become necessary upon a change in corporate control or an event
that triggers anti-dilution adjustments; and (m) to exercise
discretion to make any and all other determinations which it
determines to be necessary or advisable for administration of the
Plan. The Administrator also may modify the purchase price or the
exercise price of any outstanding Award, provided that if the
modification effects a repricing, stockholder approval shall be
required before the repricing is effective.
3.4 DECISIONS FINAL. All decisions made by the Administrator pursuant to
the provisions of the Plan shall be final and binding on the Company
and the Participants, unless such decisions are determined by a court
having jurisdiction to be arbitrary and capricious.
3.5 THE COMMITTEE.
(a) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and
the term "COMMITTEE" shall apply to any person or persons to whom
such authority has been delegated. If administration is delegated
to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by
the Board, including the power to delegate to a subcommittee any
of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board or the
Administrator shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration
of the Plan. The members of the Committee shall be appointed by
and serve at the pleasure of the Board. From time to time, the
Board may increase or decrease the size of the Committee, add
additional members to, remove members (with or without cause)
from, appoint new members in substitution therefor, and fill
vacancies, however caused, in the Committee. The Committee shall
act pursuant to a vote of the majority of its members or, in the
case of a committee comprised of only two members, the unanimous
consent of its members, whether present or not, or by the written
consent of the majority of its members and minutes shall be kept
of all of its meetings and copies thereof shall be provided to
the Board. Subject to the limitations prescribed by the Plan and
the Board, the Committee may establish and follow such rules and
regulations for the conduct of its business as it may determine
to be advisable.
(b) COMMITTEE COMPOSITION WHEN COMMON STOCK IS REGISTERED. At such
time as the Common Stock is required to be registered under
Section 12 of the Exchange Act, in the discretion of the Board, a
Committee may consist solely of two or more Non-Employee
Directors who are also Outside Directors. The Board shall have
discretion to determine whether or not it intends to comply with
the exemption requirements of Rule 16b-3 and/or Section 162(m) of
the Code. However, if the Board intends to satisfy such exemption
requirements, with respect to Awards to any Covered Employee and
with respect to any insider subject to Section 16 of the Exchange
Act, the Committee shall be a compensation committee of the Board
that at all times consists solely of two or more Non-Employee
Directors who are also Outside Directors. Within the scope of
such authority, the Board or the Committee may (i) delegate to a
committee of one or more members of the Board who are not Outside
Directors the authority to grant Awards to eligible persons who
are either (A) not then Covered Employees and are not expected to
be Covered Employees at the time of recognition of income
resulting
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from such Award or (B) not persons with respect to whom the
Company wishes to comply with Section 162(m) of the Code or (ii)
delegate to a committee of one or more members of the Board who
are not Non-Employee Directors the authority to grant Awards to
eligible persons who are not then subject to Section 16 of the
Exchange Act. Nothing herein shall create an inference that an
option is not validly granted under the Plan in the event Awards
are granted under the Plan by a compensation committee of the
Board that does not at all times consist solely of two or more
Non-Employee Directors who are also Outside Directors.
3.6 INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as Directors or members of the Committee, and to the
extent allowed by applicable law, the Administrator shall be
indemnified by the Company against the reasonable expenses, including
attorney's fees, actually incurred in connection with any action, suit
or proceeding or in connection with any appeal therein, to which the
Administrator may be party by reason of any action taken or failure to
act under or in connection with the Plan or any option granted under
the Plan, and against all amounts paid by the Administrator in
settlement thereof (PROVIDED, HOWEVER, that the settlement has been
approved by the Company, which approval shall not be unreasonably
withheld) or paid by the Administrator in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding
that such Administrator did not act in good faith and in a manner
which such person reasonably believed to be in the best interests of
the Company, and in the case of a criminal proceeding, had no reason
to believe that the conduct complained of was unlawful; provided,
HOWEVER, that within 60 days after institution of any such action,
suit or proceeding, such Administrator shall, in writing, offer the
Company the opportunity at its own expense to handle and defend such
action, suit or proceeding.
4. SHARES SUBJECT TO THE PLAN.
4.1 SHARE RESERVE. Subject to the provisions of SECTION 12.1 relating to
adjustments upon changes in Common Stock, the shares that may be
issued pursuant to Awards shall consist of the Company's authorized
but unissued Common Stock, and the maximum aggregate amount of such
Common Stock which may be issued upon exercise of all Awards under the
Plan shall not exceed 6,000,000 plus any shares of Common Stock that
were reserved under the Existing Plans but not yet subject to issued
awards and any shares of Common Stock underlying awards granted to
Employees prior to the Effective Date under the Existing Plans that
have been issued and are outstanding on the Effective Date that
expire, are forfeited or terminate for any reason without having been
exercised in full. As of March 7, 2006, there are 380,000 shares
reserved for issuance under the Existing Plans that are not subject to
issued awards and 6,040,274 shares that are reserved for issuance
under outstanding but unexercised awards. All shares reserved for
issuance under this Plan may be used for Incentive Stock Options.
Awards for fractional shares of Common Stock may not be issued under
the terms of the Plan.
4.2 REVERSION OF SHARES TO THE SHARE RESERVE. If any Award shall for any
reason expire or otherwise terminate, in whole or in part, the shares
of Common Stock not acquired under such Award shall revert to and
again become available for issuance under the Plan. If shares of
Common Stock issued under the Plan are reacquired by the Company
pursuant to the terms of any forfeiture provision, including the Right
of Repurchase of unvested Common Stock under SECTION 11.7(A), such
shares shall again be available for purposes of the Plan.
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4.3 SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be authorized but unissued Common Stock or reacquired Common Stock,
bought on the market, pursuant to any forfeiture provision or
otherwise.
5. ELIGIBILITY.
5.1 ELIGIBILITY FOR SPECIFIC AWARDS. Incentive Stock Options may be
granted only to Employees. Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
5.2 TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such
Option is at least 110% of the Fair Market Value of the Common Stock
at the Date of Grant and the Option is not exercisable after the
expiration of five years from the Date of Grant.
5.3 SECTION 162(M) LIMITATION. Subject to the provisions of SECTION 12.1
relating to adjustments upon changes in the shares of Common Stock, no
Employee shall be eligible to be granted Awards covering more than
500,000 shares during any fiscal year. This SECTION 5.3 shall not
apply prior to the Listing Date and, following the Listing Date, this
SECTION 5.3 shall not apply until (a) the earliest of: (i) the first
material modification of the Plan (including any increase in the
number of shares of Common Stock reserved for issuance under the Plan
in accordance with SECTION 4.1); (ii) the issuance of all of the
shares of Common Stock reserved for issuance under the Plan; (iii) the
expiration of the Plan; or (iv) the first meeting of stockholders at
which Directors are to be elected that occurs after the close of the
third calendar year following the calendar year in which occurred the
first registration of an equity security under Section 12 of the
Exchange Act; or (b) such other date required by Section 162(m) of the
Code and the rules and regulations promulgated thereunder.
5.4 CONSULTANTS.
(a) Prior to the Listing Date, a Consultant shall not be eligible for
the grant of an Award if, at the time of grant, either the offer
or the sale of the Company's securities to such Consultant is not
exempt under Rule 701 of the Securities Act ("RULE 701") because
of the nature of the services that the Consultant is providing to
the Company, or because the Consultant is not a natural person,
or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements
of Rule 701 and will satisfy another exemption under the
Securities Act as well as comply with the securities laws of all
other relevant jurisdictions.
(b) From and after the Listing Date, a Consultant shall not be
eligible for the grant of an Award if, at the time of grant, a
Form S-8 Registration Statement under the Securities Act ("FORM
S-8") is not available to register either the offer or the sale
of the Company's securities to such Consultant because of the
nature of the services that the Consultant is providing to the
Company (I.E., capital raising), or because the Consultant is not
a natural person, or as otherwise provided by the rules governing
the use of Form S-8, unless the Company determines both (i) that
such grant (A) shall be registered in another manner under the
Securities Act (E.G., on a Form S-3 Registration Statement) or
(B) does not require registration
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under the Securities Act in order to comply with the requirements
of the Securities Act, if applicable, and (ii) that such grant
complies with the securities laws of all other relevant
jurisdictions.
5.5 DIRECTORS. Each Director of the Company shall be eligible to receive
discretionary grants of Awards under the Plan.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Administrator shall deem appropriate. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and, if certificates are issued, a separate certificate or
certificates will be issued for shares of Common Stock purchased on exercise of
each type of Option. Notwithstanding the foregoing, the Company shall have no
liability to any Participant or any other person if an Option designated as an
Incentive Stock Option fails to qualify as such at any time or if an Option is
determined to constitute "nonqualified deferred compensation" within the meaning
of Section 409A of the Code and the terms of such Option do not satisfy the
additional conditions applicable to nonqualified deferred compensation under
Section 409A of the Code and SECTION 8 of the Plan. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
6.1 TERM. Subject to the provisions of SECTION 5.2 regarding Ten Percent
Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of 10 years from the date it was granted.
6.2 EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of SECTION 5.2 regarding Ten Percent Stockholders, the exercise price
of each Incentive Stock Option shall be not less than 100% of the Fair
Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth
in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying
the provisions of Section 424(a) of the Code.
6.3 EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than 100% of the Fair
Market Value of the Common Stock subject to the Option on the date the
Option is granted; PROVIDED, HOWEVER, any Nonstatutory Stock Option
granted with an exercise price less than 100% of the Fair Market Value
of the Common Stock subject to the Option on the date the Option is
granted shall satisfy the additional conditions applicable to
nonqualified deferred compensation under Section 409A of the Code, in
accordance with SECTION 6.15 and SECTION 8 hereof. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise
price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a)
of the Code.
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6.4 CONSIDERATION. The exercise price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (a) in cash or by certified or bank
check at the time the Option is exercised or (b) in the discretion of
the Administrator, upon such terms as the Administrator shall approve,
the exercise price may be paid: (i) by delivery to the Company of
other Common Stock, duly endorsed for transfer to the Company, with a
Fair Market Value on the date of delivery equal to the exercise price
(or portion thereof) due for the number of shares being acquired, or
by means of attestation whereby the Participant identifies for
delivery specific shares of Common Stock that have been held for more
than six months (or such longer or shorter period of time required to
avoid a charge to earnings for financial accounting purposes) that
have a Fair Market Value on the date of attestation equal to the
exercise price (or portion thereof) and receives a number of shares of
Common Stock equal to the difference between the number of shares
thereby purchased and the number of identified attestation shares of
Common Stock (a "STOCK FOR STOCK EXCHANGE"); (ii) during any period
for which the Common Stock is publicly traded (I.E., the Common Stock
is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq National Market, or if
the Common Stock is quoted on the Nasdaq System (but not on the Nasdaq
National Market) or any similar system whereby the Common Stock is
regularly quoted by a recognized securities dealer but closing sale
prices are not reported), by a copy of instructions to a broker
directing such broker to sell the Common Stock for which such Option
is exercised, and to remit to the Company the aggregate Exercise Price
of such Options (a "CASHLESS EXERCISE"); (iii) in any other form of
legal consideration that may be acceptable to the Administrator,
including without limitation with a full-recourse promissory note;
PROVIDED, HOWEVER, if applicable law requires, the par value (if any)
of Common Stock, if newly issued, shall be paid in cash or cash
equivalents. Any Common Stock acquired upon exercise with a promissory
note shall be pledged as security for payment of the principal amount
of the promissory note and interest thereon. The interest rate payable
under the terms of the promissory note shall not be less than the
minimum rate (if any) required to avoid the imputation of additional
interest under the Code. Subject to the foregoing, the Administrator
(in its sole discretion) shall specify the term, interest rate,
amortization requirements (if any) and other provisions of such note.
Unless the Administrator determines otherwise, shares of Common Stock
having a Fair Market Value at least equal to the principal amount of
any such loan shall be pledged by the holder to the Company as
security for payment of the unpaid balance of the loan and such pledge
shall be evidenced by a pledge agreement, the terms of which shall be
determined by the Administrator, in its discretion; PROVIDED, HOWEVER,
that each loan shall comply with all applicable laws, regulations and
rules of the Board of Governors of the Federal Reserve System and any
other governmental agency having jurisdiction. Unless otherwise
specifically provided in the Option, the purchase price of Common
Stock acquired pursuant to an Option that is paid by delivery (or
attestation) to the Company of other Common Stock acquired, directly
or indirectly from the Company, shall be paid only by shares of the
Common Stock of the Company that have been held for more than six
months (or such longer or shorter period of time required to avoid a
charge to earnings for financial accounting purposes). Notwithstanding
the foregoing, during any period for which the Common Stock is
publicly traded (i.e., the Common Stock is listed on any established
stock exchange or a national market system, including without
limitation the Nasdaq National Market, or if the Common Stock is
quoted on the Nasdaq System (but not on the Nasdaq National Market) or
any similar system whereby the Common Stock is regularly quoted by a
recognized securities dealer but closing sale prices are
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not reported), an exercise with a promissory note or other transaction
by a Director or executive officer that involves or may involve a
direct or indirect extension of credit or arrangement of an extension
of credit by the Company, or an Affiliate in violation of Section
402(a) of the Sarbanes-Oxley Act (codified as Section 13(k) of the
Exchange Act) shall be prohibited with respect to any Award under this
Plan. Unless otherwise provided in the terms of an Option Agreement,
payment of the exercise price by a Participant who is an officer,
director or other "insider" subject to Section 16(b) of the Exchange
Act in the form of a Stock for Stock Exchange is subject to
pre-approval by the Administrator, in its sole discretion. Any such
pre-approval shall be documented in a manner that complies with the
specificity requirements of Rule 16b-3, including the name of the
Participant involved in the transaction, the nature of the
transaction, the number of shares to be acquired or disposed of by the
Participant and the material terms of the Options involved in the
transaction.
6.5 TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime
of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall
thereafter be entitled to exercise the Option.
6.6 TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option may, in the sole discretion of the Administrator, be
transferable to a Permitted Transferee upon written approval by the
Administrator to the extent provided in the Option Agreement. A
Permitted Transferee includes: (a) a transfer by gift or domestic
relations order to a member of the Optionholder's immediate family
(child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships), any person sharing
the Optionholder's household (other than a tenant or employee), a
trust in which these persons have more than 50% of the beneficial
interest, a foundation in which these persons (or the Optionholder)
control the management of assets, and any other entity in which these
persons (or the Optionholder) own more than 50% of the voting
interests; (b) third parties designated by the Administrator in
connection with a program established and approved by the
Administrator pursuant to which Participants may receive a cash
payment or other consideration in consideration for the transfer of
such Nonstatutory Stock Option; and (c) such other transferees as may
be permitted by the Administrator in its sole discretion. If the
Nonstatutory Stock Option does not provide for transferability, then
the Nonstatutory Stock Option shall not be transferable except by will
or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
6.7 VESTING GENERALLY. The Option may, but need not, vest and therefore
become exercisable in periodic installments that may, but need not, be
equal. The Option may be subject to such other terms and conditions on
the time or times when it may be exercised (which may be based on
performance or other criteria) as the Administrator may deem
appropriate. The vesting provisions of individual Options may vary. No
Option may be
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exercised for a fraction of a share of Common Stock. The Administrator
may, but shall not be required to, provide for an acceleration of
vesting and exercisability in the terms of any Option Agreement upon
the occurrence of a specified event.
6.8 TERMINATION OF CONTINUOUS SERVICE. Unless otherwise provided in an
Option Agreement or in an employment agreement the terms of which have
been approved by the Administrator, in the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's
death or Disability or termination by the Company for Cause), the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier
of (a) the date three months following the termination of the
Optionholder's Continuous Service, or (b) the expiration of the term
of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall
terminate. Unless otherwise provided in an Option Agreement or in an
employment agreement the terms of which have been approved by the
Administrator, or as otherwise provided in SECTIONS 6.10 and 6.11 of
this Plan, outstanding Options that are not exercisable at the time an
Optionholder's Continuous Service terminates for any reason other than
for Cause (including an Optionholder's death or Disability) shall be
forfeited and expire at the close of business on the date of such
termination. If the Optionholder's Continuous Service terminates for
Cause, all outstanding Options shall be forfeited (whether or not
vested) and expire as of the beginning of business on the date of such
termination for Cause.
6.9 EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service for any reason
other than Cause (other than upon the Optionholder's death or
Disability) would be prohibited at any time because the issuance of
shares of Common Stock would violate the registration requirements
under the Securities Act or any other state or federal securities law
or the rules of any securities exchange or interdealer quotation
system, then the Option shall terminate on the earlier of (a) the
expiration of the term of the Option in accordance with SECTION 6.1 or
(b) the expiration of a period after termination of the Participant's
Continuous Service that is three months after the end of the period
during which the exercise of the Option would be in violation of such
registration or other securities law requirements.
6.10 DISABILITY OF OPTIONHOLDER. Unless otherwise provided in an Option
Agreement, in the event that an Optionholder's Continuous Service
terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the date of
termination), but only within such period of time ending on the
earlier of (a) the date 12 months following such termination or (b)
the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise
his or her Option within the time specified herein, the Option shall
terminate.
6.11 DEATH OF OPTIONHOLDER. Unless otherwise provided in an Option
Agreement, in the event an Optionholder's Continuous Service
terminates as a result of the Optionholder's death, then the Option
may be exercised (to the extent the Optionholder was
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entitled to exercise such Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise
the Option by bequest or inheritance or by a person designated to
exercise the Option upon the Optionholder's death, but only within the
period ending on the earlier of (a) the date 12 months following the
date of death or (b) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not
exercised within the time specified herein, the Option shall
terminate.
6.12 INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionholder during any calendar
year (under all plans of the Company and its Affiliates) exceeds
$100,000, the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated
as Nonstatutory Stock Options.
6.13 EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as
to any part or all of the shares of Common Stock subject to the Option
prior to the full vesting of the Option. In such case, the shares of
Common Stock acquired on exercise shall be subject to the vesting
schedule that otherwise would apply to determine the exercisability of
the Option. Any unvested shares of Common Stock so purchased may be
subject to any other restriction the Administrator determines to be
appropriate.
6.14 RELOAD OPTIONS. At the discretion of the Administrator, the Option may
include a "reload" feature pursuant to which an Optionholder
exercising an option by the delivery of a number of shares of Common
Stock in accordance with SECTION 6.4(B)(I) hereof would automatically
be granted an additional Option (with an exercise price equal to the
Fair Market Value of the Common Stock on the date the additional
Option is granted and with the same expiration date as the original
Option being exercised, and with such other terms as the Administrator
may provide) to purchase that number of shares of Common Stock equal
to the number delivered in a Stock for Stock Exchange of the original
Option.
6.15 ADDITIONAL REQUIREMENTS UNDER SECTION 409A. Each Option Agreement
shall include a provision whereby, notwithstanding any provision of
the Plan or the Option Agreement to the contrary, the Option shall
satisfy the additional conditions applicable to nonqualified deferred
compensation under Section 409A of the Code, in accordance with
SECTION 8 hereof, in the event any Option under this Plan is granted
with an exercise price less than Fair Market Value of the Common Stock
subject to the Option on the date the Option is granted (regardless of
whether or not such exercise price is intentionally or unintentionally
priced at less than Fair Market Value, or is materially modified at a
time when the Fair Market Value exceeds the exercise price), or is
otherwise determined to constitute "nonqualified deferred
compensation" within the meaning of Section 409A of the Code.
7. PROVISIONS OF AWARDS OTHER THAN OPTIONS.
7.1 RESTRICTED AWARDS. A Restricted Award is an Award of actual shares of
Common Stock ("RESTRICTED STOCK") or hypothetical Common Stock units
("RESTRICTED STOCK UNITS") having a value equal to the Fair Market
Value of an identical number of shares of
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Common Stock, which may, but need not, provide that such Restricted
Award may not be sold, assigned, transferred or otherwise disposed of,
pledged or hypothecated as collateral for a loan or as security for
the performance of any obligation or for any other purpose for such
period (the "RESTRICTED PERIOD") as the Administrator shall determine.
Each Restricted Award shall be in such form and shall contain such
terms, conditions and Restricted Periods as the Administrator shall
deem appropriate, including the treatment of dividends or dividend
equivalents, as the case may be. The Administrator in its discretion
may provide for an acceleration of the end of the Restricted Period in
the terms of any Restricted Award, at any time, including in the event
a Change in Control occurs. The terms and conditions of the Restricted
Award may change from time to time, and the terms and conditions of
separate Restricted Awards need not be identical, but each Restricted
Award shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the
following provisions:
(a) PURCHASE PRICE. The purchase price of Restricted Awards, if any,
shall be determined by the Administrator, and may be stated as
cash, property or prior services.
(b) CONSIDERATION. The consideration for Common Stock acquired
pursuant to the Restricted Award shall be paid either: (i) in
cash at the time of purchase; or (ii) in any other form of legal
consideration that may be acceptable to the Administrator in its
discretion including, without limitation, a recourse promissory
note, property or a Stock for Stock Exchange, or prior services
that the Administrator determines have a value at least equal to
the Fair Market Value of such Common Stock.
(c) VESTING. Shares of Common Stock acquired under the Restricted
Award may, but need not, be subject to a Restricted Period that
specifies a Right of Repurchase in favor of the Company in
accordance with a vesting schedule to be determined by the
Administrator, or forfeiture in the event the consideration was
in the form of services. The Administrator in its discretion may
provide for an acceleration of vesting in the terms of any
Restricted Award, at any time, including in the event a Change in
Control occurs.
(d) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Unless otherwise
provided in a Restricted Award or in an employment agreement the
terms of which have been approved by the Administrator, in the
event a Participant's Continuous Service terminates for any
reason, the Company may exercise its Right of Repurchase or
otherwise reacquire, or the Participant shall forfeit the
unvested portion of a Restricted Award acquired in consideration
of prior or future services, and any or all of the shares of
Common Stock held by the Participant which have not vested as of
the date of termination under the terms of the Restricted Award
shall be forfeited and the Participant shall have no rights with
respect to the Award.
(e) TRANSFERABILITY. Rights to acquire shares of Common Stock under
the Restricted Award shall be transferable by the Participant
only upon such terms and conditions as are set forth in the Award
Agreement, as the Administrator shall determine in its
discretion, so long as Common Stock awarded under the Restricted
Award remains subject to the terms of the Award Agreement.
(f) CONCURRENT TAX PAYMENT. The Administrator, in its sole
discretion, may (but shall not be required to) provide for
payment of a concurrent cash award in an amount
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equal, in whole or in part, to the estimated after tax amount
required to satisfy applicable federal, state or local tax
withholding obligations arising from the receipt and deemed
vesting of restricted stock for which an election under Section
83(b) of the Code may be required.
(g) LAPSE OF RESTRICTIONS. Upon the expiration or termination of the
Restricted Period and the satisfaction of any other conditions
prescribed by the Administrator, the restrictions applicable to
the Restricted Award shall lapse and a stock certificate for the
number of shares of Common Stock with respect to which the
restrictions have lapsed shall be delivered, free of any
restrictions except those that may be imposed by law, the terms
of the Plan or the terms of a Restricted Award, to the
Participant or the Participant's beneficiary or estate, as the
case may be, unless such Restricted Award is subject to a
deferral condition that complies with the 409A Award requirements
that may be allowed or required by the Administrator in its sole
discretion. The Company shall not be required to deliver any
fractional share of Common Stock but will pay, in lieu thereof,
the Fair Market Value of such fractional share in cash to the
Participant or the Participant's beneficiary or estate, as the
case may be. Unless otherwise subject to a deferral condition
that complies with the 409A Award requirements, the Common Stock
certificate shall be issued and delivered and the Participant
shall be entitled to the beneficial ownership rights of such
Common Stock not later than (i) the date that is 2-1/2 months
after the end of the Participant's taxable year for which the
Restricted Period ends and the Participant has a legally binding
right to such amounts; (ii) the date that is 2-1/2 months after
the end of the Company's taxable year for which the Restricted
Period ends and the Participant has a legally binding right to
such amounts, whichever is later; or (iii) such earlier date as
may be necessary to avoid application of Code Section 409A to
such Award.
7.2 PERFORMANCE AWARDS.
(a) NATURE OF PERFORMANCE AWARDS. A Performance Award is an Award
entitling the recipient to acquire shares of Common Stock or
hypothetical Common Stock units having a value equal to the Fair
Market Value of an identical number of shares of Common Stock
that will be settled in the form of shares of Common Stock upon
the attainment of specified performance goals. The Administrator
may make Performance Awards independent of or in connection with
the granting of any other Award under the Plan. Performance
Awards may be granted under the Plan to any Participant,
including those who qualify for awards under other performance
plans of the Company. The Administrator in its sole discretion
shall determine whether and to whom Performance Awards shall be
made, the performance goals applicable under each Award, the
periods during which performance is to be measured, and all other
limitations and conditions applicable to the awarded shares;
PROVIDED, HOWEVER, that the Administrator may rely on the
performance goals and other standards applicable to other
performance plans of the Company in setting the standards for
Performance Awards under the Plan. Performance goals shall be
based on a pre-established objective formula or standard that
specifies the manner of determining the number of shares under
the Performance Award that will be granted or will vest if the
performance goal is attained. Performance goals will be
determined by the Administrator prior to the time 25% of the
service period has elapsed and may be based on one or more
business criteria that apply to a Participant, a business unit or
the Company and its Affiliates. Such business criteria may
include, by way of example and without limitation, revenue,
earnings before interest, taxes, depreciation and amortization
(EBITDA), funds from operations, funds from operations per share,
operating income, pre-tax or after-tax income, cash
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available for distribution, cash available for distribution per
share, net earnings, earnings per share, return on equity, return
on assets, return on capital, economic value added, share price
performance, improvements in the Company's attainment of expense
levels, and implementing or completion of critical projects, or
improvement in cash-flow (before or after tax). A performance
goal may be measured over a performance period on a periodic,
annual, cumulative or average basis and may be established on a
corporate-wide basis or established with respect to one or more
operating units, divisions, subsidiaries, acquired businesses,
minority investments, partnerships or joint ventures. More than
one performance goal may be incorporated in a performance
objective, in which case achievement with respect to each
performance goal may be assessed individually or in combination
with each other. The Administrator may, in connection with the
establishment of performance goals for a performance period,
establish a matrix setting forth the relationship between
performance on two or more performance goals and the amount of
the Performance Award payable for that performance period. The
level or levels of performance specified with respect to a
performance goal may be established in absolute terms, as
objectives relative to performance in prior periods, as an
objective compared to the performance of one or more comparable
companies or an index covering multiple companies, or otherwise
as the Administrator may determine. Performance goals shall be
objective and, if the Company is publicly traded, shall otherwise
meet the requirements of Section 162(m) of the Code. Performance
goals may differ for Performance Awards granted to any one
Participant or to different Participants. A Performance Award to
a Participant who is a Covered Employee shall (unless the
Administrator determines otherwise) provide that in the event of
the Participant's termination of Continuous Service prior to the
end of the performance period for any reason, such Award will be
payable only (i) if the applicable performance objectives are
achieved and (ii) to the extent, if any, the Administrator shall
determine. Such objective performance goals are not required to
be based on increases in a specific business criteria, but may be
based on maintaining the status quo or limiting economic losses.
(b) RESTRICTIONS ON TRANSFER. Performance Awards and all rights with
respect to such Performance Awards may not be sold, assigned,
transferred, pledged or otherwise encumbered.
(c) RIGHTS AS A STOCKHOLDER. A Participant receiving a Performance
Award that is denominated in shares of Common Stock or
hypothetical Common Stock units shall have the rights of a
stockholder only as to shares actually received by the
Participant under the Plan and not with respect to shares subject
to the Award but not actually received by the Participant. A
Participant shall be entitled to receive a stock certificate
evidencing the acquisition of shares of Common Stock under a
Performance Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance
Award (or in a performance plan adopted by the Administrator).
The Common Stock certificate shall be issued and delivered and
the Participant shall be entitled to the beneficial ownership
rights of such Common Stock not later than (i) the date that is
2-1/2 months after the end of the Participant's taxable year for
which the Administrator certifies that the Performance Award
conditions have been satisfied and the Participant has a legally
binding right to such amounts; (ii) the date that is 2-1/2 months
after the end of the Company's taxable year for which the
Administrator certifies that the Performance Award conditions
have been satisfied and the Participant has a legally binding
right to such amounts, whichever is later; or (iii) such other
date as may be necessary to avoid application of Section 409A to
such Awards.
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(d) TERMINATION. Except as may otherwise be provided by the
Administrator at any time, a Participant's rights in all
Performance Awards shall automatically terminate upon the
Participant's termination of employment (or business
relationship) with the Company and its Affiliates for any reason.
(e) ACCELERATION, WAIVER, ETC. At any time prior to the Participant's
termination of employment (or other business relationship) by the
Company and its Affiliates, the Administrator may in its sole
discretion accelerate, waive or, subject to SECTION 13, amend any
or all of the goals, restrictions or conditions imposed under any
Performance Award. The Administrator in its discretion may
provide for an acceleration of vesting in the terms of any
Performance Award at any time, including in the event a Change in
Control occurs.
(f) CERTIFICATION. Following the completion of each performance
period, the Administrator shall certify in writing, in accordance
with the requirements of Section 162(m) of the Code, whether the
performance objectives and other material terms of a Performance
Award have been achieved or met. Unless the Administrator
determines otherwise, Performance Awards shall not be settled
until the Administrator has made the certification specified
under this SECTION 7.2(F).
7.3 STOCK APPRECIATION RIGHTS.
(a) GENERAL. Stock Appreciation Rights may be granted either alone
("FREE STANDING RIGHTS") or, provided the requirements of SECTION
7.3(B) are satisfied, in tandem with all or part of any Option
granted under the Plan ("RELATED RIGHTS"). In the case of a
Nonstatutory Stock Option, Related Rights may be granted either
at or after the time of the grant of such Option. In the case of
an Incentive Stock Option, Related Rights may be granted only at
the time of the grant of the Incentive Stock Option.
(b) GRANT REQUIREMENTS. A Stock Appreciation Right may only be
granted if the Stock Appreciation Right: (i) does not provide for
the deferral of compensation within the meaning of Section 409A
of the Code; or (ii) satisfies the requirements of SECTION 7.3(H)
and SECTION 8 hereof. A Stock Appreciation Right does not provide
for a deferral of compensation if: (A) the value of the Common
Stock the excess over which the right provides for payment upon
exercise (the "SAR EXERCISE PRICE") may never be less than the
Fair Market Value of the underlying Common Stock on the date the
right is granted, (B) the compensation payable under the Stock
Appreciation Right can never be greater than the difference
between the SAR exercise price and the Fair Market Value of the
Common Stock on the date the Stock Appreciation Right is
exercised, (C) the number of shares of Common Stock subject to
the Stock Appreciation Right must be fixed on the date of grant
of the Stock Appreciation Right, and (D) the right does not
include any feature for the deferral of compensation other than
the deferral of recognition of income until the exercise of the
right.
(c) EXERCISE AND PAYMENT. Upon exercise thereof, the holder of a
Stock Appreciation Right shall be entitled to receive from the
Company, an amount equal to the product of (i) the excess of the
Fair Market Value, on the date of such written request, of one
share of Common Stock over the SAR exercise price per share
specified in such Stock Appreciation Right or its related Option,
multiplied by (ii) the number of shares for which such
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Stock Appreciation Right shall be exercised. Payment with respect
to the exercise of a Stock Appreciation Right that satisfies the
requirements of SECTION 7.3(B)(I) shall be paid on the date of
exercise and made in shares of Common Stock (with or without
restrictions as to substantial risk of forfeiture and
transferability, as determined by the Administrator in its sole
discretion), valued at Fair Market Value on the date of exercise.
Payment with respect to the exercise of a Stock Appreciation
Right that does not satisfy the requirements of SECTION 7.3(B)(I)
shall be paid at the time specified in the Award in accordance
with the provisions of SECTION 7.3(H) and SECTION 8. Payment may
be made in the form of shares of Common Stock (with or without
restrictions as to substantial risk of forfeiture and
transferability, as determined by the Administrator in its sole
discretion), cash or a combination thereof, as determined by the
Administrator.
(d) EXERCISE PRICE. The exercise price of a Free Standing Stock
Appreciation Right shall be determined by the Administrator, but
shall not be less than 100% of the Fair Market Value of one share
of Common Stock on the Date of Grant of such Stock Appreciation
Right. A Related Right granted simultaneously with or subsequent
to the grant of an Option and in conjunction therewith or in the
alternative thereto shall have the same exercise price as the
related Option, shall be transferable only upon the same terms
and conditions as the related Option, and shall be exercisable
only to the same extent as the related Option; PROVIDED, HOWEVER,
that a Stock Appreciation Right, by its terms, shall be
exercisable only when the Fair Market Value per share of Common
Stock subject to the Stock Appreciation Right and related Option
exceeds the exercise price per share thereof and no Stock
Appreciation Rights may be granted in tandem with an Option
unless the Administrator determines that the requirements of
SECTION 7.3(B)(I) are satisfied.
(e) REDUCTION IN THE UNDERLYING OPTION SHARES. Upon any exercise of a
Stock Appreciation Right, the number of shares of Common Stock
for which any related Option shall be exercisable shall be
reduced by the number of shares for which the Stock Appreciation
Right shall have been exercised. The number of shares of Common
Stock for which a Stock Appreciation Right shall be exercisable
shall be reduced upon any exercise of any related Option by the
number of shares of Common Stock for which such Option shall have
been exercised.
(f) WRITTEN REQUEST. Unless otherwise determined by the Administrator
in its sole discretion and only if permitted in the Stock
Appreciation Right's Award Agreement, any exercise of a Stock
Appreciation Right for cash, may be made only by a written
request filed with the Corporate Secretary of the Company during
the period beginning on the third business day following the date
of release for publication by the Company of quarterly or annual
summary statements of earnings and ending on the twelfth business
day following such date. Within 30 days of the receipt by the
Company of a written request to receive cash in full or partial
settlement of a Stock Appreciation Right or to exercise such
Stock Appreciation Right for cash, the Administrator shall, in
its sole discretion, either consent to or disapprove, in whole or
in part, such written request. A written request to receive cash
in full or partial settlement of a Stock Appreciation Right or to
exercise a Stock Appreciation Right for cash may provide that, in
the event the Administrator shall disapprove such written
request, such written request shall be deemed to be an exercise
of such Stock Appreciation Right for shares of Common Stock.
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(g) DISAPPROVAL BY ADMINISTRATOR. If the Administrator disapproves in
whole or in part any election by a Participant to receive cash in
full or partial settlement of a Stock Appreciation Right or to
exercise such Stock Appreciation Right for cash, such disapproval
shall not affect such Participant's right to exercise such Stock
Appreciation Right at a later date, to the extent that such Stock
Appreciation Right shall be otherwise exercisable, or to elect
the form of payment at a later date, provided that an election to
receive cash upon such later exercise shall be subject to the
approval of the Administrator. Additionally, such disapproval
shall not affect such Participant's right to exercise any related
Option.
(h) ADDITIONAL REQUIREMENTS UNDER SECTION 409A. A Stock Appreciation
Right that is not intended to or fails to satisfy the
requirements of SECTION 7.3(B)(I) shall satisfy the requirements
of this SECTION 7.3(H) and the additional conditions applicable
to nonqualified deferred compensation under Section 409A of the
Code, in accordance with SECTION 8 hereof. The requirements
herein shall apply in the event any Stock Appreciation Right
under this Plan is granted with an SAR exercise price less than
Fair Market Value of the Common Stock underlying the Award on the
date the Stock Appreciation Right is granted (regardless of
whether or not such SAR exercise price is intentionally or
unintentionally priced at less than Fair Market Value, or is
materially modified at a time when the Fair Market Value exceeds
the SAR exercise price), provides that it is settled in cash, or
is otherwise determined to constitute "nonqualified deferred
compensation" within the meaning of Section 409A of the Code. Any
such Stock Appreciation Right may provide that it is exercisable
at any time permitted under the governing written instrument, but
such exercise shall be limited to fixing the measurement of the
amount, if any, by which the Fair Market Value of a share of
Common Stock on the date of exercise exceeds the SAR exercise
price (the "SAR AMOUNT"). However, once the Stock Appreciation
Right is exercised, the SAR Amount may only be paid on the fixed
time, payment schedule or other event specified in the governing
written instrument or in SECTION 8.1 hereof.
8. ADDITIONAL CONDITIONS APPLICABLE TO NONQUALIFIED DEFERRED COMPENSATION
UNDER SECTION 409A OF THE CODE.
In the event any Award under this Plan is granted with an exercise price
less than Fair Market Value of the Common Stock subject to the Award on the Date
of Grant (regardless of whether or not such exercise price is intentionally or
unintentionally priced at less than Fair Market Value, or such Award is
materially modified and deemed a new Award at a time when the Fair Market Value
exceeds the exercise price), or is otherwise determined to constitute a 409A
Award, the following additional conditions shall apply and shall supersede any
contrary provisions of this Plan or the terms of any 409A Award agreement.
8.1 EXERCISE AND DISTRIBUTION. No 409A Award shall be exercisable or
distributable earlier than upon one of the following:
(a) SPECIFIED TIME. A specified time or a fixed schedule set forth in
the written instrument evidencing the 409A Award, but not later
than after the expiration of 10 years from the Date of Grant. If
the written grant instrument does not specify a fixed time or
schedule, such time shall be the date that is the fifth
anniversary of the Date of Grant.
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(b) SEPARATION FROM SERVICE. Separation from service (within the
meaning of Section 409A of the Code) by the 409A Award recipient;
PROVIDED, HOWEVER, if the 409A Award recipient is a "key
employee" (as defined in Section 416(i) of the Code without
regard to paragraph (5) thereof) and any of the Company's stock
is publicly traded on an established securities market or
otherwise, exercise or distribution under this SECTION 8.1(B) may
not be made before the date which is six months after the date of
separation from service.
(c) DEATH. The date of death of the 409A Award recipient.
(d) DISABILITY. The date the 409A Award recipient becomes disabled
(within the meaning of SECTION 8.4(B) hereof).
(e) UNFORESEEABLE EMERGENCY. The occurrence of an unforeseeable
emergency (within the meaning of SECTION 8.4(C) hereof), but only
if the net value (after payment of the exercise price) of the
number of shares of Common Stock that become issuable does not
exceed the amounts necessary to satisfy such emergency plus
amounts necessary to pay taxes reasonably anticipated as a result
of the exercise, after taking into account the extent to which
the emergency is or may be relieved through reimbursement or
compensation by insurance or otherwise or by liquidation of the
Participant's other assets (to the extent such liquidation would
not itself cause severe financial hardship).
(f) CHANGE IN CONTROL EVENT. The occurrence of a Change in Control
Event (within the meaning of SECTION 8.4(A) hereof), including
the Company's discretionary exercise of the right to accelerate
vesting of such Award upon a Change in Control Event or to
terminate the Plan or any 409A Award granted hereunder within 12
months of the Change in Control Event.
8.2 TERM. Notwithstanding anything to the contrary in this Plan or the
terms of any 409A Award agreement, the term of any 409A Award shall
expire and such Award shall no longer be exercisable on the date that
is the later of: (a) 2-1/2 months after the end of the Company's
taxable year in which the 409A Award first becomes exercisable or
distributable pursuant to SECTION 8 hereof and is not subject to a
substantial risk of forfeiture; or (b) 2-1/2 months after the end of
the 409A Award recipient's taxable year in which the 409A Award first
becomes exercisable or distributable pursuant to SECTION 8 hereof and
is not subject to a substantial risk of forfeiture, but not later than
the earlier of (i) the expiration of 10 years from the date the 409A
Award was granted, or (ii) the term specified in the 409A Award
agreement.
8.3 NO ACCELERATION. A 409A Award may not be accelerated or exercised
prior to the time specified in SECTION 8 hereof, except in the case of
one of the following events:
(a) DOMESTIC RELATIONS ORDER. The 409A Award may permit the
acceleration of the exercise or distribution time or schedule to
an individual other than the Participant as may be necessary to
comply with the terms of a domestic relations order (as defined
in Section 414(p)(1)(B) of the Code).
(b) CONFLICTS OF INTEREST. The 409A Award may permit the acceleration
of the exercise or distribution time or schedule as may be
necessary to comply with the terms of a certificate of
divestiture (as defined in Section 1043(b)(2) of the Code).
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(c) CHANGE IN CONTROL EVENT. The Administrator may exercise the
discretionary right to accelerate the vesting of such 409A Award
upon a Change in Control Event or to terminate the Plan or any
409A Award granted thereunder within 12 months of the Change in
Control Event and cancel the 409A Award for compensation. In
addition, the Administrator may exercise the discretionary right
to accelerate the vesting of such 409A Award provided that such
acceleration does not change the time or schedule of payment of
such Award and otherwise satisfies the requirements of this
SECTION 8 and the requirements of Section 409A of the Code.
8.4 DEFINITIONS. Solely for purposes of this SECTION 8 and not for other
purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "CHANGE IN CONTROL EVENT" means the occurrence of a change in the
ownership of the Company, a change in effective control of the
Company, or a change in the ownership of a substantial portion of
the assets of the Company (as defined in Proposed Regulations ss.
1.409A-3(g)(5) and any subsequent guidance interpreting Code
Section 409A). For example, a Change in Control Event will occur
if:
(i) a person or more than one person acting as a group:
(A) acquires ownership of stock that brings such person's
or group's total ownership in excess of 50% of the
outstanding stock of the Company; or
(B) acquires ownership of 35% or more of the total voting
power of the Company within a 12 month period; or
(ii) acquires ownership of assets from the Company equal to 40%
or more of the total value of the Company within a 12 month
period.
(b) "DISABLED" means a Participant (i) is unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected
to result in death or can be expected to last for a continuous
period of not less than 12 months, or (ii) is, by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than three months
under an accident and health plan covering Employees.
(c) "UNFORESEEABLE EMERGENCY" means a severe financial hardship to
the Participant resulting from an illness or accident of the
Participant, the Participant's spouse, or a dependent (as defined
in Section 152(a) of the Code) of the Participant, loss of the
Participant's property due to casualty, or similar extraordinary
and unforeseeable circumstances arising as a result of events
beyond the control of the Participant.
9. COVENANTS OF THE COMPANY.
9.1 AVAILABILITY OF SHARES. During the terms of the Awards, the Company
shall keep available at all times the number of shares of Common Stock
required to satisfy such Awards.
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9.2 SECURITIES LAW COMPLIANCE. Each Option Agreement and Award Agreement
shall provide that no shares of Common Stock shall be purchased or
sold thereunder unless and until (a) any then applicable requirements
of state or federal laws and regulatory agencies shall have been fully
complied with to the satisfaction of the Company and its counsel and
(b) if required to do so by the Company, the Participant shall have
executed and delivered to the Company a letter of investment intent in
such form and containing such provisions as the Administrator may
require. The Company shall use reasonable efforts to seek to obtain
from each regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to grant Awards and to issue
and sell shares of Common Stock upon exercise of the Awards; PROVIDED,
HOWEVER, that this undertaking shall not require the Company to
register under the Securities Act the Plan, any Award or any Common
Stock issued or issuable pursuant to any such Award. If, after
reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of Common
Stock under the Plan, the Company shall be relieved from any liability
for failure to issue and sell Common Stock upon exercise of such
Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
11.1 ACCELERATION OF EXERCISABILITY AND VESTING. The Administrator shall
have the power to accelerate the time at which an Award may first be
exercised or the time during which an Award or any part thereof will
vest in accordance with the Plan, notwithstanding the provisions in
the Award stating the time at which it may first be exercised or the
time during which it will vest.
11.2 STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any
shares of Common Stock subject to such Award unless and until such
Participant has satisfied all requirements for exercise of the Award
pursuant to its terms and no adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other
property) or distributions of other rights for which the record date
is prior to the date such Common Stock certificate is issued, except
as provided in SECTION 12.1 hereof.
11.3 NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Award granted pursuant thereto shall confer
upon any Participant any right to continue to serve the Company or an
Affiliate in the capacity in effect at the time the Award was granted
or shall affect the right of the Company or an Affiliate to terminate
(a) the employment of an Employee with or without notice and with or
without Cause, (b) the service of a Consultant pursuant to the terms
of such Consultant's agreement with the Company or an Affiliate or (c)
the service of a Director pursuant to the Bylaws of the Company or an
Affiliate, and any applicable provisions of the corporate law of the
state in which the Company or the Affiliate is incorporated, as the
case may be.
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11.4 TRANSFER, APPROVED LEAVE OF ABSENCE. For purposes of the Plan, no
termination of employment by an Employee shall be deemed to result
from either (a) a transfer to the employment of the Company from an
Affiliate or from the Company to an Affiliate, or from one Affiliate
to another; or (b) an approved leave of absence for military service
or sickness, or for any other purpose approved by the Company, if the
Employee's right to re-employment is guaranteed either by a statute or
by contract or under the policy pursuant to which the leave of absence
was granted or if the Administrator otherwise so provides in writing.
11.5 INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Award, (a)
to give written assurances satisfactory to the Company as to the
Participant's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the
merits and risks of exercising the Award; and (b) to give written
assurances satisfactory to the Company stating that the Participant is
acquiring Common Stock subject to the Award for the Participant's own
account and not with any present intention of selling or otherwise
distributing the Common Stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative
if (i) the issuance of the shares of Common Stock upon the exercise or
acquisition of Common Stock under the Award has been registered under
a then currently effective registration statement under the Securities
Act or (ii) as to any particular requirement, a determination is made
by counsel for the Company that such requirement need not be met in
the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on
stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities
laws, including, but not limited to, legends restricting the transfer
of the Common Stock.
11.6 WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an
Award Agreement and subject to the discretion of the Administrator,
the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of
Common Stock under an Award by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Participant by the Company) or by a combination of such means: (a)
tendering a cash payment; (b) authorizing the Company to withhold
shares of Common Stock from the shares of Common Stock otherwise
issuable to the Participant as a result of the exercise or acquisition
of Common Stock under the Award, PROVIDED, HOWEVER, that no shares of
Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; (c) delivering to the Company
previously owned and unencumbered shares of Common Stock of the
Company or (d) by execution of a recourse promissory note by a
Participant who is not a Director or executive officer. Unless
otherwise provided in the terms of an Option Agreement, payment of the
tax withholding by a Participant who is an officer, director or other
"insider" subject to Section 16(b) of the Exchange Act by delivering
previously owned and unencumbered shares of Common Stock of the
Company or in the form of share withholding is subject to pre-approval
by the Administrator, in its sole discretion. Any such pre-approval
shall be documented in a manner that complies with the specificity
requirements of Rule 16b-3, including the name of the Participant
involved in the transaction, the nature of the transaction, the number
of shares to be
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acquired or disposed of by the Participant and the material terms of
the Options involved in the transaction.
11.7 RIGHT OF REPURCHASE. Each Award Agreement may provide that, following
a termination of the Participant's Continuous Service, the Company may
repurchase the Participant's unvested Common Stock acquired under the
Plan as provided in this SECTION 11.7 (the "RIGHT OF REPURCHASE"). The
Right of Repurchase for unvested Common Stock shall be exercisable at
a price equal to the lesser of the purchase price at which such Common
Stock was acquired under the Plan or the Fair Market Value of such
Common Stock (if an Award is granted solely in consideration of past
services without payment of any additional consideration, the unvested
Common Stock shall be forfeited without any repurchase). The Award
Agreement may specify the period of time following a termination of
the Participant's Continuous Service during which the Right of
Repurchase may be exercised.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
12.1 CAPITALIZATION ADJUSTMENTS. If any change is made in the Common Stock
subject to the Plan, or subject to any Award, without the receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend,
dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in
corporate structure or other transaction not involving the receipt of
consideration by the Company), then (a) the aggregate number of shares
of Common Stock or class of shares which may be purchased pursuant to
Awards granted hereunder; (b) the aggregate number of shares of Common
Stock or class of shares which may be purchased pursuant to Incentive
Stock Options granted hereunder; (c) the number and/or class of shares
of Common Stock covered by outstanding Options and Awards; (d) the
maximum number of shares of Common Stock with respect to which Options
may be granted to any single Optionholder during any calendar year;
and (e) the exercise price of any Option in effect prior to such
change shall be proportionately adjusted by the Administrator to
reflect any increase or decrease in the number of issued shares of
Common Stock or change in the Fair Market Value of such Common Stock
resulting from such transaction; PROVIDED, HOWEVER, that any
fractional shares resulting from the adjustment shall be eliminated.
The Administrator shall make such adjustments, and its determination
shall be final, binding and conclusive. The conversion of any
securities of the Company that are by their terms convertible shall
not be treated as a transaction "without receipt of consideration" by
the Company.
12.2 DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Awards shall
terminate immediately prior to such event.
12.3 CHANGE IN CONTROL - ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of a Change in Control, a dissolution or
liquidation of the Company, or any corporate separation or division,
including, but not limited to, a split-up, a split-off or a spin-off,
or a sale of substantially all of the assets of the Company; a merger
or consolidation in which the Company is not the Surviving Entity; or
a reverse merger in which the Company is the Surviving Entity, but the
shares of Common Stock outstanding immediately preceding the merger
are converted by virtue of the merger into other property, whether in
the form of securities, cash or otherwise, then the Company, to the
extent permitted by applicable law, but otherwise in the sole
B-27
discretion of the Administrator may provide for: (a) the continuation
of outstanding Awards by the Company (if the Company is the Surviving
Entity); (b) the assumption of the Plan and such outstanding Awards by
the Surviving Entity or its parent; (c) the substitution by the
Surviving Entity or its parent of Awards with substantially the same
terms (including an award to acquire the same consideration paid to
the stockholders in the transaction described in this SECTION 12.3)
for such outstanding Awards and, if appropriate, subject to the
equitable adjustment provisions of SECTION 12.1 hereof; (d) the
cancellation of such outstanding Awards in consideration for a payment
(in the form of stock or cash) equal in value to the Fair Market Value
of vested Awards, or in the case of an Option, the difference between
the Fair Market Value and the exercise price for all shares of Common
Stock subject to exercise (I.E., to the extent vested) under any
outstanding Option; or (e) the cancellation of such outstanding Awards
without payment of any consideration. If such Awards would be canceled
without consideration for vested Awards, the Participant shall have
the right, exercisable during the later of the 10-day period ending on
the fifth day prior to such merger or consolidation or 10 days after
the Administrator provides the Award holder a notice of cancellation,
to exercise such Awards in whole or in part without regard to any
installment exercise provisions in the Option Agreement.
13. AMENDMENT OF THE PLAN AND AWARDS.
13.1 AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend or terminate the Plan. However, except as provided in SECTION
12.1 relating to adjustments upon changes in Common Stock, no
amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary to satisfy
any applicable law or any Nasdaq or securities exchange listing
requirements. At the time of such amendment, the Board shall
determine, upon advice from counsel, whether such amendment will be
contingent on stockholder approval.
13.2 STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including,
but not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations
thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to
certain executive officers.
13.3 CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or
advisable to provide eligible Employees with the maximum benefits
provided or to be provided under the provisions of the Code and the
regulations promulgated thereunder relating to Incentive Stock Options
or to the nonqualified deferred compensation provisions of Section
409A of the Code and/or to bring the Plan and/or Awards granted under
it into compliance therewith.
13.4 NO IMPAIRMENT OF RIGHTS. Rights under any Award granted before
amendment of the Plan shall not be impaired by any amendment of the
Plan unless (a) the Company requests the consent of the Participant
and (b) the Participant consents in writing. However, a cancellation
of an Award where the Participant receives a payment equal in value to
the Fair Market Value of the vested Award or, in the case of vested
Options, the difference between the Fair Market Value and the exercise
price, shall not be an impairment of the Participant's rights that
requires consent of the Participant.
B-28
13.5 AMENDMENT OF AWARDS. The Administrator at any time, and from time to
time, may amend the terms of any one or more Awards; PROVIDED,
HOWEVER, that the Administrator may not effect any amendment which
would otherwise constitute an impairment of the rights under any Award
unless (a) the Company requests the consent of the Participant and (b)
the Participant consents in writing. For the avoidance of doubt, the
cancellation of a vested Award where the Participant receives a
payment equal in value to the Fair Market Value of the vested Award
or, in the case of vested Options, the difference between the Fair
Market Value of the Common Stock underlying the Option and the
aggregate exercise price, shall not be an impairment of the
Participant's rights that requires consent of the Participant.
14. GENERAL PROVISIONS.
14.1 OTHER COMPENSATION ARRANGEMENTS. 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.
14.2 RECAPITALIZATIONS. Each Option Agreement and Award Agreement shall
contain provisions required to reflect the provisions of SECTION 12.1.
14.3 DELIVERY. Upon exercise of a right granted under this Plan, the
Company shall issue Common Stock or pay any amounts due within a
reasonable period of time thereafter. Subject to any statutory or
regulatory obligations the Company may otherwise have, for purposes of
this Plan, 30 days shall be considered a reasonable period of time.
14.4 OTHER PROVISIONS. The Option Agreements and Award Agreements
authorized under the Plan may contain such other provisions not
inconsistent with this Plan, including, without limitation,
restrictions upon the exercise of the Awards, as the Administrator may
deem advisable.
14.5 CANCELLATION AND RESCISSION OF AWARDS FOR DETRIMENTAL ACTIVITY.
(a) Upon exercise, payment or delivery pursuant to an Award, the
Participant shall certify in a manner acceptable to the Company
that the Participant has not engaged in any Detrimental Activity
described in SECTION 2.19.
(b) Unless the Award Agreement specifies otherwise, the Administrator
may cancel, rescind, suspend, withhold or otherwise limit or
restrict any unexpired, unpaid or deferred Awards at any time if
the Participant engages in any Detrimental Activity described in
SECTION 2.19.
(c) In the event a Participant engages in Detrimental Activity
described in SECTION 2.19 after any exercise, payment or delivery
pursuant to an Award, during any period for which any restrictive
covenant prohibiting such activity is applicable to the
Participant, such exercise, payment or delivery may be rescinded
within one year thereafter. In the event of any such rescission,
the Participant shall pay to the Company the amount of any gain
realized or payment received as a result of the exercise, payment
or delivery, in such manner and on such terms and conditions as
may be required by the Company. The Company shall be
B-29
entitled to set-off against the amount of any such gain any
amount owed to the Participant by the Company.
14.6 DISQUALIFYING DISPOSITIONS. Any Participant who shall make a
"disposition" (as defined in Section 424 of the Code) of all or any
portion of shares of Common Stock acquired upon exercise of an
Incentive Stock Option within two years from the Date of Grant of such
Incentive Stock Option or within one year after the issuance of the
shares of Common Stock acquired upon exercise of such Incentive Stock
Option shall be required to immediately advise the Company in writing
as to the occurrence of the sale and the price realized upon the sale
of such shares of Common Stock.
15. MARKET STAND-OFF.
Each Option Agreement and Award Agreement shall provide that, in connection
with any underwritten public offering by the Company of its equity securities
pursuant to an effective registration statement filed under the Securities Act,
the Participant shall agree not to sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the repurchase of, transfer the
economic consequences of ownership or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
any Common Stock without the prior written consent of the Company or its
underwriters, for such period of time from and after the effective date of such
registration statement as may be requested by the Company or such underwriters
(the "MARKET STAND-OFF"). In order to enforce the Market Stand-Off, the Company
may impose stop-transfer instructions with respect to the shares of Common Stock
acquired under this Plan until the end of the applicable stand-off period. If
there is any change in the number of outstanding shares of Common Stock by
reason of a stock split, reverse stock split, stock dividend, recapitalization,
combination, reclassification, dissolution or liquidation of the Company, any
corporate separation or division (including, but not limited to, a split-up, a
split-off or a spin-off), a merger or consolidation; a reverse merger or similar
transaction, then any new, substituted or additional securities which are by
reason of such transaction distributed with respect to any shares of Common
Stock subject to the Market Stand-Off, or into which such shares of Common Stock
thereby become convertible, shall immediately be subject to the Market
Stand-Off.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as of the Effective Date, but no Award
shall be exercised (or, in the case of a stock Award, shall be granted) unless
and until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan is
adopted by the Board.
17. TERMINATION OR SUSPENSION OF THE PLAN.
The Plan shall terminate automatically on the day before the 10th
anniversary of the Effective Date. No Award shall be granted pursuant to the
Plan after such date, but Awards theretofore granted may extend beyond that
date. The Board may suspend or terminate the Plan at any earlier date pursuant
to SECTION 13.1 hereof. No Awards may be granted under the Plan while the Plan
is suspended or after it is terminated.
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18. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state's conflict of law rules.
19. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused its
authorized officer to execute the Plan as of the date specified below.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, upon authorization of the Board of Directors, the
undersigned has caused the VCA Antech, Inc. 2006 Equity Incentive Plan to be
executed effective as of the 7th day of March, 2006.
VCA ANTECH, INC.
By:
---------------------------------------
Robert L. Antin, Chief Executive
Officer and President
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VCA ANTECH, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of VCA Antech, Inc., a Delaware corporation,
which we refer to as the "Company," hereby nominates, constitutes and appoints
Robert L. Antin and Tomas W. Fuller, or either one of them, as proxy of the
undersigned, each with full power of substitution, to attend, vote and act for
the undersigned at the Annual Meeting of Stockholders of the Company, to be held
on Monday, June 5, 2006, which we refer to as the "Annual Meeting," and any
postponements or adjournments thereof, and in connection therewith, to vote and
represent all of the shares of the Company which the undersigned would be
entitled to vote with the same effect as if the undersigned were present, as
follows:
A VOTE "FOR" ALL ITEMS IS RECOMMENDED BY THE BOARD OF DIRECTORS:
Item 1. To elect the nominees as Class I directors:
CLASS I
John M. Baumer
Frank Reddick
|_| FOR ALL NOMINEES LISTED ABOVE (except as marked to the contrary below)
|_| WITHHELD for all nominees listed above
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below:
________________________________________________________________________________
The undersigned hereby confer(s) upon the proxies and each of them discretionary
authority with respect to the election of directors in the event that any of the
above nominees is unable or unwilling to serve.
Item 2. To ratify the appointment of KPMG LLP as the Company's independent
registered public accounting firm.
|_| FOR |_| AGAINST |_| ABSTAIN
Item 3. To approve the VCA Antech, Inc. 2006 Equity Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Annual Meeting,
and hereby ratifies and confirms all that said attorneys and proxies, and each
of them, may lawfully do by virtue hereof. With respect to matters not known at
the time of the solicitation hereof, said proxies are authorized to vote in
accordance with their best judgment.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH ABOVE OR,
TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED, WILL BE TREATED AS A GRANT OF
AUTHORITY TO VOTE FOR THE ITEMS. IF ANY OTHER BUSINESS IS PRESENTED AT THE
ANNUAL MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE PROXIES.
The undersigned acknowledges receipt of a copy of the Notice of Annual Meeting
dated April 27, 2006 and the accompanying Proxy Statement relating to the Annual
Meeting.
Dated:___________________________, 2006
Signature:_____________________________
Signature:_____________________________
_____________________________
Signature(s) of Stockholder(s)
(See Instructions Below)
The Signature(s) hereon should correspond exactly with
the name(s) of the Stockholder(s) appearing on the
Share Certificate. If stock is held jointly, all joint
owners should sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such. If signer is a corporation,
please sign the full corporation name, and give title
of signing officer.
|_| Please indicate by checking this box if you anticipate attending the
Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE