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Chief Executive Officer Compensation. The compensation plan for Mr. Esposito for 2002 contained the same elements and operated in the same manner as the compensation plan described above for all the executive officers. His base salary was unchanged from 2001 and 2000. His specific performance goals for incentive
compensation were based on the Companys long-term plan and on the annual operating budget approved by the Board of Directors. His actual cash bonus was calculated based on the achievement of those specific goals. In 2002, the Company achieved exceptional growth in both revenues and profitability, substantially improved its competitive position and significantly enhanced its proprietary software. The Compensation Committee believes in rewarding exceptional performance with exceptional compensation. Following the terms of Mr. Espositos 2002 executive incentive compensation plan, the Compensation Committee approved a cash bonus of $271,389, representing slightly more than 100% of his base salary for the year. In the opinion of the Compensation Committee, the compensation paid to Mr. Esposito was consistent with the compensation of other chief executive officers in comparable companies with similar performances.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the Internal Revenue Code disallows a tax deduction to publicly held companies for compensation paid to certain of their executive officers, to the extent that compensation exceeds $1,000,000 per covered officer in any fiscal year. The limitation applies only to compensation that is not considered to be performance-based. Non-performance-based compensation paid to the Companys executive officers for 2002 did not exceed the $1,000,000 limit per officer, and the Committee does not anticipate that the non-performance-based compensation to be paid the Companys executive officers in the foreseeable future will exceed that limit.
Members of the Compensation and Stock Option Committee
John M. Ryan (Chair)
Arthur H. Hayes, Jr., M.D.
Compensation Committee Interlocks and Insider Participation |
At the end of 2002, the Compensation and Stock Option Committee was composed of Dr. Hayes and Mr. Ryan. Neither of these individuals is a current or former officer or employee of the Company or any of its subsidiaries, nor had they had any other relationship requiring disclosure by the Company under Item 402 of Regulation S-K.
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Summary Compensation Table |
The following table sets forth information in respect of the compensation paid for the years ended December 31, 2000, 2001 and 2002 to the persons (sometimes collectively referred to as the Named Executive Officers) who were, at any time during 2002, the Chief Executive Officer, and at the end of 2002, the other four most highly compensated executive officers of the Company whose salary and bonus exceeded $100,000 in such year:
|
|
|
Annual Compensation(1) |
|
Long Term Compensation(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
All Other |
|
Name and Principal Position |
Year |
|
Salary |
|
Bonus |
|
Underlying Options |
|
Compensation(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph A. Esposito |
2002 |
|
$ |
270,000 |
|
$ |
271,389 |
|
|
|
|
$ |
3,280 |
|
President and Chief |
2001 |
|
$ |
270,000 |
|
$ |
90,000 |
|
|
121,501 |
|
$ |
3,298 |
|
Executive Officer |
2000 |
|
$ |
270,000 |
|
$ |
125,000 |
|
|
|
|
$ |
3,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey S. Litwin, M.D. |
2002 |
|
$ |
170,000 |
|
$ |
157,147 |
|
|
|
|
$ |
3,282 |
|
Sr. Vice President and Chief |
2001 |
|
$ |
150,000 |
|
$ |
112,740 |
|
|
90,000 |
|
$ |
3,268 |
|
Medical Officer |
2000 |
|
$ |
69,230 |
|
$ |
42,917 |
|
|
|
|
$ |
1,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert S. Brown |
2002 |
|
$ |
170,000 |
|
$ |
133,248 |
|
|
|
|
$ |
11,532 |
|
Sr. Vice President, |
2001 |
|
$ |
150,000 |
|
$ |
112,740 |
|
|
45,000 |
|
$ |
11,143 |
|
Outsourcing Partnerships |
2000 |
|
$ |
148,000 |
|
$ |
82,500 |
|
|
41,250 |
|
$ |
11,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Johnson |
2002 |
|
$ |
175,000 |
|
$ |
111,385 |
|
|
|
|
$ |
3,068 |
|
Sr. Vice President and Chief |
2001 |
|
$ |
175,000 |
|
$ |
30,000 |
|
|
45,000 |
|
$ |
3,298 |
|
Financial Officer |
2000 |
|
$ |
129,230 |
|
$ |
68,750 |
|
|
105,001 |
|
$ |
2,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Grisanti |
2002 |
|
$ |
170,000 |
|
$ |
50,250 |
|
|
|
|
$ |
3,135 |
|
Sr. Vice President, Business |
2001 |
|
$ |
150,000 |
|
$ |
60,000 |
|
|
75,000 |
|
$ |
3,110 |
|
Development and Chief |
2000 |
|
$ |
25,961 |
|
$ |
5,700 |
|
|
|
|
$ |
104 |
|
Marketing Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In accordance with the rules
of the Securities and Exchange Commission, other compensation in the form
of perquisites and other personal benefits has been omitted in those instances
where the aggregate amount of such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total of annual
salary and bonuses for the officer for such year.
(2) Option amounts are adjusted to reflect the 50% stock dividend paid
on July 16, 2002.
(3) Represents the sum of (A) the Companys 401(k) plan
contributions, which in 2002 were $2,750 for Mr. Esposito, $2,750 for Dr. Litwin; $11,000 for Mr. Brown, $2,538 for Mr. Johnson and $2,619 for Mr. Grisanti; and (B) the
dollar value of the insurance premium paid by the Company with respect to group term life insurance, which for 2002 was $530 for Mr. Esposito, $532 for Dr. Litwin, $532
for Mr. Brown, $530 for Mr. Johnson and $516 for Mr. Grisanti. In 2001, these amounts were $2,625 for Mr. Esposito, $2,625 for Dr. Litwin, $10,500 for Mr. Brown, $2,625
for Mr. Johnson and $2,547 for Mr. Grisanti for 401(k) plan contributions; and $673 for Mr. Esposito, $643 for Dr. Litwin, $643 for Mr. Brown, $673 for Mr. Johnson and
$563 for Mr. Grisanti for the dollar value of the insurance premium paid by the Company with respect to group term life insurance. In 2000, these amounts were $2,625 for
Mr. Esposito, $804 for Dr. Litwin, $10,500 for Mr. Brown and $1,712 for Mr. Johnson for 401(k) plan contributions; and $816 for Mr. Esposito, $360 for Dr. Litwin, $816
for Mr. Brown, $611 for Mr. Johnson and $104 for Mr. Grisanti for the dollar value of the insurance premium paid by the Company with respect to group term life insurance.
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The Company has entered into employment
agreements with each of the Named Executive Officers. Under these agreements, the employment may be terminated
with or without cause by the Company at any time. In the event that the Company terminates an officers employment
other than for cause, the Company is obligated to continue normal salary payment for between six months and one year.
These agreements provide that, upon a change of control (as defined therein) of the Company in which the officer is
not provided a comparable position, the executive has the right to resign and receive the severance that would
otherwise be provided if the executives employment was terminated other than for cause and,
in some instances, severance up to one year of total salary if severance would have otherwise been less.
Pursuant to the agreement, each officer has agreed for a period of no less than one year after termination of employment,
to refrain from interfering with the Companys business by soliciting customers or employees.
2002 Option Exercises and Fiscal Year-End Values |
The following tables contain certain information concerning the number and value of any unexercised stock options held by the Named Executive Officers as of December 31, 2002 and as to the shares acquired and the value realized by Named Executive Officers who exercised options in 2002.
Name |
Shares
Acquired on
Exercise (#) |
|
Value Realized
($)(1) |
|
Number of Securities
Underlying Unexercised
Options at FY-End 2002 (#)
Exercisable/ Unexercisable |
|
Value of Unexercised
In-the-Money Options
at FY-End 2002 ($)(2)
Exercisable/Unexercisable |
|
|
|
|
|
|
|
|
Joseph A. Esposito |
|
|
|
|
303,375/148,127 |
|
$3,490,264/$1,816,416 |
Jeffrey S. Litwin, M.D |
2,000 |
|
$22,020 |
|
20,500/67,500 |
|
$224,394/$756,281 |
Robert S. Brown |
12,015 |
|
$91,554 |
|
33,750/54,375 |
|
$326,756/$577,388 |
Bruce Johnson |
|
|
|
|
81,252/68,749 |
|
$729,133/$706,825 |
Scott Grisanti |
|
|
|
|
18,750/56,250 |
|
$228,188/$684,563 |
(1) Value realized is the difference
between the market price of a share of Common Stock on the date of exercise
and the exercise price of the option, multiplied by the number of shares
underlying the option.
(2) Value of unexercised in-the-money options is the
difference between the market price of a share of the Companys Common Stock on December 31, 2002 and the exercise price of the option, multiplied by the number
of shares of Common Stock underlying the option.
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Stockholder Return Performance Graph |
The following graph compares the cumulative total stockholder return on the Companys Common Stock against the cumulative total return on the NASDAQ Stock Market (U.S.) Index and NASDAQ Health Service Index for the period commencing December 31, 1997 and ending December 31, 2002. The graph assumes that at the beginning of the period indicated, $100 was invested in the Companys Common Stock and the stock of the companies comprising the NASDAQ Stock Market (U.S.) Index and the NASDAQ Health Services Index, and that all dividends, if any, were reinvested.
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Security Ownership of Certain Beneficial Owners and Management |
The following table sets forth certain information, as of March 11, 2003, with respect to the beneficial ownership of the Common Stock of the Company by (i) the Companys directors and Named Executive Officers, (ii) the Companys directors and executive officers as a group, and (iii) each person known to the Company to own beneficially more than 5% of the Common Stock.
Name of Beneficial Owner |
|
Shares Beneficially Owned |
|
Percentage Owned |
|
|
|
|
|
|
|
|
|
Joel Morganroth, M.D. (1) (5) |
|
|
1,295,962 |
|
|
11.8 |
% |
Jack Silver (2) |
|
|
600,000 |
|
|
5.5 |
|
The Pinnacle Fund, L.P. (3) |
|
|
573,385 |
|
|
5.3 |
|
Joseph A. Esposito (5) |
|
|
223,801 |
|
|
2.0 |
|
Bruce Johnson (5) |
|
|
127,501 |
|
|
1.2 |
|
Stephen S. Phillips (4) |
|
|
95,300 |
|
|
* |
|
Robert S. Brown (5) |
|
|
68,812 |
|
|
* |
|
John M. Ryan (5) |
|
|
61,150 |
|
|
* |
|
Jeffrey S. Litwin, M.D. (5) |
|
|
38,625 |
|
|
* |
|
Scott Grisanti (5) |
|
|
37,500 |
|
|
* |
|
Sheldon M. Bonovitz (5) |
|
|
32,807 |
|
|
* |
|
Arthur H. Hayes, Jr., M.D. (5) |
|
|
30,000 |
|
|
* |
|
All directors and executive officers as a Group (12 persons) (5) |
|
|
2,083,683 |
|
|
18.1 |
|
* Less than 1.0%
(1) Dr. Morganroths address is 30 S. 17th Street, Philadelphia,
Pennsylvania 19103. Includes (i) 600,000 shares directly owned by Dr. Morganroth, as to which he has sole voting and dispositive power; (ii) 600,000 shares held in a trust,
the trustee of which is Dr. Morganroths wife and the beneficiaries of which are Dr. Morganroths children, as to which Dr. Morganroth disclaims beneficial
ownership; and (iii) 14,400 shares owned by a pension plan, as to which Dr. Morganroth has shared voting and dispositive power.
(2) Mr. Silvers address is 660 Madison Ave., New York, New York
10021. Includes: (i) 83,250 shares held by the Sherleigh Associates Defined Benefit Pension Plan, a trust of which Mr. Silver is the trustee; (ii) 32,250 shares held by
Sherleigh Associates LLC, a New York limited liability company of which Mr. Silver is the President; and (iii) 484,500 shares held by the Sherleigh Associates Profit
Sharing Plan, a trust of which the Mr. Silver is trustee. This information is as reported by Mr. Silver in a Schedule 13G dated January 29, 2003 filed with the Securities
and Exchange Commission.
(3) The Pinnacle Fund, L.Ps address is Suite 240, 4965 Preston
Park Blvd., Plano, TX 75093. Excludes 900 shares owned by Mr. Barry Kitts three minor children. Mr. Kitt is the general partner of the Pinnacle Fund, L.P. Mr. Kitt
disclaims beneficial ownership of shares owned by his minor children and the Pinnacle Fund, L.P. This information is as reported by the Pinnacle Fund, L.P. and Mr. Barry
Kitt, each in a Schedule 13G dated February 14, 2003 filed with the Securities and Exchange Commission.
(4) Includes 750 shares owned by Mr. Phillips minor children, of
which Mr. Phillips acts as custodian.
(5) Includes the following shares issuable with respect to options
granted pursuant to the Companys 1996 Stock Option Plan, which are currently exercisable or exercisable within the next 60 days:
Name |
|
Number of options |
|
|
|
|
|
Joel Morganroth, M.D. |
|
|
81,562 |
|
Joseph A. Esposito |
|
|
141,061 |
|
Bruce Johnson |
|
|
127,501 |
|
Robert S. Brown |
|
|
55,312 |
|
John M. Ryan |
|
|
33,600 |
|
Jeffrey S. Litwin, M.D. |
|
|
33,625 |
|
Scott Grisanti |
|
|
37,500 |
|
Sheldon M. Bonovitz |
|
|
30,000 |
|
Arthur H. Hayes, Jr., M.D. |
|
|
30,000 |
|
Other executive officers |
|
|
71,625 |
|
All directors and executive officers as a group |
|
|
641,786 |
|
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Compliance with Section 16(a) of the Securities Exchange Act |
Section 16(a) of the Securities Exchange Act of 1934 requires the Companys officers and directors, and persons who own more than 10% of its Common Stock, to file reports of ownership and changes in ownership of the Common Stock with the Securities and Exchange Commission and the NASDAQ Stock Market. Based upon a review of the forms and written representations that it received, the Company believes that all filing requirements applicable to its officers, directors and greater than 10% beneficial owners have been timely satisfied, with the exception of one Form 5 filing that was filed thirteen days after its due date of February 14, 2003.
APPROVAL OF 2003 STOCK OPTION PLAN
(Proposal No. 2)
On March 5, 2003, the Board of Directors of the Company, based on the recommendation of the Compensation and Stock Option Committee (the Committee), adopted, subject to stockholder approval at the Annual Meeting, the Companys 2003 Stock Option Plan (the Plan). The Company adopted the Plan because its 1996 Stock Option Plan will expire in three years and the number of shares available for the grant of options thereunder was not adequate in view of the Companys current plans.
A total of 850,000 shares of Common Stock are reserved for issuance under the Plan. Including the 850,000 shares reserved for issuance under the Plan, if the stockholders approve the Plan at the Annual Meeting, as of March 11, 2003, there would have been an aggregate of 2,366,642 shares of Common Stock reserved for issuance under all of the Companys plans, including outstanding options granted under those plans or shares available for future option grants under those plans. This total would represent 17.9% of the shares outstanding as of March 11, 2003, after giving effect to the issuance of these 2,366,642 shares upon the exercise of options granted or to be granted under the plans.
The Plan permits the granting of options (Options) to purchase Common Stock of the Company, including Options intended to qualify as incentive options (Incentive Options) under Section 422 of the Internal Revenue Code of 1986, as amended (the Code) and Options not intended to so qualify (Nonqualified Options), to directors and such employees and other individuals who provide services to or otherwise have a relationship with the Company or its subsidiaries as the Committee may determine.
At the Annual Meeting, stockholders entitled to vote are being asked to approve and adopt the Plan. The affirmative vote of a majority of the outstanding Common Stock present in person or by proxy at the Annual Meeting is required to approve the Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE PLAN. The Plan is summarized below.
The purpose of the Plan is to provide a means by which certain employees and directors of, and others providing services to or having a relationship with, the Company and its subsidiaries may be given an opportunity to purchase shares of the Companys Common Stock. The Company intends that the Plan will promote the interests of the Company by encouraging stock ownership on the part of such individuals, by enabling the Company and its subsidiaries to secure and retain the services of highly qualified persons and by providing such individuals with an additional incentive to advance the success of the Company and its subsidiaries.
The Plan is administered by the Committee, which is a committee consisting of not less than two directors appointed from time to time by the Companys Board of Directors (the Board). The Committee has full and final authority, in its sole discretion, to interpret the provisions of the Plan and to decide all questions of fact arising in its application; to determine the people to whom Options shall be granted under the Plan; to determine the type of Options to be made and the amount, size and terms of each such Option; to determine when an Option shall be granted; and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may also establish subplans under the Plan to the extent it determines it necessary or appropriate to conform to the applicable requirements of jurisdictions other than the United States in order to achieve the material purposes of awarding Options in those jurisdictions. Notwithstanding the foregoing, the Board may, in its discretion, itself exercise the authority granted under the Plan to the Committee. The members of the Committee must be Non-Employee Directors (within the meaning of Rule 16b-3(b)(3) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act) or any successor provision thereto), and outside directors within the meaning of Treas. Reg. 1.162-27(e)(3).
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Persons eligible to receive Options under the Plan are limited to the directors and such employees and other individuals who provide services to or otherwise have a relationship with the Company or its subsidiaries as the Committee determines from time to time.
No employee may be granted, in any given one-year period, Options with respect to more than 150,000 shares of Common Stock.
The terms of Options granted under the Plan are determined by the Committee at the time of granting an Option. Each Option granted under the Plan is evidenced by a written stock option agreement between the Company and the optionee and is subject to the following terms and conditions.
Exercise of Options. The Committee determines on the date of grant when Options granted under the Plan become exercisable. Unless otherwise determined by the Committee in its sole discretion and except for Options automatically granted to outside directors as discussed below, no Option is exercisable until the expiration of at least six months from the date of grant. An Option is exercisable by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased and tendering payment to the Company of the purchase price. The acceptable methods of payment for shares issued upon exercise of an Option are set forth in the option agreement but may include cash, shares of the Companys Common Stock (including shares of Common Stock issuable upon the exercise of the Option) or any combination thereof as determined by the Committee.
Exercise Price. The exercise price of Options granted under the Plan is determined by the Committee. The exercise price of Options may not be less than 100% of the fair market value of the Common Stock on the date of grant. However, in the case of Incentive Options granted to an optionee who owns more than 10% of the voting power of all classes of stock of the Company, the exercise price must not be less than 110% of the fair market value of the Common Stock on the date of grant. For so long as the Common Stock is traded on the NASDAQ Stock Market or listed on a stock exchange, the fair market value per share will be the closing price on such market or exchange on the date of grant or, if such date is not a business day, on the immediately preceding business day.
Termination of Employment. If an optionee ceases to serve as an employee of the Company or any subsidiary for any reason other than death or disability, Options may be exercised within three months (or such other period of time as is determined by the Committee) after such termination, but only to the extent that the Options were exercisable on the date of termination.
Death or Disability. Upon the death or disability of an optionee, Options may be exercised by the optionee or his successor or estate within one year (or such other period of time as is determined by the Committee) from the date of death or disability, but only to the extent that the Options were exercisable on such date.
Term and Termination of Options. Options expire on the date determined by the Committee as set forth in the agreement, but no option will be exercisable after ten years from the date of grant. An Incentive Option granted to an optionee who owns more than 10% of the voting power of all classes of stock of the Company may not have a term of more than five years.
No Option may be exercised by any person after the expiration of its term.
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Limitation on Transferability.
No Option granted under the Plan may be transferred other than by will or
the laws of descent and distribution. During the optionees lifetime, each Option will be exercisable
only by the optionee or any permitted transferee.
Sale or Merger of the Company.
In the event of a proposed sale of all or substantially all of the assets of the Company,
or the merger of the Company with or into another corporation, the Committee, in the exercise of its sole discretion,
may take such action as it deems desirable, including, but not limited to: (i) causing an Option to be assumed or
an equivalent Option to be substituted by the successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that each option holder shall have the right to exercise the option
holders Option as to all of the shares of Common Stock covered by the Option, including shares as
to which the Option would not otherwise be exercisable, or (iii) declaring that an Option shall terminate
at a date fixed by the Committee provided that the option holder is given notice and opportunity to exercise
the then exercisable portion of the option holders Option prior to such date.
Grants to Outside Directors.
Each person who is or becomes a director of the Company and is neither an
employee of the Company, the beneficial owner of more than 10% of the Companys outstanding Common Stock
(a Significant Holder) nor a stockholder, member or partner of any Significant Holder (an Outside Director) is entitled to receive Nonqualified Options (Director Options) under the Plan. Individuals who
first become Outside Directors after adoption of the Plan will receive Options to purchase 10,000 shares
upon first being elected to the Board. Each Outside Director who is a member of the Board immediately after
each annual meeting of stockholders is entitled to receive Options to purchase 10,000 shares on the date of
such annual meeting, provided that an Outside Director first elected to the Board at such annual meeting or
within six months prior thereto will not be eligible for the annual grant otherwise to be made on the date of
the Annual Meeting and will instead receive only the initial grant upon first being elected to the Board. The
exercise price for all Director Options is 100% of the fair market value of the Common Stock on the date of grant.
Director Options are fully exercisable on the date of grant. Director Options terminate upon the earlier to occur of:
ten years from the grant date; or three months after the optionee ceases to serve as an Outside
Director for any reason.
Other Provisions.
The option agreements may contain such other terms,
provisions and conditions not inconsistent with the terms of the Plan as may be determined by the
Committee.
Federal Income Tax Consequences |
Based on the advice of counsel,
the Company believes that the normal operation of the Plan should generally have, under the Code and the
regulations thereunder, all as in effect on the date of this Proxy Statement, the principal federal income
tax consequences described below. The tax treatment described below does not take into account any changes
in the Code or the regulations thereunder that may occur after the date of this Proxy Statement.
The following discussion is only a summary; it is not intended to be all-inclusive or to constitute tax advice, and,
among other things, does not cover possible state or local or other federal tax consequences.
This description may differ from the actual tax consequences of participation in the Plan.
An optionee will not have taxable income
upon the grant of an Option. In the case of Nonqualified Options, the optionee will recognize ordinary income
upon the exercise of the Option in an amount equal to the excess, if any, of the then fair market value of the
shares acquired over the exercise price. The Company will generally be able to take a deduction with respect
to this amount as compensation expense for federal income tax purposes. The optionees tax basis in the
shares acquired will equal the exercise price plus the amount taxable as compensation to the optionee.
Upon a sale of the shares acquired upon exercise, any gain or loss is generally long-term or short-term
capital gain or loss, depending on how long the shares are held. The required holding period for long-term capital
gain is presently one year. The optionees holding period for shares acquired upon exercise will begin on the
date of exercise.
An optionee who receives Incentive
Options generally incurs no federal income tax liability at the time of grant or upon exercise of the options.
However, the spread will be an item of tax preference, which may give rise to alternative minimum tax liability
at the time of exercise. If the optionee does not dispose of the shares before the date that is two years from the date of grant and
one year from the date of exercise, the difference between the exercise price and the amount realized
upon disposition of the shares will constitute long-term capital gain or loss, as the case may be.
Assuming both holding periods are satisfied, the Company will not be entitled to a deduction in connection with the Option.
If, within two years from the date of grant or one year from the date of exercise,
the holder of shares acquired upon exercise of an Incentive Option disposes of the shares
(a Disqualifying Disposition), the optionee will generally realize ordinary
income at the time of the Disqualifying Disposition equal to the difference between the exercise
price and the lesser of the fair market value of the shares on the date of exercise or the
amount realized on the Disqualifying Disposition. The amount realized upon such a Disqualifying
Disposition will generally be deductible by the Company for federal income tax purposes.
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If the purchase price upon
exercise of an Option is paid with shares already owned by the optionee, generally no gain or
loss will be recognized with respect to the shares used for payment, and the additional shares
received will be taxed as described herein.
However, if payment of the purchase price upon exercise of an Incentive Option is made with
shares acquired upon exercise of an Incentive Option before the shares used for payment have
been held for the two-year and one-year periods described above, use of such shares as payment will be
treated as a Disqualifying Disposition as described above.
The Company has the right to
deduct from all grants paid in cash or other compensation any taxes required to be withheld with respect
to Options under the Plan. The Company may require that the participant pay to it the amount of any required withholding.
The Committee may permit the participant to elect to have withheld from any shares issuable to him in
connection with the Plan a number of shares with a value equal to the required tax withholding amount,
subject to certain conditions and limitations.
Option Grants Under the Plan |
Under the terms of the Plan, if the Plan is approved by the Companys stockholders at the Annual Meeting, each of Sheldon M. Bonovitz, David D. Gathman, Arthur H. Hayes, Jr., M.D., Stephen S. Phillips and John M. Ryan will be granted 10,000 Options under the Plan on the date of the Annual Meeting pursuant to the provisions of the Plan providing for automatic grants to Outside Directors. All such grants will be made at 100% of the fair market value on the date of grant. The Committee has made no other determination as to the Options to be granted, or the number or identity of optionees under the Plan. On March 11, 2003, the closing price of the Companys Common Stock was $24.27 as reported on the NASDAQ Stock Market.
Amendment and Termination |
The Committee may terminate or amend
the Plan at any time, except that without stockholder approval the Committee may not increase the maximum number
of shares which may be issued under the Plan, extend the maximum period during which any Option may be exercised,
extend the term of the Plan, amend the employees or classes of employees eligible to receive Options under the Plan,
change the minimum Option price or approve any other amendment which would require stockholder approval pursuant
to Treasury Regulations Section 1.162- 27(e)(4)(vi). The termination or any modification or amendment of the
Plan shall not, without the consent of a participant, affect the participants rights under an Option
previously granted. The Plan terminates upon the earlier of the day preceding the tenth anniversary of
the date of its adoption by the stockholders at the Annual Meeting or the date on which all shares
available for issuance under the Plan shall have been issued pursuant to the exercise or cancellation
of Options granted under the Plan.
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Existing Equity Compensation Plans |
The following table presents certain information as of December 31, 2002 regarding compensation plans other than the Plan under which shares of the Companys Common Stock are authorized for issuance:
Plan category |
Number
of securities
to be issued upon
exercise of
outstanding options,
warrants
and rights |
|
Weighted-average
exercise price of
outstanding options,
warrants and rights |
|
Number of securities
remaining available for
future issuance |
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders |
|
1,790,153 |
|
$ |
6.42 |
|
|
37,635 |
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
1,790,153 |
|
$ |
6.42 |
|
|
37,635 |
|
|
|
|
|
|
|
|
|
APPROVAL OF PROPOSAL TO AMEND
THE COMPANYS
RESTATED CERTIFICATE OF INCORPORATION
AUTHORIZING AN
ADDITIONAL 35,000,000 SHARES
OF COMMON STOCK, $0.01 PAR VALUE
(Proposal
No. 3)
Description of the Amendment |
The Companys Restated Certificate of Incorporation (the Certificate) provides that the Company is authorized to issue two classes of stock consisting of 15,000,000 shares of Common Stock, $.01 par value per share, and 500,000 shares of preferred stock, $10.00 par value per share. On February 4, 2003, the Board of Directors determined by resolution that it is in the best interests of the Company and its stockholders to increase the number of authorized shares of the Companys Common Stock from 15,000,000 to 50,000,000 and authorized an amendment to the Certificate to effect the proposed increase. You are being asked to approve the amendment to increase the number of authorized shares of the Companys Common Stock from 15,000,000 to 50,000,000. If this Proposal is approved and the amendment to the Restated Certificate of Incorporation becomes effective, the first paragraph of Article IV of the Restated Certificate of Incorporation, which sets forth the Companys presently authorized capital stock, will be amended to read as follows:
The aggregate number of shares which the corporation shall have authority to issue is 50,500,000, by classes and par value of shares as follows:
Class |
No. of Shares |
|
Par Value
Per Share |
|
|
|
|
|
|
|
|
Common |
|
50,000,000 |
|
$ |
0.01 |
|
Preferred |
|
500,000 |
|
$ |
10.00 |
|
Approval of the proposal will require the favorable vote of a majority of the stockholders present in person or by proxy and voting at the Annual Meeting. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT.
At the close of business on March 11, 2003 there were 10,870,555 shares of the Companys Common Stock issued and outstanding and no shares of the Companys preferred stock issued and outstanding. 1,516,642 shares of Common Stock were also reserved for options as of the same date. As a result, only 2,612,803 shares of Common Stock remained available for future corporate purposes.
In the opinion of the Board of Directors, the additional authorized shares of Common Stock will benefit the Company by providing flexibility to the Board of Directors, without requiring further action or authorization by the stockholders (except as may be required by applicable law or stock exchange requirements), to issue additional shares of Common Stock from time
to time to respond to business needs and opportunities as they arise, or for other proper
corporate purposes. Currently, the primary reason for seeking an increase in the number of
authorized shares is to accommodate potential stock splits in the form of stock dividends,
although no such splits have been authorized and there is no assurance that the Company
will implement any such stock split. However, the Companys needs, opportunities and
purposes might also include, for example obtaining capital funds through public and private
offerings of shares of Common Stock or securities convertible into shares of Common Stock
and using shares of Common Stock in connection with structuring possible acquisitions of
businesses and assets. Additionally, the Board of Directors, in its discretion, could in the future,
subject to stockholder approval, increase, establish or extend stock option or stock award plans.
If the amendment were postponed until specific needs arose for an amount of shares in excess of
the amount of Common Stock authorized for issuance, the Companys ability to respond promptly
and effectively might be adversely impacted by the additional expenses and delay resulting from
the stockholder approval process.
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If approval of the amendment
to the Certificate is received from the Companys stockholders, the Board of Directors anticipates
reserving 850,000 shares for grants under the 2003 Stock Option Plan, which is the subject of Proposal 2
in this proxy statement. Though from time to time the Companys Board of Directors considers
transactions involving the issuance of shares of Common Stock, except for the foregoing, as of the
date of this Proxy Statement, our Board of Directors has no agreement, arrangement or intention to
issue any of the shares for which approval is sought. If the proposed amendment to our Restated
Certificate of Incorporation is approved by the stockholders, our Board of Directors does not intend
to solicit further stockholder approval prior to the issuance of any additional shares of Common Stock,
except as may be required by applicable law, the rules of the NASDAQ Stock Market or other applicable
requirements. Further, any such transactions are necessarily contingent upon numerous factors,
including without limitation, the number of shares of Common Stock of the Company authorized for issuance,
fluctuations in the stock market, the prevailing condition of the overall economy and the market price
of the Common Stock.
Increasing the number of authorized shares
of Common Stock will not have any immediate effect on the rights of current stockholders. However, the Board of
Directors will have the authority to issue authorized shares of Common Stock without requiring future stockholder
approval of those issuances (except as may be required by applicable law or stock exchange requirements). If the
Board of Directors determines that an issuance of shares of the Companys Common Stock is in the best interests
of the Company and its stockholders, the issuance of additional shares could have the effect of diluting the earning
per share or the book value per share of the outstanding shares of Common Stock or the stock ownership or voting
rights of a stockholder. The holders of the Companys Common Stock have no preemptive right to purchase any
of the additional shares of Common Stock when issued.
The increase in the number of authorized
shares of Common Stock and the subsequent issuance of all or a portion of those shares could have the effect of
delaying or preventing a change of control of the Company without further action by the stockholders. Subject to
applicable law and stock exchange requirements, the Company could issue shares of authorized and unissued Common
Stock in one or more transactions that would make a change of the control of the Company more difficult and therefore
less likely. Any issuance of additional shares could have the effect of diluting the earnings per share and book
value per share of the outstanding shares of Common Stock or the stock ownership and voting rights of a person
seeking to obtain control of the Company. The Company is not aware of any pending or proposed transaction
involving a change of control of the Company.
Implementing the Proposed Amendment |
If approved by the stockholders at the Annual Meeting, the proposed amendment to our Restated Certificate of Incorporation will become effective upon the filing of a certificate of amendment with the Secretary of State of the State of Delaware. Although our Board of Directors intends to file the certificate of amendment as soon as practicable after the Annual Meeting, if, in the judgment of our Board of Directors, any circumstances exist that would make consummation of the proposed amendment inadvisable, then, in accordance with Delaware law and notwithstanding approval of the proposed amendment to the Restated Certificate of Incorporation by the stockholders, our Board of Directors may abandon the proposed amendment, either before or after approval and authorization thereof by the stockholders, at any time prior to the effectiveness of the filing of the certificate of amendment.
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RATIFICATION OF INDEPENDENT
ACCOUNTANTS
(Proposal No. 4)
Upon the authority granted by the Board of Directors, the Audit Committee has designated KPMG LLP to be the independent accountants for the year ending December 31, 2003. The Board of Directors will offer a resolution at the Annual Meeting to ratify this designation. The Companys organizational documents do not require that the Companys stockholders ratify the selection of KPMG LLP as the Companys independent accountants. The Company is doing so because the Board of Directors of the Company believes it is a matter of good corporate practice. If the Companys stockholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain KPMG LLP, but still may retain them. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
Approval of the proposal will require the favorable vote of a majority of the stockholders present in person or by proxy and voting at the Annual Meeting. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION OF KPMG LLP AS THE INDEPENDENT ACCOUNTANTS FOR FISCAL 2003. It is anticipated that representatives of KPMG LLP will be present at the meeting to respond to appropriate questions and, if they desire, to make a statement.
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STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 2004 Annual Meeting of Stockholders must be received by eRT no later than November 20, 2003. Such proposals may be included in next years proxy statement if they comply with certain rules and regulations promulgated by the Securities and Exchange Commission.
In accordance with Rule 14a-4(c) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, the holders of proxies solicited by the Board of Directors in connection with the 2004 Annual Meeting may vote such proxies in their discretion on certain matters as more fully described in such rule, including without limitation on any matter coming before the meeting as to which the Company does not have notice on or before February 3, 2004.
The Board knows of no other matters that may be presented for action at the meeting. However, if any other matter properly comes before the meeting, the proxy holders will vote in accordance with their judgment on such matter.
Stockholders are urged to vote, sign and return the enclosed form of proxy promptly in the enclosed envelope.
By Order of the Board of Directors,
ANNA MARIE PAGLIACCETTI
Vice President, General Counsel and Secretary
March 20, 2003
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