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As filed with the Securities and Exchange Commission on November 7, 1997
Registration No. 333-______________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________________
BONDED MOTORS, INC.
(Exact name of issuer as specified in its charter)
CALIFORNIA 95-2698520
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
7522 S. Maie Avenue, Los Angeles, California 90001
(Address of principal executive offices) (Zip Code)
________________________
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN, AS AMENDED
1996 INCENTIVE STOCK PLAN, AS AMENDED
(Full title of the plan)
______________________
Aaron Landon
Chairman and Chief Executive Officer
Bonded Motors, Inc.
7522 S. Maie Avenue, Los Angeles, California 90001
(Name and address of agent for service)
(213) 583-8631
(Telephone number, including area code, of agent for service)
________________________
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered(1) per Share(2) Price(2) Fee
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1996 Non-Employee
Directors Stock Option
Plan
Options to Purchase
Common Stock 50,000 N/A N/A N/A
Common Stock 29,000 $8.563 $248,327 $75.25
Common Stock 21,000 $6.741 $141,561 $42.90
1996 Incentive Stock Plan
Options to Purchase
Common Stock 570,000 N/A N/A N/A
Common Stock 270,000 $8.563 $2,312,010 $700.61
Common Stock 300,000 $7.060 $2,118,000 $641.82
Total $1,460.58
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(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the Bonded Motors, Inc. 1996 Incentive
Stock Plan, as amended, and 1996 Non-Employee Directors Stock Option Plan, as
amended, by reason of any stock dividend, stock split, recapitalization or other
similar transaction effected without the receipt of consideration which results
in an increase in the number of the Registrant's outstanding shares of Common
Stock.
(2) Estimated solely for purposes of calculating the amount of the
registration fee under Rule 457(h) of the Securities Act of 1933, as amended
(the "1933 Act"), as follows: (i) with respect to Common Stock underlying
outstanding options, on the basis of the weighted average exercise price; and
(ii) with respect to Common Stock to be granted under the plans, on the basis
of the average between the high and low reported sales prices of the
Registrant's Common Stock on November 3, 1997 of $8.563 per share, as
reported by the Nasdaq National Market.
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EXPLANATORY NOTE
As provided in Instruction C to Form S-8, any prospectus that is to be used for
reoffers and resales of restricted securities must be filed as part of a
Registration Statement on Form S-8. Accordingly, the Prospectus that is to be
used for reoffers and resales of shares of Common Stock to be acquired upon
exercise of stock options outstanding prior to the effective date of this
Registration Statement pursuant to the issuance of Common Stock under the
Company's 1996 Incentive Stock Plan, as amended, and 1996 Non-Employee Directors
Stock Option Plan, as amended, has been filed as part of this Registration
Statement.
PROSPECTUS
321,000 Shares
BONDED MOTORS, INC.
COMMON STOCK
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This Prospectus relates to the public offering, which is not being
underwritten, of 321,000 shares of Common Stock, no par value per share, of
Bonded Motors, Inc. ("BONDED MOTORS", the "Company" or the "Registrant"). All
321,000 shares (the "Shares") may be offered by certain shareholders of the
Company or by pledgees, donees, transferees or other successors in interest that
receive such shares as a gift, partnership distribution or other non-sale
related transfer (the "Selling Shareholders"). All of the Shares may be
originally issued by the Company in connection with the exercise of options that
have been granted pursuant to the Company' s 1996 Incentive Stock Plan, as
amended (the "1996 Incentive Stock Plan"), or the 1996 Non-Employee Directors
Stock Option Plan, as amended (the "1996 Non-Employee Directors Stock Option
Plan"). The options were issued, and the Shares to be issued upon exercise of
the options will be issued, pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
provided by Section 4(2) thereof.
The Shares may be offered by the Selling Shareholders from time to time in
transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). See "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares. The Company has agreed to bear certain expenses in connection with the
registration of the Shares being offered and sold by the Selling Shareholders.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "BMTR."
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The Selling Shareholders and any broker-dealers or agents that participate
with the Selling Shareholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
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HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is November 7, 1997
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Shareholder or by any other person. Neither the delivery
of this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
covered by this Prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
lawfully be made.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 75 Park Place, New York, New York
10007 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained by mail from the Public Reference Branch
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. The Common Stock of the Company is quoted on the Nasdaq
National Market, and such material may also be inspected at the offices of
Nasdaq Operations, 1735 K Street N.W. Washington, D.C. 20006. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's web site is
http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-8 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information regarding the Company
and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and to the exhibits and schedules filed therewith. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of all or
any part thereof may be obtained from such office upon payment of the prescribed
fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Securities and Exchange
Commission (the "Commission") are incorporated reference into this Registration
Statement:
(a) The Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996 filed with the Commission pursuant to Section 13 of the
Exchange Act.
(b) The Registrant's Quarterly Reports on Form 10-QSB for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997
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(c) The Registrant's Registration Statement No. 0-28102 on Form 8-A filed
with the Commission on March 29, 1996, in which there is described the terms,
rights and provisions applicable to the Registrant's outstanding Common Stock.
All reports and definitive proxy or information statements filed pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or which
deregisters all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written requests for copies should be directed
to the executive offices of the Company at 7522 S. Maie Avenue, Los Angeles,
California 90001. The Company's telephone number is (213) 583-8631.
THE COMPANY
The Company is one of the largest independent engine remanufacturers in the
United States serving the automotive aftermarket for end users and installers
such as discount automotive parts chains, fleet owners, professional installers
and "do-it-yourselfers." The Company remanufactures and distributes in the
United States replacement engines for domestic and Japanese cars, light trucks
and specialty vehicles. The executive offices of the Company are at 7522 S.
Maie Avenue, Los Angeles, California 90001 The Company's telephone number is
(213) 583-8631.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES CERTAIN RISKS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, ALONG WITH THE OTHER
INFORMATION CONTAINED IN THE PROSPECTUS, THE FOLLOWING CONSIDERATIONS AND RISKS
IN EVALUATING AN INVESTMENT IN THE COMPANY.
CONCENTRATION OF SALES TO CERTAIN CUSTOMERS. A significant percentage of
the Company's sales has been concentrated among a relatively small number of
customers. The Company had sales with two significant customers constituting
approximately 30% and 32%, respectively, of net sales in 1996 and 39% and 23%,
respectively, of net sales in 1995. The Company has no master purchase
agreements with or other commitments from its customers. The loss of a
significant customer or a substantial decrease in sales to such a customer could
have a material adverse effect on the Company's sales and operating results.
Although the Company intends to increase its customer base through expansion
into other geographic regions, there can be no assurance that this concentration
of sales among customers will not continue in the future.
AVAILABILITY OF CORES. The Company obtains used engines (commonly referred
to as "cores") from various sources, principally from trade-ins and core
brokers. The Company uses cores to produce its remanufactured engines. The
Company's ability to obtain cores of the type and in the quantities required is
essential to its ability to meet and expand production. The availability of
particular core types may not coincide with customer demand for specific
remanufactured engine types as a result of, among other things, (i) a time lag
between the initial customer demand for a particular type of remanufactured
engine and the return of cores of such an engine by the customer, (ii) an
inability to salvage cores for reuse due to excessive wear, corrosion or damage
or (iii) an inability by the Company to acquire cores because of increased
demand or prices paid by other remanufacturers or core brokers. Although the
Company has not experienced any material core shortages, there can be no
assurance that the Company will have an adequate supply of cores in the future
to meet the demand for its remanufactured products.
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DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts and
abilities of its Chief Executive Officer, Aaron Landon, its President,
Richard Funk, its Chief Operating Officer, Buddy Mercer and its Chief Financial
Officer, Paul Sullivan. If the Company were to lose the services of any of
Messrs. Landon or Sullivan before a qualified replacement could be obtained, its
business could be materially adversely affected.
COMPETITION. The Company competes with companies involved in the
remanufacture and distribution of engines and related parts for domestic and
Japanese automobiles. The automotive aftermarket industry is highly competitive
and a number of companies with which the Company competes are substantially
larger and have significantly greater resources than the Company. The primary
basis for competition in the automotive aftermarket is price, quality,
reliability, rapid response and breadth of product selection. There are also a
number of engine remanufacturers that are substantially larger than the Company
who are authorized to sell remanufactured engines to dealerships and to
automobile manufacturers, but who do not currently compete with the Company in
the automotive aftermarket. There can be no assurance that these companies will
not enter the automotive aftermarket industry.
QUALITY CONTROL AND PRODUCT LIABILITY. While the Company maintains quality
assurance procedures that meet or exceed industry standards, the sale of the
Company's products could expose the Company to liability claims. The Company
currently has liability insurance which it believes is adequate for its current
activities. There can be no assurance that the Company will be able to maintain
insurance at a reasonable cost, if at all, that insurance will be adequate to
cover liabilities resulting from product liability claims or that the Company
will have funds available to pay any claims over the limit of its insurance.
While the Company has had no material liability claims to date, there can be no
assurance that material claims will not be made in the future.
ENVIRONMENTAL REGULATION. The Company's operations are subject to federal,
state and local laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of waste and other materials. The Company believes that
its business, operations and facilities have been and are being operated in
compliance in all material respects with applicable environmental and health and
safety laws and regulations, many of which provide for substantial fines and
criminal sanctions for violations. However, the operation of automotive parts
manufacturing plants entails risks in these areas, and there can be no assurance
that the Company will not incur material costs or liabilities. In addition,
potentially significant expenditures could be required in order to comply with
evolving environmental and health and safety laws, regulations or requirements
that may be adopted or imposed in the future or evolving interpretations of
existing laws, regulations and requirements. The Company believes, although
there can be no assurance, that the overall impact of compliance with
regulations and legislation protecting the environment will not have a material
effect on its future financial position or results of operations.
CONTROL OF THE COMPANY. The Landon Family Foundation, The Landon Family
Trust, The Aaron P. Landon Annuity Trust and The Maude M. Landon Annuity Trust
(collectively, the "Landon Family Entities"), own approximately 45% of the
Company's outstanding Common Stock. Each of the Landon Family Entities is an
affiliate of Mr. Aaron Landon, the Company's Chairman and Chief Executive
Officer. Mr. Landon, through the Landon Family Entities, will be able to control
the outcome of matters submitted to a vote by the Company's shareholders, such
as the election of the Company's Board of Directors, and control the direction
and future operations of the Company. See "Selling Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE. The Landon Family Entities own 1,320,020
shares of Common Stock. An offering of the shares of Common Stock has not been
under the Securities Act and may not be sold in the absence of such registration
or an exemption therefrom, including the provisions contained in Rule 144 under
the Securities Act. These shares owned by The Landon Family Entities are
available for sale under Rule 144. No prediction can be made as to the effect,
if any, that future sales of these shares of Common Stock will have on the
market price of the shares of Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock, or the perception that these sales could
occur, could adversely affect prevailing market prices for the Common Stock and
could impair the ability of the Company to raise additional capital through the
sale of its equity securities or through debt financing.
Affiliates of the underwriter of the Company's initial public offering hold
Underwriters' Warrants to purchase up to 100,000 shares of Common Stock. The
exercise of the Underwriters' Warrants may dilute the book value per share of
Common Stock. The holders of such warrants may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company and have the opportunity to benefit from increases
in the price of the Common Stock without risk of an equity investment. The
Company has agreed to register under federal and state securities laws the
Common Stock underlying the
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Underwriters' Warrants for resale. Such registration rights could involve
substantial expenses to the Company and may adversely affect the terms upon
which the Company may obtain additional financing.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares
offered hereby may be sold by the Selling Shareholders from time to time in
transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Shareholders and any broker-dealers or agents that participate
with the Selling Shareholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Common Stock of the Company for a
period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, each Selling Shareholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Shareholders.
SELLING SHAREHOLDERS
The following table sets forth the number of shares of Common Stock that
may be acquired by each of the Selling Shareholders upon exercise of stock
options issued under the Company's 1996 Incentive Stock Plan or 1996 Directors
Stock Option Plan. Except as indicated, none of the Selling Shareholders has
had a material relationship with the Company within the past three years other
than as a result of the ownership of the Shares or other securities of the
Company. Because the Selling Shareholders may offer all or some of the Shares
pursuant to the offering contemplated by this Prospectus, and because there are
currently no agreements, arrangements or understandings with respect to the sale
of any of the Shares, no estimate can be given as to the amount of Shares that
will be held by the Selling Shareholders after completion of this offering. The
Shares offered by this Prospectus may be offered from time to time by the
Selling Shareholders named below.
Percentage Percentage
of of
Outstanding Outstanding
Shares Number of Shares
Number of Beneficially Shares Beneficially
Shares Owned Registered Owned
Beneficially before the for Sale after the
Name of Shareholder Owned Offering Hereby (1) Offering(2)
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Aaron Landon(3) 1,388,770 44.8% 137,500 39.4%
Paul Sullivan(4) 127,020 4.2% 45,000 3.8%
Buddy Mercer(5) 100,020 3.3% 20,000 3.0%
James Williams * * 15,000 *
Sergio Carillo * * 15,000 *
Glenn Berg * * 10,000 *
Emma Fong * * 10,000 *
Seth Landon * * 10,000 *
Cristina Avila * * 7,500 *
Robert Glunt * * 7,500 *
Sukhu Vasnarungrkul * * 7,500 *
Richard Funk(6) * * 6,500 *
Cornelius McCarthy(6) * * 6,500 *
Dann V. Angeloff * * 5,000 *
Jose Cabral * * 5,000 *
Paul Lim * * 5,000 *
Michael Steger * * 5,000 *
Edward T. Bradford(6) * * 1,500 *
John F. Creamer(6) * * 1,500 *
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Total 321,000
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*Represents beneficial ownership of less than 1%.
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable in connection with the shares registered for
sale hereby by reason of any stock divided, stock split, recapitalization or
other similar transaction effected without the receipt of consideration which
results in an increase in the number of the Registrant's outstanding shares of
Common Stock.
(2) Assumes sale of all shares registered hereby for Selling Shareholders.
(3) Consists of shares held by The Landon Family Foundation, The Landon Family
Trust, The Aaron P. Landon Annuity Trust and The Maude M. Landon Annuity Trust.
Includes 68,750 shares of Common Stock that may be obtained within 60 days upon
exercise of stock options. Aaron Landon and Maude Landon, his wife, are
trustess and/or co-trustees of the trusts. Aaron Landon is the Company's
Chairman and Chief Executive Officer.
(4) Paul Sullivan is the Company's Vice President of Finance and Administration
and Chief Financial Officer and a Director.
(5) Buddy Mercer is the Company's Chief Operating Officer, Secretary and a
Director.
(6) Messrs. Funk, McCarthy, Bradford and Creamer are directors.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Petillon & Hansen, a partnership of professional corporations,
Torrance, California.
EXPERTS
The financial statements of Bonded Motors, Inc. as of December 31, 1996,
incorporated by reference in this prospectus, have been incorporated herein and
in the registration statement in reliance on the report of KPMG Peat Marwick
LLP, independent certified public accountants, upon the authority of said firm
as experts in auditing and accounting.
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PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Certain Documents by Reference.
Bonded Motors, Inc. (the "Registrant") hereby incorporates by reference
into this Registration Statement the following documents previously filed
with the Securities and Exchange Commission (the "Commission"):
(a) The Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996 filed with the Commission pursuant to Section 13 of
the Securities Exchange Act of 1934 (the "Exchange Act").
(b) The Registrant's Quarterly Reports on Form 10-QSB for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997.
(c) The Registrant's Registration Statement on Form 8-A (File No.
0-28102) filed with the Commission on January 31, 1997, in which there is
described the terms, rights and provisions applicable to the Registrant's
outstanding Common Stock.
All reports and definitive proxy or information statements filed pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Act after the date of
this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
Item 4. Description of Securities.
Not Applicable.
Item 5. Interests of Named Experts and Counsel.
Not Applicable.
Item 6. Indemnification of Directors and Officers.
The Company's Amended and Restated Articles of Incorporation include an
authorization for the Company to indemnify its agents ( as defined in Section
317 of the California Code), through bylaw provisions, by agreement or
otherwise, to the fullest extent permitted by law. Pursuant to this provision,
the Company's Amended and Restated Bylaws provide for indemnification of the
Company's directors, officers and employees. In addition, the Company, at its
discretion, may provide indemnification to persons whom the Company is not
obligated to indemnify. The Amended and Restated Bylaws also allow the Company
to enter into indemnity agreements with individual directors, officers,
employees and other agents. Any such indemnity agreements, together with the
Company's Amended and Restated Bylaws and Amended and Restated Articles of
Incorporation, may require the Company, among other things, to indemnify these
persons against certain liabilities that may arise by reason of their status as
such or service in such capacity (other than liabilities resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification,
and to obtain directors' and officers' insurance if available on reasonable
terms.
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Section 317 of the California Code and the Company's Amended and Restated
Bylaws make provisions for the indemnification of officers, directors and other
corporate agents in terms sufficiently broad to indemnify such persons, under
certain circumstances, for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act.
The Company has been advised that it is the position of the Securities and
Exchange Commission that insofar as the foregoing provision may be invoked for
liabilities arising under the Securities Act, the provision is against public
policy as expressed in the Securities Act and is therefore unenforceable. Such
limitation of liability also does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Item 7. Exemption from Registration Claimed.
The shares to be reoffered or resold pursuant to this registration
statement were issued without registration under the Securities Act in reliance
upon Section 4(2) under the Securities Act and/or Regulation D promulgated under
the Securities Act. The purchasers acquired the securities for investment only
and not with a view to the distribution thereof.
Item 8. Exhibits.
Exhibit Number Exhibit
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4.0 Instruments Defining Rights of Shareholders. Reference is
made to Registrant's Registration Statement on Form 8-A
(File No. 0-28102) which is incorporated herein by reference
pursuant to Item 3(c).
5.0 Opinion of Petillon & Hansen.
23.1 Consent of Independent Certified Public Accountants - KPMG
Peat Marwick LLP.
23.2 Consent of Petillon & Hansen is contained in Exhibit 5.
24.0 Power of Attorney. Reference is made to page II-3 of this
Registration Statement.
91.1 Bonded Motors, Inc. 1996 Incentive Stock Plan, as amended.
99.2 Bonded Motors, Inc. 1996 Non-Employee Directors Stock Option
Plan, as amended.
Item 9. Undertakings.
A. The undersigned Registrant hereby undertakes: (1) to file,
during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement (i) to include any prospectus required
by Section 10(a)(3) of the Securities Act, (ii) to reflect in the prospectus any
facts or events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the Registration Statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement; (2) that for the purpose of determining any liability under the
Securities Act each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and (3) to remove from registration by means of a post-
effective amendment any of the securities being registered which remain unsold
at the termination of the 1996 Incentive Stock Plan and/or the 1996 Non-Employee
Directors Stock Option Plan.
B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Act that is incorporated by reference into the Registration Statement
shall be deemed to be a new
8
<PAGE>
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or controlling
persons of the Registrant pursuant to the indemnity provisions summarized in
Item 6 or otherwise, the Registrant has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on this 6 day of November, 1997.
BONDED MOTORS, INC.
By /s/ Aaron Landon
-------------------------------------
Aaron Landon
Chief Executive Officer and Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Aaron Landon and each of them acting
individually, as such person's true and lawful attorneys-in-fact and agents,
each with full power of substitution, for such person, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his or her substitutes, may do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Signatures Title Date
/s/Aaron Landon Chief Executive Officer; November 6, 1997
- ----------------------------- Chairman of the Board
Aaron Landon (Principal Executive
Officer)
/s/Buddy Mercer Chief Operating Officer; November 6, 1997
- ----------------------------- Secretary; Director
Buddy Mercer
/s/Paul Sullivan Vice President -- Finance; November 6, 1997
- ----------------------------- Director
Paul Sullivan (Principal Financial
Officer and
Principal Accounting
Officer)
/s/Richard Funk President; Director November 6, 1997
- -----------------------------
Richard Funk
/s/Edward T. Bradford Director November 3, 1997
- -----------------------------
Edward T. Bradford
Director November __, 1997
- -----------------------------
John F. Creamer
Director November __, 1997
- -----------------------------
Cornelius P. McCarthy, III
10
<PAGE>
EXHIBIT INDEX
Exhibit Number Exhibit
-------------- -------
4.0 Instruments Defining Rights of Shareholders. Reference is
made to Registrant's Registration Statement on Form 8-A
(File No. 0-28102) which is incorporated herein by reference
pursuant to Item 3(c).
5.0 Opinion of Petillon & Hansen.
23.1 Consent of Independent Certified Public Accountants - KPMG
Peat Marwick LLP.
23.2 Consent of Petillon & Hansen is contained in Exhibit 5.
24.0 Power of Attorney. Reference is made to page II-3 of this
Registration Statement.
99.1 Bonded Motors, Inc. 1996 Incentive Stock Plan, as amended.
99.2 Bonded Motors, Inc. 1996 Non-Employee Directors Stock Option
Plan, as amended.
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<PAGE>
EXHIBIT 5
November 7, 1997
Bonded Motors, Inc.
7522 S. Maie Avenue
Los Angeles, California 90001
RE: Registration Statement On Form S-8
1996 Incentive Stock Plan, as amended;
1996 Non-Employee Directors Stock Option Plan, as amended
Ladies and Gentlemen:
We have acted as counsel to Bonded Motors, Inc., a California corporation (the
"Company"), in connection with the registration by the Company of
shares (the "Shares") of its Common Stock, no par value, pursuant to the
Company's registration statement on Form S-8 (the "Registration Statement") for
the Company's 1996 Incentive Stock Plan, as amended, and the Company's 1996 Non-
Employee Directors Stock Option Plan, as amended (collectively, the "Plans"),
under which 570,000, and 50,000 shares, respectively, are to be registered.
We advise you that, in our opinion, when such shares have been issued and sold
pursuant to the applicable provisions of the Plans and in accordance with the
Registration Statement, such shares will be validly issued, fully paid and
nonassessable shares of Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Petillon & Hansen
PETILLON & HANSEN
<PAGE>
[LETTERHEAD]
[LOGO]
The Board of Directors
Bonded Motors, Inc.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
-------------------------------
KPMG Peat Marwick LLP
Los Angeles, California
November 7, 1997
<PAGE>
BONDED MOTORS, INC.
1996 INCENTIVE STOCK PLAN
(AS AMENDED SEPTEMBER 2, 1997)
1. OBJECTIVES.
The BONDED MOTORS, INC. 1996 Incentive Stock Plan (the "Plan") is
designed to retain directors, executives and selected employees and consultants
and reward them for making major contributions to the success of the Company.
These objectives are accomplished by making long-term incentive awards under the
Plan thereby providing Participants with a proprietary interest in the growth
and performance of the Company.
2. DEFINITIONS.
(a) "BOARD" - The Board of Directors of the Company.
(b) "CALIFORNIA SECURITIES RULES" - Chapter 3, Subchapter 2,
Subarticle 4 of Article 4 of Title 10 of the Corporate Securities Rules of the
Commissioner of Corporations of the state of California.
(c) "CODE" - The Internal Revenue Code of 1986, as amended from
time to time.
(d) "COMMITTEE" - The Executive Compensation Committee of the
Company's Board, or such other committee of the Board that is designated by the
Board to administer the Plan, composed of not less than two members of the Board
all of whom are Non-Employee Directors, as contemplated by Rule 16b-3 ("Rule
16b-3") promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The foregoing requirement for disinterested administration
shall not apply prior to the date of the first registration of any of the
securities of the Company under the Exchange Act.
(e) "COMPANY" - BONDED MOTORS, INC. and its subsidiaries
including subsidiaries of subsidiaries.
(f) "EXCHANGE ACT" - The Securities Exchange Act of 1934, as
amended from time to time.
(g) "FAIR MARKET VALUE" - The fair market value of the
Company's issued and outstanding Stock as determined in good faith by the Board
or Committee.
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<PAGE>
(h) "GRANT" - The grant of any form of stock option, stock
award, or stock purchase offer, whether granted singly, in combination or in
tandem, to a Participant pursuant to such terms, conditions and limitations as
the Committee may establish in order to fulfill the objectives of the Plan.
(i) "GRANT AGREEMENT" - An agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable to
a Grant.
(j) "OPTION" - Either an Incentive Stock Option, in accordance
with Section 422 of Code, or a Nonstatutory Option, to purchase the Company's
Stock that may be awarded to a Participant under the Plan. A Participant who
receives an award of an Option shall be referred to as an "Optionee."
(k) "PARTICIPANT" - A director, officer, employee or consultant
of the Company to whom an Award has been made under the Plan.
(l) "RESTRICTED STOCK PURCHASE OFFER" - A Grant of the right to
purchase a specified number of shares of Stock pursuant to a written agreement
issued under the Plan.
(m) "SECURITIES ACT" - The Securities Act of 1933, as amended
from time to time.
(n) "STOCK" - Authorized and issued or unissued shares of common
stock of the Company.
(o) "STOCK AWARD" - A Grant made under the Plan in stock or
denominated in units of stock for which the Participant is not obligated to pay
additional consideration.
3. ADMINISTRATION
The Plan shall be administered by the Board, provided however, that
the Board may delegate such administration to the Committee. Subject to the
provisions of the Plan, the Board and/or the Committee shall have authority
to (a) grant, in its discretion, Incentive Stock Options in accordance with
Section 422 of the Code, or Nonstatutory Options, Stock Awards or Restricted
Stock Purchase Offers; (b) determine in good faith the fair market value of
the Stock covered by any Grant; (c) determine which eligible persons shall
receive Grants and the number of shares, restrictions, terms and conditions
to be included in such Grants; (d) construe and interpret the Plan; (e)
promulgate, amend and rescind rules and regulations relating to its
administration, and correct defects, omissions and inconsistencies in the
Plan or any Grant; (f) consistent with the Plan and with the consent of the
Participant, as appropriate, amend any outstanding Grant or amend the
exercise date or dates thereof; (g) determine the duration and purpose of
leaves of absence which may be granted to Participants without constituting
termination of their employment for the purpose of the Plan or any Grant; and
(h) make all other determinations necessary or advisable for the Plan's
administration. The interpretation and
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<PAGE>
construction by the Board of any provisions of the Plan or selection of
Participants shall be conclusive and final. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Grant made thereunder.
4. ELIGIBILITY
(a) GENERAL: The persons who shall be eligible to receive
Grants shall be directors, officers, employees or consultants to the Company.
The term consultant shall mean any person, other than an employee, who is
engaged by the Company to render services and is compensated for such services.
An Optionee may hold more than one Option. Any issuance of a Grant to an
officer or director of the Company subsequent to the first registration of any
of the securities of the Company under the Exchange Act shall comply with the
requirements of Rule 16b-3.
(b) INCENTIVE STOCK OPTIONS: Incentive Stock Options may only
be issued to employees of the Company. Incentive Stock Options may be granted
to officers, whether or not they are directors, provided they are also employees
of the Company. Payment of a director's fee shall not be sufficient to
constitute employment by the Company.
The Company shall not grant an Incentive Stock Option under the Plan
to any employee if such Grant would result in such employee holding the right
to exercise for the first time in any one calendar year, under all Incentive
Stock Options granted under the Plan or any other plan maintained by the
Company, with respect to shares of Stock having an aggregate fair market
value, determined as of the date of the Option is granted, in excess of
$100,000. Should it be determined that an Incentive Stock Option granted
under the Plan exceeds such maximum for any reason other than a failure in
good faith to value the Stock subject to such option, the excess portion of
such option shall be considered a Nonstatutory Option. To the extent the
employee holds two (2) or more such Options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such Option as Incentive Stock Options under the Federal
tax laws shall be applied on the basis of the order in which such Options are
granted. If, for any reason, an entire Option does not qualify as an
Incentive Stock Option by reason of exceeding such maximum, such Option shall
be considered a Nonstatutory Option.
(c) NONSTATUTORY OPTION: The provisions of the foregoing
Section 4(b) shall not apply to any Option designated as a "Nonstatutory Option"
or which sets forth the intention of the parties that the Option be a
Nonstatutory Option.
(d) STOCK AWARDS AND RESTRICTED STOCK PURCHASE OFFERS: The
provisions of this Section 4 shall not apply to any Stock Award or Restricted
Stock Purchase Offer under the Plan.
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<PAGE>
5. STOCK
(a) AUTHORIZED STOCK: Stock subject to Grants may be either
unissued or reacquired common stock.
(b) NUMBER OF SHARES: Subject to adjustment as provided in
Section 6(i) of the Plan, the total number of shares of Stock which may be
purchased or granted directly by Options, Stock Awards or Restricted Stock
Purchase Offers, or purchased indirectly through exercise of Options granted
under the Plan shall not exceed 600,000. If any Grant shall for any reason
terminate or expire, any shares allocated thereto but remaining unpurchased
upon such expiration or termination shall again be available for Grants with
respect thereto under the Plan as though no Grant had previously occurred
with respect to such shares. Any shares of Stock issued pursuant to a Grant
and repurchased pursuant to the terms thereof shall be available for future
Grants as though not previously covered by a Grant.
(c) RESERVATION OF SHARES: The Company shall reserve and keep
available at all times during the term of the Plan such number of shares as
shall be sufficient to satisfy the requirements of the Plan. If, after
reasonable efforts, which efforts shall not include the registration of the Plan
or Grants under the Securities Act, the Company is unable to obtain authority
from any applicable regulatory body, which authorization is deemed necessary by
legal counsel for the Company for the lawful issuance of shares hereunder, the
Company shall be relieved of any liability with respect to its failure to issue
and sell the shares for which such requisite authority was so deemed necessary
unless and until such authority is obtained.
(d) APPLICATION OF FUNDS
The proceeds received by the Company from the sale of common stock
pursuant to the exercise of Options or rights under Stock Purchase Agreements
will be used for general corporate purposes.
(e) NO OBLIGATION TO EXERCISE
The issuance of a Grant shall impose no obligation upon the
Participant to exercise any rights under such Grant.
6. TERMS AND CONDITIONS OF OPTIONS
Options granted hereunder shall be evidenced by agreements
between the Company and the respective Optionees, in such form and substance as
the Board or Committee shall from time to time approve. The form of Incentive
Stock Option Agreement attached hereto as Exhibit "A" and the three forms of a
Nonstatutory Stock Option Agreement for employees, for directors and for
consultants, attached hereto as Exhibits "B-1," "B-2" and "B-3," respectively,
shall be deemed to be approved by the Board. Option agreements need not be
identical, and in
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<PAGE>
each case may include such provisions as the Board or Committee may
determine, but all such agreements shall be subject to and limited by the
following terms and conditions:
(a) NUMBER OF SHARES: Each Option shall state the number of
shares to which it pertains.
(b) EXERCISE PRICE: Each Option shall state the exercise price,
which shall be determined as follows:
(i) Any Option granted to a person who at the time the
Option is granted owns (or is deemed to own pursuant to Section 424(d)
of the Code) stock possessing more than ten percent (10%) of the total
combined voting power or value of all classes of stock of the Company,
("Ten Percent Holder") shall have an exercise price of no less than
110% of the Fair Market Value of the Stock as of the date of grant;
and
(ii) Incentive Stock Options granted to a person who at the
time the Option is granted is not a Ten Percent Holder shall have an
exercise price of no less than 100% of the Fair Market Value of the
common stock as of the date of grant.
(iii) Nonstatutory Options granted to a person who at
the time the Option is granted is not a Ten Percent Holder shall have
an exercise price of no less than 85% of the Fair Market Value of the
Stock as of the date of grant.
For the purposes of this Section 6(b), the Fair Market Value shall
be as determined by the Board in good faith, which determination shall be
conclusive and binding; provided however, that if there is a public market
for such Stock, the Fair Market Value per share shall be the average of the
bid and asked prices (or the closing price if such stock is listed on the
NASDAQ National Market System or Small Cap Issue Market) on the date of grant
of the Option, or if listed on a stock exchange, the closing price on such
exchange on such date of grant.
(c) MEDIUM AND TIME OF PAYMENT: The exercise price shall become
immediately due upon exercise of the Option and shall be paid in cash or check
made payable to the Company. Should the Company's outstanding Stock be
registered under Section 12(g) of the Exchange Act at the time the Option is
exercised, then the exercise price may also be paid as follows:
(i) in shares of the Company's Stock held by the Optionee
for the requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and valued at Fair Market
Value on the exercise date, or
(ii) through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions (a) to a Company designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Company, out of the
sale proceeds available on the settlement date,
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<PAGE>
sufficient funds to coverthe aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Company by reason of such
purchase and (b) to the Company to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the
sale transaction.
At the discretion of the Board, exercisable either at the time of
Option grant or of Option exercise, the exercise price may also be paid (i) by
Optionee's delivery of a promissory note in form and substance satisfactory to
the Company and permissible under the California Securities Rules and bearing
interest at a rate determined by the Board in its sole discretion, but in no
event less than the minimum rate of interest required to avoid the imputation of
compensation income to the Optionee under the Federal tax laws, or (ii) in such
other form of consideration permitted by the California Corporations Code as may
be acceptable to the Board.
(d) TERM AND EXERCISE OF OPTIONS: Any Option granted to an
employee of the Company shall become exercisable over a period of no longer than
five (5) years, and no less than twenty percent (20%) of the shares covered
thereby shall become exercisable annually. No Option shall be exercisable, in
whole or in part, prior to one (1) year from the date it is granted unless the
Board shall specifically determine otherwise, as provided herein. In no event
shall any Option be exercisable after the expiration of ten (10) years from the
date it is granted, and no Incentive Stock Option granted to a Ten Percent
Holder shall, by its terms, be exercisable after the expiration of five (5)
years from the date of the Option. Unless otherwise specified by the Board or
the Committee in the resolution authorizing such option, the date of grant of an
Option shall be deemed to be the date upon which the Board or the Committee
authorizes the granting of such Option.
Each Option shall be exercisable to the nearest whole share,
in installments or otherwise, as the respective Option agreements may provide.
During the lifetime of an Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable by the Optionee, and no
other person shall acquire any rights therein. To the extent not exercised,
installments (if more than one) shall accumulate, but shall be exercisable, in
whole or in part, only during the period for exercise as stated in the Option
agreement, whether or not other installments are then exercisable.
(e) TERMINATION OF STATUS AS EMPLOYEE, CONSULTANT OR DIRECTOR:
If Optionee's status as an employee shall terminate for any reason other than
Optionee's disability or death, then the Optionee (or if the Optionee shall die
after such termination, but prior to exercise, Optionee's personal
representative or the person entitled to succeed to the Option) shall have the
right to exercise the portions of any of Optionee's Incentive Stock Options
which were exercisable as of the date of such termination, in whole or in part,
not less than 30 days nor more than three (3) months after such termination (or,
in the event of "termination for cause" as that term is defined in Section 2922
of the California Labor Code and case law related thereto, or by the terms of
the Plan or the Option Agreement or an employment agreement, the Option shall
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<PAGE>
automatically terminate as of the termination of employment as to all shares
covered by the Option).
With respect to Nonstatutory Options granted to employees,
directors or consultants, the Board may specify such period for exercise, not
less than 30 days (except that in the case of "termination for cause" or
termination of a director pursuant to Section 302 or 304 of the California
Corporations Code, the Option shall automatically terminate as of the
termination of employment or services as to shares covered by the Option),
following termination of employment or services as the Board deems reasonable
and appropriate. The Option may be exercised only with respect to installments
that the Optionee could have exercised at the date of termination of employment
or services. Nothing contained herein or in any Option granted pursuant hereto
shall be construed to affect or restrict in any way the right of the Company to
terminate the employment or services of an Optionee with or without cause.
(f) DISABILITY OF OPTIONEE: If an Optionee is disabled (within
the meaning of Section 22(e)(3) of the Code) at the time of termination, the
three (3) month period set forth in Section 6(e) shall be a period, as
determined by the Board and set forth in the Option, of not less than six months
nor more than one year after such termination.
(g) DEATH OF OPTIONEE: If an Optionee dies while employed by,
engaged as a consultant to, or serving as a Director of the Company, the portion
of such Optionee's Option which was exercisable at the date of death may be
exercised, in whole or in part, by the estate of the decedent or by a person
succeeding to the right to exercise such Option at any time within (i) a period,
as determined by the Board and set forth in the Option, of not less than six (6)
months nor more than one (1) year after Optionee's death, which period shall not
be more, in the case of a Nonstatutory Option, than the period for exercise
following termination of employment or services, or (ii) during the remaining
term of the Option, whichever is the lesser. The Option may be so exercised
only with respect to installments exercisable at the time of Optionee's death
and not previously exercised by the Optionee.
(h) NONTRANSFERABILITY OF OPTION: No Option shall be
transferable by the Optionee, except by will or by the laws of descent and
distribution.
(i) RECAPITALIZATION: Subject to any required action of
shareholders, the number of shares of Stock covered by each outstanding Option,
and the Exercise price per share thereof set forth in each such Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Company resulting from a subdivision or consolidation of
shares or the payment of a stock dividend, or any other increase or decrease in
the number of such shares affected without receipt of consideration by the
Company; provided, however, the conversion of any convertible securities of the
Company shall not be deemed to have been "effected" without receipt of
consideration by the Company.
In the event of a proposed dissolution or liquidation of the Company, a
merger or consolidation in which the Company is not the surviving entity, or
a sale of all or
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<PAGE>
substantially all of the assets or capital stock of the Company
(collectively, a "Reorganization"), unless otherwise provided by the Board,
this Option shall terminate immediately prior to such date as is determined
by the Board, which date shall be no later than the consummation of such
Reorganization. In such event, if the entity which shall be the surviving
entity does not tender to Optionee an offer, for which it has no obligation
to do so, to substitute for any unexercised Option a stock option or capital
stock of such surviving of such surviving entity, as applicable, which on an
equitable basis shall provide the Optionee with substantially the same
economic benefit as such unexercised Option, then the Board may grant to such
Optionee, in its sole and absolute discretion and without obligation, the
right for a period commencing thirty (30) days prior to and ending
immediately prior to the date determined by the Board pursuant hereto for
termination of the Option or during the remaining term of the Option,
whichever is the lesser, to exercise any unexpired Option or Options without
regard to the installment provisions of Paragraph 6(d) of the Plan; provided,
that any such right granted shall be granted to all Optionees not receiving
an offer to receive substitute options on a consistent basis, and provided
further, that any such exercise shall be subject to the consummation of such
Reorganization.
Subject to any required action of shareholders, if the Company shall be
the surviving entity in any merger or consolidation, each outstanding Option
thereafter shall pertain to and apply to the securities to which a holder of
shares of common stock equal to the shares subject to the Option would have
been entitled by reason of such merger or consolidation.
In the event of a change in the common stock of the Company as presently
constituted, which is limited to a change of all of its authorized shares
without par value into the same number of shares with a par value, the shares
resulting from any such change shall be deemed to be the Stock within the
meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided in this Section 6(i), the Optionee shall have no rights
by reason of any subdivision or consolidation of shares of stock of any class
or the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class, and the number or price of shares of
Stock subject to any Option shall not be affected by, and no adjustment shall
be made by reason of, any dissolution, liquidation, merger, consolidation or
sale of assets or capital stock, or any issue by the Company of shares of
stock of any class or securities convertible into shares of stock of any
class.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make any adjustments, reclassifications,
reorganizations or changes in its capital or business structure or to merge,
consolidate, dissolve, or liquidate or to sell or transfer all or any part of
its business or assets.
(j) RIGHTS AS A SHAREHOLDER: An Optionee shall have no rights
as a shareholder with respect to any shares covered by an Option until the
effective date of the issuance of the shares following exercise of such Option
by Optionee. No adjustment shall be made for
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<PAGE>
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior
to the date such stock certificate is issued, except as expressly provided in
Section 6(i) hereof.
(k) MODIFICATION, ACCELERATION, EXTENSION, AND RENEWAL OF
OPTIONS: Subject to the terms and conditions and within the limitations of the
Plan, the Board may modify an Option, or, once an Option is exercisable,
accelerate the rate at which it may be exercised, and may extend or renew
outstanding Options granted under the Plan or accept the surrender of
outstanding Options (to the extent not theretofore exercised) and authorize the
granting of new Options in substitution for such Options, provided such action
is permissible under Section 422 of the Code and the California Securities
Rules. Notwithstanding the provisions of this Section 6(k), however, no
modification of an Option shall, without the consent of the Optionee, alter to
the Optionee's detriment or impair any rights or obligations under any Option
theretofore granted under the Plan.
(l) EXERCISE BEFORE EXERCISE DATE: At the discretion of the
Board, the Option may, but need not, include a provision whereby the Optionee
may elect to exercise all or any portion of the Option prior to the stated
exercise date of the Option or any installment thereof. Any shares so purchased
prior to the stated exercise date shall be subject to repurchase by the Company
upon termination of Optionee's employment as contemplated by Section 6(n) hereof
prior to the exercise date stated in the Option and such other restrictions and
conditions as the Board or Committee may deem advisable.
(m) OTHER PROVISIONS: The Option agreements authorized under
the Plan shall contain such other provisions, including, without limitation,
restrictions upon the exercise of the Options, as the Board or the Committee
shall deem advisable. Shares shall not be issued pursuant to the exercise of an
Option, if the exercise of such Option or the issuance of shares thereunder
would violate, in the opinion of legal counsel for the Company, the provisions
of any applicable law or the rules or regulations of any applicable governmental
or administrative agency or body, such as the Code, the Securities Act, the
Exchange Act, the California Securities Rules, California Corporations Code, and
the rules promulgated under the foregoing or the rules and regulations of any
exchange upon which the shares of the Company are listed. Without limiting the
generality of the foregoing, the exercise of each Option shall be subject to the
condition that if at any time the Company shall determine that (i) the
satisfaction of withholding tax or other similar liabilities, or (ii) the
listing, registration or qualification of any shares covered by such exercise
upon any securities exchange or under any state or federal law, or (iii) the
consent or approval of any regulatory body, or (iv) the perfection of any
exemption from any such withholding, listing, registration, qualification,
consent or approval is necessary or desirable in connection with such exercise
or the issuance of shares thereunder, then in any such event, such exercise
shall not be effective unless such withholding, listing registration,
qualification, consent, approval or exemption shall have been effected, obtained
or perfected free of any conditions not acceptable to the Corporation.
(n) REPURCHASE AGREEMENT: The Board may, in its discretion,
require as a condition to the grant of an Option hereunder, that an Optionee
execute an agreement with the
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<PAGE>
Company, in form and substance satisfactory to the Board in its discretion
("Repurchase Agreement"), (i) restricting the Optionee's right to transfer
shares purchased under such Option without first offering such shares to the
Company or another shareholder of the Company upon the same terms and
conditions as provided therein; and (ii) providing that upon termination of
Optionee's employment with the Company, for any reason, the Company (or
another shareholder of the Company, as provided in the Repurchase Agreement)
shall have the right at its discretion (or the discretion of such other
shareholders) to purchase and/or redeem all such shares owned by the Optionee
on the date of termination of his or her employment at a price equal to (A)
the fair value of such shares as of such date of termination, or (B) if such
repurchase right lapses at 20% of the number of shares per year, the original
purchase price of such shares, and upon terms of payment permissible under
the California Securities Rules; provided that in the case of Options or
Stock Awards granted to officers, directors, consultants or affiliates of the
Company, such repurchase provisions may be subject to additional or greater
restrictions as determined by the Board or Committee.
7. STOCK AWARDS AND RESTRICTED STOCK PURCHASE OFFERS
(a) TYPES OF GRANTS.
(i) STOCK AWARD. All or part of any Stock Award under the
Plan may be subject to conditions established by the Board or the
Committee, and set forth in the Stock Award Agreement, which may
include, but are not limited to, continuous service with the
Company, achievement of specific business objectives, increases in
specified indices, attaining growth rates and other comparable
measurements of Company performance. Such Awards may be based on
Fair Market Value or other specified valuation. All Stock Awards
will be made pursuant to the execution of a Stock Award Agreement
substantially in the form attached hereto as Exhibit "C".
(ii) RESTRICTED STOCK PURCHASE OFFERS. A Grant of a
Restricted Stock Purchase Offer under the Plan shall be subject to
such (i) vesting contingencies related to the Participant's
continued association with the Company for a specified time and
(ii) other specified conditions as the Board or Committee shall
determine, in their sole discretion, consistent with the provisions
of the Plan. All Restricted Stock Purchase Offers shall be made
pursuant to a Restricted Stock Purchase Offer substantially in the
form attached hereto as Exhibit "D".
(b) CONDITIONS AND RESTRICTIONS. Shares of Stock which
Participants may receive as a Stock Award under a Stock Award Agreement or
Restricted Stock Purchase Offer under a Restricted Stock Purchase Offer may
include such restrictions as the Board or Committee, as applicable, shall
determine, including restrictions on transfer, repurchase rights, right of first
refusal, and forfeiture provisions. When transfer of Stock is so restricted or
subject to forfeiture provisions it is referred to as "Restricted Stock".
Further, with Board or Committee approval, Stock Awards or Restricted Stock
Purchase Offers may be deferred, either in the form of
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<PAGE>
installments or a future lump sum distribution. The Board or Committee may
permit selected Participants to elect to defer distributions of Stock Awards
or Restricted Stock Purchase Offers in accordance with procedures established
by the Board or Committee to assure that such deferrals comply with
applicable requirements of the Code including, at the choice of Participants,
the capability to make further deferrals for distribution after retirement.
Any deferred distribution, whether elected by the Participant or specified by
the Stock Award Agreement, Restricted Stock Purchase Offers or by the Board
or Committee, may require the payment be forfeited in accordance with the
provisions of Section 7(c). Dividends or dividend equivalent rights may be
extended to and made part of any Stock Award or Restricted Stock Purchase
Offers denominated in Stock or units of Stock, subject to such terms,
conditions and restrictions as the Board or Committee may establish.
(c) CANCELLATION AND RESCISSION OF GRANTS. Unless the Stock
Award Agreement or Restricted Stock Purchase Offer specifies otherwise, the
Board or Committee, as applicable, may cancel any unexpired, unpaid, or deferred
Grants at any time if the Participant is not in compliance with all other
applicable provisions of the Stock Award Agreement or Restricted Stock Purchase
Offer, the Plan and with the following conditions:
(i) A Participant shall not render services for any
organization or engage directly or indirectly in any business
which, in the judgment of the chief executive officer of the
Company or other senior officer designated by the Board or
Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or
in conflict with the interests of the Company. For Participants
whose employment has terminated, the judgment of the chief
executive officer shall be based on the Participant's position and
responsibilities while employed by the Company, the Participant's
post-employment responsibilities and position with the other
organization or business, the extent of past, current and potential
competition or conflict between the Company and the other
organization or business, the effect on the Company's customers,
suppliers and competitors and such other considerations as are
deemed relevant given the applicable facts and circumstances. A
Participant who has retired shall be free, however, to purchase as
an investment or otherwise, stock or other securities of such
organization or business so long as they are listed upon a
recognized securities exchange or traded over-the-counter, and such
investment does not represent a substantial investment to the
Participant or a greater than 10 percent equity interest in the
organization or business.
(ii) A Participant shall not, without prior written
authorization from the Company, disclose to anyone outside the
Company, or use in other than the Company's business, any
confidential information or material, as defined in the Company's
Proprietary Information and Invention Agreement or similar
agreement regarding confidential information and intellectual
property, relating to the business of the Company, acquired by the
Participant either during or after employment with the Company.
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<PAGE>
(iii) A Participant, pursuant to the Company's
Proprietary Information and Invention Agreement, shall disclose
promptly and assign to the Company all right, title and interest in
any invention or idea, patentable or not, made or conceived by the
Participant during employment by the Company, relating in any
manner to the actual or anticipated business, research or
development work of the Company and shall do anything reasonably
necessary to enable the Company to secure a patent where
appropriate in the United States and in foreign countries.
(iv) Upon exercise, payment or delivery pursuant to a Grant,
the Participant shall certify on a form acceptable to the Committee
that he or she is in compliance with the terms and conditions of
the Plan. Failure to comply with all of the provisions of this
Section 7(c) prior to, or during the six months after, any
exercise, payment or delivery pursuant to a Grant shall cause such
exercise, payment or delivery to be rescinded. The Company shall
notify the Participant in writing of any such rescission within two
years after such exercise, payment or delivery. Within ten days
after receiving such a notice from the Company, the Participant
shall pay to the Company the amount of any gain realized or payment
received as a result of the rescinded exercise, payment or delivery
pursuant to a Grant. Such payment shall be made either in cash or
by returning to the Company the number of shares of Stock that the
Participant received in connection with the rescinded exercise,
payment or delivery.
(d) NONASSIGNABILITY.
(i) Except pursuant to Section 7(e)(iii) and except as set
forth in Section 7(d)(ii), no Grant or any other benefit under the
Plan shall be assignable or transferable, or payable to or
exercisable by, anyone other than the Participant to whom it was
granted.
(ii) Where a Participant terminates employment and retains a
Grant pursuant to Section 7(e)(ii) in order to assume a position
with a governmental, charitable or educational institution, the
Board or Committee, in its discretion and to the extent permitted
by law, may authorize a third party (including but not limited to
the trustee of a "blind" trust), acceptable to the applicable
governmental or institutional authorities, the Participant and the
Board or Committee, to act on behalf of the Participant with regard
to such Awards.
(e) TERMINATION OF EMPLOYMENT. If the employment or service to
the Company of a Participant terminates, other than pursuant to any of the
following provisions under this Section 7(e), all unexercised, deferred and
unpaid Stock Awards or Restricted Stock Purchase Offers shall be cancelled
immediately, unless the Stock Award Agreement or Restricted Stock Purchase Offer
provides otherwise:
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<PAGE>
(i) RETIREMENT UNDER A COMPANY RETIREMENT PLAN. When a
Participant's employment terminates as a result of retirement in
accordance with the terms of a Company retirement plan, the Board
or Committee may permit Stock Awards or Restricted Stock Purchase
Offers to continue in effect beyond the date of retirement in
accordance with the applicable Grant Agreement and the
exercisability and vesting of any such Grants may be accelerated.
(ii) RESIGNATION IN THE BEST INTERESTS OF THE COMPANY. When a
Participant resigns from the Company and, in the judgment of the
Board or Committee, the acceleration and/or continuation of
outstanding Stock Awards or Restricted Stock Purchase Offers would
be in the best interests of the Company, the Board or Committee may
(i) authorize, where appropriate, the acceleration and/or
continuation of all or any part of Grants issued prior to such
termination and (ii) permit the exercise, vesting and payment of
such Grants for such period as may be set forth in the applicable
Grant Agreement, subject to earlier cancellation pursuant to
Section 10 or at such time as the Board or Committee shall deem the
continuation of all or any part of the Participant's Grants are not
in the Company's best interest.
(iii) DEATH OR DISABILITY OF A PARTICIPANT.
(1) In the event of a Participant's death, the
Participant's estate or beneficiaries shall have a period up to the
expiration date specified in the Grant Agreement within which to
receive or exercise any outstanding Grant held by the Participant
under such terms as may be specified in the applicable Grant
Agreement. Rights to any such outstanding Grants shall pass by will
or the laws of descent and distribution in the following order: (a)
to beneficiaries so designated by the Participant; if none, then (b)
to a legal representative of the Participant; if none, then (c) to the
persons entitled thereto as determined by a court of competent
jurisdiction. Grants so passing shall be made at such times and in
such manner as if the Participant were living.
(2) In the event a Participant is deemed by the Board
or Committee, to be unable to perform his or her usual duties by
reason of mental disorder or medical condition which does not result
from facts which would be grounds for termination for cause, Grants
and rights to any such Grants may be paid to or exercised by the
Participant, if legally competent, or a committee or other legally
designated guardian or representative if the Participant is legally
incompetent by virtue of such disability.
(3) After the death or disability of a Participant,
the Board or Committee may in its sole discretion at any time (1)
terminate restrictions in Grant Agreements; (2) accelerate any or all
installments and rights; and (3) instruct the Company to pay the total
of any accelerated payments in a lump sum to the Participant, the
Participant's estate, beneficiaries or representative -
notwithstanding that, in the absence of such termination of
restrictions or acceleration of payments, any or all of the
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<PAGE>
payments due under the Grant might ultimately have become payable to
other beneficiaries.
(4) In the event of uncertainty as to interpretation
of or controversies concerning this Section 7, the determinations of
the Board or Committee, as applicable, shall be binding and
conclusive.
8. INVESTMENT INTENT
All Grants under the Plan are intended to be exempt from registration
under the Securities Act provided by Rule 701 thereunder. Unless and until
the granting of Options or sale and issuance of Stock subject to the Plan are
registered under the Securities Act or shall be exempt pursuant to the rules
promulgated thereunder, each Grant under the Plan shall provide that the
purchases or other acquisitions of Stock thereunder shall be for investment
purposes and not with a view to, or for resale in connection with, any
distribution thereof. Further, unless the issuance and sale of the Stock have
been registered under the Securities Act, each Grant shall provide that no
shares shall be purchased upon the exercise of the rights under such Grant
unless and until (i) all then applicable requirements of state and federal
laws and regulatory agencies shall have been fully complied with to the
satisfaction of the Company and its counsel, and (ii) if requested to do so
by the Company, the person exercising the rights under the Grant shall (i)
give written assurances as to knowledge and experience of such person (or a
representative employed by such person) in financial and business matters and
the ability of such person (or representative) to evaluate the merits and
risks of exercising the Option, and (ii) execute and deliver to the Company a
letter of investment intent and/or such other form related to applicable
exemptions from registration, all in such form and substance as the Company
may require. If shares are issued upon exercise of any rights under a Grant
without registration under the Securities Act, subsequent registration of
such shares shall relieve the purchaser thereof of any investment
restrictions or representations made upon the exercise of such rights.
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<PAGE>
9. AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THE
PLAN.
The Board may, insofar as permitted by law, from time to time, with
respect to any shares at the time not subject to outstanding Grants, suspend
or terminate the Plan or revise or amend it in any respect whatsoever, except
that without the approval of the shareholders of the Company, no such
revision or amendment shall (i) increase the number of shares subject to the
Plan, (ii) decrease the price at which Grants may be granted, (iii)
materially increase the benefits to Participants, or (iv) change the class of
persons eligible to receive Grants under the Plan; provided, however, no such
action shall alter or impair the rights and obligations under any Option, or
Stock Award, or Restricted Stock Purchase Offer outstanding as of the date
thereof without the written consent of the Participant thereunder. No Grant
may be issued while the Plan is suspended or after it is terminated, but the
rights and obligations under any Grant issued while the Plan is in effect
shall not be impaired by suspension or termination of the Plan.
In the event of any change in the outstanding Stock by reason of a stock
split, stock dividend, combination or reclassification of shares,
recapitalization, merger, or similar event, the Board or the Committee may
adjust proportionally (a) the number of shares of Stock (i) reserved under
the Plan, (ii) available for Incentive Stock Options and Nonstatutory Options
and (iii) covered by outstanding Stock Awards or Restricted Stock Purchase
Offers; (b) the Stock prices related to outstanding Grants; and (c) the
appropriate Fair Market Value and other price determinations for such Grants.
In the event of any other change affecting the Stock or any distribution
(other than normal cash dividends) to holders of Stock, such adjustments as
may be deemed equitable by the Committee, including adjustments to avoid
fractional shares, shall be made to give proper effect to such event. In the
event of a corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Committee shall be authorized
to issue or assume stock options, whether or not in a transaction to which
Section 424(a) of the Code applies, and other Grants by means of substitution
of new Grant Agreements for previously issued Grants or an assumption of
previously issued Grants.
10. TAX WITHHOLDING.
The Company shall have the right to deduct applicable taxes from any
Grant payment and withhold, at the time of delivery or exercise of Options,
Stock Awards or Restricted Stock Purchase Offers or vesting of shares under
such Grants, an appropriate number of shares for payment of taxes required by
law or to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for withholding of such taxes. If Stock
is used to satisfy tax withholding, such stock shall be valued based on the
Fair Market Value when the tax withholding is required to be made.
11. AVAILABILITY OF INFORMATION.
During the term of the Plan and any additional period during which a
Grant granted pursuant to the Plan shall be exercisable, the Company shall
make available, not later than
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<PAGE>
one hundred and twenty (120) days following the close of each of its fiscal
years, such financial and other information regarding the Company as is
required by the bylaws of the Company and applicable law to be furnished in
an annual report to the shareholders of the Company.
12. NOTICE.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the chief personnel officer or to the chief
executive officer of the Company, and shall become effective when it is
received by the office of the chief personnel officer or the chief executive
officer.
13. UNFUNDED PLAN.
Insofar as it provides for Grants, the Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Participants who are
entitled to Grants or rights thereto under the Plan, any such accounts shall
be used merely as a bookkeeping convenience. The Company shall not be
required to segregate any assets that may at any time be represented by
Grants or rights thereto, nor shall the Plan be construed as providing for
such segregation, nor shall the Company nor the Board nor the Committee be
deemed to be a trustee of any Grants or rights thereto to be granted under
the Plan. Any liability of the Company to any Participant with respect to a
grant of Stock or rights thereto under the Plan shall be based solely upon
any contractual obligations that may be created by the Plan and any Grant
Agreement; no such obligation of the Company shall be deemed to be secured by
any pledge or other encumbrance on any property of the Company. Neither the
Company nor the Board nor the Committee shall be required to give any
security or bond for the performance of any obligation that may be created by
the Plan.
14. INDEMNIFICATION OF BOARD
In addition to such other rights or indemnifications as they may have as
directors or otherwise, and to the extent allowed by applicable law, the
members of the Board and the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any claim, action,
suit or proceeding, or in connection with any appeal thereof, to which they
or any of them may be a party by reason of any action taken, or failure to
act, under or in connection with the Plan or any Grant granted thereunder,
and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company)
or paid by them in satisfaction of a judgment in any such claim, action, suit
or proceeding, except in any case in relation to matters as to which it shall
be adjudged in such claim, action, suit or proceeding that such Board or
Committee member is liable for negligence or misconduct in the performance of
his or her duties; provided that within sixty (60) days after institution of
any such action, suit or Board proceeding the member involved shall offer the
Company, in writing, the opportunity, at its own expense, to handle and
defend the same.
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<PAGE>
15. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant hereto,
to the extent not otherwise governed by the Code or the securities laws of
the United States, shall be governed by the law of the State of California
and construed accordingly.
16. EFFECTIVE AND TERMINATION DATES.
The Plan shall become effective on the date it is approved by the
holders of a majority of the shares of Stock then outstanding. The Plan
shall terminate ten years later, subject to earlier termination by the Board
pursuant to Section 9.
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<PAGE>
The foregoing 1996 Incentive Stock Plan (consisting of 18 pages,
including this page) was duly adopted and approved by the Board of Directors
on February 5, 1996 and approved by the shareholders of the Corporation
effective February 5, 1996, and amended on September 2, 1997.
--------------------------------
Buddy Mercer, Secretary
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<PAGE>
BONDED MOTORS, INC.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
(AS AMENDED JULY 30, 1996)
1. PURPOSE. The purpose of this Plan is to help attract, retain and
compensate highly qualified individuals who are not employees of Bonded Motors,
Inc. (the "Company") as members of the Board of Directors of the Company and to
encourage ownership of stock in the Company by such Directors in order to gain
for the Company the advantages inherent in Directors having a greater personal
financial investment in the Company.
2. DEFINITIONS. As used herein, the following terms shall have the
meanings indicated:
(a) "Annual Meeting Date" means the date of the annual meeting of the
Company's shareholders at which the Directors are elected.
(b) "Board" means the Company's Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Director" means a member of the Board.
(e) "Effective Date" is the date specified in Section 17.
(f) "Eligible Director" means any person who is a member of the Board and
who is not an employee, full time or part time, of the Company.
(g) "Exercise Price" means the purchase price per share under the Option,
determined in accordance with Section 5 of the Plan.
(h) "Fair Market Value," of the Shares on any date of reference means the
closing price of the Company's common stock on the business day immediately
preceding such date. For this purposes, the closing price on any business day
shall be (i) if such stock is listed or admitted for trading on any United
States national securities exchange, or if actual transactions are otherwise
reported on a consolidated transaction reporting system, the last reported sale
price of such stock on such exchange or reporting system, as reported in any
newspaper of general circulation, (ii) if the stock is quoted on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"), or any
similar system of automated dissemination of quotations of securities prices in
common use, the closing bid quotation for such day of the stock on such system,
or (iii) if neither clause (i) or (ii) is applicable, the mean between the high
bid and low ask quotations for the stock as reported by the National Quotation
Bureau, Incorporated if at least two securities dealers have inserted both bid
and ask quotations for the Stock on at least 5 of the 10 preceding days.
<PAGE>
(i) "Option" means any stock option granted under this Plan.
(j) "Option Agreement" means the agreement between the Company and the
Optionee for the grant of an Option.
(k) "Option Period" means the period between the date an Option is granted
and the expiration date or earlier termination of such Option.
(l) "Optionee" means a person to whom an Option is granted under this Plan
or any person who succeeds to the rights of such person under this Plan by
reason of the death or disability of such person.
(m) "Plan" shall mean this 1996 Non-Employee Directors Stock Option Plan.
(n) "Share(s)" shall mean a share or shares of common stock, no par value,
of the Company.
3. SHARES AND OPTIONS. The aggregate number of Shares, subject to
adjustment pursuant to Section 9, which may be delivered on exercise of all
Options granted under this Plan is 50,000; and such number of Shares shall be,
and hereby are reserved for such purpose. If any Option shall for any reason
terminate or expire, any Shares allocated thereto but remaining unpurchased upon
such expiration or termination shall again be available for the grant of Options
with respect thereto under this Plan as though no Option has been granted with
respect to such shares. The Company shall reserve and keep available at all
times during the term of the Plan such number of Shares as shall be sufficient
to satisfy the requirements of the Plan.
4. GRANTS OF OPTIONS. Commencing July 30, 1996, each Eligible Director
who is serving as a Director on July 30, 1996, shall be granted an option to
purchase 5,000 shares and each Eligible Director who is serving as a Director
immediately after the Annual Meeting Date for any given year commencing with
1997, shall be granted an option to purchase 1,500 Shares for that year on the
day after the Annual Meeting Date. Upon the grant of each Option, the Company
and the Eligible Director shall enter into a written Option Agreement
substantially in the form attached hereto as Exhibit A, which shall specify the
Option Period and the Exercise Price and shall include or incorporate by
reference the substance of this Plan and such additional provisions as may be
required under applicable laws, regulations and rules or otherwise consistent
with the provisions of this Plan as the Board may determine. No Option shall be
granted after 10 years from the Effective Date.
5. EXERCISE PRICE. The Exercise Price per Share of any Option shall be
the Fair Market Value of the Shares underlying such Option on the date such
option is granted.
6. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (I) the
Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) a written investment representation as provided in
Section 13, (iii) full payment of
<PAGE>
the aggregate Exercise Price of the Shares as to which the Option is
exercised has been made, and (iv) arrangements that are satisfactory to the
Board in its sole discretion have been made for the optionee's payment to the
Company of the amount that is necessary for the Company to withhold taxes in
accordance with applicable Federal, state or local tax withholding
requirements. The Exercise Price of any Shares purchased, and any required
tax payment, shall be paid in cash, by the tender of Shares, or both. If
payment is made in cash, it may be made by certified or official bank check,
personal check or money order. If payment is made by the tender of Shares,
the Fair Market Value of each such Share shall be determined as of the day
the Shares are tendered for payment in a manner consistent with the
provisions of this Plan. Any excess of the value of the tendered Shares over
the Exercise Price will be returned to the Optionee as follows:
(i) Any whole Shares remaining in excess of the Exercise Price will
be returned to the Optionee in kind, and may be represented by one or more
certificates as determined by the Company in its sole discretion.
(ii) Any partial Shares remaining in excess of the Exercise Price will
be returned to the Optionee in cash.
No Optionee shall be deemed to be a holder of any Shares subject to an Option
unless and until a stock certificate or certificates for such Shares are issued
to such person(s) under the terms of the Plan. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as expressly provided in
Section 9 hereof.
7. EXERCISE SCHEDULE FOR OPTIONS.
(a) Each initial Option granted hereunder shall vest 100%, and each
subsequent Option shall vest and may be exercised in accordance with the
following schedule:
<TABLE>
<CAPTION>
Percentage of
NUMBER OF SHARES EXERCISE SCHEDULE
------------------------------------------
<S> <C>
20% One day and six months from the date of grant
40% One year after the date of grant
60% Two years after the date of grant
80% Three years after the date of grant
100% Four years after the date of grant
</TABLE>
(b) Notwithstanding the foregoing provision, each outstanding Option
shall become fully exercisable immediately upon occurrence of any of the
following events:
(i) If there occurs any transaction (which shall include a
series of transactions occurring within 60 days or occurring pursuant to a
plan), that has the result that
<PAGE>
shareholders of the Company immediately before such transaction cease to own
at least 51 percent of the voting stock of the Company or of any entity that
results from the participation of the Company in a reorganization,
recapitalization, consolidation, merger, share exchange, liquidation or any
other form of corporate transaction;
(ii) If the shareholders of the Company shall approve a plan of
merger, consolidation, share exchange, reorganization, recapitalization,
liquidation or dissolution in which the Company does not survive, unless (i) the
approved merger, consolidation, share exchange, reorganization,
recapitalization, liquidation or dissolution is subsequently abandoned, or (ii)
the entity surviving or resulting from such transaction (x) is controlled by
substantially the same persons as was the Company (y) assumes all obligations of
the Company under the Option, and (z) has a financial condition and operations
substantially equivalent or superior to those of the Company immediately prior
to the transaction; or
(iii) If the shareholders of the Company shall approve a plan
for the sale, lease, exchange or other disposition of all or substantially all
the property and assets of the Company (unless such plan is subsequently
abandoned).
(c) The expiration date of an Option shall be five years from the
date of grant of the Option, subject to earlier termination pursuant to
Section 8.
8. TERMINATION OF OPTION PERIOD. An Optionee whose directorship
terminates for any reason other than death or disability, as determined by the
Board which determination shall be conclusive, shall be entitled to exercise any
Options which are then exercisable only within the thirty day period after the
date the Optionee ceases to serve as a Director; and after such thirty day
period, such Options shall be null and void.
In the case of termination of the directorship by reason of the Director's
death or disability, the Option or any portion thereof which was not exercisable
on the date of termination shall be accelerated and become immediately
exercisable, and the period to exercise such Option shall be 12 months from the
date of termination, subject to the earlier expiration of the Option Period.
The estate of a deceased Optionee, or a person who acquires the right to
exercise an Option, including any portion of such Option which was not
exercisable at the time of death, by will or the laws of descent and
distribution or by reason of the death of the Optionee, may exercise the Option
only within the 12-month period after the death of the Optionee, subject to the
earlier expiration of the Option Period.
9. ADJUSTMENT OF SHARES.
(a) Options shall be subject to adjustment by the Board as to the
number and price of Shares subject to such Options in the event of changes in
the outstanding Shares by reason of stock dividends, stock splits,
recapitalization, reorganizations, merger, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring
<PAGE>
after the date of grant of any such Option. In the event of any such change
in the outstanding Shares, the aggregate number of Shares available under the
Plan shall be appropriately adjusted by the Board, whose determination shall
be conclusive.
(b) Except as otherwise expressly provided herein, the issuance by
the Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection with
a direct sale or upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of the
Shares then subject to outstanding Options.
(c) Without limiting the generality of the foregoing, the existence
of outstanding Options shall not affect in any manner the right or power of the
Company to make, authorize or consummate (i) any or all adjustments,
recapitalization, reorganizations or other changes in the Company's capital
structure or its business; (ii) any merger or consolidation of the Company,
(iii) any issue by the Company of debt securities, or preferred or preference
stock that would rank above the Shares subject to outstanding Options; (iv) the
dissolution or liquidation of the Company; (v) any sale, transfer or assignment
of all or any part of the assets or business of the Company; or (vi) any other
corporate act or proceedings, whether of a similar character or otherwise.
10. TRANSFERABILITY OF OPTIONS. Each Option shall not be transferable by
the Optionee otherwise than by will or the laws of descent and distribution, and
each Option shall be exercisable during the Optionee's lifetime only by the
Optionee except that in the case of Optionee's death or disability, Optionee's
duly appointed legal representative may exercise said Option.
11. REPURCHASE OF SHARES BY COMPANY. The Company is under no obligation
to repurchase Shares acquired pursuant to the exercise of an Option hereunder.
12. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale by it of Shares to persons exercising Options will be used for the general
purposes of the Company.
13. UNDERTAKINGS. As a condition of any sale or issuance of Shares upon
exercise of any Option, the Board may require such agreements or undertakings,
if any, as the Board may deem necessary or advisable to assure compliance with
any applicable law or regulation including, but not limited to, the following:
(a) A representation and warranty by the Optionee to the Company, at
the time any Option is exercised, that Optionee is acquiring the Shares to be
issued for investment and not with a view to, or for sale in connection with,
the distribution of any such Shares; and
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(b) A representation, warranty and/or agreement by the Optionee to be
bound by any legends that are, in the opinion of the Board, necessary or
appropriate to comply with the provisions of any securities law deemed by the
Board to be applicable to the issuance of the Shares and that are endorsed upon
the Share certificates.
(c) An agreement by Optionee that, in connection with any
registration of the Company's securities under the Securities Act, and upon the
request of the Company or any underwriter managing an underwritten offering of
the Company's securities, Optionee shall not sell, short any sale of, loan,
grant an option for, or otherwise dispose of any of the Shares (other than
Shares included in the offering) without the prior written consent of the
Company or such managing underwriter, as applicable, for a period of up to one
year following the effective date of registration of such offering.
14. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board, which shall have the authority to adopt such rules and regulations and to
make such determinations as are not inconsistent with the Plan and as are
necessary or desirable for the implementation and administration of the Plan.
15. INTERPRETATION.
(a) If any provision of the Plan should be held invalid or illegal
for any reason, such determination shall not affect the remaining provisions
hereof, but instead the Plan shall be construed and enforced as if such
provision had never been included in the Plan. Without limiting the generality
of the foregoing, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). To the extent
any provision of the Plan or action by the Board hereunder is inconsistent with
the foregoing requirements, it shall be deemed null and void.
(b) The determinations and the interpretation and construction of any
provision of the Plan by the Board shall be final and conclusive. This Plan
shall be governed by the laws of the State of California and subject to the
exclusive jurisdiction of the courts therein. Headings contained in this Plan
are for convenience only and shall in no manner be construed as part of this
Plan. Any reference to the masculine, feminine, or neuter gender shall be a
reference to such other gender as is appropriate.
16. AMENDMENT AND TERMINATION OF THE PLAN.
(a) The Board may, insofar as permitted by law, from time to time,
amend, terminate or suspend the Plan or any Option; provided, however that,
except to the extent provided in Section 9, no such amendment may (i) without
approval by the Company's shareholders, increase the number of Shares reserved
for Options or change the class of persons eligible to receive Options or
involve any other change or modification requiring shareholder approval under
Rule 16b-3 of the Exchange Act, (ii) permit the granting of Options that expire
beyond the maximum five year period described in Section 7(c); (iii)
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extend the termination date of the Plan as set forth in Section 17; or (iv)
give the Board discretion with respect to the grant of Options; and, provided
further, that, except to the extent otherwise specifically provided in
Section 8, no amendment, termination or suspension of the Plan or any Option
issued hereunder shall substantially impair any Option previously granted to
any Optionee without the consent of such Optionee. Any termination or
suspension of the Plan shall not affect Options already granted and such
options shall remain in full force and effect as if this Plan had not been
terminated or suspended. No Option may be granted while the Plan is
suspended or after it is terminated.
(b) Notwithstanding anything else contained herein, the provisions of
this Plan which govern the definition of Eligible Directors, the number of
Options to be awarded to Eligible Directors, the Exercise Price under each such
Option, when and under what circumstances an Option will be granted, the vesting
schedule of options or the Option Period, shall not be amended more than once
every six months (even with shareholder approval), other than to conform to
changes in the Code, or the rules promulgated thereunder, and under the Employee
Retirement Income Security Act of 1974, as amended, or the rules promulgated
thereunder, or the rules promulgated by the Securities and Exchange Commission,
or under the California Corporate Securities Law, or the rules promulgated
thereunder.
17. EFFECTIVE AND TERMINATION DATES. The foregoing 1996 Non-Employee
Directors Stock Option Plan (consisting of 7 pages, including this page) was
duly adopted and approved by the Board of Directors on February 5, 1996,
approved by the shareholders of the Company effective February 5, 1996, and
amended on July 30, 1996. This Plan shall continue in effect until all options
granted hereunder have expired or been exercised, unless sooner terminated under
the provisions relating thereto.
-----------------------------
Buddy Mercer, Secretary
