<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-27744
PCD Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2604950
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Technology Drive,
Centennial Park,
Peabody, Massachusetts
(Address of principal executive offices)
01960-7977
(Zip Code)
Registrant's telephone number, including area code: 978-532-8800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock, $0.01 par value, outstanding at November 1,
2000: 8,661,822
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PCD Inc.
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 2000
FORWARD LOOKING INFORMATION
Statements in this quarterly report concerning the future revenues,
expenses, profitability, financial resources, product mix, market demand,
product development and other statements in this report concerning the future
results of operations, financial condition and business of PCD Inc. are
"forward-looking" statements as defined in the Securities Act of 1933 and
Securities Exchange Act of 1934. Investors are cautioned that the Company's
actual results in the future may differ materially from those projected in the
forward-looking statements due to risks and uncertainties that exist in the
Company's operations and business environment, including the Company's
dependence on the integrated circuit package interconnect and semiconductor
industries, the availability of certain critical basic materials, the
Company's ability to meet its debt covenants, fluctuations in demand for the
Company's products, the Company's dependence on its principal customers and
independent distributors, acquisitions and indebtedness, international sales
and operations, rapid technological evolution in the electronics industry and
the like. The Company's most recent filings with the Securities and Exchange
Commission, including Form 10-K, contain additional information concerning
such risk factors, and copies of these filings are available from the Company
upon request and without charge.
2
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PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PCD INC.
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999.
Consolidated Statements of Income for the three and nine fiscal months
ended September 30, 2000 and October 2, 1999.
Consolidated Statements of Cash Flows for the nine fiscal months ended
September 30, 2000 and October 2, 1999.
Notes to Condensed Consolidated Financial Statements.
3
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PCD Inc.
CONSOLIDATED BALANCE SHEETS
(Condensed and unaudited)
(In thousands)
9/30/00 12/31/99
------- --------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 721 $ 652
Accounts receivable, net........................... 8,033 6,831
Inventory.......................................... 5,705 5,479
Income tax refund receivable....................... - 1,416
Prepaid expenses and other current assets.......... 743 674
-------- --------
Total current assets........................ 15,202 15,052
Equipment and improvements:
Equipment and improvements......................... 31,144 29,089
Accumulated depreciation........................... 15,184 11,547
-------- --------
Equipment and improvements, net....................... 15,960 17,542
Deferred tax asset.................................... 11,666 12,258
Goodwill.............................................. 53,194 55,506
Intangible assets..................................... 10,640 11,418
Debt financing fees................................... 1,579 1,276
Other assets.......................................... 1,622 1,734
-------- --------
Total assets................................ $109,863 $114,786
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................... $ 9,600 $ 12,000
Current portion of long-term debt.................. 9,100 8,800
Accounts payable................................... 4,076 3,972
Accrued liabilities................................ 4,767 3,190
-------- --------
Total current liabilities................... 27,543 27,962
Long-term debt, net of current portion................ 21,659 28,800
Accumulated other comprehensive (loss)................ (67) (27)
Stockholders' equity.................................. 60,728 58,051
-------- --------
Total liabilities and stockholders' equity.. $109,863 $114,786
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
4
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PCD Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Condensed and unaudited)
(In thousands, except per share data)
change
Three Months Ended Nine Months Ended
------------------ -----------------
9/30/00 10/2/99 9/30/00 10/2/99
------- ------- ------- -------
Net sales............................... $16,130 $13,489 $44,365 $39,332
Cost of sales........................... 8,761 7,184 24,056 20,181
------- ------- ------- -------
Gross profit............................ 7,369 6,305 20,309 19,151
Operating expenses...................... 3,188 3,535 9,849 10,671
Restructuring charge.................... - 136 - 136
Amortization............................ 1,048 1,048 3,143 3,143
------- ------- ------- -------
Income from operations.................. 3,133 1,586 7,317 5,201
Interest expense /(other income), net... 1,132 1,149 3,552 3,376
------- ------- ------- -------
Income before income taxes.............. 2,001 437 3,765 1,825
Provision for income taxes.............. 822 155 1,529 654
------- ------- ------- -------
Net income.............................. $ 1,179 $ 282 $ 2,236 $ 1,171
======= ======= ======= =======
Net income per share:
Basic.............................. $ 0.14 $ 0.03 $ 0.26 $ 0.14
======= ======= ======= =======
Diluted............................ $ 0.13 $ 0.03 $ 0.25 $ 0.13
======= ======= ======= =======
Weighted average number
of shares outstanding
Basic.............................. 8,629 8,559 8,602 8,507
===== ===== ===== =====
Diluted............................ 9,138 9,030 9,049 9,047
===== ===== ===== =====
The accompanying notes are an integral part
of the consolidated financial statements.
5
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PCD Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited)
(In thousands)
Nine Months Ended
-----------------
9/30/00 10/2/99
------- -------
Cash flows from operating activities:
Net income........................................... $ 2,236 $1,171
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation...................................... 3,633 3,218
Amortization of intangible assets................. 3,143 3,143
Amortization of debt financing costs.............. 205 165
Tax benefit from stock options exercised.......... - 50
Amortization of bank warrant...................... 41 -
Tax Refund........................................ 1,320 -
Deferred taxes.................................... 579 721
Changes in operating assets and liabilities:
Accounts receivable............................. (1,442) (1,292)
Inventory....................................... (272) (668)
Prepaid expenses and other current assets....... 9 69
Other assets.................................... 51 70
Accounts payable................................ 221 1,235
Accrued liabilities............................. 1,776 (467)
------- -------
Net cash provided by operating activities..... 11,500 7,415
Cash flows from investing activities:
Capital expenditures................................. (2,055) (3,145)
------- -------
Net cash used in investing activities......... (2,055) (3,145)
Cash flows from financing activities:
(Repayments) borrowings of short-term debt, net...... (2,400) 1,900
Payments of long-term debt........................... (6,600) (6,300)
Deferred financing and loan amendment fees........... (507) -
Proceeds from employee stock purchase plan........... 41 -
Exercise of common stock options..................... 117 201
------- -------
Net cash used in financing activities......... (9,349) (4,199)
------- -------
Net increase in cash................................... 96 71
Effect of exchange rate on cash........................ (27) 23
Cash and cash equivalents at beginning of period....... 652 852
------- -------
Cash and cash equivalents at end of period............. $ 721 $ 946
======= =======
The accompanying notes are an integral part
of the consolidated financial statements.
6
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PCD Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(September 30, 2000 Unaudited)
Note 1. INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation. This financial data
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1999.
Note 2. NET INCOME PER SHARE
In accordance with FAS No. 128, the following tables reconcile net income
and weighted average shares outstanding to the amounts used to calculate basic
and diluted earnings per share for each of the periods ended September 30,
2000 and October 2, 1999:
Per Share
Net Income Shares Amount
---------- --------- ---------
For the quarter ended September 30, 2000
Basic earnings.............................. $1,179,000 8,629,316 $ 0.14
Assumed exercise of options (treasury method) - 508,461 -
---------- --------- ------
Diluted earnings............................ $1,179,000 9,137,777 $ 0.13
========== ========= ======
For the quarter ended October 2, 1999
Basic earnings.............................. $ 282,000 8,559,106 $ 0.03
Assumed exercise of options (treasury method) - 470,740 -
---------- --------- ------
Diluted earnings............................ $ 282,000 9,029,846 $ 0.03
========== ========= ======
For the nine month period ended September 30, 2000
Basic earnings.............................. $2,236,000 8,601,965 $ 0.26
Assumed exercise of options (treasury method) - 446,630 -
---------- --------- ------
Diluted earnings............................ $2,236,000 9,048,595 $ 0.25
========== ========= ======
For the nine month period ended October 2, 1999
Basic earnings.............................. $1,171,000 8,507,233 $ 0.14
Assumed exercise of options (treasury method) - 540,175 -
---------- --------- ------
Diluted earnings............................ $1,171,000 9,047,408 $ 0.13
========== ========= ======
7
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For the quarters ended September 30, 2000 and October 2, 1999, anti-
dilutive shares of 95,066 and 159,088 and for the nine month periods anti-
dilutive shares of 149,004 and 127,096, respectively, have been excluded from
the calculation of EPS.
Note 3. INVENTORY
9/30/00 12/31/99
------- --------
(In Thousands)
Inventory:
Raw materials and finished subassemblies.......... $4,397 $3,803
Work in process................................... 351 308
Finished goods.................................... 957 1,368
------ ------
Total........................................... $5,705 $5,479
====== ======
Note 4. COMPREHENSIVE INCOME
The Company's only other comprehensive income is foreign currency
translation adjustments. For the three and nine month periods ended September
30, 2000 and October 2, 1999 the Company's total comprehensive income (in
thousands) was as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
9/30/00 10/2/99 9/30/00 10/2/99
------- ------- ------- -------
Net earnings....................... $ 1,179 $ 282 $ 2,236 $ 1,171
Other comprehensive loss, net...... (4) (42) (24) (88)
------- ------- ------- -------
Total comprehensive earnings.... $ 1,175 $ 240 $ 2,212 $ 1,083
======= ======= ======= =======
Note 5. NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("FAS 133"), which initially would have been effective
for all fiscal quarters beginning after June 15, 1999. In June 1999, the
Financial Accounting Standards Board released Statement of Financial
Accounting Standards No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of Effective Date of FAS 133 ("FAS 137"). FAS
137 deferred the effective date of FAS 133 until June 15, 2000. FAS 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The Company believes FAS
133 will not have any material impact on its financial position, results of
operations and cash flows.
8
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In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," as amended by SAB No. 101A and 101B, which is effective no later
than the quarter ending December 31, 2000. SAB 101 summarizes the staff's view
in applying generally accepted accounting principles to selected revenue
recognition issues. The application of the guidance in SAB 101 will be
required in the Company's first quarter of the fiscal year 2001. The effects
of applying this guidance will be reported as a cumulative effect adjustment
resulting from a change in accounting principle. The Company does not expect
the application to have a material effect on their financial statements.
However, the final evaluation of SAB 101 is not yet complete.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an interpretation of APB
Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion
No. 25 and among other issues clarifies the following: the definition of an
employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but
certain conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. The application of FIN No. 44 did not
have a significant impact on the Company's financial position or results of
operations.
Note 6. WARRANTS
On March 6, 2000, the Company issued warrants to its lenders for 203,949
shares of Common Stock at an exercise price of $4.90 per share. The $288,000
value of the warrants was recorded as a discount on long-term debt and an
increase in stockholders' equity. The discount is being amortized as interest
expense through December 2003 (the remaining term of the debt).
Note 7. LITIGATION
The Company and its subsidiaries are subject to legal proceedings arising
in the ordinary course of business. On the basis of information presently
available and advice received from legal counsel, it is the opinion of
management that the disposition or ultimate determination of such legal
proceedings will not have a material adverse effect on the Company's
consolidated financial position, its consolidated results of operations or its
consolidated cash flows.
9
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Note 8. SEGMENT INFORMATION:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- -------------------
9/30/00 10/2/99 9/30/00 10/2/99
-------- -------- -------- --------
(In thousands)
SALES:
Industrial/Avionics........ $ 4,705 $ 4,261 $ 14,221 $ 13,753
IC Package interconnect.... 11,425 9,228 30,144 25,579
-------- -------- -------- --------
Total sales.............. $ 16,130 $ 13,489 $ 44,365 $ 39,332
======== ======== ======== ========
NET INCOME (loss):
Industrial/Avionics........ $ 604 $ 478 $ 1,648 $ 1,825
IC Package interconnect.... 558 (196) 581 (696)
Corporate activities....... 17 - 7 42
-------- -------- -------- --------
Total net income......... $ 1,179 $ 282 $ 2,236 $ 1,171
======== ======== ======== ========
<PAGE>
9/30/00 12/31/99
-------- --------
(In thousands)
ASSETS:
Industrial/Avionics............................. $ 8,967 $ 9,269
IC Package interconnect......................... 86,928 90,004
Corporate activities............................ 13,968 15,513
-------- --------
Total assets.................................. $109,863 $114,786
======== ========
10
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO THE QUARTER ENDED OCTOBER 2, 1999
NET SALES. Net sales of $16.1 million for the quarter ended September 30, 2000
increased by $2.6 million or 19.6% from net sales of $13.5 million during the
prior year quarter. Year-to-date net sales of $44.4 million were up 12.8% from
net sales of $39.3 million last year. The increase from the prior year third
quarter was due to a net sales increase of $2.2 million in the I/C package
interconnect business and an increase of $400,000 for the industrial/avionics
business. On a year to date basis, net sales for the I/C package interconnect
business are up by $4.7 million or 18.4% while net sales for the
industrial/avionics business are up $400,000 million or 3%. The increases in
both reporting periods for the I/C package interconnect business are due to
the recovery in the semiconductor industry that began in 1999, as well as to
new products introduced by the Company in 2000.
GROSS PROFIT. Gross profit was $7.4 million for the quarter ended September
30, 2000 as compared with $6.3 million during the prior year quarter. As a
percentage of revenue, gross profit was 45.7% during the quarter as compared
with 46.7% during the prior year quarter. The decline in gross profit
percentage from the comparable quarter last year was due primarily to
manufacturing inefficiencies at the Wells-CTI division along with inventory
writeoffs. The inefficiencies were due in large part to the inconsistent
availability of material during a period of rapid increase in demand from the
Company's customers. Year-to-date gross profit was $20.3 million or 45.8% of
net sales in 2000 as compared with $19.2 million or 48.7% of net sales during
1999. The decline in year-to-date gross profit percentage during 2000 was due
to first quarter 2000 price pressure and product mix shift within certain
segments of the I/C package interconnect business together with the
manufacturing inefficiencies and inventory writeoffs noted above. This price
pressure abated somewhat during the second quarter of 2000.
OPERATING EXPENSES. Operating expenses include selling, general and
administrative expenses and costs of product development. Operating expenses
decreased to $3.2 million during the quarter ended September 30, 2000 from
$3.5 million during the prior year quarter and decreased to $9.8 million from
$10.7 million during the prior year-to-date period. The decreases were due
primarily to specific actions taken to reduce cost in connection with the
reorganization at the Wells-CTI division in 1999.
INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense and other income, net
during the quarters ended September 30, 2000 and October 2, 1999, was $1.1
million. Year to date interest expense and other income, net was $3.6 million,
as compared with $3.4 million during the prior year. Interest expense in 2000
is down $85,000 and $53,000 for the quarter and year to date periods, from
$1.1 million and $3.5 million, respectively. Other expense in 2000 was $95,000
and $169,000 for the quarter and year to date periods, respectively, up from
$25,000 and income of $60,000 in 1999.
PROVISION FOR INCOME TAXES. The year-to-date provision for income taxes
during 2000 was 41% as compared with a provision of 36% during the prior year
The increase in 2000 is due to a projected profitable Japanese subsidiary in
2000, which bears a higher tax rate than the Company's U.S subsidiaries.
1
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities during the nine months ended
September 30, 2000 was $11.5 million compared to $7.4 million during the nine
months ended October 2, 1999. During the nine months ended September 30, 2000,
the Company reduced net debt by $9.0 million to $40.6 million from $49.6
million at December 31, 1999. The balance at September 30, 2000 consists of
$9.6 million outstanding under the revolving line of credit and a term loan
balance of $31.0 million (before giving effect to the valuation of warrants
issued to the Company's lenders during 2000 - see note 6.) Capital
expenditures during the nine months ended September 30, 2000 were $2.1 million
and are projected to be approximately $3.8 million for the year. Capital
expenditures consist primarily of purchased tooling and equipment to support
the Company's business. The amount of capital expenditures will frequently
change based on future changes in business plans, conditions of the Company
and changes in economic conditions.
The Company has experienced difficulty meeting all of the covenants under
its Senior Credit Facility. On March 6, 2000, the Company obtained from its
lenders a waiver of compliance with certain covenants for the fourth quarter
of 1999. At the same time, certain covenants were amended by agreement
between the Company and its lenders through June 30, 2000. In conjunction
with the March 6, 2000 agreement, the Company issued warrants to its lenders
covering a total of 203,949 shares of Common Stock at an exercise price of
$4.90 per share. The warrants were to be exercisable on June 30, 2000 only if
the Company did not raise $10 million of subordinated debt or other capital
infusions ("Junior Capital") junior to loans under the Senior Credit Facility
by June 30, 2000, or by June 30, 2000 had not entered into definitive
agreements permitting repayment of amounts outstanding under the Senior Credit
Facility by December 31, 2000. In addition, if the Company did not obtain the
Junior Capital by April 30, 2000, the Company on May 1, 2000 would pay the
lenders a fee of 0.25% of the sum of the total outstanding principal balance
under the Term Loan plus the Revolving Credit Loan Commitment. The fee would
be payable each quarter thereafter until the Junior Capital was obtained.
During the second quarter of 2000, the Company's management and board of
directors, in conjunction with its outside financial advisors, concluded that
the cost of Junior Capital would be prohibitively expensive under current
market conditions. Accordingly, the Company ceased efforts to raise Junior
Capital. The warrants for 203,949 shares of Common Stock became exercisable on
June 30, 2000 and the lenders' 0.25% quarterly fee began on May 1, 2000.
At September 30, 2000, the Company was in compliance with its debt
covenants. There can be no assurance, however, that the Company will be able
to maintain compliance with its debt covenants in the future, and failure to
meet such covenants would result in an event of default under the Senior
Credit Facility. To avoid an event of default, the Company would attempt to
obtain waivers from its lenders, restructure the Senior Credit Facility or
secure alternative financing. Under these scenarios, there can be no
assurance that the terms and conditions would be satisfactory to the Company
or not disadvantageous to the Company's stockholders.
Subject to the foregoing, the Company believes its existing working
capital and borrowing capacity, coupled with the funds generated from the
Company's operations, will be sufficient to fund its anticipated working
capital, capital expenditure and debt payment requirements through 2000.
Because the Company's capital requirements cannot be predicted with certainty,
there can be no assurance that any additional financing will be available on
terms satisfactory to the Company or not disadvantageous to the Company's
stockholders.
12
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PART II
OTHER INFORMATION
Item 1. Legal Proceeding
See Note 7 to the Company's Condensed Consolidated
Financial Statements (above).
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
On October 27, 2000, the Company expanded its Board of Directors to
six members and elected two new members to its Board of Directors;
James D. Switzer, Vice President, Development of Emerson Electric
Company and Jerome D. Brady, formerly President of C&K Components.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.49 Registrant's Amended 1996 Eligible Directors Stock Plan.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
NONE
13
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S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PCD INC.
(Registrant)
Dated: November 10, 2000 /s/ John L. Dwight, Jr.
----------------- ------------------------------
John L. Dwight, Jr.
Chairman of the Board, Chief
Executive Officer and
President (Principal Executive
Officer)
Dated: November 10, 2000 /s/ John J. Sheehan III
----------------- ------------------------------
John J. Sheehan III
Vice President, Finance and
Administration, Chief
Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
14
<EXHIBIT> <EXHIBIT 10.49>
PCD INC.
PCD 1996 ELIGIBLE DIRECTORS STOCK PLAN
1. PURPOSE. The purpose of this plan (the "Plan") is to grant options to
purchase shares of the common stock, $0.01 par value (the "Common Stock"), of
PCD Inc., a Massachusetts corporation (the "Company") to Eligible Directors
(as defined in Section 5 of the Plan) of the Company at market value on the
date of grant. The Company believes that the granting of such options will
serve to enhance the Company's ability to attract and retain the services of
such persons, to provide additional incentives to them and to encourage the
highest level of performance by them by offering them a proprietary interest
in the Company's success. The Company also believes that the Plan will
encourage directors to make greater equity investment in the Company, more
closely aligning the interests of the directors and the stockholders.
2. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of
the Company (the "Board") on January 30, 1996 (the "effective date" of the
Plan). Options granted under this Plan are subject to approval of such Plan
by the stockholders of the Company on or before January 29, 1997.
3. STOCK COVERED BY THE PLAN. Subject to the adjustment provided in
Section 8, the aggregate number of shares of Common Stock which may be issued
and sold pursuant to options granted under the Plan shall not exceed 36,000
shares (giving effect to the 12-for-1 stock split approved by the Board of
Directors on January 26, 1996), which may be either authorized but unissued
shares or treasury shares. If any option granted under the Plan shall
terminate or expire without being fully exercised, the shares which have not
been purchased thereunder will again become available for purposes of the
Plan.
4. ADMINISTRATION. The Plan is intended to meet the requirements of
Rule 16b-3(c)(2)(ii) adopted under the Securities Exchange Act of 1934 (the
"Act") with respect to the Regular Options (as defined in Section 5 of the
Plan) granted hereunder and accordingly is intended to be self-governing. To
this end the Plan requires no discretionary action by any administrative body
with regard to any transaction under the Plan. To the extent, if any, that
any questions of interpretation arise, these shall be resolved by the
compensation committee (the "Committee") consisting of at least two (2)
members of the Board, each of whom shall be, and shall have been at all times
within the one-year period ending on the date of his appointment to the
Committee, a person who in the opinion of counsel to the Company is a
"disinterested person" as such term is used in said Rule 16b-3. The
interpretation and administration by the Committee of any provisions of the
Plan and any option granted thereunder shall be final and conclusive on all
persons having any interest therein. No members of the Committee or the Board
shall be held liable for any action or determination under the Plan made in
good faith with respect to the Plan or any option granted thereunder.
5. OPTION GRANTS. "Eligible Directors" shall mean directors of the
Company who are directors on the date of grant, who are not employees of the
Company and who are not eligible to participate under any other Company stock
related plan unless in the opinion of counsel to the Company such
participation would not impair the status of such Eligible Director as a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Act. All options granted under the Plan shall be non-statutory stock options
which are not intended to meet the requirements of Section 422 of the Internal
<PAGE>
Revenue Code of 1986 as amended (the "Code") and which are intended to be
taxed under Section 83 of the Code.
No options shall be granted under the Plan before the date which is 30
days following the first Annual Meeting of Stockholders of the Company
occurring after December 31, 1996. Thereafter, there shall be granted, on
such 30th day or, if an Eligible Director is not a director of the Company on
such 30th day, on the 30th day following an Eligible Director's initial
election as a director of the Company, and on the 30th day following each
subsequent Annual Meeting of Stockholders of the Company which occurs no
earlier than six months after such initial election: (i) to each Eligible
Director who has not theretofore been granted an option to purchase shares of
Common Stock, an option to purchase 3,000 shares of Common Stock; and (ii) to
each Eligible Director not described in (i), an option to purchase 1,500
shares of Common Stock. Each such option is referred to herein as a "Regular
Option."
The date of grant of an option to an Eligible Director under the Plan
shall be the applicable day referred to immediately above.
6. OPTION PRICE. The price per share at which each Regular Option
granted under the Plan to an Eligible Director may be exercised ("Regular
Option Price") shall be the Market Price of the Common Stock as determined by
the closing price of such Common Stock as reported on the Nasdaq National
Market for the relevant date (or, if such date is not a trading date or if no
trades took place on such date, then such closing price for the last previous
trading date or the last previous date on which a trade occurred, as the case
may be); provided that if the Common Stock is no longer traded on the Nasdaq
National Market on the relevant date, then the Market Price as of such date
shall be determined by the Committee.
In no event shall the Option Price per share for any option under the
Plan be less than the par value per share.
7. TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Plan
shall be evidenced by and subject to the terms and conditions of an Option
Agreement attached hereto as EXHIBIT A. Each Option Agreement executed and
delivered to an Eligible Director shall contain the following terms and
conditions:
(a) EXERCISE OF OPTIONS. Each option shall expire 10 years from the
date of grant of such option, and shall in no event be
exercisable until on or after the date which is 6 months after
the date of grant thereof.
(b) PAYMENT. Each Eligible Director to whom an option is granted
may exercise such option from time to time, in whole or in part,
during the period that it is exercisable, by payment of the
Option Price of each share purchased, in cash, or by delivery to
the Company of a number of shares of Common Stock (provided that
such shares have been held by such Eligible Director for at least
6 months before such delivery) having an aggregate Market Price
of not less than the product of the Option Price multiplied by
the number of shares the participant intends to purchase upon
exercise of the option on the date of delivery. Notwithstanding
the foregoing, the exercise price of an option may not be paid
<PAGE>
by delivery to the Company of shares of Common Stock to the
extent that such delivery would constitute a violation of the
provisions of any law (including without limitation Section 16
of the Act) or related regulation or rule.
(c) TRANSFER RESTRICTIONS. The shares of Common Stock issued upon
exercise of an option granted under this Plan will be acquired
for investment and not with a view to distribution thereof
unless there shall be an effective registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), with
respect thereto. In the event that the Company, upon the advice
of counsel, deems it necessary to list upon official notice of
issuance shares to be issued pursuant to the Plan on a national
securities exchange or to register under the 1933 Act or other
applicable federal or state statute any shares to be issued
pursuant to the Plan, or to qualify any such shares for
exemption from the registration requirements of the 1933 Act
under the Rules and Regulations of the Securities and Exchange
Commission or for similar exemption under state law, then the
Company shall notify each Eligible Director to that effect and
no shares of Common Stock subject to an option shall be issued
until such registration, listing or exemption has been obtained.
The Company shall make prompt application for any such
registration, listing or exemption pursuant to federal or state
law or rules of such securities exchange which it deems
necessary and shall make reasonable efforts to cause such
registration, listing or exemption to become and remain
effective. The shares of Common Stock issued on exercise of the
option shall be subject to any restrictions on transfer then in
effect pursuant to the Articles of Organization or By-laws of
the Company.
(d) NON-TRANSFERABILITY. No stock option may be transferred by the
optionee, other than by will or the laws of descent and
distribution. A stock option can be exercised during such
individual's lifetime only by him or her.
(e) TERMINATION OF DIRECTORSHIP. Nothing in this Plan or in any
Option Agreement shall confer upon any Eligible Director the
right to continue as a director of the Company. An Eligible
Director's right to participate in the Plan shall automatically
terminate if and when such Director becomes an employee of the
Company. Each Option shall terminate and may no longer be
exercised if the Eligible Director ceases to provide services to
the Company in accordance with the following provisions:
(i) Options granted to an Eligible Director shall cease
to be exercisable 12 months after the date such
Director ceases to be a director for any reason
other than death, but in no event after the
expiration of the option.
(ii) If an Eligible Director ceases to be a director on
account of his death, any option previously granted
to him, whether or not exercisable at the date of
death, may be exercised by his executor,
<PAGE>
administrator or the person or persons to whom his
rights under the option shall pass by will or the
applicable laws of descent and distribution, at any
time within 12 months after the date of death, but
in no event after the expiration of the option.
8. ADJUSTMENTS. Upon the occurrence of any of the following events,
after the effective date of the 12-for-1 stock split referred to in Section 3,
an Eligible Director's rights with respect to options granted to such Eligible
Director hereunder shall be adjusted as hereinafter provided, unless otherwise
specifically provided in the written agreement between the Eligible Director
and the Company relating to such option:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number
of shares or if the Company shall issue any shares of Common
Stock as a stock dividend on its outstanding Common Stock, the
number of shares of Common Stock deliverable upon the exercise
of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in
the purchase price per share to reflect such subdivision,
combination or stock dividend.
(b) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger or other
reorganization in which the holders of the outstanding voting
stock of the Company immediately preceding the consummation of
such event, shall, immediately following such event, hold, as a
group, less than a majority of the voting securities of the
surviving or successor entity, or in the event of a sale of all
or substantially all of the Company's assets or otherwise (each,
an "Acquisition"), the Committee or the board of directors of
any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding options,
either (i) make appropriate provision for the continuation of
such options by substituting on an equitable basis for the
shares then subject to such options either (a) the consideration
payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition, (b) shares of stock of the
surviving or successor corporation or (c) such other securities
as the Successor Board deems appropriate, the fair market value
of which shall not materially exceed the fair market value of
the shares of Common Stock subject to such options immediately
preceding the Acquisition; or (ii) upon written notice to the
Eligible Directors, provide that all options must be exercised,
to the extent then exercisable or to be exercisable as a result
of the Acquisition, within a specified number of days of the
date of such notice, at the end of which period the options
shall terminate; or (iii) terminate all options in exchange for
a cash payment equal to the excess of the fair market value of
the shares subject to such options (to the extent then
exercisable or to be exercisable as a result of the Acquisition)
over the exercise price thereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
<PAGE>
transaction described in subparagraph (b) above) pursuant to
which securities of the Company or of another corporation are
issued with respect to the outstanding shares of Common Stock,
an Eligible Director upon exercising an option shall be entitled
to receive for the purchase price paid upon such exercise the
securities he or she would have received if he or she had
exercised such option prior to such recapitalization or
reorganization.
(d) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each option will
terminate immediately prior to the consummation of such proposed
action or at such other time and subject to such other
conditions as shall be determined by the Committee.
(e) ISSUANCES OF SECURITIES. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to options.
No adjustments shall be made for dividends paid in cash or in
property other than securities of the Company.
(f) FRACTIONAL SHARES. No fractional shares shall be issued under
the Plan and the Eligible Director shall receive from the
Company cash in lieu of such fractional shares.
9. TERMINATION OR AMENDMENT OF PLAN. The Committee may amend, suspend,
or terminate the Plan, including the form of Option Agreement incorporated
herein by reference. No such action, however, may, without approval or
ratification by the stockholders, increase the maximum number of shares
reserved under the Plan except as provided in Section 8, alter the class or
classes or individuals eligible for options, change the number of shares of
Common Stock subject to options to be granted to Eligible Directors or the
exercise price thereof (other than pursuant to Section 8), or the date of
grant or the terms and conditions expressly set forth in Sections 5, 6, and 7
of this Plan, or make any other change which, pursuant to the Code or
regulations thereunder or Section 16(b) of the Act and the rules and
regulations promulgated thereunder, requires action by the stockholders. No
such action may, without the consent of the holder of the option, alter or
impair any option previously granted. No such action which would amend the
Plan to change the amount, timing or price of the Regular Option grant made to
Eligible Directors hereof may be made more often than once every six months
except to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the applicable rules and regulations
thereunder.
In any event, the Plan shall terminate 10 years from the date of
adoption by the Board of Directors, or if earlier, from the date of approval
by the stockholders. Any shares remaining under the Plan at the time of
termination which are not subject to outstanding options and any shares which
thereafter become available because of the expiration or termination of an
option shall cease to be reserved for purposes of the Plan.
</EXHIBIT>
