<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 25, 1997
-----------------------------
TAMBORIL CIGAR COMPANY
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-22573 65-0774638
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(Commission File Number) (IRS Employer Identification No.)
2600 S.W. 3rd Avenue, Miami, FL 33129
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(Address of Principal Executive Offices) (Zip Code)
305-860-9887
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events.
A special meeting of the Board of Directors of Tamboril Cigar Company (the
"Company") was held on November 25, 1997 (the "Meeting"). At the Meeting, the
Board of Directors, acting pursuant to the By-laws of the Company, appointed two
independent directors to fill vacancies on the Board. Jean-Francois Perrault
and Aric Frons were appointed as Directors. In addition, the Board voted to
create an Audit Committee of the Board and a Conflicts Committee to resolve any
actual or apparent conflicts of interest involving officers or directors of the
Company. Messrs. Perrault, Frons and David S. Rector, already a Director of the
Company, were appointed to the Audit Committee and the Conflicts Committee. Mr.
Rector was appointed Chairman of both committees.
The Board also approved a consulting contract with Viking Investment Group
II, Inc. ("Viking") pursuant to which Viking is rendering consulting services to
the Company for identifying and negotiating with potential strategic marketing
partners and potential acquisition targets. Viking is to receive a flat fee of
$25,000 per month for the four months beginning October, 1997 and ending
January, 1998 and, if the Company is successful in completing a joint venture,
acquisition or financing arranged with the assistance of Viking, success fees to
be determined at the time the transaction is concluded. Viking owns 1,500,000
shares of the Company's common stock and Ian Markofsky, the President and sole
shareholder of Viking, is the father of Anthony Markofsky, President of the
Company.
The Board also approved a Stock Option Plan (the "Plan") for the Company,
the reservation for issuance under the Plan of 500,000 shares of the Company's
common stock and grants of options under the Plan to the following individuals:
<TABLE>
<S> <C> <C>
Abraham Shafir Director and President of Tabacalera 250,000 shares
Tamboril, S.A. ("Tabacalera")
Juan Capellan Plant Manager for Tabacalera 50,000 shares
Anthony Markofsky President and Director 25,000 shares
Thomas Knudson Vice President and Director 25,000 shares
Pedro Mirones Vice President and Chief Financial 10,000 shares
Officer
David S. Rector Secretary and Director 10,000 shares
</TABLE>
Each option is exercisable at the closing bid price for the Company's common
stock on November 25, 1997, which was $4.00. The Directors authorized the
officers of the Company to submit the Plan for shareholder approval at the next
annual meeting of the Company's shareholders. The Plan provides for the
issuance of Incentive Stock Options ("ISO's") as that term is defined in the
Internal Revenue Code of 1986 and the regulations thereunder as well as Non-
Qualified Stock Options ("NQSO's"). All options granted prior to shareholder
approval of the Plan will be NQSO's, which
<PAGE>
may be converted to ISO's at the option of the holder upon receipt of
shareholder approval. Any NQSO's granted per the above-described grants that are
converted to ISO's will be at 110% of the closing bid price of $4.00 at November
25, 1997.
At the Meeting, the Board also authorized and directed the Company's
officers with the assistance of counsel to prepare and file an application for
listing of the Company's common stock on the Nasdaq SmallCap Stock Market
("Nasdaq"). In connection with Nasdaq corporate governance requirements, the
Board resolved that the Company: (i) provide annual and interim reports to its
shareholders; (ii) that the Company have an annual meeting of shareholders, the
date and record date for which will be set at a future meeting of the Board of
Directors; and (iii) that proxies be solicited in connection with such annual
meeting.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
The following Exhibits are included in this Current Report on Form 8-K:
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
<S> <C>
10.1 Consulting Agreement between Tamboril Cigar Company and
Viking Investment Group II, Inc.
10.2 Stock Option Plan
</TABLE>
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 hereunto duly authorized.
TAMBORIL CIGAR COMPANY
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(Registrant)
Date: December 16, 1997 By: /s/ Anthony Markofsky
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Anthony Markofsky
President and Chief
Executive Officer
<PAGE>
EXHIBIT 10.1
October 13, 1997
Mr. Pedro J. Mirones
Vice President and C.F.O.
Tamboril Cigar Company
2600 S.W. 3rd Avenue
Miami, FL 33129
Re: Consulting Agreement with Tamboril
----------------------------------
Dear Pedro:
1. This letter will confirm our understanding that Viking Investment Group
II, Inc. ("Viking") has been engaged by Tamboril Cigar Company (the
"Company") as its advisor in connection with potential business
opportunities for the Company.
2. In connection with this assignment, Viking, at the Company's request,
will provide the following investment banking services.
(a) Viking has familiarized itself to the extent it deems appropriate
and feasible with the business, operations, properties, financial
conditions and prospects of the Company and may seek further
information concerning the Company that Viking considers necessary
(the "Information"), it being understood that Viking shall, in the
course of such familiarization, rely entirely upon the information
supplied by the Company and publicly available information,
without independent investigation;
(b) Viking has assured the Company in identifying potential business
partners, Viking will advise and assure the Company in negotiating
and structuring such potential opportunities;
(c) Viking will render such other investment banking services as may
from time to time be agreed upon by Viking and the Company.
<PAGE>
Mr. Pedro J. Mirones
October 13, 1997
Page 2
3. The Company agrees to pay Viking as compensation for its services
hereunder as follows:
(a) A retainer fee of $25,000 per month for four (4) months commencing
October 15, 1997 with extension of said retainer to be mutually
agreed upon by February 15, 1997.
(b) A placement fee will be agreed upon in the event that a
transaction is consummated.
(c) For the purposes set forth in section 3b, the Company shall
authorize, execute and deliver any consideration at closing to
Viking or any designee and all other fees will be paid in cash at
closing.
(d) The registration of shares underlying any securities issued to
Viking shall be the same registration and on the same terms and
conditions as apply to options granted to others, including the
officers and directors of the Company.
4. The Company will promptly reimburse Viking on a monthly basis for its
approved travel and other out of pocket expenses, if any, incurred in
connection with this engagement including fees and disbursements of
Viking's counsel when and if such counsel is employed.
5. Viking will treat all information as confidential and will not disclose
such information except as contemplated hereby or otherwise with the
consent of the Company or unless required by law with sufficient prior
notice to the Company so that it may consider obtaining a protective
order. Such information shall be used by Viking solely for the purposes
contemplated hereby. These restrictions shall not apply to information
which (i) at the time of disclosure is publicly known or which
subsequently becomes publicly known other than by breach of this
agreement, or (ii) the recipient can demonstrate what was in its
possession at the time of disclosure by Viking and was not acquired
directly or indirectly from Viking.
<PAGE>
Mr. Pedro J. Mirones
October 13, 1997
Page 3
6. The Company shall indemnify Viking, its officers, directors, employees
and agents from and against any and all loss, liability, damage and
expense, including reasonable attorney's fees and expenses arising from
the performance of any of Vikings duties hereunder, unless Viking is
found to have acted with gross negligence or misconduct.
7. Viking's engagement shall terminate one year from the date hereof
unless the Company terminates Viking's engagement sixty (60) days after
execution of this agreement. However, any such termination shall be
effective upon thirty (30) days written notification to Viking
delivered by registered mail.
8. If a transaction with any persons identified by Viking is completed on
or prior to two (2) years after the termination of Viking's engagement
hereunder, Viking shall be entitled to receive the full fees outlined
in Section 3 of this letter.
9. Notwithstanding any such termination, the provisions of Section 6 and 8
will survive such termination.
We are pleased to accept this engagement and look forward to working with
you. Please confirm that the foregoing is in accordance with your understanding
by signing and returning to us the enclosed duplicate original of this letter,
which shall thereupon constitute a binding agreement.
Very truly yours,
VIKING INVESTMENT GROUP II, INC.
By: /s/ Ian Markofsky
-----------------------------------------
President
Accepted and Agreed to:
TAMBORIL CIGAR COMPANY
By: /s/ Pedro J. Mirones
------------------------------------------
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT 10.2
TAMBORIL CIGAR COMPANY STOCK OPTION PLAN
1. PURPOSE
The purpose of this Tamboril Cigar Company Stock Option Plan ("the Plan") is to
provide a method whereby those key employees and nonemployee directors of
Tamboril Cigar Company and its affiliates (collectively, "the Company"), who are
primarily responsible for the management and growth of the Company's business
and who are presently making and are expected to make substantial contributions
to the Company's future management and growth, may be offered incentives in
addition to those presently available, and may be stimulated by increased
personal involvement in the fortunes and success of the Company to continue in
its service, thereby advancing the interests of the Company and its
shareholders. The word "affiliate," as used in the Plan, means any corporation
in any unbroken chain of corporations beginning or ending with the Company, if
at the time of the granting of an option, each corporation other than the last
in that chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in the chain.
2. ADMINISTRATION
The following provisions shall govern the administration of the Plan:
(a) Board or Committee Administration. The Plan shall be administered by the
---------------------------------
Board of Directors which may delegate its administrative powers and authority
under the Plan, in whole or in part, to one or more duly appointed committees of
the Board (including a committee described in Subsection 2(b) below). The Board
of Directors may from time to time remove members from or add members to the
committee. Vacancies on the committee, however caused, shall be filled by the
Board of Directors. The Board of Directors may designate a Chairman and Vice-
Chairman of the committee from among the committee members. Acts of the
committee (i) at a meeting, held at a time and place and in accordance with
rules adopted by the committee, at which a quorum of the committee is present
and acting, or (ii) reduced to and approved in writing by all members of the
committee, shall be the valid acts of the committee.
(b) Special Rule for Officers and Directors. The grant of options to employees
---------------------------------------
who are officers or directors of the Company and to nonemployee directors of the
Company may be made by and all discretion with respect to the material terms of
the options may be exercised by either (i) the Board of Directors, or (ii) a
duly appointed committee of the Board composed solely of two or more nonemployee
directors having full authority to act in the matter. The term "nonemployee
directors" shall have the meaning set forth in Rule 16b-3 as promulgated by the
Securities and Exchange Commission ("SEC") under section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as that rule may be
amended from time to time, and as interpreted by the SEC ("Rule 16b-3").
1
<PAGE>
(c) Designation. The Board of Directors and any committee(s) referred to in
-----------
Subsection 2(a) or 2(b) is referred to hereinafter as the "Committee," except
where otherwise expressly provided or where the context requires otherwise.
(d) Committee Powers. The Committee shall effect the grant of options under
----------------
the Plan by execution of instruments in writing in a form approved by the
Committee. Subject to the express terms and conditions of the Plan, the
Committee shall have full power to construe the Plan and the terms of any option
granted under the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan or options and to make all other determinations necessary
or advisable for the Plan's administration, including, without limitation, the
power to:
(i) determine which persons meet the requirements of Section 3 hereof for
selection as participants in the Plan;
(ii) determine to whom of the eligible persons, if any, options shall be granted
under the Plan;
(iii) establish the terms and conditions required or permitted to be included in
every option agreement or any amendments thereto, including whether options to
be granted thereunder shall be "incentive stock options," as defined in section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonqualified stock options not described in sections 422(b) or 423(a) of the
Code;
(iv) specify the number of shares to be covered by each option;
(v) determine the fair market value of shares of the Company's common stock for
any purpose under the Plan;
(vi) take appropriate action to amend any option hereunder, provided that no
such action may be taken without the written consent of the affected optionee;
(vii) cancel outstanding options and issue replacement options therefor with the
consent of the affected optionee; and
(viii) make all other determinations deemed necessary or advisable for
administering the Plan.
The Committee's determination on the foregoing matters shall be conclusive.
3. ELIGIBILITY
The persons who shall be eligible to receive the discretionary grant of options
under the Plan shall be those key employees, officers and directors of the
Company (including directors of the Company who are not also employees of the
Company) selected for participation by the Committee ("Eligible Persons").
Notwithstanding any other provision of the Plan, no Eligible Person shall be
granted
2
<PAGE>
options to purchase more than an aggregate of two hundred fifty thousand
(250,000) shares of the Company's common stock under the Plan, as adjusted
pursuant to Section 9.
4. THE SHARES
The shares of stock subject to options authorized to be granted under the Plan
shall consist of five hundred thousand (500,000) shares of the Company's $0.0001
par value Common Stock (the "Shares"), or the number and kind of shares of stock
or other securities which shall be substituted for the Shares or to which the
Shares shall be adjusted as provided in Section 9 hereof. Upon the expiration
or termination for any reason of an outstanding option under the Plan which has
not been exercised in full, all unissued Shares thereunder shall again become
available for the grant of options under the Plan. Shares of the Company's
common stock which are (i) delivered by an optionee in payment of the exercise
price of an option, or (ii) delivered by an optionee, or withheld by the Company
from the shares otherwise due upon exercise of an option, in satisfaction of
applicable withholding taxes, shall again become available for the grant of
options under the Plan.
5. INCENTIVE STOCK OPTION TERMS AND CONDITIONS
Options granted to employees (but not to nonemployee directors) under the terms
and conditions of this Section 5 are intended to be incentive stock options
(ISOs) under section 422 of the Code. Each incentive stock option granted under
the Plan shall be authorized by action of the Committee and shall be evidenced
by a written agreement in such form as the Committee shall from time to time
approve, which agreement shall comply with and be subject to the following terms
and conditions:
(a) Exercise Price. The exercise price of each incentive stock option shall be
--------------
one hundred percent (100%) of the fair market value of a Share of the Company on
the date the option is granted; provided, however, that the exercise price of an
incentive stock option granted to an individual who owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, as determined under the stock ownership rules specified in
Subsection 5(c), shall be one hundred ten percent (110%) of the fair market
value of a Share of the Company on the date the option is granted.
(b) Duration of Options. No incentive stock option shall be exercisable after
-------------------
the expiration of five (5) years from the date on which that option is granted;
provided, however, that no incentive stock option granted to an individual who
owns stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, as determined under the stock
ownership rules specified in Subsection 5(c), shall be exercisable after the
expiration of five (5) years from the date on which that option is granted.
(c) Determination of Stock Ownership. For purposes of determining in
--------------------------------
Subsections 5(a) and 5(b) whether an employee owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company, an employee shall be considered as owning the stock owned, directly
or indirectly, by or for his or her brothers and sisters (whether by the whole
3
<PAGE>
or half blood), spouse, ancestors, and lineal descendants. Stock owned,
directly or indirectly, by or for a corporation, partnership, estate, or trust
shall be considered as being owned proportionately by or for its shareholders,
partners, or beneficiaries. Stock with respect to which the employee holds an
option shall not be counted.
(d) Right to Exercise. Each incentive stock option shall become exercisable
-----------------
and vest according to the terms and conditions established by the Committee and
reflected in the written agreement evidencing the option, provided, however,
that no option shall vest at a rate of less than twenty-five percent (25%) per
year during the four (4) year period following the date of grant of the option.
Each incentive stock option shall be subject to termination before its date of
expiration as provided in Subsection 5(e).
(e) Terminations of Options. If an optionee ceases to be an employee of the
-----------------------
Company, his or her rights to exercise an incentive stock option then held shall
be only as follows:
DEATH: If an optionee dies while he or she is employed by the Company, the
optionee's estate shall have the right for a period of six (6) months (or such
longer period as the Committee may determine at the date of grant or during the
term of the option) after the date of death to exercise the option to the extent
the optionee was entitled to exercise the option on that date, provided the date
of exercise is in no event after the expiration of the term of the option. To
the extent the option is not exercised within this period, the option will
terminate. An optionee's "estate" shall mean the optionee's legal
representative or any person who acquires the right to exercise an option by
reason of the optionee's death.
DISABILITY: If an optionee's employment with the Company ends because the
optionee becomes disabled, the optionee or his or her qualified representative
(in the event of the optionee's mental disability) shall have the right for a
period of six (6) months after the date on which the optionee's employment ends
to exercise the option to the extent the optionee was entitled to exercise the
option on that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not exercised
within this period, the option will terminate.
OTHER REASONS: If an optionee's employment with the Company ends for any reason
not mentioned above in this Subsection 5(e), all rights of the optionee in an
incentive stock option, to the extent that it has not been exercised, shall
terminate on the date the optionee's employment ends.
(f) Notice of Sale. If an optionee sells or otherwise disposes of any Shares
--------------
acquired upon exercise of an incentive stock option, the optionee shall give the
Company notice of the sale or disposition within five (5) days thereafter.
(g) Limit on Exercise of Incentive Stock Options. To the extent that the
--------------------------------------------
aggregate fair market value (determined as of the time the option is granted) of
the Stock with respect to which incentive stock options are exercisable for the
first time by any individual during any calendar year (under all plans of the
Company and its parent and subsidiary corporations) exceeds One Hundred Thousand
4
<PAGE>
Dollars ($100,000), the options shall be treated as options that are not
incentive stock options.
6. NONQUALIFIED STOCK OPTION TERMS AND CONDITIONS
The options granted under the terms and conditions of this Section 6 are
nonqualified stock options and are not intended to qualify as either a qualified
stock option or an incentive stock option as those terms are defined by
applicable provisions of the Code. Each nonqualified stock option granted under
the Plan shall be authorized by action of the Committee and shall be evidenced
by a written agreement in such form as the Committee shall from time to time
approve, which agreement shall comply with and be subject to the following terms
and conditions:
(a) Exercise Price. The exercise price of each nonqualified stock option shall
--------------
not be less than one hundred percent (100%) of the fair market value of a Share
of the Company on the date the option is granted.
(b) Duration of Options. Each nonqualified stock option shall be for a term
-------------------
determined by the Committee; provided, however, that the term of any option may
not exceed five (5) years.
(c) Right to Exercise. Each nonqualified stock option shall become exercisable
-----------------
and vest according to the terms and conditions established by the Committee and
reflected in the written agreement evidencing the option, provided, however,
that no option shall vest at a rate of less than twenty-five percent (25%) per
year during the four (4) year period following the date of grant of the option.
Each nonqualified stock option shall be subject to termination before its date
of expiration as provided in Subsection 6(d).
(d) Terminations of Options. If an optionee ceases to be an employee of the
-----------------------
Company, his or her rights to exercise a nonqualified stock option then held
shall be only as follows:
DEATH: If an optionee dies while he or she is employed by the Company, the
optionee's estate shall have the right for a period of six (6) months (or such
longer period as the Committee may determine at the date of grant or during the
term of the option) after the date of death to exercise the option to the extent
the optionee was entitled to exercise the option on that date, provided the date
of exercise is in no event after the expiration of the term of the option. To
the extent the option is not exercised within this period, the option will
terminate. An optionee's "estate" shall mean the optionee's legal
representative or any person who acquires the right to exercise an option by
reason of the optionee's death.
DISABILITY: If an optionee's employment with the Company ends because the
optionee becomes disabled, the optionee or his or her qualified representative
(in the event of the optionee's mental disability) shall have the right for a
period of six (6) months after the date on which the optionee's employment ends
to exercise the option to the extent the optionee was entitled to exercise the
option on that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not exercised
within this period, the option will terminate.
5
<PAGE>
OTHER REASONS: If an optionee's employment with the Company ends for any reason
not mentioned above in this Subsection 6(d), all rights of the optionee in a
nonqualified stock option, to the extent that it has not been exercised, shall
terminate on the date the optionee's employment ends.
7. GRANTS TO NONEMPLOYEE DIRECTORS
All options granted to nonemployee directors shall be subject to the following
terms and conditions:
(a) Limits. The aggregate amount of Shares (as adjusted pursuant to Section 9)
------
subject to options granted to all nonemployee directors as a group shall not
exceed twenty-five percent (25%) of the Shares plus Shares underlying expired or
terminated options that are added back to the number of Shares available under
the Plan pursuant to Section 4.
(b) Nonqualified Options. All stock options granted to nonemployee directors
--------------------
pursuant to the Plan shall be nonqualified stock options.
(c) Exercise Price. The exercise price of each option granted to a nonemployee
--------------
director shall not be less than one hundred percent (100%) of the fair market
value of a Share of the Company on the date the option is granted.
(d) Duration of Options. Each option granted to a nonemployee director shall
-------------------
be for a term determined by the Committee; provided, however, that the term of
any option may not exceed five (5) years.
(e) Right to Exercise. Each option granted to a nonemployee director shall
-----------------
become exercisable and vest according to the terms and conditions established by
the Committee and reflected in the written agreement evidencing the option,
provided, however, that no option shall vest at a rate of less than one hundred
percent (100%) per year during the one (1) year period following the date of
grant of the option. Each option granted to a nonemployee director shall be
subject to termination before its date of expiration as provided in Subsection
7(f).
(f) Terminations of Options. If a nonemployee director ceases to be a director
-----------------------
of the Company, his or her rights to exercise an option then held shall be only
as follows:
DEATH: If a nonemployee director dies while he or she is serving on the Board
of the Company, the director's estate shall have the right for a period of six
(6) months (or such longer period as the Committee may determine at the date of
grant or during the term of the option) after the date of death to exercise the
option to the extent the director was entitled to exercise the option on that
date, provided the date of exercise is in no event after the expiration of the
term of the option. To the extent the option is not exercised within this
period, the option will terminate. A director's "estate" shall mean the
director's legal representative or any person who acquires the right to exercise
an option by reason of the director's death.
6
<PAGE>
DISABILITY: If a nonemployee director's Board membership ends because the
director becomes disabled, the director or his or her qualified representative
(in the event of the director's mental disability) shall have the right for a
period of six (6) months after the date on which the director's Board membership
ends to exercise the option to the extent the director was entitled to exercise
the option on that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not exercised
within this period, the option will terminate.
OTHER REASONS: If a nonemployee director's Board membership ends for any reason
not mentioned above in this Subsection 7(f), all rights of the director in an
option, to the extent that it has not been exercised, shall terminate on the
date the director's Board membership ends.
8. ADDITIONAL TERMS AND CONDITIONS OF ALL OPTIONS
The following terms and conditions shall apply to all options granted pursuant
to the Plan:
(a) Exercise of Options. To the extent the right to purchase Shares has vested
-------------------
under an optionee's stock option agreement, options may be exercised from time
to time by delivering payment therefor in cash, certified check, official bank
check, or the equivalent thereof acceptable to the Company, together with
written notice to the Company at the address specified in the written agreement
evidencing the option. The written notice must identify the option or part
thereof being exercised and specify the number of Shares for which payment is
being tendered. An optionee may also exercise an option by the delivery and
surrender of Shares which (i) have been owned by the optionee for at least
twelve (12) months or for such other period as the Committee may require; and
(ii) have an aggregate fair market value on the date of surrender equal to the
exercise price. In addition, an option may be exercised by delivering to the
Company (i) an exercise notice instructing the Company to deliver the
certificates for the Shares purchased to a designated brokerage firm; and (ii) a
copy of irrevocable instructions delivered to the brokerage firm to sell the
Shares acquired upon exercise of the option and to deliver to the Company from
the sale proceeds sufficient cash to pay the exercise price and applicable
withholding taxes arising as a result of the exercise.
The Company shall deliver to the optionee, without transfer or issue tax to the
optionee (or other person entitled to exercise the option), at the principal
office of the Company, or such other place as shall be mutually acceptable, a
certificate or certificates for the Shares acquired under the option dated the
date the option was validly exercised; provided, however, that the time of
delivery may be postponed by the Company for such period as may be required for
it with reasonable diligence to comply with any requirements of law.
(b) Transferability of Options and Shares. Each option shall be transferable
-------------------------------------
only by will or the laws of descent and distribution and shall be exercisable
during the optionee's lifetime only by the optionee, or in the event of
disability, the optionee's qualified representative. In addition, in order for
Shares acquired upon exercise of incentive stock options to receive the tax
treatment afforded such Shares, the Shares may not be disposed of within two
years from the date of the option grant nor within one year after the date of
transfer of such Shares to the optionee.
7
<PAGE>
(c) Withholding. The Company shall have the right to condition the issuance of
-----------
Shares upon exercise of an option upon payment by the optionee of any applicable
taxes required to be withheld under federal, state or local tax laws or
regulations in connection with the exercise. To the extent permitted in an
optionee's stock option agreement, an optionee may elect to pay such tax by (i)
requesting the Company to withhold a sufficient number of Shares from the total
number of Shares issuable upon exercise of the option or (ii) delivering a
sufficient number of Shares which have been held by the optionee for at least
twelve (12) months (or such other period as the Committee may require) to the
Company. This election is subject to approval or disapproval by the Committee.
The value of Shares withheld or delivered shall be the fair market value of the
Shares on the date the exercise becomes taxable as determined by the Committee.
(d) Fair Market Value of Shares. For any purposes under the Plan, fair market
---------------------------
value per Share shall mean, where there is a public market for the Shares, the
mean of the bid and asked prices (or the closing price if listed on a stock
exchange or the NASDAQ National Market) of the Shares for the date of grant, as
reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the NASDAQ Stock Market or the National Quotation Bureau). If this
fair market value information is not available for the date of grant, then such
information for the last preceding date for which it is available shall be
considered as the fair market value.
(e) Other Terms and Conditions. Options may also contain such other
--------------------------
provisions, which shall not be inconsistent with any of the foregoing terms, as
the Committee shall deem appropriate. No option, however, nor anything
contained in the Plan, shall confer upon any optionee any right to continue in
the employ or in the status as a director of the Company, nor limit in any way
the right of the Company to terminate an optionee's employment at any time.
9. ADJUSTMENT OF, AND CHANGES IN, THE SHARES
(a) Changes in Capitalization. Subject to any required action by the
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shareholders of the Company, the number of Shares covered by each outstanding
option, and the number of Shares which have been authorized for issuance under
the Plan but as to which no options have yet been granted, as well as the price
per Share covered by each outstanding option, shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, stock dividend, recapitalization, combination
or reclassification of the Shares, or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board of Directors, whose
determination in that respect shall be final, binding, and conclusive. 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 an option.
(b) Dissolution, Liquidation, Sale, or Merger. In the event of a proposed
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dissolution or liquidation of the Company, options outstanding under the Plan
shall terminate immediately before
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the consummation of such proposed action. The Board will, in such circumstances,
provide written notice to the optionees of the expected dates of termination of
outstanding options and consummation of the proposed dissolution or liquidation.
In the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation in a
transaction in which the Company is not the surviving corporation, outstanding
options may be assumed or equivalent options may be substituted by the successor
corporation (or a parent or subsidiary of the successor corporation), unless the
successor corporation does not agree to assume the options or to substitute
equivalent options. If outstanding options are not assumed or substituted by
equivalent options, all outstanding options shall terminate immediately before
the consummation of the sale or merger (subject to the actual consummation of
the sale or merger) and the Company shall provide written notice to the
optionees of the expected dates of termination of the options and consummation
of the transaction. If the transaction is not consummated, unexercised options
shall continue in accordance with their original terms.
(c) Notice of Adjustments, Fractional Shares. To the extent the foregoing
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adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect shall be final,
binding, and conclusive. No right to purchase fractional shares shall result
from any adjustment in options pursuant to this Section 9. In case of any such
adjustment, the shares subject to the option shall be rounded down to the
nearest whole share. Notice of any adjustment shall be given by the Company to
each holder of an option which was in fact so adjusted and the adjustment
(whether or not notice is given) shall be effective and binding for all purposes
of the Plan.
No adjustment shall be made for dividends or other rights for which the record
date is prior to the date of such issuance, except as provided in this Section
9.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of any class, shall not affect the number or price of
Shares subject to the option, and no adjustment by reason thereof shall be made.
The grant of an option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
10. AMENDMENT AND TERMINATION OF THE PLAN
The Board shall have complete power and authority to terminate or amend the
Plan; provided, however, that the Board shall not, without the approval of the
shareholders of the Company, amend the Plan in a manner that requires
shareholder approval for continued compliance with section 422 of the Code, any
successor rules, or other regulatory authority. Except as provided in Section
9, no termination, modification or amendment of the Plan may, without the
consent of optionees to whom options were previously granted under the Plan,
adversely effect the rights of those optionees. Any
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consent required by the preceding sentence may be obtained in any manner deemed
appropriate by the Committee.
The Plan, unless sooner terminated, shall terminate on September 30, 2007, ten
(10) years from the date the Plan was originally adopted by the Board. An
option may not be granted under the Plan after the Plan is terminated.
11. EFFECTIVENESS OF THE PLAN
The Plan will become effective upon approval by the Company's shareholders
within twelve months of the date the Plan is adopted by the Company's Board of
Directors.
12. INFORMATION TO OPTIONEES
The Company shall provide to each optionee during the period for which he or she
has one or more outstanding options, copies of all annual reports and all other
information which is provided to shareholders of the Company. The Company shall
not be required to provide such information to key employees whose duties in
connection with the Company assure their access to equivalent information.
13. PRIVILEGES OF STOCK OWNERSHIP, SECURITIES LAW COMPLIANCE
No optionee shall be entitled to the privileges of stock ownership as to any
Shares not actually issued and delivered to the optionee. The exercise of any
option under the Plan shall be conditioned upon the registration of the Shares
with the SEC and qualification of the options and underlying Shares under the
Delaware securities laws, unless in the opinion of counsel to the Company
registration or qualification is not necessary. The Company shall diligently
endeavor to comply with all applicable securities laws before any options are
granted under the Plan and before any Shares are issued pursuant to the exercise
of such options.
14. INDEMNIFICATION
To the extent permitted by applicable law in effect from time to time, no member
of the Board or the Committee shall be liable for any action or omission of any
other member of the Board or Committee nor for any act or omission on the
member's own part, excepting only the member's own willful misconduct or gross
negligence. The Company shall pay expenses incurred by, and satisfy a judgment
or fine rendered or levied against, a present or former director or member of
the Committee in any action against such person (whether or not the Company is
joined as a party defendant) to impose liability or a penalty on such person for
an act alleged to have been committed by such person while a director or member
of the Committee arising with respect to the Plan or administration thereof or
out of membership on the Committee or by the Company, or all or any combination
of the preceding; provided the director or Committee member was acting in good
faith, within what such director or Committee member reasonably believed to have
been within the scope
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of his or her employment or authority and for a purpose which he or she
reasonably believed to be in the best interests of the Company or its
shareholders. Payments authorized hereunder include amounts paid and expenses
incurred in settling any such action or threatened action. This section does not
apply to any action instituted or maintained in the right of the Company by a
shareholder or holder of a voting trust certificate representing shares of the
Company. The provisions of this section shall apply to the estate, executor,
administrator, heirs, legatees or devisees of a director or Committee member,
and the term "person" as used in this section shall include the estate,
executor, administrator, heirs, legatees or devisees of such person.
Date Plan Approved by the Board: November 25, 1997
Date Plan Approved by Shareholders: November 25, 1997
