<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED FEBRUARY 28, 1999
COMMISSION FILE NUMBER 0-22793
PRICESMART, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0628530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4649 MORENA BOULEVARD
SAN DIEGO, CALIFORNIA 92117
(Address of principal executive offices)
(619) 581-4530
(Registrant's telephone number, including area code)
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
----- -----
The registrant had 5,053,604 shares of its common stock, par value $.0001 per
share, outstanding at April 6, 1999.
<PAGE>
PRICESMART, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 - FINANCIAL STATEMENTS PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets. . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations. . . . . . . . 4
Condensed Consolidated Statements of Cash Flows. . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . 6-7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . 8-12
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK. . . . . . . . . . . . . . . . . . . . . . . 13
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 2 - CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . . . . 13
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . 13
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 5 - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PRICESMART, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNT IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1999 1998
------------ ----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,382 $ 8,643
Marketable securities 37,670 56,133
Receivables, net 4,847 6,503
Merchandise inventories 8,128 9,160
Prepaid expenses and other current assets 683 965
Property held for sale, net 3,665 4,886
---------- ----------
Total current assets 74,375 86,290
Property and equipment:
Land 5,602 2,250
Building and improvements 10,194 6,905
Fixtures and equipment 8,948 6,659
---------- ----------
24,744 15,814
Less accumulated depreciation (3,552) (2,841)
---------- ----------
21,192 12,973
Other assets:
City notes receivable 20,314 21,501
Other notes receivable 3,796 3,812
Other long-term assets 133 -
---------- ----------
24,243 25,313
---------- ----------
TOTAL ASSETS $ 119,810 $ 124,576
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ - $ 3,782
Accounts payable, trade 6,296 5,463
Other payables and accrued expenses 9,007 6,622
Deferred membership income 519 -
---------- ----------
Total current liabilities 15,822 15,867
Minority interest 6,534 5,628
Stockholders' Equity
Preferred stock, $.0001 par value, 2,000,000 shares
authorized, none issued - -
Common stock, $.0001 par value, 15,000,000 shares
authorized, 5,040,292 and 5,453,603 shares issued and
outstanding, net of 908,398 and 550,000 shares in treasury,
in 1999 and 1998, respectively 1 1
Additional paid-in capital 96,578 100,230
Deferred compensation (1,997) -
Notes receivable from stockholders (672) (697)
Accumulated other comprehensive income 467 519
Retained earnings 3,077 3,028
---------- ----------
Total stockholders' equity 97,454 103,081
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 119,810 $ 124,576
---------- ----------
---------- ----------
</TABLE>
NOTE: The balance sheet at August 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE>
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECOND QUARTER YEAR-TO-DATE
THREE MONTHS ENDED FEBRUARY 28, SIX MONTHS ENDED FEBRUARY 28,
------------------------------- -----------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
International sales $ 19,563 $ 22,542 $ 37,990 $ 40,710
International royalties and other income 501 1,140 858 1,733
Auto referral, travel and other programs 3,705 3,298 6,942 6,405
--------- --------- --------- ---------
TOTAL REVENUES 23,769 26,980 45,790 48,848
EXPENSES
International cost of goods sold 17,252 20,461 33,534 37,418
Selling, general and administrative:
International 4,295 3,212 8,107 5,758
Auto referral, travel and other programs 2,538 2,848 5,134 5,602
Corporate administrative expenses 1,819 673 2,825 1,437
--------- --------- --------- ---------
TOTAL EXPENSES 25,904 27,194 49,600 50,215
--------- --------- --------- ---------
OPERATING LOSS (2,135) (214) (3,810) (1,367)
OTHER
Real estate operations, net 920 171 1,213 534
Interest income and other 898 1,469 2,831 2,985
Minority interest (71) (161) (93) (185)
--------- --------- --------- ---------
TOTAL OTHER 1,747 1,479 3,951 3,334
Income (loss) before provision for income taxes (388) 1,265 141 1,967
Provision for income taxes 81 156 92 156
--------- --------- --------- ---------
NET INCOME (LOSS) $ (469) $ 1,109 $ 49 $ 1,811
--------- --------- --------- ---------
--------- --------- --------- ---------
EARNINGS (LOSS) PER SHARE
Basic $ (0.09) $ 0.19 $ 0.01 $ 0.31
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ (0.09) $ 0.18 $ 0.01 $ 0.30
--------- --------- --------- ---------
--------- --------- --------- ---------
SHARES USED IN PER SHARE COMPUTATION
Basic 5,036 5,908 5,175 5,908
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted 5,036 6,074 5,349 6,077
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes.
4
<PAGE>
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28,
-----------------------------
1999 1998
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 49 $ 1,811
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 711 637
Provision for doubtful accounts 73 -
Income tax provision 92 -
Minority interest 93 185
Stock compensation 727 -
Change in operating assets and liabilities
Accounts receivable and other assets 2,764 (5,289)
Accounts payable and other liabilities 3,645 (640)
--------- --------
Net cash flows provided by (used in) operating activities 8,154 (3,296)
--------- --------
INVESTING ACTIVITIES
Purchases of marketable securities (39,672) (76,175)
Sales of marketable securities 58,114 19,170
Additions to property and equipment (8,930) (4,683)
Payments of notes receivable 1,203 863
--------- --------
Net cash flows provided by (used in) investing activities 10,715 (60,825)
--------- --------
FINANCING ACTIVITIES
Change in property held for sale 1,221 5,150
Proceeds from (repayment of) bank borrowings (3,782) 4,082
Proceeds from minority interests 813 -
Proceeds from exercise of stock options 170 -
Issuance of common stock for cash and notes receivable 84 -
Purchases of treasury stock (6,605) -
--------- --------
Net cash flows provided by (used in) financing activities (8,099) 9,232
--------- --------
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (31) -
--------- --------
Net increase (decrease) in cash and cash equivalents 10,739 (54,889)
Cash and cash equivalents at beginning of period 8,643 58,383
--------- --------
Cash and cash equivalents at end of period $ 19,382 $ 3,494
--------- --------
--------- --------
</TABLE>
See accompanying notes.
5
<PAGE>
PRICESMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
February 28, 1999
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
PriceSmart, Inc. ("PriceSmart" or the "Company") owns and operates certain
merchandising businesses. The Company's primary business is international
merchandising consisting of membership shopping warehouses similar to, but
smaller in size than, warehouse clubs in the United States. As of February 28,
1999, there were four warehouses licensed to and owned by in-country business
people and two warehouses owned 51% by the Company. Additionally, the Company
operates a domestic travel business and until April 1, 1999, operated a domestic
auto referral business marketed primarily to Costco members.
In June 1997, the Price Enterprises, Inc. (PEI) Board of Directors approved, in
principle, a plan to separate PEI's core real estate business from the
merchandising businesses it operated through a number of subsidiaries. To effect
such separation, PEI first transferred to the Company, through a series of
preliminary transactions, the assets listed below. PEI then distributed on
August 29, 1997 all of the Company's Common Stock pro rata to PEI's existing
stockholders through a special dividend (the "Distribution").
Assets transferred to PriceSmart were comprised of: (i) the merchandising
business segment of PEI; (ii) certain real estate properties held for sale (the
"Properties"); (iii) notes receivable from various municipalities and agencies
("City Notes") and certain secured notes receivable from buyers of properties;
(iv) cash and cash equivalents of approximately $58.4 million; and (v) all other
assets and liabilities not specifically associated with PEI's portfolio of 27
investment properties, except for current corporate income tax assets and
liabilities.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended February 28, 1999 are not necessarily
indicative of the results that may be expected for the year ending August 31,
1999. For further information, refer to the consolidated financial statements
and footnotes thereto included in the PriceSmart, Inc. annual report for the
year ended August 31, 1998.
The consolidated financial statements include the assets, liabilities and
results of operations of the Company and its majority owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Certain amounts in the prior period financial statements have been reclassified
to conform to the current presentation.
NOTE 2 - EARNINGS PER SHARE
In Q2 of fiscal 1998, the Company adopted SFAS No. 128, "Earnings per Share."
SFAS No. 128 replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share exclude any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share.
6
<PAGE>
PRICESMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - MEMBERSHIP FEES
Membership fee income represents annual membership fees paid by the Company's
warehouse members. Effective with the first quarter of fiscal 1999, the Company
changed its method of accounting for membership fee income from a "cash basis,"
which historically was consistent with generally accepted accounting principles
and industry practice, to a "deferred basis" whereby membership fee income is
recognized ratably over the annual membership period. The cumulative effect of
adopting the accounting change as of the beginning of fiscal 1999 was not
recorded because it did not have a material effect on the Company's financial
condition, cash flows or ongoing operating results.
NOTE 4 - FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign operations are translated to
U.S. dollars at quarter-end exchange rates, and revenues and expenses are
translated at average rates prevailing during the period. There was no material
effect from foreign currency translation adjustments during the three and six
months ended February 28, 1999.
NOTE 5 - COMPREHENSIVE INCOME
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires the disclosure of all components of comprehensive income,
including net income and other comprehensive income. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances generated from non-owner sources. Consolidated
comprehensive income is as follows (in thousands):
<TABLE>
<CAPTION>
Second Quarter Year-To-Date
Three Months Ended February 28, Six Months Ended February 28,
------------------------------- -----------------------------
1999 1998 1999 1998
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (469) $ 1,109 $ 49 $ 1,811
Unrealized gains on marketable securities 460 158 498 281
Foreign currency translation adjustments (31) - (31) -
-------- -------- ------- --------
429 158 467 281
-------- -------- ------- --------
Comprehensive income (loss) $ (40) $ 1,267 $ 516 $ 2,092
-------- -------- ------- --------
-------- -------- ------- --------
</TABLE>
NOTE 6 - PRE-OPENING COSTS
The Company adopted Statement of Position ("SOP") 98-5 "Reporting on the Costs
of Start-up Activities" in Q1 of fiscal 1999. SOP 98-5 requires pre-opening
costs to be charged to expense as incurred. Prior to fiscal 1999, the Company
capitalized pre-opening costs related to warehouse openings and amortized these
costs over twelve months. The adoption of SOP 98-5 did not have a material
impact on the Company's financial statements.
NOTE 7 - NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board issued SFAS No. 131, "Segment
Information" which is required reporting for the Company in fiscal 1999. SFAS
No. 131 amends the requirements to report financial and descriptive information
about its reportable operating segments. The financial information is required
to be reported on the basis that is used internally for evaluating the segment
performance. The Company does not believe that SFAS No. 131 will have a
material impact on income or financial statement presentation.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve risk
and uncertainties. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed hereunder, as well
as those discussed under the caption "Risk Factors" in the Form 10-K filed
pursuant to the Securities Exchange Act of 1934 on November 25, 1998.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto. All dollar amounts are
in thousands.
MERCHANDISE SALES
<TABLE>
<CAPTION>
Warehouse Percent Export Percent Total Percent
Sales Change Sales Change Sales Change
--------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
2nd Quarter - Fiscal 1999 $ 17,544 27% $ 2,019 -77% $ 19,563 -13%
2nd Quarter - Fiscal 1998 13,844 - 8,698 - 22,542 -
Year-To-Date - Fiscal 1999 $ 33,662 61% $ 4,328 -78% $ 37,990 -7%
Year-To-Date - Fiscal 1998 20,896 - 19,814 - 40,710 -
</TABLE>
WAREHOUSE SALES - The Company's two warehouses in Panama posted strong sales
during the holidays and throughout Q2 of fiscal 1999. The year-to-date increase
was due to the opening of a second warehouse in Panama during Q2 of fiscal 1998
and increased merchandising and marketing efforts.
EXPORT SALES - The decreases in export sales to Asian licensees during the
second quarter and the year-to-date periods were primarily due to the continuing
economic weakness in the region and a decrease in the number of licensee
warehouses.
MERCHANDISE GROSS MARGIN
<TABLE>
<CAPTION>
Warehouse Percent Export Percent
Gross Percent of Gross Percent of
Margin Change Sales Margin Change Sales
--------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
2nd Quarter - Fiscal 1999 $ 2,242 24% 12.8% $ 69 -75% 3.4%
2nd Quarter - Fiscal 1998 1,808 - 13.1% 273 - 3.1%
Year-To-Date - Fiscal 1999 $ 4,322 61% 12.8% $ 134 -78% 3.1%
Year-To-Date - Fiscal 1998 2,692 - 12.9% 600 - 3.0%
</TABLE>
WAREHOUSE GROSS MARGIN - During the second quarter of fiscal 1999, warehouse
gross margin dollars increased primarily due to a greater number of member
transactions. The increase in gross margin dollars over the prior year-to-date
period reflected the opening of the second Panama location. During the second
quarter of fiscal 1999, the decrease in gross margin percentage was primarily
due to continued focus on competitive pricing strategy. The year-to-date gross
margin percentage was comparable to prior year's period.
EXPORT GROSS MARGIN - Export gross margin dollars decreased over prior year's
comparable quarter and year-to-date periods primarily due to the decrease in
export sales. The gross margin percentages for export sales were consistent
with prior year's comparable quarter and year-to-date periods.
8
<PAGE>
OTHER REVENUES
<TABLE>
<CAPTION>
International Auto Referral,
Royalties Percent Travel and Percent
& Other Income Change Other Programs Change
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
2nd Quarter - Fiscal 1999 $ 501 -56% $ 3,705 12%
2nd Quarter - Fiscal 1998 1,140 - 3,298 -
Year-To-Date - Fiscal 1999 $ 858 -50% $ 6,942 8%
Year-To-Date - Fiscal 1998 1,733 - 6,405 -
</TABLE>
During the second quarter and the year-to-date periods of fiscal 1999,
international royalties and other income decreased primarily due to (a) reduced
royalty income because of lower warehouse sales at licensed locations, and (b)
an accounting change for membership fee income from a cash to a deferred method
beginning in the first quarter of fiscal 1999, whereby membership income is
recognized ratably over the annual membership period. On a pro forma basis,
assuming the newly adopted accounting treatment for deferring membership fees
had been in effect in fiscal 1998, international royalties and other income
would have been $903 and $1,409 in the second quarter and year-to-date periods,
respectively; and the decreases over prior year periods in international
royalties and other income would have been 45% and 39%, respectively.
During the second quarter and the year-to-date periods of fiscal 1999, increased
revenues for the Auto Referral, Travel and other programs were due to increased
Auto Referral advertising revenue resulting from more Costco locations and
increased travel commissions on car rentals and cruises.
The Company's auto referral program has been sold with an effective date of sale
of April 1, 1999.
SELLING, GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Auto Referral,
Percent Travel and Percent
International Change Other Programs Change
------------- ------- -------------- -------
<S> <C> <C> <C> <C>
2nd Quarter - Fiscal 1999 $ 4,295 34% $ 2,538 -11%
2nd Quarter - Fiscal 1998 3,212 - 2,848 -
Year-To-Date - Fiscal 1999 $ 8,107 41% $ 5,134 -8%
Year-To-Date - Fiscal 1998 5,758 - 5,602 -
</TABLE>
During Q2 of fiscal 1999, international expenses increased primarily due to
expenses related to warehouse opening, and higher expenses associated with
increased sales. The year-to-date increase is attributable to the same factors
as well as the addition of a second warehouse in Panama (opened December 1997).
During the second quarter and year-to-date periods of fiscal 1999, Auto
Referral, Travel Program and other expenses decreased primarily due to the
elimination of a service center test program in May 1998.
CORPORATE ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Percent
Amounts Change Change
-------- -------- -------
<S> <C> <C> <C>
2nd Quarter - Fiscal 1999 $ 1,819 $ 1,146 170%
2nd Quarter - Fiscal 1998 673 - -
Year-To-Date - Fiscal 1999 $ 2,825 $ 1,388 97%
Year-To-Date - Fiscal 1998 1,437 - -
</TABLE>
During Q2 fiscal 1999, corporate administrative expenses increased primarily due
to compensation expense recognized in conjunction with common stock and stock
options issued pursuant to the 1998
9
<PAGE>
Equity Participation Plan, increased marketing and travel expenses primarily
related to support warehouse openings. The year-to-date increase was a result of
the same factors as Q2.
REAL ESTATE OPERATIONS (NET)
<TABLE>
<CAPTION>
Gain Net
Revenues Expenses On Sales Income
-------- -------- -------- --------
<S> <C> <C> <C> <C>
2nd Quarter - Fiscal 1999 $ 198 $ (193) $ 915 $ 920
2nd Quarter - Fiscal 1998 530 (359) - 171
Year-To-Date - Fiscal 1999 $ 415 $ (338) $ 1,136 $ 1,213
Year-To-Date - Fiscal 1998 1,210 (785) 109 534
</TABLE>
Real estate operations relate to properties held for sale which were transferred
to the Company in connection with the Distribution and reflect rental revenue,
operating expenses, and gain or loss on sales of properties. The Company
expects the remaining properties to be sold during fiscal 1999.
During the second quarter and the year-to-date periods of fiscal 1999, the
increase in net income from real estate operations was primarily due to higher
gains on the sale of properties. The increase was partially offset by reduced
revenues and operating expenses.
INTEREST INCOME AND OTHER
Interest income and other reflect earnings on marketable securities, cash
balances, City Notes and a secured note receivable from a buyer of a formerly
owned property. During the second quarter and year-to-date periods of fiscal
1999, interest income and other decreased primarily due to a shift between
the balances of marketable securities and cash and cash equivalents. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for further discussion.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by (used in) the Company's operations during the first half of
fiscal 1999 and 1998 was $8.2 million, and $(3.3) million, respectively.
The Company expects to satisfy short-term liquidity requirements through its
cash and marketable securities, cash from operations of the Company's
businesses, principal and interest payments on the City Notes and other note
receivable. The Company also expects to generate cash from sales of the
properties held for sale. Additionally, the Company anticipates that its
merchandising joint ventures in Latin America will obtain loans secured by the
assets of the joint ventures.
In September 1998, the Company repurchased 150,000 shares of its common stock
for $2.3 million, completing the share repurchase program it initiated in
conjunction with the 1998 Equity Participation Plan. Repurchased shares will be
added to the Company's treasury shares and will be used to fund the balance of
the 700,000 shares authorized for issuance under the 1998 Equity Participation
Plan.
In November 1998, the Company announced that it would use up to an additional
$5.0 million to repurchase shares of the Company's common stock. During
November 1998, the Company repurchased 277,614 shares under this program for
$4.2 million.
In September 1998, the Company entered into an agreement with PSC, S.A., whose
stockholders are Latin American businessmen, to open nine PriceSmart membership
shopping warehouses in Costa Rica, the Dominican Republic, El Salvador,
Honduras, and Nicaragua. The total cost of the project is projected at $80.6
million of which $33.8 million is to be contributed in cash by the partners and
$46.8 million is to be borrowed. PriceSmart owns 60% of this venture.
In September 1998, the Company made a $5.9 million, five year term loan to its
Panama joint venture. The loan yields interest at a rate of 3-month LIBOR + 1
3/4%. Loan proceeds were used to repay
10
<PAGE>
Panama's bank borrowings of $3.7 million, with the remaining balance to be used
in connection with future business opportunities.
In November 1998, the Company sold its investment portfolio, realizing a gain of
$558,000. The cash balances currently reflected on the balance sheet have been
re-invested in alignment with the Company's future cash needs.
Additionally, the Company estimates that it will spend approximately $10 million
for business opportunities that may arise. Actual capital expenditures,
investment in merchandising businesses and net proceeds realized from property
sales for fiscal 1999 may vary from estimated amounts depending on business
conditions and other risks and uncertainties to which the Company and its
businesses are subject.
The Company believes that its cash balances, marketable securities and net cash
provided by operating activities, principal and interest payments on notes
receivable, sales of its properties held for sale and bank borrowings will be
sufficient to meet its working capital expenditure requirements for at least the
next 12 months. Management intends to invest the Company's cash in excess of
current operating requirements in short-term, interest-bearing, investment-grade
securities.
Certain Asian markets served by the Company have experienced a significant
devaluation of local currencies relative to the U.S. dollar. Because the
Company transacts its business in the Asian markets in U.S. dollars, the Company
does not bear exchange rate risk. However, devaluation of local currencies
relative to the U.S. dollar causes U.S. merchandise to be less affordable, and
generally has a negative impact on the Company's sales of U.S.-sourced goods to
the affected markets, location sales and royalty income. The Company's
licensees in Indonesia and Guam were particularly affected by the economic
crisis, which largely contributed to the cancellation of the Indonesian license
agreement and the closing of the Guam warehouse in fiscal 1998. Neither of
these issues resulted in a material economic loss to the Company.
The Company's risk of loss in certain markets most affected by the Asian
economic downturn discussed is immaterial because the Company conducts business
in such markets through licensing arrangements rather than Company-owned
warehouses.
SEASONALITY
Historically, the Company's merchandising businesses have experienced moderate
holiday retail seasonality in their markets. In addition to seasonal
fluctuations, the Company's operating results fluctuate quarter-to-quarter as a
result of economic and political events in markets served by the Company, the
timing of holidays, weather, timing of shipments, product mix, and cost of
U.S.-sourced products. Because of such fluctuations, the results of operations
of any quarter are not indicative of the results that may be achieved for a full
fiscal year or any future quarter. In addition, there can be no assurance that
the Company's future results will be consistent with past results or the
projections of securities analysts.
IMPACT OF YEAR 2000
The year 2000 issue results from computer programs and hardware being written
with two digits rather than four digits to define the applicable year. As a
result, there is a risk that date sensitive software may recognize a date using
"00" as the year 1900, rather than the year 2000. This potentially could result
in system failure or miscalculations causing disruptions of operations,
including a temporary inability to process transactions or engage in normal
business activities.
The Company has received statements of year 2000 readiness from its key
hardware, software and imbedded system vendors, and has additionally
conducted internal testing of its transaction processing systems. The
Company has assessed readiness of its custom programs, has modified these
programs as needed, and has tested these modifications for year 2000
readiness. In addition to testing its programs and systems individually, the
Company has performed "end-to-end" testing of its internal systems involved
in its supply chain, including purchasing, distribution, sales, and
accounting. During this testing, no errors were found related to date
processing before or after January 1, 2000, including treatment of year 2000
as a leap year. The Company will continue to test its hardware, software,
and imbedded systems as they are added or modified.
11
<PAGE>
The Company has requested disclosure of year 2000 readiness from all of its
vendors and suppliers. Approximately one-half of the Company's vendors and
suppliers have recently responded. Second requests have been issued to the
vendors/suppliers who did not respond. The Company will evaluate the potential
business impact of non-responsive or non-compliant vendors/suppliers, and make
contingency plans if needed.
The total cost of the year 2000 project is not expected to exceed $100,000,
excluding the cost of recently purchased hardware and software which was already
year 2000 ready. The costs of the year 2000 project are based on management's
best estimates, which are derived utilizing numerous assumptions. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from the estimates. Specific factors that might
cause material differences include, but are not limited to, the availability and
cost of trained personnel, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
A significant part of the Company's business is derived from its activities in
Central America and Asia. The Company's business could be adversely impacted in
the event business activities in Central America and Asia are disrupted due to
Y2K issues, with the extent of such impact dependent upon the extent of such
disruption, which may vary from country to country. The Company's business
could also be adversely impacted by supply chain disruption due to vendor/
supplier business interruption.
The Company has established a business continuity plan, which addresses the
potential unavailability of its hardware and software systems, facilities and
services (e.g. telephone, electricity, data communications) through a
combination of geographically diverse contracted facilities and equipment,
alternative procedures for processing transactions, system back-up and recovery
procedures, and redundant infrastructure (e.g. generators, alternative voice and
data communications methods). The business continuity plan was successfully
tested in February 1999 and March 1999 (in conjunction with year 2000 system
testing). Additionally, after evaluating vendor/supplier readiness, contingency
plans will be made to minimize supply chain disruption related to
vendor/supplier business interruption.
12
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on January
12, 1999 at the San Diego Hilton Beach and Tennis Resort in San
Diego, California. Stockholders of record at the close of
business on November 16, 1998 were entitled to notice of and to
vote in person or by proxy at the annual meeting. At the date of
record, there were 5,315,794 shares outstanding. The matters
presented for vote received the required votes for approval and
had the following total, for, against and abstained votes as
noted below.
1. To elect directors for the ensuing year, to serve until the next Annual
Meeting of Stockholders and until their successors are elected and have
qualified:
<TABLE>
<CAPTION>
Total Shares For Withheld Authority
------------------ ------------------ ------------------
Voted % Votes % Votes %
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Rafael E. Barcenas 5,094,309 95.83% 5,094,272 95.83% 5,768 0.11%
Katherine L. Hensley 5,094,309 95.83% 5,094,271 95.83% 5,769 0.11%
Leon C. Janks 5,094,309 95.83% 5,094,272 95.83% 5,768 0.11%
Lawrence B. Krause 5,094,309 95.83% 5,094,111 95.83% 5,929 0.11%
Gilbert A. Partida 5,094,309 95.83% 5,094,270 95.83% 5,770 0.11%
Robert E. Price 5,094,309 95.83% 5,094,153 95.83% 5,887 0.11%
</TABLE>
2. To approve the adoption of the 1998 Equity Participation Plan of
PriceSmart, Inc. and the reservation of 700,000 shares of the Company's
common stock for issuance thereunder.
<TABLE>
<CAPTION>
Withheld Authority
Total Shares Against And
Voted / % For Votes / % Votes / % Abstained Votes / %
- -------------------- ------------------ -------------- --------------------
<S> <C> <C> <C>
4,074,243 3,775,399 277,829 1,262,566
76.64% 71.02% 5.23% 23.75%
</TABLE>
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 The 1998 Equity Participation Plan of PriceSmart, Inc.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed for the 3 months ended
February 28, 1998
13
<PAGE>
SIGNATURES
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.
PRICESMART, INC.
REGISTRANT
Date: April 14, 1999 /s/ Gilbert A. Partida
----------------------
Gilbert A. Partida
PRESIDENT & CHIEF EXECUTIVE OFFICER
Date: April 14, 1999 /s/ Karen J. Ratcliff
---------------------
Karen J. Ratcliff
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
14
<PAGE>
EXHIBIT 10.1
THE 1998 EQUITY PARTICIPATION PLAN
OF
PRICESMART, INC.
PriceSmart, Inc., a Delaware corporation, has adopted The 1998 Equity
Participation Plan of PriceSmart, Inc. (the "Plan"), effective July 20, 1998,
for the benefit of its eligible employees, consultants and directors.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, Employees (as
such term is defined below) and consultants to further the growth, development
and financial success of the Company by personally benefiting through the
ownership of Company stock and/or rights which recognize such growth,
development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
1.1. GENERAL. Wherever the following terms are used in the Plan
they shall have the meanings specified below, unless the context clearly
indicates otherwise.
1.2. ADMINISTRATOR. "Administrator" shall mean the entity that
conducts the general administration of the Plan as provided herein. With
reference to the administration of the Plan with respect to Options granted to
Independent Directors, the term "Administrator" shall refer to the Board. With
reference to the administration of the Plan with respect to any other Award, the
term "Administrator" shall refer to the Committee unless the Board has assumed
the authority for administration of the Plan generally as provided in Section
11.1.
1.3. AWARD. "Award" shall mean an Option, a Restricted Stock award,
a Performance Award, a Dividend Equivalents award, a Deferred Stock award, a
Stock Payment award or a Stock Appreciation Right which may be awarded or
granted under the Plan (collectively, "Awards").
1.4. AWARD AGREEMENT. "Award Agreement" shall mean a written
agreement executed by an authorized officer of the Company and the Holder which
shall contain such terms and conditions with respect to an Award as the
Administrator shall determine, consistent with the Plan.
1.5. AWARD LIMIT. "Award Limit" shall mean 150,000 shares of Common
Stock, as adjusted pursuant to Section 12.3 of the Plan.
1.6. BOARD. "Board" shall mean the Board of Directors of the
Company.
1.7. CHANGE IN CONTROL. "Change in Control" shall mean a change in
ownership or control of the Company effected through either any of the following
transactions:
(a) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Company)
<PAGE>
directly or indirectly acquires beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made directly
to the Company's stockholders which the Board does not recommend such
stockholders to accept; or
(b) there is a change in the composition of the Board over
a period of thirty-six (36) consecutive months (or less) such that a
majority of the Board members (rounded up to the nearest whole number)
ceases, by reason of one or more proxy contests for the election of Board
members, to be comprised of individuals who either (i) have been Board
members continuously since the beginning of such period or (ii) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (i) who were
still in office at the time such election or nomination was approved by the
Board.
1.8. CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.9. COMMITTEE. "Committee" shall mean the Compensation Committee
of the Board, or another committee or subcommittee of the Board, appointed as
provided in Section 11.1.
1.10. COMMON STOCK. "Common Stock" shall mean the common stock of
the Company, par value $.0001 per share, and any equity security of the Company
issued or authorized to be issued in the future, but excluding any preferred
stock and any warrants, options or other rights to purchase Common Stock. Debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.
1.11. COMPANY. "Company" shall mean PriceSmart, Inc., a Delaware
corporation.
1.12. CORPORATE TRANSACTION. "Corporate Transaction" shall mean any
of the following stockholder-approved transactions to which the Company is a
party:
(a) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of
which is to change the State in which the Company is incorporated, form a
holding company or effect a similar reorganization as to form whereupon the
Plan and all Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of
all or substantially all of the assets of the Company, in complete
liquidation or dissolution of the Company in a transaction not covered by
the exceptions to clause (a), above; or
(c) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred or issued to a person or persons different from
those who held such securities immediately prior to such merger.
1.13. DEFERRED STOCK. "Deferred Stock" shall mean Common Stock
awarded under Article VIII of the Plan.
1.14. DIRECTOR. "Director" shall mean a member of the Board.
1.15. DIVIDEND EQUIVALENT. "Dividend Equivalent" shall mean a right
to receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VIII of the Plan.
1.16. EMPLOYEE. "Employee" shall mean any officer or other employee
(as defined in accordance with Section 3401(c) of the Code) of the Company, or
of any corporation which is a Subsidiary.
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<PAGE>
1.17. EXCHANGE ACT. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.18. FAIR MARKET VALUE. "Fair Market Value" of a share of Common
Stock as of a given date shall be (i) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares were
not traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (ii) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock on
the trading day previous to such date as reported by NASDAQ or such successor
quotation system; or (iii) if Common Stock is not publicly traded on an exchange
and not quoted on NASDAQ or a successor quotation system, the Fair Market Value
of a share of Common Stock as established by the Administrator acting in good
faith.
1.19. GRANTEE. "Grantee" shall mean an Employee or consultant
granted a Performance Award, Dividend Equivalent, Stock Payment or Stock
Appreciation Right, or an award of Deferred Stock, under the Plan.
1.20. HOLDER. "Holder" shall mean a person who has been granted
or awarded an Award.
1.21. INCENTIVE STOCK OPTION. "Incentive Stock Option" shall mean
an option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Committee.
1.22. INDEPENDENT DIRECTOR. "Independent Director" shall mean a
member of the Board who is not an Employee of the Company.
1.23. NON-QUALIFIED STOCK OPTION. "Non-Qualified Stock Option"
shall mean an Option which is not designated as an Incentive Stock Option by the
Committee.
1.24. OPTION. "Option" shall mean a stock option granted under
Article IV of the Plan. An Option granted under the Plan shall, as determined
by the Committee, be either a Non-Qualified Stock Option or an Incentive Stock
Option; PROVIDED, HOWEVER, that Options granted to Independent Directors and
consultants shall be Non-Qualified Stock Options.
1.25. OPTIONEE. "Optionee" shall mean an Employee, consultant or
Independent Director granted an Option under the Plan.
1.26. PERFORMANCE AWARD. "Performance Award" shall mean a cash
bonus, stock bonus or other performance or incentive award that is paid in cash,
Common Stock or a combination of both, awarded under Article VIII of the Plan.
1.27. PERFORMANCE CRITERIA. "Performance Criteria" shall mean the
following business criteria with respect to the Company or any Subsidiary: (a)
net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e)
earnings per share, (f) return on equity, (g) return on invested capital or
assets, (h) cost reductions or savings, (i) funds from operations, (j)
appreciation in the fair market value of Common Stock and (k) earnings before
any one or more of the following items: interest, taxes, depreciation or
amortization.
1.28. PLAN. "Plan" shall mean The 1998 Equity Participation Plan
of PriceSmart, Inc.
1.29. QDRO. "QDRO" shall mean a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
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<PAGE>
1.30. RESTRICTED STOCK. "Restricted Stock" shall mean Common
Stock awarded under Article VII of the Plan.
1.31. RESTRICTED STOCKHOLDER. "Restricted Stockholder" shall mean
an Employee or consultant granted an award of Restricted Stock under Article VII
of the Plan.
1.32. RULE 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
1.33. SECTION 162(m) PARTICIPANT. "Section 162(m) Participant"
shall mean any key Employee designated by the Committee as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
1.34. SECURITIES ACT. "Securities Act" shall mean the Securities
Act of 1933, as amended.
1.35. STOCK APPRECIATION RIGHT. "Stock Appreciation Right" shall
mean a stock appreciation right granted under Article IX of the Plan.
1.36. STOCK PAYMENT. "Stock Payment" shall mean (a) a payment in
the form of shares of Common Stock, or (b) an option or other right to purchase
shares of Common Stock, as part of a deferred compensation arrangement, made in
lieu of all or any portion of the compensation, including without limitation,
salary, bonuses and commissions, that would otherwise become payable to a key
Employee or consultant in cash, awarded under Article VIII of the Plan.
1.37. SUBSIDIARY. "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then 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 such chain.
1.38. TERMINATION OF CONSULTANCY. "Termination of Consultancy"
shall mean the time when the engagement of a Holder as a consultant to the
Company or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, by resignation, discharge, death or
retirement; but excluding terminations where there is a simultaneous
commencement of employment with the Company or any Subsidiary. The Committee,
in its absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Consultancy, including, but not by way of
limitation, the question of whether a Termination of Consultancy resulted from a
discharge for good cause, and all questions of whether a particular leave of
absence constitutes a Termination of Consultancy. Notwithstanding any other
provision of the Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
1.39. TERMINATION OF DIRECTORSHIP. "Termination of Directorship"
shall mean the time when an Optionee who is an Independent Director ceases to be
a Director for any reason, including, but not by way of limitation, a
termination by resignation, failure to be elected, death or retirement. The
Board, in its sole and absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Directorship with respect to
Independent Directors.
1.40. TERMINATION OF EMPLOYMENT. "Termination of Employment"
shall mean the time when the employee-employer relationship between a Holder and
the Company or any Subsidiary is terminated for any reason, with or without
cause, including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of a Holder by the
Company or any Subsidiary, (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship, and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting
A-4
<PAGE>
relationship by the Company or a Subsidiary with the former employee. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Employment, including, but not by way
of limitation, the question of whether a Termination of Employment resulted from
a discharge for good cause, and all questions of whether a particular leave of
absence constitutes a Termination of Employment; PROVIDED, HOWEVER, that, with
respect to Incentive Stock Options, unless otherwise determined by the Committee
in its discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section. Notwithstanding any other provision of
the Plan, the Company or any Subsidiary has an absolute and unrestricted right
to terminate an Employee's employment at any time for any reason whatsoever,
with or without cause, except to the extent expressly provided otherwise in
writing.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. SHARES SUBJECT TO PLAN.
(a) The shares of stock subject to Awards or purchase under
Article X shall be Common Stock. The aggregate number of such shares which
may be issued upon exercise of Options or rights or Awards under the Plan
or upon the purchase of Common Stock pursuant to Article X, shall not
exceed 700,000. The shares of Common Stock issuable upon purchase,
exercise of Options or rights, or upon any such Awards may be either
previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to
Awards granted under the Plan to any individual or which may be purchased
by such individual pursuant to Article X in any fiscal year shall not
exceed the Award Limit. To the extent required by Section 162(m) of the
Code, shares subject to Options which are canceled continue to be counted
against the Award Limit and if, after grant of an Option, the price of
shares subject to such Option is reduced, the transaction is treated as a
cancellation of the Option and a grant of a new Option and both the Option
deemed to be canceled and the Option deemed to be granted are counted
against the Award Limit. Furthermore, to the extent required by Section
162(m) of the Code, if, after grant of a Stock Appreciation Right, the base
amount on which stock appreciation is calculated is reduced to reflect a
reduction in the Fair Market Value of the Common Stock, the transaction is
treated as a cancellation of the Stock Appreciation Right and a grant of a
new Stock Appreciation Right and both the Stock Appreciation Right deemed
to be canceled and the Stock Appreciation Right deemed to be granted are
counted against the Award Limit.
2.2. ADD-BACK OF OPTIONS AND OTHER RIGHTS. If any Option, or other
right to acquire shares of Common Stock under any other Award under the Plan,
expires or is canceled without having been fully exercised, or is exercised in
whole or in part for cash as permitted by the Plan, the number of shares subject
to such Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
Section 12.3 and become exercisable with respect to shares of stock of another
corporation shall be considered canceled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any share of Restricted Stock is
forfeited by the Holder or repurchased by the Company pursuant to Section 7.5
hereof, such share may again be optioned, granted or awarded hereunder, subject
to the limitations of Section 2.1. Notwithstanding the provisions of this
Section 2.2, no shares of Common Stock may again be optioned, granted or awarded
if such action would cause an Incentive Stock Option to fail to qualify as an
incentive stock option under Section 422 of the Code.
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<PAGE>
ARTICLE III.
GRANTING OF AWARDS
3.1. AWARD AGREEMENT. Each Award shall be evidenced by an Award
Agreement. Award Agreements evidencing Awards intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code. Award Agreements
evidencing Incentive Stock Options shall contain such terms and conditions as
may be necessary to meet the applicable provisions of Section 422 of the Code.
3.2. PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS.
(a) The Committee, in its discretion, may determine whether
an Award is to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary,
the Committee may grant any Award to a Section 162(m) Participant,
including Restricted Stock the restrictions with respect to which lapse
upon the attainment of performance goals which are related to one or more
of the Performance Criteria and any performance or incentive award
described in Article VIII that vests or becomes exercisable or payable upon
the attainment of performance goals which are related to one or more of the
Performance Criteria.
(c) To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(C) of the
Code, with respect to any Award granted under Articles VII and VIII which
may be granted to one or more Section 162(m) Participants, no later than
ninety (90) days following the commencement of any fiscal year in question
or any other designated fiscal period or period of service (or such other
time as may be required or permitted by Section 162(m) of the Code), the
Committee shall, in writing, (i) designate one or more Section 162(m)
Participants, (ii) select the Performance Criteria applicable to the fiscal
year or other designated fiscal period or period of service, (iii)
establish the various performance targets, in terms of an objective formula
or standard, and amounts of such Awards, as applicable, which may be earned
for such fiscal year or other designated fiscal period or period of service
and (iv) specify the relationship between Performance Criteria and the
performance targets and the amounts of such Awards, as applicable, to be
earned by each Section 162(m) Participant for such fiscal year or other
designated fiscal period or period of service. Following the completion of
each fiscal year or other designated fiscal period or period of service,
the Committee shall certify in writing whether the applicable performance
targets have been achieved for such fiscal year or other designated fiscal
period or period of service. In determining the amount earned by a Section
162(m) Participant, the Committee shall have the right to reduce (but not
to increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or
other designated fiscal period or period of service.
3.3. CONSIDERATION. In consideration of the granting of an Award
under the Plan, the Holder shall agree, in the Award Agreement, to remain in the
employ of (or to consult for or to serve as an Independent Director of, as
applicable) the Company or any Subsidiary for a period of at least six months
(or such shorter period as may be fixed in the Award Agreement or by action of
the Administrator following grant of the Award) after the Award is granted (or,
in the case of an Independent Director, until the next annual meeting of
stockholders of the Company).
3.4. AT-WILL EMPLOYMENT. Nothing in the Plan or in any Award
Agreement hereunder shall confer upon any Holder any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Holder at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in a written employment
agreement between the Holder and the Company and any Subsidiary.
A-6
<PAGE>
ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. ELIGIBILITY. Any Employee or consultant selected by the
Committee pursuant to Section 4.4(a)(i) shall be eligible to be granted an
Option. Each Independent Director of the Company shall be eligible to be
granted Options at the times and in the manner set forth in Section 4.5.
4.2. DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted
an Incentive Stock Option under the Plan if such person, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any then existing Subsidiary or parent corporation (within the meaning of
Section 422 of the Code) unless such Incentive Stock Option conforms to the
applicable provisions of Section 422 of the Code.
4.3. QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock
Option shall be granted to any person who is not an Employee.
4.4. GRANTING OF OPTIONS TO EMPLOYEES AND CONSULTANTS.
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:
(i) Determine which Employees or consultants
(including Employees or consultants who have previously received
Awards under the Plan) should be granted Options;
(ii) Subject to the Award Limit, determine the number
of shares to be subject to such Options granted to the selected
Employees or consultants;
(iii) Subject to Section 4.3, determine whether such
Options are to be Incentive Stock Options or Non-Qualified Stock
Options and whether such Options are to qualify as
performance-based compensation as described in Section
162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such
Options, consistent with the Plan; PROVIDED, HOWEVER, that the
terms and conditions of Options intended to qualify as
performance-based compensation as described in Section
162(m)(4)(C) of the Code shall include, but not be limited to,
such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
(b) Upon the selection of an Employee or consultant to be
granted an Option, the Committee shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant of
the Option as it deems appropriate. Without limiting the generality of the
preceding sentence, the Committee may, in its discretion and on such terms
as it deems appropriate, require as a condition on the grant of an Option
to an Employee or consultant that the Employee or consultant surrender for
cancellation some or all of the unexercised Options, any other Award or
other rights which have been previously granted to him or her under the
Plan or otherwise. An Option, the grant of which is conditioned upon such
surrender, may have an Option price lower (or higher) than the exercise
price of such surrendered Option or other award, may cover the same (or a
lesser or greater) number of shares as such surrendered Option or other
award, may contain such other terms as the Committee deems appropriate, and
shall be exercisable in accordance with its terms, without regard to the
number of shares, price, exercise period or any other term or condition of
such surrendered Option or other award.
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<PAGE>
(c) Any Incentive Stock Option granted under the Plan may
be modified by the Committee, with the consent of the Optionee, to
disqualify such Option from treatment as an "incentive stock option" under
Section 422 of the Code.
4.5. GRANTING OF OPTIONS TO INDEPENDENT DIRECTORS.
(a) Each person who (i) is an Independent Director as of
the date of the adoption by the Board of the Plan (each such person, an
"INITIAL INDEPENDENT DIRECTOR") and (ii) as of the date of such adoption,
has purchased not less than five hundred (500) shares of Common Stock
(other than purchases pursuant to the exercise of an option granted
pursuant any stock option plan of the Company) during the period beginning
on September 1, 1997 and ending on the date of such adoption, automatically
shall be granted, as of the date of such adoption, an Option to purchase a
number of shares of Common Stock equal to three times the number of shares
of Common Stock actually purchased (other than purchases pursuant to the
exercise of an option granted pursuant to any stock option plan of the
Company) by such person during the period beginning on September 1, 1997
and ending on the date of adoption by the Board of the Plan. Following the
date of adoption by the Board of the Plan, on the date of the purchase of
additional shares of Common Stock (other than a purchase pursuant to the
exercise of an option granted pursuant to the Plan or any other stock
option plan of the Company) (the date of each such purchase of additional
shares, an "ADDITIONAL PURCHASE DATE"), (x) by each person who (i) is an
Initial Independent Director and (ii) has purchased in the aggregate not
less than five hundred (500) shares of Common Stock (other than purchases
pursuant to the exercise of an option granted pursuant to the Plan or any
other stock option plan of the Company) during the period beginning on
September 1, 1997 and ending on the applicable Additional Purchase Date,
such person automatically shall be granted, as of each such Additional
Purchase Date, an Option to purchase a number of shares of Common Stock
equal to the difference between (I) three times the number of such shares
of Common Stock actually purchased (other than purchases pursuant to the
exercise of an option granted pursuant to the Plan or any other stock
option plan of the Company) by such person during the period beginning on
September 1, 1997 and (II) the number of shares of Common Stock subject to
options previously granted pursuant to this Section 4.5(a); and (y) by each
person who (i) becomes an Independent Director after the date of adoption
by the Board of the Plan and (ii) has purchased in the aggregate not less
than five hundred (500) shares of Common Stock (other than purchases
pursuant to the exercise of an option granted pursuant to the Plan or any
other stock option plan of the Company) during the period beginning on the
date such person became an Independent Director and ending on the
applicable Additional Purchase Date, such person automatically shall be
granted, as of each such Additional Purchase Date, an Option to purchase a
number of shares of Common Stock equal to the difference between (I) three
times the number of such shares of Common Stock actually purchased (other
than purchases pursuant to the exercise of an option granted pursuant to
the Plan or any other stock option plan of the Company) by such person
during the period beginning on the date such person became an Independent
Director and (II) the number of shares of Common Stock subject to options
previously granted pursuant to this Section 4.5(a). Notwithstanding
anything to the contrary in this Plan, no Independent Director shall be
granted an Option or Options under this Section 4.5(a) which, in the
aggregate, shall be exercisable for more than eight thousand one hundred
forty-six (8,146) shares of Common Stock (subject to adjustment as provided
in Section 12.3).
(b) In addition to the options granted pursuant to Section
4.5(a), during the term of the Plan, the Board shall from time to time, in
its absolute discretion, and subject to applicable limitations of the Plan:
(i) Select from among the Independent Directors
(including Independent Directors who have previously received
Options under the Plan) such of them as in its opinion should be
granted Options;
(ii) Subject to the Award Limit, determine the number
of shares to be subject to such Options granted to the selected
Independent Directors;
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(iii) Subject to the provisions of Article V, determine
the terms and conditions of such Options, consistent with the
Plan.
4.6. GRANTING OF OPTIONS UPON STOCK PURCHASES. The Committee may
provide that upon the purchase of Common Stock by an Employee or consultant
pursuant to Article X, an Option shall automatically be granted to such Employee
or consultant which shall cover a number of shares and be subject to such terms
and conditions as shall be determined by the Committee in its discretion.
ARTICLE V.
TERMS OF OPTIONS
5.1. OPTION PRICE. The price per share of the shares subject to
each Option granted to Employees and consultants shall be set by the Committee;
PROVIDED, HOWEVER, that such price shall be no less than the par value of a
share of Common Stock, unless otherwise permitted by applicable state law, and
(i) in the case of Options intended to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code, such price shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the date the
Option is granted; (ii) in the case of Incentive Stock Options such price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted (or the date the Option is modified, extended or
renewed for purposes of Section 424(h) of the Code); (iii) in the case of
Incentive Stock Options granted to an individual then owning (within the meaning
of Section 424(d) of the Code) more than 10% of the total combined voting power
of all classes of stock of the Company or any Subsidiary or parent corporation
thereof (within the meaning of Section 422 of the Code), such price shall not be
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code).
5.2. OPTION TERM. The term of an Option granted to an Employee or
consultant shall be set by the Committee in its discretion; PROVIDED, HOWEVER,
that, in the case of Incentive Stock Options, the term shall not be more than
ten (10) years from the date the Incentive Stock Option is granted, or five (5)
years from such date if the Incentive Stock Option is granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code). Except as limited by requirements of Section 422 of the Code and
regulations and rulings thereunder applicable to Incentive Stock Options, the
Committee may extend the term of any outstanding Option in connection with any
Termination of Employment or Termination of Consultancy of the Optionee, or
amend any other term or condition of such Option relating to such a termination.
5.3. OPTION VESTING
(a) The period during which the right to exercise, in whole
or in part, an Option granted to an Employee or a consultant vests in the
Optionee shall be set by the Committee and the Committee may determine that
an Option may not be exercised in whole or in part for a specified period
after it is granted ; PROVIDED, HOWEVER, that, unless the Committee
otherwise provides in the terms of the Award Agreement or otherwise, no
Option shall be exercisable by any Optionee who is then subject to Section
16 of the Exchange Act within the period ending six months and one day
after the date the Option is granted. At any time after grant of an
Option, the Committee may, in its sole and absolute discretion and subject
to whatever terms and conditions it selects, accelerate the period during
which an Option granted to an Employee or consultant vests.
(b) No portion of an Option granted to an Employee or
consultant which is unexercisable at Termination of Employment or
Termination of Consultancy, as applicable, shall thereafter become
exercisable, except as may be otherwise provided by the Committee either in
the Award Agreement or by action of the Committee following the grant of
the Option.
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(c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the meaning
of Section 422 of the Code, but without regard to Section 422(d) of the
Code) are exercisable for the first time by an Optionee during any calendar
year (under the Plan and all other incentive stock option plans of the
Company and any parent or subsidiary corporation (within the meaning of
Section 422 of the Code) of the Company) exceeds $100,000, such Options
shall be treated as Non-Qualified Options to the extent required by Section
422 of the Code. The rule set forth in the preceding sentence shall be
applied by taking Options into account in the order in which they were
granted. For purposes of this Section 5.3(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such
stock is granted.
5.4 TERMS OF OPTIONS GRANTED TO INDEPENDENT DIRECTORS. The price
per share of the shares subject to each Option granted to an Independent
Director shall equal 100% of the Fair Market Value of a share of Common Stock on
the date the Option is granted. Subject to Section 6.6, the term of each Option
granted to an Independent Director shall be six (6) years from the date the
Option is granted, without variation or acceleration hereunder. Options granted
to Independent Directors shall become exercisable in cumulative annual
installments of 20% on each of the first, second, third, fourth and fifth
anniversaries of the date of Option grant, without variation or acceleration
hereunder except as provided in Section 12.3(b). No portion of an Option which
is unexercisable at Termination of Directorship shall thereafter become
exercisable.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. PARTIAL EXERCISE. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Administrator may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
6.2. MANNER OF EXERCISE. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his office:
(a) A written notice complying with the applicable rules
established by the Administrator stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Optionee or other
person then entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the
Administrator, in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act and
any other federal or state securities laws or regulations. The
Administrator may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance
including, without limitation, placing legends on share certificates and
issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised
pursuant to Section 12.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option; and
(d) Full cash payment to the Secretary of the Company for
the shares with respect to which the Option, or portion thereof, is
exercised. However, the Administrator, may in its discretion (i) allow a
delay in payment up to thirty (30) days from the date the Option, or
portion thereof, is exercised; (ii) allow payment, in whole or in part,
through the delivery of shares of Common Stock which have been owned by the
Optionee for at least six months, duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; (iii) allow
payment, in whole or in part, through the surrender of shares of Common
Stock then issuable upon exercise of the Option having a Fair Market Value
on the date of Option exercise equal to the aggregate exercise price of the
Option or exercised portion thereof; (iv) allow
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payment, in whole or in part, through the delivery of property of any kind
which constitutes good and valuable consideration; (v) allow payment, in
whole or in part, through the delivery of a full recourse, limited recourse
or non-recourse (as determined by the Committee) promissory note bearing
interest (at no less than such rate as shall then preclude the imputation
of interest under the Code) and payable upon such terms as may be
prescribed by the Committee or the Board; (vi) allow payment, in whole or
in part, through the delivery of a notice that the Optionee has placed a
market sell order with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has been directed
to pay a sufficient portion of the net proceeds of the sale to the Company
in satisfaction of the Option exercise price; or (vii) allow payment
through any combination of the consideration provided in the foregoing
subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory
note, the Administrator may also prescribe the form of such note and the
security to be given for such note. The Option may not be exercised,
however, by delivery of a promissory note or by a loan from the Company
when or where such loan or other extension of credit is prohibited by law.
6.3. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other
qualification of such shares under any state or federal law, or under the
rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body which the Administrator shall, in its
absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from
any state or federal governmental agency which the Administrator shall, in
its absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following
the exercise of the Option as the Administrator may establish from time to
time for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax, which in the
discretion of the Committee or the Board may be in the form of
consideration used by the Optionee to pay for such shares under Section
6.2(d).
6.4. RIGHTS AS STOCKHOLDERS/DIVIDEND EQUIVALENTS. Optionees shall
not be, nor have any of the rights or privileges of, stockholders of the Company
in respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such Optionees. Notwithstanding the foregoing, any Optionee who is
an Employee or consultant selected by the Committee may be granted Dividend
Equivalents based on the dividends declared on Common Stock, to be credited as
of dividend payment dates, during the period between the date an Option is
granted, and the date such Option is exercised, vests or expires, as determined
by the Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and subject
to such limitations as may be determined by the Committee. Dividend Equivalents
granted with respect to Options intended to be qualified performance-based
compensation for purposes of Section 162(m) of the Code shall be payable, with
respect to pre-exercise periods, regardless of whether such Option is
subsequently exercised.
6.5. OWNERSHIP AND TRANSFER RESTRICTIONS. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Committee may require the Employee to give the Company prompt
notice of any disposition of shares of Common Stock acquired by exercise of an
Incentive Stock
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Option within (i) two years from the date of granting (including the date the
Option is modified, extended or renewed for purposes of Section 424(h) of the
Code) such Option to such Employee or (ii) one year after the transfer of such
shares to such Employee. The Committee may direct that the certificates
evidencing shares acquired by exercise of any such Option refer to such
requirement to give prompt notice of disposition.
6.6. LIMITATIONS ON EXERCISE OF OPTIONS GRANTED TO INDEPENDENT
DIRECTORS. No Option granted to an Independent Director may be exercised to any
extent by anyone after the first to occur of the following events:
(a) The expiration of twelve (12) months from the date of
the Optionee's death;
(b) the expiration of twelve (12) months from the date of
the Optionee's Termination of Directorship by reason of his permanent and
total disability (within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the
Optionee's Termination of Directorship for any reason other than such
Optionee's death or his permanent and total disability, unless the Optionee
dies within said three-month period; or
(d) The expiration of ten (10) years from the date the
Option was granted.
6.7. ADDITIONAL LIMITATIONS ON EXERCISE OF OPTIONS. Optionees may
be required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Administrator.
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. ELIGIBILITY. Subject to the Award Limit, Restricted Stock may
be awarded to any Employee who the Committee determines is a key Employee or any
consultant who the Committee determines should receive such an Award.
7.2. AWARD OF RESTRICTED STOCK
(a) The Committee may from time to time, in its absolute
discretion:
(i) Determine which Employees are key Employees and
select from among the key Employees or consultants (including
Employees or consultants who have previously received other
awards under the Plan) such of them as in its opinion should be
awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other
terms and conditions applicable to such Restricted Stock,
consistent with the Plan.
(b) The Committee shall establish the purchase price, if any,
and form of payment for Restricted Stock; PROVIDED, HOWEVER, that such
purchase price shall be no less than the par value of the Common Stock to
be purchased, unless otherwise permitted by applicable state law. In all
cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of a key Employee or consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on
the issuance of such Restricted Stock as it deems appropriate.
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7.3. RIGHTS AS STOCKHOLDERS. Subject to Section 7.4, upon delivery
of the shares of Restricted Stock to the escrow holder pursuant to Section 7.6,
the Restricted Stockholder shall have, unless otherwise provided by the
Committee, all the rights of a stockholder with respect to said shares, subject
to the restrictions in his Award Agreement, including the right to receive all
dividends and other distributions paid or made with respect to the shares;
PROVIDED, HOWEVER, that in the discretion of the Committee, any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 7.4.
7.4. RESTRICTION. All shares of Restricted Stock issued under the
Plan (including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee shall provide, which restrictions
may include, without limitation, restrictions concerning voting rights and
transferability and restrictions based on duration of employment with the
Company, Company performance and individual performance; PROVIDED, HOWEVER,
that, unless the Committee otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and PROVIDED, FURTHER, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants, by
action taken after the Restricted Stock is issued, the Committee may, on such
terms and conditions as it may determine to be appropriate, remove any or all of
the restrictions imposed by the terms of the Award Agreement. Restricted Stock
may not be sold or encumbered until all restrictions are terminated or expire.
If no consideration was paid by the Restricted Stockholder upon issuance, a
Restricted Stockholder's rights in unvested Restricted Stock shall lapse upon
Termination of Employment or, if applicable, upon Termination of Consultancy
with the Company; PROVIDED, HOWEVER, that the Committee in its sole and absolute
discretion may provide that such rights shall not lapse in the event of a
Termination of Employment following a "change of ownership or control" (within
the meaning of Treasury Regulation Section 1.62-27(e)(2)(v) or any successor
regulation thereto) of the Company or because of the Restricted Stockholder's
death or disability; PROVIDED, FURTHER, except with respect to shares of
Restricted Stock granted to Section 162(m) Participants, the Committee in its
sole and absolute discretion may provide that no such right of repurchase shall
exist in the event of a Termination of Employment, or a Termination of
Consultancy, without cause or following any Change in Control of the Company or
because of the Restricted Stockholder's retirement, or otherwise.
7.5. REPURCHASE OF RESTRICTED STOCK. The Committee shall provide in
the terms of each individual Award Agreement that the Company shall have the
right to repurchase from the Restricted Stockholder the Restricted Stock then
subject to restrictions under the Award Agreement immediately upon a Termination
of Employment or, if applicable, upon a Termination of Consultancy between the
Restricted Stockholder and the Company, at a cash price per share equal to the
price paid by the Restricted Stockholder for such Restricted Stock; PROVIDED,
HOWEVER, that the Committee in its sole and absolute discretion may provide that
no such right of repurchase shall exist in the event of a Termination of
Employment following a "change of ownership or control" (within the meaning of
Treasury Regulation Section 1.162-27(e)(2)(v) or any successor regulation
thereto) of the Company or because of the Restricted Stockholder's death or
disability; PROVIDED, FURTHER, that, except with respect to shares of Restricted
Stock granted to Section 162(m) Participants, the Committee in its sole and
absolute discretion may provide that no such right of repurchase shall exist in
the event of a Termination of Employment or a Termination of Consultancy without
cause or following any Change in Control of the Company or because of the
Restricted Stockholder's retirement, or otherwise.
7.6. ESCROW. The Secretary of the Company or such other escrow
holder as the Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Award Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
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7.7. LEGEND. In order to enforce the restrictions imposed upon
shares of Restricted Stock hereunder, the Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Award Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
7.8. SECTION 83(b) ELECTION. If a Restricted Stockholder makes an
election under Section 83(b) of the Code, or any successor section thereto, to
be taxed with respect to the Restricted Stock as of the date of transfer of the
Restricted Stock rather than as of the date or dates upon which the Restricted
Stockholder would otherwise be taxable under Section 83(a) of the Code, the
Restricted Stockholder shall deliver a copy of such election to the Company
immediately after filing such election with the Internal Revenue Service.
ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
8.1. ELIGIBILITY. Subject to the Award Limit, one or more
Performance Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock
Payments may be granted to any Employee whom the Committee determines is a key
Employee or any consultant whom the Committee determines should receive such an
Award.
8.2. PERFORMANCE AWARDS. Any key Employee or consultant selected by
the Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to any one or more of the Performance Criteria
or other specific performance criteria determined appropriate by the Committee,
in each case on a specified date or dates or over any period or periods
determined by the Committee. In making such determinations, the Committee shall
consider (among such other factors as it deems relevant in light of the specific
type of award) the contributions, responsibilities and other compensation of the
particular key Employee or consultant.
8.3. DIVIDEND EQUIVALENTS. Any key Employee or consultant selected
by the Committee may be granted Dividend Equivalents based on the dividends
declared on Common Stock, to be credited as of dividend payment dates, during
the period between the date a Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Stock Appreciation Right,
Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee. Such Dividend Equivalents shall be converted to
cash or additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.
8.4. STOCK PAYMENTS. Any key Employee or consultant selected by the
Committee may receive Stock Payments in the manner determined from time to time
by the Committee. The number of shares shall be determined by the Committee and
may be based upon the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, determined on the date such
Stock Payment is made or on any date thereafter.
8.5. DEFERRED STOCK. Any key Employee or consultant selected by the
Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock
shall be determined by the Committee and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by
the Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Holder of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the Award has vested and the Common Stock underlying the Award has been
issued.
8.6. TERM. The term of a Performance Award, Dividend Equivalent,
award of Deferred Stock and/or Stock Payment shall be set by the Committee in
its discretion.
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8.7. EXERCISE OR PURCHASE PRICE. The Committee may establish the
exercise or purchase price of a Performance Award, shares of Deferred Stock, or
shares received as a Stock Payment; PROVIDED, HOWEVER, that such price shall not
be less than the par value for a share of Common Stock, unless otherwise
permitted by applicable state law.
8.8. EXERCISE UPON TERMINATION OF EMPLOYMENT OR TERMINATION OF
CONSULTANCY. A Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment is exercisable or payable only while the Holder is an
Employee or consultant; PROVIDED, HOWEVER, that the Committee in its sole and
absolute discretion may provide that the Performance Award, Dividend Equivalent,
award of Deferred Stock and/or Stock Payment may be exercised or paid subsequent
to a Termination of Employment following a "change of control or ownership"
(within the meaning of Section 1.162-27(e)(2)(v) or any successor regulation
thereto) of the Company; PROVIDED, FURTHER, that except with respect to
Performance Awards granted to Section 162(m) Participants, the Committee in its
sole and absolute discretion may provide that the Performance Awards may be
exercised or paid following a Termination of Employment or a Termination of
Consultancy without cause, or following a Change in Control of the Company, or
because of the Grantee's retirement, death or disability, or otherwise.
8.9. FORM OF PAYMENT. Payment of the amount determined under
Section 8.2 or 8.3 above shall be in cash, in Common Stock or a combination of
both, as determined by the Committee. To the extent any payment under this
Article VIII is effected in Common Stock, it shall be made subject to
satisfaction of all provisions of Section 6.3.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
may be granted to any key Employee or consultant selected by the Committee. A
Stock Appreciation Right may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted Option, or
(c) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement. Without limiting the
generality of the foregoing, the Committee may, in its discretion and on such
terms as it deems appropriate, require as a condition of the grant of a Stock
Appreciation Right to an Employee or consultant that the Employee or consultant
surrender for cancellation some or all of the unexercised Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments, or other rights which have been
previously granted to him or her under the Plan or otherwise. A Stock
Appreciation Right, the grant of which is conditioned upon such surrender, may
have an exercise price lower (or higher) than the exercise price of the
surrendered Option or other award, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
9.2. COUPLED STOCK APPRECIATION RIGHTS.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be
related to a particular Option and shall be exercisable only when and to
the extent the related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than
the number of shares subject to the simultaneously or previously granted
Option to which it is coupled.
(c) A CSAR shall entitle the Grantee (or other person
entitled to exercise the Option pursuant to the Plan) to surrender to the
Company unexercised a portion of the Option to which the CSAR relates (to
the extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Option exercise price from the Fair
Market Value of a share of Common Stock on the date of exercise of the
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CSAR by the number of shares of Common Stock with respect to which the CSAR
shall have been exercised, subject to any limitations the Committee may
impose.
9.3. INDEPENDENT STOCK APPRECIATION RIGHTS.
(a) An Independent Stock Appreciation Right ("ISAR") shall
be unrelated to any Option and shall have a term set by the Committee. An
ISAR shall be exercisable in such installments as the Committee may
determine. An ISAR shall cover such number of shares of Common Stock as
the Committee may determine; provided, however, that unless the Committee
otherwise provides in the terms of the ISAR or otherwise, no ISAR granted
to a person subject to Section 16 of the Exchange Act shall be exercisable
until at least six months have elapsed from (but excluding) the date on
which the Option was granted. The exercise price per share of Common Stock
subject to each ISAR shall be set by the Committee. An ISAR is exercisable
only while the Grantee is an Employee or consultant; provided that the
Committee may determine that the ISAR may be exercised subsequent to
Termination of Employment or Termination of Consultancy without cause, or
following a Change in Control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person
entitled to exercise the ISAR pursuant to the Plan) to exercise all or a
specified portion of the ISAR (to the extent then exercisable pursuant to
its terms) and to receive from the Company an amount determined by
multiplying the difference obtained by subtracting the exercise price per
share of the ISAR from the Fair Market Value of a share of Common Stock on
the date of exercise of the ISAR by the number of shares of Common Stock
with respect to which the ISAR shall have been exercised, subject to any
limitations the Committee may impose.
9.4. PAYMENT AND LIMITATIONS ON EXERCISE.
(a) Payment of the amount determined under Section 9.2(c)
and 9.3(b) above shall be in cash, in Common Stock (based on its Fair
Market Value as of the date the Stock Appreciation Right is exercised) or a
combination of both, as determined by the Committee. To the extent such
payment is effected in Common Stock it shall be made subject to
satisfaction of all provisions of Section 6.3 above pertaining to Options.
(b) Grantees of Stock Appreciation Rights may be required
to comply with any timing or other restrictions with respect to the
settlement or exercise of a Stock Appreciation Right, including a
window-period limitation, as may be imposed in the discretion of the
Committee.
ARTICLE X.
STOCK PURCHASES
10.1. ELIGIBILITY TO PURCHASE COMMON STOCK.
(a) The Committee may grant to any consultant or any
Employee the right to purchase Common Stock under this Plan from time to
time, in such amounts and subject to such terms and conditions as the
Committee may determine, and, at the discretion of the Committee, such
determinations may include determining categories of employees and the
number of shares to be made available to employees in each such category;
PROVIDED, HOWEVER, that the total number of shares granted in an action
taken by category must be readily determinable. The Committee shall
determine the purchase price for such Common Stock; PROVIDED, HOWEVER, that
the purchase price for Common Stock purchased under this Article X shall be
no less than the Fair Market Value of such Common Stock as of the date of
purchase.
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<PAGE>
(b) Each person who is an Independent Director as of the date of
the adoption by the Board of the Plan automatically shall be granted, on
the date of such adoption, the right under this Article X to purchase a
number of shares of Common Stock equal to the difference between (i) two
thousand seven hundred sixteen (2,716) shares of Common Stock and (ii) the
number of shares of Common Stock purchased by such Independent Director
since September 1, 1997 (other than purchases pursuant to the exercise of
an option granted pursuant to any stock option plan of the Company);
provided that any Independent Director who has purchased more than two
thousand seven hundred sixteen (2,716) shares of Common Stock since
September 1, 1997 (without taking into account purchases pursuant to the
exercise of an option granted pursuant to any stock option plan of the
Company) shall not receive any grant under this Article X. During the term
of the Plan, a person who is initially elected to the Board after the
adoption by the Board of the Plan and who is an Independent Director at the
time of such initial election automatically shall be granted the right
under this Article X to purchase two thousand seven hundred sixteen (2,716)
shares of Common Stock (subject to adjustment as provided in Section 12.3)
on the date of such initial election. The purchase price for any Common
Stock to be purchased pursuant to this Section 10.1(b) shall be the Fair
Market Value of such Common Stock as of the date of purchase.
10.2. TERMINATION OF EMPLOYMENT, TERMINATION OF CONSULTANCY OR
TERMINATION OF DIRECTORSHIP. An Employee, Independent Director or consultant
whom the Committee has granted the right to purchase Common Stock under this
Article X may only purchase such Common Stock while he or she is an Employee,
Independent Director or consultant.
10.3. FORM OF PAYMENT. An eligible Employee, Independent Director
or consultant may purchase Common Stock pursuant to this Article X only upon
delivery of all of the following to the Secretary of the Company or his office:
(a) Written notice complying with the applicable rules
established by the Administrator stating the number of shares of Common
Stock to be purchased;
(b) Such representations and documents as the
Administrator, in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act and
any other federal or state securities laws or regulations. The
Administrator may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance
including, without limitation, placing legends on share certificates and
issuing stop-transfer notices to agents and registrars; and
(c) Full cash payment to the Secretary of the Company for
the shares being purchased. However, the Administrator may in its
discretion allow payment, in whole or in part, through the delivery of a
full recourse, limited recourse or non-recourse (as determined by the
Committee) promissory note bearing interest (at no less than such rate as
shall then preclude the imputation of interest under the Code) and payable
upon such terms as may be prescribed by the Committee or the Board. The
Administrator may prescribe the form of such promissory note and the
security to be given for such note. Notwithstanding the foregoing,
however, Common Stock may not be purchased under this Article X by delivery
of a promissory note or by a loan from the Company when or where such loan
or other extension of credit is prohibited by law.
10.4. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of Common Stock purchased under this Article X prior to fulfillment of
all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other
qualification of such shares under any state or federal law, or under
the rulings or regulations of the Securities and Exchange Commission or
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<PAGE>
any other governmental regulatory body which the Administrator shall, in
its absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from
any state or federal governmental agency which the Administrator shall,
in its absolute discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax, which in the
discretion of the Committee or the Board may be in the form of
consideration used by the Employee or consultant to pay for such shares
under Section 10.3(c).
10.5. RIGHTS AS STOCKHOLDERS/ DIVIDEND EQUIVALENTS. An Employee,
Independent Director or consultant who is granted the right to purchase Common
Stock under this Article X shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
pursuant to such right unless and until certificates representing such shares
have been issued by the Company to such Employee, Independent Director or
consultant.
10.6. STOCKHOLDER APPROVAL REQUIREMENTS. All rights to purchase
Common Stock pursuant to this Article X are subject to stockholder approval of
the Plan. If such stockholder approval is not obtained within twelve months
after the date of the Board's initial adoption of the Plan, then all Common
Stock purchased by any Employee, Independent Director or consultant pursuant to
this Article X shall be returned to the Company, all consideration paid to the
Company shall be returned to the Employee, Independent Director or consultant
and all such purchases shall be canceled and be null and void AB INITIO.
10.7. SECTION 83(b) ELECTION. If an Employee, Independent
Director or consultant makes an election under Section 83(b) of the Code, or any
successor section thereto, to be taxed with respect to the Common Stock
purchased pursuant to this Article X as of the date of transfer of such Common
Stock rather than as of the date or dates upon which such Employee, Independent
Director or consultant would otherwise be taxable under Section 83(a) of the
Code, he or she shall deliver a copy of such election to the Company immediately
after filing such election with the Internal Revenue Service.
ARTICLE XI.
ADMINISTRATION
11.1. COMPENSATION COMMITTEE. The Compensation Committee (or
another committee or a subcommittee of the Board assuming the functions of the
Committee under the Plan) shall consist solely of two or more Independent
Directors appointed by and holding office at the pleasure of the Board, each of
whom is both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members
may resign at any time by delivering written notice to the Board. Vacancies in
the Committee may be filled by the Board.
11.2. DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and
the agreements pursuant to which Awards are granted or awarded, and to adopt
such rules for the administration, interpretation, and application of the Plan
as are consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options granted to Independent Directors. Any such grant or award
under the Plan need not be the same with respect to each Holder. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan except with respect to matters
which under Rule
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<PAGE>
16b-3 or Section 162(m) of the Code, or any regulations or rules issued
thereunder, are required to be determined in the sole discretion of the
Committee.
11.3. MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee
shall act by a majority of its members in attendance at a meeting at which a
quorum is present or by a memorandum or other written instrument signed by all
members of the Committee.
11.4. COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS.
Members of the Committee shall receive such compensation, if any, for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Holders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or Awards, and all members of the Committee and the Board
shall be fully protected by the Company in respect of any such action,
determination or interpretation.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
12.1. NOT TRANSFERABLE.
(a) No Award under the Plan may be sold, pledged, assigned
or transferred in any manner other than by will or the laws of descent and
distribution or, subject to the consent of the Administrator, pursuant to a
QDRO, unless and until such Award has been exercised, or the shares
underlying such Award have been issued, and all restrictions applicable to
such shares have lapsed. No Option, Restricted Stock award, Deferred Stock
award, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment or interest or right therein shall be liable for the debts,
contracts or engagements of the Holder or his successors in interest or
shall be subject to disposition by transfer, alienation, anticipation,
pledge, encumbrance, assignment or any other means whether such disposition
be voluntary or involuntary or by operation of law by judgment, levy,
attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null
and void and of no effect, except to the extent that such disposition is
permitted by the preceding sentence.
(b) During the lifetime of the Holder, only he or she may
exercise an Option or other Award (or any portion thereof) granted to him
or her under the Plan, unless it has been disposed of pursuant to a QDRO.
After the death of the Holder, any exercisable portion of an Option or
other Award may, prior to the time when such portion becomes unexercisable
under the Plan or the applicable Award Agreement, be exercised by his
personal representative or by any person empowered to do so under the
deceased Holder's will or under the then applicable laws of descent and
distribution.
12.2. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. Except as
otherwise provided in this Section 12.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 12.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under the Plan. No amendment,
suspension or termination of the Plan shall, without the consent of the Holder
alter or impair any rights or obligations under any Award theretofore granted or
awarded, unless the Award itself otherwise expressly so provides. No Awards may
be granted or awarded during any period of suspension or after termination of
the Plan, and in no event may any Incentive Stock Option be granted under the
Plan after the first to occur of the following events:
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<PAGE>
(a) The expiration of ten years from the date the Plan is
adopted by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 12.4.
12.3. CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY,
ACQUISITION OR LIQUIDATION OF THE COMPANY, CHANGE IN CONTROL AND OTHER CORPORATE
EVENTS.
(a) Subject to Section 12.3(d), in the event that the
Administrator determines that any dividend or other distribution (whether
in the form of cash, Common Stock, other securities, or other property),
recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company
(including, but not limited to, a Corporate Transaction), or exchange of
Common Stock or other securities of the Company, issuance of warrants or
other rights to purchase Common Stock or other securities of the Company,
or other similar corporate transaction or event, affects the Common Stock
such that an adjustment is determined by the Administrator to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with
respect to an Award, then the Administrator shall, in such manner as it may
deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock
(or other securities or property) with respect to which Awards
may be granted or awarded or which may be purchased pursuant to
Article X (including, but not limited to, adjustments of the
limitations in Section 2.1 on the maximum number and kind of
shares which may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock
(or other securities or property) which may be purchased pursuant
to Article X or which are subject to outstanding Options,
Performance Awards, Stock Appreciation Rights, Dividend
Equivalents, or Stock Payments, and the number and kind of shares
of outstanding Restricted Stock or Deferred Stock, and
(iii) the grant, exercise price or purchase price
with respect to any Award or Common Stock which is purchasable
pursuant to Article X.
(b) Subject to Sections 12.3(b)(vii) and 12.3(d), in the
event of any Corporate Transaction or other transaction or event described
in Section 12.3(a) or any unusual or nonrecurring transactions or events
affecting the Company, any affiliate of the Company, or the financial
statements of the Company or any affiliate, or of changes in applicable
laws, regulations, or accounting principles, the Administrator, in its sole
and absolute discretion, and on such terms and conditions as it deems
appropriate, either by the terms of the Award or by action taken prior to
the occurrence of such transaction or event and either automatically or
upon the Holder's request, is hereby authorized to take any one or more of
the following actions whenever the Administrator determines that such
action is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan
or with respect to any Award under the Plan, to facilitate such
transactions or events or to give effect to such changes in laws,
regulations or principles:
(i) To provide for either the purchase of any such
Award for an amount of cash equal to the amount that could have
been attained upon the exercise of such Award or realization of
the Holder's rights had such Award been currently exercisable or
payable or fully vested or the replacement of such Award with
other rights or property selected by the Administrator in its
sole discretion;
A-20
<PAGE>
(ii) To provide that the Award cannot vest, be
exercised or become payable after such event;
(iii) To provide that such Award shall be exercisable
as to all shares covered thereby, notwithstanding anything to the
contrary in (A) Section 5.3 or 5.4 or (B) the provisions of such
Award;
(iv) To provide that such Award be assumed by the
successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by similar options, rights
or awards covering the stock of the successor or survivor
corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and
(v) To make adjustments in the number and type of
shares of Common Stock (or other securities or property) subject
to outstanding Awards, and in the number and kind of outstanding
Restricted Stock or Deferred Stock and/or in the terms and
conditions of (including the grant or exercise price), and the
criteria included in, outstanding options, rights and awards and
options, rights and awards which may be granted in the future.
(vi) To provide that, for a specified period of time
prior to such event, the restrictions imposed under an Award
Agreement upon some or all shares of Restricted Stock or Deferred
Stock may be terminated, and, in the case of Restricted Stock,
some or all shares of such Restricted Stock may cease to be
subject to repurchase under Section 7.5 or forfeiture under
Section 7.4 after such event.
(vii) None of the foregoing discretionary actions
taken under this Section 12.3(b) shall be permitted with respect
to Options granted under Section 4.5 to Independent Directors to
the extent that such discretion would be inconsistent with the
applicable exemptive conditions of Rule 16b-3. In the event of a
Change in Control or a Corporate Transaction, to the extent that
the Board does not have the ability under Rule 16b-3 to take or
to refrain from taking the discretionary actions set forth in
Section 12.3(b)(iii) above, each Option granted to an Independent
Director shall be exercisable as to all shares covered thereby
upon such Change in Control or during the five days immediately
preceding the consummation of such Corporate Transaction and
subject to such consummation, notwithstanding anything to the
contrary in Section 5.4 or the vesting schedule of such Options.
In the event of a Corporate Transaction, to the extent that the
Board does not have the ability under Rule 16b-3 to take or to
refrain from taking the discretionary actions set forth in
Section 12.3(b)(ii) above, no Option granted to an Independent
Director may be exercised following such Corporate Transaction
unless such Option is, in connection with such Corporate
Transaction, either assumed by the successor or survivor
corporation (or parent or subsidiary thereof) or replaced with a
comparable right with respect to shares of the capital stock of
the successor or survivor corporation (or parent or subsidiary
thereof).
(c) Subject to Section 12.3(d) and 12.8, the Administrator may,
in its discretion, include such further provisions and limitations in any
Award, agreement or certificate, as it may deem equitable and in the best
interests of the Company.
(d) With respect to Awards described in Article VII or VIII
which are granted to Section 162(m) Participants and are intended to
qualify as performance-based compensation under Section 162(m)(4)(C), no
adjustment or action described in this Section 12.3 or in any other
provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Award to fail to so qualify under
Section 162(m)(4)(C), or any successor provisions thereto. No adjustment or
action
A-21
<PAGE>
described in this Section 12.3 or in any other provision of the Plan shall
be authorized to the extent that such adjustment or action would cause the
Plan to violate Section 422(b)(1) of the Code. Furthermore, no such
adjustment or action shall be authorized to the extent such adjustment or
action would result in short-swing profits liability under Section 16 or
violate the exemptive conditions of Rule 16b-3 unless the Administrator
determines that the Award is not to comply with such exemptive conditions.
The number of shares of Common Stock subject to any Award shall always be
rounded to the next whole number.
12.4. APPROVAL OF PLAN BY STOCKHOLDERS. The Plan will be
submitted for the approval of the Company's stockholders within twelve months
after the date of the Board's initial adoption of the Plan. Awards and rights
to purchase Common Stock pursuant to Article X may be granted or awarded prior
to such stockholder approval, provided that (i) such Awards shall not be
exercisable nor shall such Awards vest prior to the time when the Plan is
approved by the stockholders; (ii) if such approval has not been obtained at
the end of said twelve-month period, all Awards previously granted or awarded
under the Plan shall thereupon be canceled and become null and void; and
(iii) all rights to purchase Common Stock granted pursuant to Article X shall be
subject to cancellation as provided in Section 10.6. In addition, if the Board
determines that Awards other than Options or Stock Appreciation Rights which may
be granted to Section 162(m) Participants should continue to be eligible to
qualify as performance-based compensation under Section 162(m)(4)(C) of the
Code, the Performance Criteria must be disclosed to and approved by the
Company's stockholders no later than the first stockholder meeting that occurs
in the fifth year following the year in which the Company's stockholders
previously approved the Performance Criteria.
12.5. TAX WITHHOLDING. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Holder of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance, vesting, exercise or payment of any Award. The Administrator
may in its discretion and in satisfaction of the foregoing requirement allow
such Holder to elect to have the Company withhold shares of Common Stock
otherwise issuable under such Award (or allow the return of shares of Common
Stock) having a Fair Market Value equal to the sums required to be withheld.
12.6. LOANS. The Committee may, in its discretion, extend one or
more loans to Employees in connection with the exercise or receipt of an Award
granted or awarded under the Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under the Plan. The terms and conditions of any such
loan shall be set by the Committee.
12.7. FORFEITURE PROVISIONS. Pursuant to its general authority to
determine the terms and conditions applicable to Awards under the Plan, the
Administrator shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16b-3) to provide, in the terms of Awards made
under the Plan, or to require a Holder to agree by separate written instrument,
that (a) (i) any proceeds, gains or other economic benefit actually or
constructively received by the Holder upon any receipt or exercise of the Award,
or upon the receipt or resale of any Common Stock underlying the Award, must be
paid to the Company, and (ii) the Award shall terminate and any unexercised
portion of the Award (whether or not vested) shall be forfeited, if (b)(i) a
Termination of Employment, Termination of Consultancy or Termination of
Directorship occurs prior to a specified date, or within a specified time period
following receipt or exercise of the Award, or (ii) the Holder at any time, or
during a specified time period, engages in any activity in competition with the
Company, or which is inimical, contrary or harmful to the interests of the
Company, as further defined by the Administrator or the Holder incurs a
Termination of Employment, Termination of Consultancy or Termination of
Directorship for cause.
12.8. LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND
PERFORMANCE-BASED COMPENSATION. Notwithstanding any other provision of the
Plan, the Plan, and any Award granted or awarded to any individual who is then
subject to Section 16 of the Exchange Act, shall be subject to any additional
limitations set forth in any applicable exemptive rule under Section 16 of the
Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that
are requirements for the application of such exemptive rule. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of the Plan or
any Award described in Article VII or VIII which is granted to a Section 162(m)
Participant and is
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<PAGE>
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional limitations
set forth in Section 162(m) of the Code (including any amendment to Section
162(m) of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the
extent necessary to conform to such requirements.
12.9. EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The
adoption of the Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in the Plan shall be
construed to limit the right of the Company (a) to establish any other forms of
incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary or (b) to grant or assume options or other rights or
awards otherwise than under the Plan in connection with any proper corporate
purpose including but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, limited liability company, firm or association.
12.10. COMPLIANCE WITH LAWS. The Plan, the granting and vesting of
Awards under the Plan and the issuance and delivery of shares of Common Stock
and the payment of money under the Plan or under Awards granted or awarded
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal securities
law and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Company, be necessary or advisable in connection therewith. Any securities
delivered under the Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Company, provide such
assurances and representations to the Company as the Company may deem necessary
or desirable to assure compliance with all applicable legal requirements. To
the extent permitted by applicable law, the Plan and Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
12.11. TITLES. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of the Plan.
12.12. GOVERNING LAW. The Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the State
of Delaware without regard to conflicts of laws thereof.
A-23
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 19,382
<SECURITIES> 37,670
<RECEIVABLES> 29,373
<ALLOWANCES> (416)
<INVENTORY> 8,128
<CURRENT-ASSETS> 74,375
<PP&E> 24,744
<DEPRECIATION> (3,552)
<TOTAL-ASSETS> 119,810
<CURRENT-LIABILITIES> 15,822
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 97,453
<TOTAL-LIABILITY-AND-EQUITY> 119,810
<SALES> 37,990
<TOTAL-REVENUES> 45,790
<CGS> 33,534
<TOTAL-COSTS> 49,600
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<INCOME-PRETAX> 141
<INCOME-TAX> 92
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