SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
COMMISSION FILE NUMBER 333-49389
COOPERATIVE COMPUTING, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 94-2160013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6207 BEE CAVE ROAD 78746
AUSTIN, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>
(512) 328-2300
(Registrant's telephone number,
including area code)
Indicate by check 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding at May 15, 2000
----- ----------------------------
<S> <C>
Common Stock 1,000 Shares
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Page 1
COOPERATIVE COMPUTING, INC.
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
Consolidated Balance Sheets as of September 30, 1999 and March 31, 2000 3
Consolidated Statements of Operations for the three months ended 4
March 31, 1999 and March 31, 2000 and six months ended March 31, 1999
and March 31, 2000
Consolidated Statements of Cash Flows for the six months ended 5
March 31, 1999 and March 31, 2000
Notes to Consolidated Financial Statements 6
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 9
RESULTS OF OPERATIONS
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURE 15
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FORWARD-LOOKING STATEMENTS
INFORMATION SET FORTH IN THIS QUARTERLY REPORT ON FORM 10-Q REGARDING EXPECTED
OR POSSIBLE FUTURE EVENTS, INCLUDING STATEMENTS OF THE PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE GROWTH, OPERATIONS, PRODUCTS AND SERVICES AND STATEMENTS
RELATING TO FUTURE ECONOMIC PERFORMANCE, IS FORWARD-LOOKING AND SUBJECT TO RISKS
AND UNCERTAINTIES. FOR THOSE STATEMENTS, THE COMPANY CLAIMS THE PROTECTION OF
THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS PROVIDED FOR BY SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS
ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY, WHICH,
ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE
RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE
CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS WILL BE REALIZED AND IT IS
LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE
THE FOLLOWING: (1) INCREASED COMPETITION; (2) RAPID TECHNOLOGICAL CHANGE; (3)
INCREASED COSTS; (4) RISKS ASSOCIATED WITH THE INTRODUCTION OF NEW PRODUCTS AND
PRODUCT UPGRADES AND DEPENDENCE ON PROPRIETARY TECHNOLOGY; (5) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (6) INABILITY OF THE COMPANY TO
SUCCESSFULLY INTEGRATE BUSINESSES ACQUIRED IN THE FUTURE AND TO REALIZE
ANTICIPATED REVENUE AND COST SAVINGS OPPORTUNITIES; (7) INCREASES IN THE
COMPANY'S COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY
CAPITAL; AND (8) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH
THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH FACTORS WILL BE BEYOND
THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. IN ADDITION, OTHER FACTORS THAT
COULD AFFECT THE FUTURE RESULTS OF THE COMPANY AND COULD CAUSE THOSE RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS ARE
DISCUSSED AT GREATER LENGTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND APPEAR ELSEWHERE IN THIS
QUARTERLY REPORT. THESE RISKS, UNCERTAINTIES AND OTHER FACTORS SHOULD NOT BE
CONSTRUED AS EXHAUSTIVE, AND THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY
DISCLAIMS ANY OBLIGATION TO UPDATE, ANY FORWARD-LOOKING STATEMENTS TO REFLECT
OCCURRENCES OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.
Page 2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
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<CAPTION>
September 30, March 31,
1999 2000
-------------- ----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ - $ 906
Trade accounts receivable, net 43,977 39,193
Inventories 9,095 4,206
Investment in leases 4,832 5,500
Deferred income taxes 6,608 6,608
Prepaid expenses and other current assets 6,201 6,670
-------------- ----------------
Total current assets 70,713 63,083
Service parts 3,664 3,135
Property and equipment, net 11,686 10,035
Long-term investment in leases 15,383 16,705
Capitalized computer software costs, net 15,435 11,760
Databases, net 13,820 10,789
Deferred financing costs 7,274 6,666
Other intangibles 137,187 129,279
Other assets 11,641 10,990
-------------- ----------------
Total assets $ 286,803 $ 262,442
============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 17,679 $ 10,068
Payroll related accruals 11,110 12,073
Deferred revenue 10,551 7,429
Current portion of long-term debt 6,540 7,414
Accrued expenses and other current liabilities 12,687 10,059
-------------- ----------------
Total current liabilities 58,567 47,043
Long-term debt 175,308 179,133
Deferred income taxes 30,182 24,858
Other liabilities 10,279 12,266
-------------- ----------------
Total liabilities 274,336 263,300
Redeemable Class A Common Stock, including $3,020 and
$7,407 in accretion at September 30, 1999 and 26,961 31,348
March 31, 2000 respectively
Stockholders' deficit:
Common Stock, par value $.000125, authorized 50,000,000
shares, issued and outstanding 35,220,000 4 4
Additional paid-in capital 88,994 88,994
Retained deficit (103,492) (121,204)
-------------- ----------------
Total stockholders' deficit (14,494) (32,206)
-------------- ----------------
Total liabilities and stockholders' deficit $ 286,803 $ 262,442
============== ================
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See accompanying Notes to Consolidated Financial Statements
Page 3
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands)
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<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- -----------------------------
1999 2000 1999 2000
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Systems $ 19,882 $ 18,222 $ 38,075 $ 37,470
Customer support and information services 37,385 38,578 73,819 76,682
Finance 1,307 681 2,611 1,567
---------- ---------- ----------- -----------
Total revenues 58,574 57,481 114,505 115,719
Cost of revenues:
Systems 14,186 13,145 27,682 29,974
Services and finance 23,438 22,064 44,990 43,060
---------- ---------- ----------- -----------
Total cost of revenues 37,624 35,209 72,672 73,034
---------- ---------- ----------- -----------
Gross margin 20,950 22,272 41,833 42,685
Operating expenses:
Sales and marketing 13,956 12,283 27,601 25,568
Product development 3,697 3,397 7,398 6,770
General and administrative 9,009 9,599 17,964 19,494
---------- ---------- ----------- -----------
Total operating expenses 26,662 25,279 52,963 51,832
---------- ---------- ----------- -----------
Operating loss (5,712) (3,007) (11,130) (9,147)
Interest expense (4,459) (4,923) (8,897) (9,611)
Other income, net 366 223 123 440
---------- ---------- ----------- -----------
Loss before income taxes (9,805) (7,707) (19,904) (18,318)
Income tax benefit (2,381) (2,166) (5,442) (5,181)
---------- ---------- ----------- -----------
Net loss (7,424) (5,541) (14,462) (13,137)
Accretion of redeemable convertible stock - (2,182) - (4,387)
---------- ---------- ----------- -----------
Net loss attributable to common stock $ (7,424) $ (7,723) $ (14,462) $ (17,524)
========== ========== =========== ===========
Comprehensive loss:
Net loss $ (7,424) $ (5,541) $ (14,462) $ (13,137)
Foreign currency translation adjustment 95 (59) 398 (188)
---------- ---------- ----------- -----------
Comprehensive loss $ (7,329) $ (5,600) $ (14,064) $ (13,325)
========== ========== =========== ===========
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See accompanying Notes to Consolidated Financial Statements
Page 4
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
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Six Months Ended
March 31,
------------------------------
1999 2000
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OPERATING ACTIVITIES
Net loss $ (14,462) $ (13,137)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 4,501 4,500
Amortization 22,225 20,356
Other, net 278 (189)
Changes in assets and liabilities, net of effects of
businesses acquired:
Trade accounts receivable (2,531) 4,785
Inventories (875) 4,890
Investment in leases (3,223) (1,990)
Deferred income taxes (5,989) (5,324)
Prepaid expenses and other assets (1,742) 20
Accounts payable (2,671) (7,611)
Deferred revenue 2,615 (3,122)
Accrued expenses and other current liabilities (1,046) 315
------------ -----------
Net cash (used in) provided by operating activities (2,920) 3,493
INVESTING ACTIVITIES
Purchase of property and equipment (3,245) (1,143)
Capitalized computer software costs and databases (6,859) (5,056)
Equity in earnings (loss) of investments 104 (71)
Purchase of service parts (1,617) (1,015)
Acquisitions of businesses, net of cash acquired (375) -
Other, net 214 -
------------ -----------
Net cash used in investing activities (11,778) (7,285)
FINANCING ACTIVITIES
Proceeds from credit facility 72,600 51,600
Payment on debt facilities (57,130) (46,902)
Debt issuance costs (1,931) -
------------ -----------
Net cash provided by financing activities 13,539 4,698
------------ -----------
Net decrease in cash and cash equivalents (1,159) 906
Cash and cash equivalents, beginning of period 1,159 -
------------ ----------
Cash and cash equivalents, end of period $ - $ 906
============ ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 8,424 $ 10,286
============ ===========
Income taxes $ 241 $ 149
============ ===========
Non-Cash Transactions:
Accretion of redeemable Class A Common Stock $ - $ 4,387
============ ===========
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See accompanying Notes to Consolidated Financial Statements
Page 5
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Cooperative
Computing Holding Company, Inc. ("Holding" or the "Company"), have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes 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 March 31, 2000 may
not be indicative of the results for the full fiscal year ending September 30,
2000. Holding has no assets or liabilities other than (1) its investment in its
wholly owned subsidiary, Cooperative Computing, Inc. ("CCI") and (2) its
Redeemable Convertible Class A Common Stock, the net proceeds of which were
contributed in full to CCI; accordingly, these consolidated financial statements
represent the operations of CCI and its subsidiaries.
Certain amounts in the three and six months ended March 31, 1999 have been
reclassified to conform to the presentation for the three and six months ended
March 31, 2000.
2. SALE OF LEASE RECEIVABLES
Activity in the following servicing liability accounts (recorded in other
liabilities in the Company's balance sheet) was as follows (in thousands):
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<CAPTION>
LEASE SERVICING RECOURSE
OBLIGATION OBLIGATION
--------------- ---------------
<S> <C> <C>
Balance at September 30, 1999 $ 1,769 $ 7,680
Newly-created liabilities 275 2,836
Charges and lease write-offs (524) (987)
--------------- ---------------
Balance at March 31, 2000 $ 1,520 9,529
=============== ===============
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3. INCOME TAXES
The Company recorded an income tax benefit for the three and six months ended
March 31, 2000 at an effective rate of approximately 28%, which is based on the
Company's anticipated results for the full fiscal year. The amount of permanent
differences that impact the effective tax rate are approximately the same for
each of the periods presented.
The Company's benefit for income taxes differs from the amount computed by
applying the statutory rate to loss before income taxes due to the impact of
permanent differences, which consist primarily of goodwill amortization.
4. COMMON STOCK OPTION PLAN
During March 2000, the Company adopted the Cooperative Computing Holding
Company, Inc. 2000 Stock Option Plan. The plan provides for the grant of
incentive and non-qualified stock options to employees and key individuals
associated with the Company. The option price may not be less than the fair
market value at the date of grant as set by the Company's Board of Directors
from time to time. Options vest in varying amounts over a five-year period and
expire ten years from the date of the grant. The plan provides for the grant of
5,000,000 shares. In March 2000, the Company granted 3,726,000 options at an
exercise price of $1.00.
Page 6
5. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (SAB
No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. We believe the Company's current
revenue recognition policies and practices are materially consistent with this
statement. However, full implementation guidelines for this standard have not
yet been issued. Once available, the current revenue accounting practices may
need to change and such changes could affect the Company's future revenue and
earnings.
6. SEGMENT REPORTING
The Company's business operations are organized into two divisions, automotive
and hardlines and lumber, as shown below. Additionally, a breakdown by
geographic area of total revenues and total assets is disclosed. The Americas
geographic area covers the U.S. and Canada. The Europe geographic area covers
United Kingdom, Ireland and France.
Page 7
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Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ---------------------------
1999 2000 1999 2000
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Systems revenues:
Automotive $ 11,157 $ 9,098 $ 21,463 $ 19,741
Hardlines and lumber 8,725 9,124 16,612 17,729
------------ ----------- ----------- -----------
Total systems revenues: 19,882 18,222 38,075 37,470
Customer support and information services revenues:
Automotive 24,616 25,189 48,497 50,560
Hardlines and lumber 12,769 13,389 25,322 26,122
------------ ----------- ----------- -----------
Total customer support and information services revenues: 37,385 38,578 73,819 76,682
Finance revenues:
Automotive 605 359 1,203 922
Hardlines and lumber 702 322 1,408 645
------------ ----------- ----------- -----------
Total finance revenues: 1,307 681 2,611 1,567
Systems costs of revenues:
Automotive 7,588 6,990 14,267 16,902
Hardlines and lumber 6,598 6,155 13,415 13,072
------------ ----------- ----------- -----------
Total systems costs of revenues: 14,186 13,145 27,682 29,974
Services and finance cost of revenues:
Automotive 14,522 13,253 28,589 26,608
Hardlines and lumber 8,916 8,811 16,401 16,452
------------ ----------- ----------- -----------
Total services and finance cost of revenues: 23,438 22,064 44,990 43,060
Sales and marketing:
Automotive 7,715 7,518 14,948 16,213
Hardlines and lumber 6,241 4,765 12,653 9,355
------------ ----------- ----------- -----------
Total sales and marketing: 13,956 12,283 27,601 25,568
Product development:
Automotive 2,429 2,506 4,991 5,058
Hardlines and lumber 965 808 1,928 1,630
Corporate 303 83 479 82
------------ ----------- ----------- -----------
Total product development: 3,697 3,397 7,398 6,770
General and administrative 9,009 9,599 17,964 19,494
Interest expense (4,459) (4,923) (8,897) (9,611)
Other income(expense), net 366 223 123 440
------------ ----------- ----------- -----------
Loss before income taxes $ (9,805) $ (7,707) $ (19,904) $ 18,318
============ =========== =========== ===========
Revenues:
Americas $ 57,028 $ 55,971 $ 111,476 $ 112,755
Europe 1,546 1,510 3,029 2,964
------------ ----------- ----------- -----------
Total revenues $ 58,574 $ 57,481 $ 114,505 $ 115,719
============ =========== =========== ===========
Assets:
Americas $ 290,219 $ 258,041 $ 290,219 $ 258,041
Europe 4,903 4,401 4,903 4,401
----------- =========== ----------- ===========
Total assets $ 295,122 $ 262,442 $ 295,122 $ 262,442
=========== =========== =========== ===========
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Page 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the unaudited historical
consolidated financial statements and notes thereto, which are included
elsewhere herein.
General
The Company is the leading designer and provider of management information
systems and services for the automotive parts aftermarket and the hardlines and
lumber industry. The automotive parts aftermarket industry consists of the
production, sale and installation of both new and remanufactured parts used in
the maintenance and repair of automobiles and light trucks. The hardlines and
lumber industry consists of the sale of products for residential and commercial
building construction, maintenance and repair and agribusiness. The Company's
system offerings are enhanced by extensive information services featuring
specialized database products and customer support and maintenance services.
Historical Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues for the three months ended March 31, 2000 were $57.5 million, compared
to $58.6 million for the three months ended March 31, 1999, a decrease of
$1.1 million, or 1.9%. For the three months ended March 31, 2000, revenues for
the automotive division decreased $1.7 million, or 4.8%, to $34.6 million, as
compared to the three months ended March 31, 1999. For the three months ended
March 31, 2000, revenues for the hardlines and lumber division increased
$0.6 million, or 2.9%, to $22.9 million, as compared to the three months ended
March 31, 1999.
Systems revenues for the three months ended March 31, 2000 were $18.2 million,
compared to $19.9 million for the three months ended March 31, 1999, a decrease
of $1.7 million, or 8.5%. Systems revenues for the automotive division for the
three months ended March 31, 2000 decreased $2.1 million to $9.1 million, as
compared to the three months ended March 31, 1999. This decrease was primarily
due to both market factors and sales strategy changes. The market factors
include an unusually high level of consolidation activity in the market during
1999 resulting in an increase in the amount of systems purchased during that
time, an increase in systems purchased in 1999 to upgrade in anticipation of
Year 2000, and an unusually mild winter during 1999-2000 resulting in less parts
sales in the market and a corresponding decrease in system sales. The sales
strategy changes include a change in the service dealer sales model resulting in
a decrease in revenue in the three months ended March 31, 2000. Systems
revenues for the hardlines and lumber division for the three months ended March
31, 2000 increased $0.4 million to $9.1 million, as compared to the three months
ended March 31, 1999 primarily due to a change in the sales mix to products with
a higher price point and profit margin.
Customer support and information services revenues were $38.6 million for the
three months ended March 31, 2000, compared to $37.4 million for the three
months ended March 31, 1999, an increase of $1.2 million, or 3.2%. Customer
support and information services revenues for the automotive division for the
three months ended March 31, 2000 increased $0.6 million to $25.2 million, as
compared to the three months ended March 31, 1999. This increase is primarily
due to growing market share and transition of customers to systems and products
with additional recurring revenue. Customer support and information services
revenues for the hardlines and lumber division for the three months ended March
31, 2000 increased $0.6 million to $13.4 million, as compared to the three
months ended March 31, 1999. This increase in revenues is primarily due to
growth in point-of-sale information and data warehouse products.
Revenues from financing activities for the three months ended March 31, 2000
were $0.7 million, compared to $1.3 million for the three months ended March 31,
1999, a decrease of $0.6 million, or 46.2%. Revenues from financing activities
for the automotive division for the three months ended March 31, 2000 decreased
$0.2 million to $0.4 million, as compared to the three months ended March 31,
1999 primarily due to a decrease in the volume of leases sold during the period
and a decrease in the percentage gain on the sale of the leases. Revenues from
Page 9
financing activities for the hardlines and lumber division for the three months
ended March 31, 2000 declined $0.4 million to $0.3 million as compared to the
three months ended March 31, 1999. The decrease in finance revenues is
primarily due to a decrease in the volume of leases sold during the period and a
decrease in the percentage gain on the sale of the leases.
Cost of revenues were $35.2 million for the three months ended March 31, 2000,
compared to $37.6 million for the three months ended March 31, 1999, a decrease
of $2.4 million, or 6.4%. For the three months ended March 31, 2000, cost of
revenues for the automotive division decreased $1.9 million, or 8.6%, to $20.2
million, as compared to the three months ended March 31, 1999. For the three
months ended March 31, 2000, cost of revenues for the hardlines and lumber
division decreased $0.5 million, or 3.2%, to $15.0 million, as compared to the
three months ended March 31, 1999.
Cost of systems revenues were $13.1 million for the three months ended March 31,
2000, compared to $14.2 million for the three months ended March 31, 1999, a
decrease of $1.1 million, or 7.7%. Cost of systems revenues for the automotive
division for the three months ended March 31, 2000 decreased $0.6 million to
$7.0 million, as compared to the three months ended March 31, 1999. The
decrease is primarily due to a decrease in the volume of system sales and a
decrease in software amortization due to certain assets acquired in February
1997 becoming fully amortized. Cost of systems revenues as a percentage of
systems revenues for the automotive division were 76.8% and 68.0% for the three
months ended March 31, 2000 and 1999, respectively. The increase is primarily
due to an increase in system installation expenses. Cost of systems revenues
for the hardlines and lumber division for the three months ended March 31, 2000
decreased $0.5 million to $6.1 million, compared to the three months ended March
31, 1999. The decrease in cost of systems revenues for the hardlines and lumber
division is primarily due to a decrease in software amortization due to certain
assets acquired in February 1997 becoming fully amortized. Cost of systems
revenues as a percentage of systems revenues for the hardlines and lumber
division was 67.5% and 75.6% for the three months ended March 31, 2000 and 1999,
respectively.
Cost of revenues for services and finance were $22.1 million for the three
months ended March 31, 2000, compared to $23.4 million for the three months
ended March 31, 1999, a decrease of $1.3 million, or 5.6%. Cost of revenues for
services and finance for the automotive division for the three months ended
March 31, 2000 decreased $1.2 million to $13.3 million, compared to the three
months ended March 31, 1999. This decrease is primarily due to savings from a
reorganization of the Company's customer support organization. As a percentage
of services revenues, cost of revenues for services and finance for the
automotive division were 51.9% and 57.4% for the three months ended March 31,
2000 and 1999, respectively. The decrease in cost of revenues as a percentage
of revenues is primarily due to the savings resulting from the reorganization
described above. Cost of revenues for services and finance for the hardlines
and lumber division for the three months ended March 31, 2000 decreased $0.1
million to $8.8 million, compared to the three months ended March 31, 1999. As
a percentage of services revenues, cost of revenues for services and finance for
the hardlines and lumber division were 64.3% and 66.2% for the three months
ended March 31, 2000 and 1999, respectively.
Operating expenses were $25.3 million for the three months ended March 31, 2000,
compared to $26.7 million for the three months ended March 31, 1999, a decrease
of $1.4 million, or 5.2%.
Sales and marketing expense for the three months ended March 31, 2000 decreased
$1.7 million to $12.3 million, as compared to the three months ended March 31,
1999. Sales and marketing expense for the automotive division for the three
months ended March 31, 2000 decreased $0.2 million to $7.5 million, as compared
to the three months ended March 31, 1999. As a percentage of revenue, sales and
marketing expense for the automotive division was 21.7% and 21.2% for the three
months ended March 31, 2000 and 1999, respectively. The decrease in sales and
marketing expense is primarily due to the savings resulting from a
reorganization of product marketing and a reduction in sales personnel. Sales
and marketing expense for the hardlines and lumber division for the three months
ended March 31, 2000 decreased $1.5 million to $4.8 million, as compared to the
three months ended March 31, 1999. As a percentage of revenue, sales and
marketing expense for the hardlines and lumber division was 20.9% and 27.8% for
the three months ended March 31, 2000 and 1999, respectively. The reduction in
sales and marketing expense in the hardlines and lumber division is due to
reduced payroll costs resulting from personnel reductions.
Page 10
Product development expenses for the three months ended March 31, 2000 decreased
$0.3 million to $3.4 million, as compared to the three months ended March 31,
1999. As a percentage of revenue, product development expenses were 5.9% and
6.3% for the three months ended March 31, 2000 and 1999, respectively. Product
development expenses for the automotive division for the three months ended
March 31, 2000 increased $0.1 million to $2.5 million. The increase is
primarily due to additional resources added during the second half of 1999,
primarily in service dealer product development. As a percentage of automotive
division revenue, product development expenses for the automotive division were
7.2% and 6.6% for the three months ended March 31, 2000 and 1999. Product
development expenses for the hardlines and lumber division for the three months
ended March 31, 2000 decreased $0.2 million to $0.8 million primarily due to
decreased personnel costs. As a percentage of hardlines and lumber division
revenue, product development expenses for the hardlines and lumber division were
3.5% and 4.5% for the three months ended March 31, 2000 and 1999, respectively.
General and administrative expense for the three months ended March 31, 2000
were $9.6 million compared to $9.0 million for the three months ended March 31,
1999, an increase of $0.6 million, or 6.7%. As a percentage of revenues,
general and administrative expense was 16.7% and 15.4% for the three months
ended March 31, 2000 and 1999, respectively. The increase in general and
administrative expenses is primarily due to an increase incentive bonuses, an
increase in benefits expense due to higher claims, and an increase in
professional fees.
Interest expense for the three months ended March 31, 2000 was $4.9 million
compared to $4.5 million for the three months ended March 31, 1999, an increase
of $0.4 million or 8.9%. The increase in interest expenses is due to an
increase in the base rates, Bank Prime and LIBOR, used in computing the interest
charged to the Company and also to an increase in the spread over the base rate
charged on certain components of the Company's Restated Senior Credit
Facilities. The effect of the increase in interest rates was partially offset
by a lower average balance of indebtedness for the comparable periods in the
current fiscal year. See "Liquidity and Capital Resources."
As a result of the above factors, the Company experienced a net loss of $5.5
million for the three months ended March 31, 2000, compared to a net loss of
$7.4 million for the three months ended March 31, 1999, a decrease in loss of
$1.9 million or 25.7%.
Six Months Ended March 31, 2000 Compared to Six Months Ended March 31, 1999
Revenues for the six months ended March 31, 2000 were $115.7 million, compared
to $114.5 million for the six months ended March 31, 1999, an increase of
$1.2 million, or 1.0%. For the six months ended March 31, 2000, revenues for
the automotive division increased $0.1 million, or 0.1%, to $71.2 million, as
compared to the six months ended March 31, 1999. For the six months ended March
31, 2000, revenues for the hardlines and lumber division increased $1.2 million,
or 2.7%, to $44.5 million, as compared to the six months ended March 31, 1999.
Systems revenues for the six months ended March 31, 2000 were $37.5 million,
compared to $38.1 million for the six months ended March 31, 1999, a decrease of
$0.6 million, or 1.6%. Systems revenues for the automotive division for the six
months ended March 31, 2000 decreased $1.7 million to $19.8 million, as compared
to the six months ended March 31, 1999. This decrease was primarily due to
market factors including an unusually high level of consolidation activity in
the market during the six months ended March 31, 1999 resulting in an increase
in the amount of systems purchased during that time. Also, the six months ended
March 31, 1999 experienced an increase in systems purchased to upgrade in
anticipation of Year 2000. A third market factor was an unusually mild winter
during 1999-2000 resulting in less parts sales in the market and a corresponding
decrease in system sales. Systems revenues for the hardlines and lumber
division for the six months ended March 31, 2000 increased $1.1 million to $17.7
million as compared to the six months ended March 31, 1999 due to a change in
the sales mix to products with a higher price point and profit margin and
increased sales of newly released software modules to existing customers.
Customer support and information services revenues were $76.7 million for the
six months ended March 31, 2000, compared to $73.8 million for the six months
ended March 31, 1999, an increase of $2.9 million, or 3.9%. Customer support
and information services revenues for the automotive division for the six months
ended March 31, 2000 increased $2.1 million to $50.6 million, as compared to the
six months ended March 31, 1999. This increase is due to growing market share
and transition of customers to systems and products with additional recurring
revenue. Customer support and information services revenues for the hardlines
and lumber division for the six months ended March 31, 2000 increased $0.8
Page 11
million to $26.1 million, as compared to the six months ended March 31, 1999.
This increase in revenues is due to growth in point-of-sale information and data
warehouse products.
Revenues from financing activities for the six months ended March 31, 2000 were
$1.6 million, compared to $2.6 million for the six months ended March 31, 1999,
a decrease of $1.0 million, or 38.5%. Revenues from financing activities for the
automotive division for the six months ended March 31, 2000 decreased $0.3
million, or 25.0% to $0.9 million, due to a decrease in the volume of leases
sold during the period and a decrease in the percentage gain on the sale of the
leases as compared to the six months ended March 31, 1999. Revenues from
financing activities for the hardlines and lumber division for the six months
ended March 31, 2000 declined $0.7 million to $0.7 million as compared to the
six months ended March 31, 1999. The decrease in finance revenues is due to a
decrease in the volume of leases sold during the period and a decrease in the
percentage gain on the sale of the leases.
Cost of revenues were $73.0 million for the six months ended March 31, 2000,
compared to $72.7 million for the six months ended March 31, 1999, an increase
of $0.3 million, or 0.4%. For the six months ended March 31, 2000, cost of
revenues for the automotive division increased $0.6 million, or 1.4%, to $43.5
million, as compared to the six months ended March 31, 1999. For the six months
ended March 31, 2000, cost of revenues for the hardlines and lumber division
decreased $0.3 million, or 1.0%, to $29.5 million, as compared to the six months
ended March 31, 1999.
Cost of systems revenues were $30.0 million for the six months ended March 31,
2000, compared to $27.7 million for the six months ended March 31, 1999, an
increase of $2.3 million, or 8.3%. Cost of systems revenues for the automotive
division for the six months ended March 31, 2000 increased $2.6 million to $16.9
million, as compared to the six months ended March 31, 1999. The increase is
primarily due to an increase in lower margined systems sold to automotive
recyclers offset by a decrease in the volume of system sales. Cost of systems
revenues as a percentage of systems revenues for the automotive division were
85.4% and 66.5% for the six months ended March 31, 2000 and 1999, respectively.
Cost of systems revenues for the hardlines and lumber division for the six
months ended March 31, 2000 decreased $0.3 million to $13.1 million, compared to
the six months ended March 31, 1999 primarily due to reduced installation costs.
Cost of systems revenues as a percentage of systems revenues for the hardlines
and lumber division was 74.0% and 80.7% for the six months ended March 31, 2000
and 1999, respectively.
Cost of revenues for services and finance were $43.1 million for the six months
ended March 31, 2000, compared to $45.0 million for the six months ended March
31, 1999, a decrease of $1.9 million, or 4.2%. Cost of revenues for services and
finance for the automotive division for the six months ended March 31, 2000
decreased $2.0 million to $26.6 million, compared to the six months ended March
31, 1999. This decrease is primarily due to cost savings from a reorganization
of the Company's customer support organization. As a percentage of services
revenues, cost of revenues for services and finance for the automotive division
were 52.6% and 59.0% for the six months ended March 31, 2000 and 1999,
respectively. Cost of revenues for services and finance for the hardlines and
lumber division for the six months ended March 31, 2000 increased $0.1 million
to $16.5 million, or 0.6%, compared to the six months ended March 31, 1999. As
a percentage of services revenues, cost of revenues for services and finance for
the hardlines and lumber division were 63.2% and 64.8% for the six months ended
March 31, 2000 and 1999, respectively.
Operating expenses were $51.8 million for the six months ended March 31, 2000,
compared to $53.0 million for the six months ended March 31, 1999, a decrease of
$1.2 million, or 2.3%.
Sales and marketing expense for the six months ended March 31, 2000 decreased
$2.0 million to $25.6 million, as compared to the six months ended March 31,
1999. Sales and marketing expense for the automotive division for the six
months ended March 31, 2000 increased $1.3 million to $16.2 million as compared
to the six months ended March 31, 1999. As a percentage of revenue, sales and
marketing expense for the automotive division was 22.7% and 21.0% for the six
months ended March 31, 2000 and 1999, respectively. The increase in sales and
marketing expense primarily is related to an increase in bad debt expense during
the six months ended March 31, 2000. Sales and marketing expense for the
hardlines and lumber division for the six months ended March 31, 2000 decreased
$3.3 million to $9.4 million, as compared to the six months ended March 31,
1999. As a percentage of revenue, sales and marketing expense for the hardlines
and lumber division was 21.1% and 29.3% for the six months ended March 31, 2000
and 1999, respectively. The reduction in sales and marketing expense in the
hardlines and lumber division is due to reduced personnel costs.
Page 12
Product development expenses for the six months ended March 31, 2000 decreased
$0.6 million to $6.8 million, as compared to the six months ended March 31,
1999. As a percentage of revenue, product development expenses were 5.9% and
6.5% for the six months ended March 31, 2000 and 1999, respectively. Product
development expenses for the automotive division for the six months ended March
31, 2000 stayed the same. As a percentage of automotive division revenue,
product development expenses for the automotive division were 7.0% and 7.2% for
the six months ended March 31, 2000 and 1999, respectively. Product development
expenses for the hardlines and lumber division for the six months ended March
31, 2000 decreased $0.3 million to $1.6 million primarily due to lower personnel
costs. As a percentage of hardlines and lumber division revenue, product
development expenses for the hardlines and lumber division were 3.6% and 4.4%
for the six months ended March 31, 2000 and 1999, respectively.
General and administrative expense for the six months ended March 31, 2000 were
$19.5 million compared to $18.0 million for the six months ended March 31, 1999,
an increase of $1.5 million, or 8.3%. As a percentage of revenues, general and
administrative expense was 16.9% and 15.7% for the six months ended March 31,
2000 and 1999, respectively. The increase in general and administrative
expenses was primarily due to an increase in bonus expense, an increase in
benefits expense due to higher claims, and an increase in legal expenses.
Interest expense for the six months ended March 31, 2000 was $9.6 million
compared to $8.9 million for the six months ended March 31, 1999, an increase of
$0.7 million, or 7.9%. The increase in interest expenses is due to an increase
in the base rates, Bank Prime and LIBOR, used in computing the interest charged
to the Company and also to an increase in the spread over the base rate charged
on certain components of the Company's Restated Senior Credit Facilities. The
effect of the increase in interest rates was partially offset by a lower average
balance of indebtedness for the comparable periods in the current fiscal year.
See - "Liquidity and Capital Resources."
As a result of the above factors, the Company experienced a net loss of $13.1
million for the six months ended March 31, 2000, compared to a net loss of $14.5
million for the six months ended March 31, 1999, a decrease in loss of $1.3
million or 9.0%.
Liquidity and Capital Resources
As of March 31, 2000, the Company had $186.5 million in outstanding
indebtedness, an increase of $4.7 million from September 30, 1999. The Company's
outstanding indebtedness under its Restated Senior Credit Facilities at March
31, 2000 included $29.7 million borrowed on the Company's $50.0 million senior
secured revolving credit facility under its Restated Senior Credit Facilities
and $56.8 million of senior secured term loans. The remaining indebtedness
consists of $100.0 million in aggregate principal amount of its 9% Senior
Subordinated Notes due 2008.
The term loan balance was $60.0 million on September 30, 1999. Repayment began
on December 31, 1999 at a beginning rate of $1.6 million per quarter. All
borrowings under the Restated Senior Credit Facilities are scheduled to be
repaid by March 31, 2004. A portion of the Company's debt bears interest at
floating rates; therefore, its financial condition is and will be affected by
changes in prevailing rates.
In addition to servicing its debt obligations, the Company requires substantial
liquidity for capital expenditures and working capital needs. The Company
requires working capital as it funds its customer leasing operations and then
periodically produces working capital as it liquidates its lease portfolio
through discounting arrangements with banks and lending institutions. For the
six months ended March 31, 2000, the Company's capital expenditures were $7.2
million, which includes $5.1 million for capitalized computer software costs and
databases. Additionally, the Company is obligated to pay a minimum royalty of
$1.0 million through 2011 for a software license that the Company sublicenses to
customers in the automotive industry.
The Company's Restated Senior Credit Facilities impose certain restrictions on
the Company, the most significant of which include limitations on additional
indebtedness, liens, guarantees, payment or declaration of dividends, sale of
assets, investments, capital expenditures, and transactions with affiliates. The
Company must also meet certain tests relating to financial amounts and ratios
defined in the Restated Senior Credit Facilities. As of March 31, 2000, the
Company was in compliance with the financial tests required by the Restated
Senior Credit Facilities.
Page 13
The Company believes that cash flows from operations, together with the amounts
available under the Company's Restated Senior Credit Facilities, should be
sufficient to fund its working capital and debt service requirements (including
the funding of the customer leasing operations). The Company's ability to meet
its working capital and debt service requirements, however, is subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control. If the Company is not able to meet such
requirements, it may be required to seek additional financing. There can be no
assurance that the Company will be able to obtain financing from other sources
on terms acceptable to the Company, if at all.
Impact of Year 2000
At this time, the Company has not experienced any Year 2000 problems that have
negatively impacted the production or delivery of our products in a material
manner. The Company also has not experienced any material internal or external
business interruptions. In preparing for Year 2000 readiness, the Company did
not establish a separate budget for making either its products or its internal
systems Year 2000 Ready. Rather, such expenditures were part of the Company's
regular capital and operating budgets. These expenditures were not tracked
separately. Thus, the Company does not believe it can estimate the expenditures
accurately; however, the Company does not foresee any material additional
expenditures. The Company will continue to monitor potential Year 2000
problems.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Reference is made to Part II, Item 7A, "Quantitative and Qualitative Disclosures
About Market Risk" in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1999. There have been no material changes in the six
months ended March 31, 2000.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 - Cooperative Computing Holding Company, Inc. 2000 Stock Option Plan.
27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
March 31, 2000.
Page 14
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, on the 15th day of May, 2000.
COOPERATIVE COMPUTING, INC.
By: /s/ PAUL D. STONE
Paul D. Stone
Senior Vice President and
Chief Administrative Officer
Page 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1 Cooperative Computing Holding Company, Inc. 2000 Stock Option Plan.
27 Financial Data Schedule.
</TABLE>
Page 16
Exhibit 10.1
COOPERATIVE COMPUTING HOLDING
COMPANY, INC.
2000 STOCK OPTION PLAN
FOR KEY EMPLOYEES
1. PURPOSE.
Cooperative Computing Holding Company, Inc., a Texas corporation
(herein, together with its successors, referred to as the "COMPANY"), by
means of this 2000 Stock Option Plan for Key Employees (the "PLAN"),
desires to afford certain key employees of, and certain persons performing
services for, the Company and any direct or indirect subsidiary or parent
corporation thereof now existing or hereafter formed or acquired (such
corporations sometimes referred to herein as "RELATED ENTITIES") who are
responsible for the continued growth of the Company an opportunity to
acquire a proprietary interest in the Company, and thus to create in such
persons an increased interest in and a greater concern for the welfare of
the Company and any Related Entities. Certain definitions used herein are
defined in Section 20 of this Plan.
The stock options described in Sections 6 and 7 (the "OPTIONS"), and
the shares of Common Stock (as hereinafter defined) acquired pursuant to
the exercise of such Options, are a matter of separate inducement and are
not in lieu of any salary or other compensation for services. As used in
the Plan, the terms "parent corporation" and "subsidiary corporation" shall
have the meanings contained in Sections 424(e) and 424(f), respectively, of
the Internal Revenue Code of 1986, as amended (the "CODE").
2. ADMINISTRATION.
The Plan shall be administered by the Option Committee, or any
successor thereto, of the Board of Directors of the Company (the "BOARD OF
DIRECTORS"), or by any other committee appointed by the Board of Directors
to administer the Plan (the "COMMITTEE"); provided, that the entire Board
of Directors may act as the Committee if it chooses to do so; and PROVIDED,
FURTHER, that (i) for purposes of determining any Performance-Based Options
(as hereinafter defined) applicable to Key Employees (as hereinafter
defined) who constitute "covered employees" within the meaning of Section
162(m) of the Code, "Committee" shall mean the members of the Option
Committee of the Board of Directors who qualify as "outside directors"
within the meaning of Section 162(m) of the Code, and such Performance-
Based Options shall be subject to ratification by unanimous approval of the
members of the Board of Directors, and (ii) for so long as the Company is
subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), the Committee shall be composed
solely of two or more "Non-Employee Directors" as defined in Rule 16B-3, as
amended ("Rule 16b-3"), promulgated thereunder; PROVIDED, that,
alternatively, for purposes of granting Options other than Performance-
Based Options hereunder, the Board of Directors may authorize such grants
and may take any other action permitted pursuant to Section 162(m) of the
Code, Rule 16b-3 and applicable law and regulations.
The number of individuals that shall constitute the Committee shall be
determined from time to time by a majority of all the members of the Board
of Directors, and, unless that majority of the Board of Directors
determines otherwise, shall be no less than two individuals. A majority of
the Committee shall constitute a quorum (or if the Committee consists of
only two members, then both members shall constitute a quorum), and subject
to the provisions of Section 5, the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in
writing by all members of the Committee, shall be the acts of the
Committee. Whenever the Company shall have a class of equity securities
registered pursuant to Section 12 of the Exchange Act, the Committee shall
administer the Plan so as (i) to comply at all times with the Exchange Act,
and (ii) to ensure that compensation attributable to Options granted under
the Plan to Key Employees who constitute "covered employees" within the
meaning of Section 162(m) of the Code shall (A) meet the deduction
limitation imposed by Section 162(m) of the Code, or (B) qualify as
"performance-based compensation" as such term is used in Section 162(m) of
the Code and the regulations promulgated thereunder and thus be exempt from
the deduction limitation imposed by Section 162(m) of the Code.
The members of the Committee shall serve at the pleasure of the Board
of Directors, which shall have the power, at any time and from time to
time, to remove members from or add members to the Committee. Removal from
the Committee may be with or without cause. Any individual serving as a
member of the Committee shall have the right to resign from membership on
the Committee by written notice to the Board of Directors. The Board of
Directors, and not the remaining members of the Committee, shall have the
power and authority to fill vacancies on the Committee, however caused.
The Board of Directors shall promptly fill any vacancy that causes the
number of members of the Committee to be less than two or, if the Company
has a class of equity securities registered pursuant to Section 12 of the
Exchange Act, any other number that Rule 16b-3 or other applicable rules
under Section 16(b) of the Exchange Act, Section 162(m) of the Code, or any
successor or analogous rules or laws may require from time to time.
3. SHARES AVAILABLE AND MAXIMUM INDIVIDUAL GRANTS.
Subject to the adjustments provided in Section 12, the maximum
aggregate number of shares of common stock, par value $0.01 per share, of
the Company ("COMMON STOCK") in respect of which Options may be granted for
all purposes under the Plan shall be 5,000,000 shares. If, for any reason,
any shares as to which Options have been granted cease to be subject to
purchase thereunder, including the expiration of any such Option, the
termination of any such Option prior to exercise, or the forfeiture of any
such Option, such shares shall thereafter be available for grants under the
Plan. Options granted under the Plan may be fulfilled in accordance with
the terms of the Plan with (i) authorized and unissued shares of the Common
Stock, or (ii) issued shares of such Common Stock held in the Company's
treasury.
The maximum aggregate number of shares of Common Stock underlying all
Options that may be granted to any single Key Employee, including any
Options that may have been granted to such Key Employee as an Eligible Non-
Employee (as hereinafter defined), during the Term (as hereinafter defined)
of the Plan shall be 500,000 shares, subject to the adjustments provided in
Section 12. For purposes of the preceding sentence, such Options that are
cancelled or repriced shall continue to be counted in determining such
maximum aggregate number of shares of Common Stock that may be granted to
any single Key Employee, including any Options that may have been granted
to such Key Employee as an Eligible Non-Employee, during the Term of the
Plan.
4. ELIGIBILITY AND BASES OF PARTICIPATION.
Grants of Incentive Options (as hereinafter defined) and Non-Qualified
Options (as hereinafter defined) may be made under the Plan, subject to and
in accordance with Section 6, to Key Employees. As used herein, the term
"KEY EMPLOYEE" shall mean any employee of the Company or any Related
Entity, including officers and directors of the Company or any Related
Entity who are also employees of the Company or any Related Entity, who are
regularly employed on a salaried basis and who are so employed on the date
of such grant, whom the Committee identifies as having a direct and
significant effect on the performance of the Company or any Related Entity.
Grants of Non-Qualified Options may be made, subject to and in
accordance with Section 7, to any Eligible Non-Employee. As used herein,
the term "ELIGIBLE NON-EMPLOYEE" shall mean any person or entity of any
nature whatsoever, specifically including an individual, a firm, a company,
a corporation, a partnership, a trust, or other entity (collectively, a
"PERSON"), that the Committee designates as eligible for a grant of Options
pursuant to the Plan because such Person performs bona fide consulting,
advisory, or other services for the Company or any Related Entity (other
than services in connection with the offer or sale of securities in a
capital-raising transaction) and the Board of Directors or the Committee
determines that the Person has a direct and significant effect on the
performance of the Company or any Related Entity.
The adoption of the Plan shall not be deemed to give any Person a
right to be granted any Options.
5. AUTHORITY OF COMMITTEE.
Subject to and not inconsistent with the express provisions of the
Plan, the Code and, if applicable, Rule 16b-3 and Section 162(m) of the
Code, the Committee shall have plenary authority to:
a. determine the Key Employees and Eligible Non-Employees to
whom Options shall be granted, the time when such Options shall
be granted, the number of Options, the purchase price or exercise
price of each Option, the period(s) during which such Options
shall be exercisable (whether in whole or in part, including
whether such Options shall become immediately exercisable upon
the consummation of a Change of Control), the restrictions to be
applicable to Options and all other terms and provisions thereof
(which need not be identical);
b. require, as a condition to the granting of any Option, that
the Person receiving such Option agree not to sell or otherwise
dispose of such Option, any Common Stock acquired pursuant to
such Option, or any other "derivative security" (as defined by
Rule 16a-1(c) under the Exchange Act) of the Company for a period
of six months following the later of (i) the date of the grant of
such Option or (ii) the date when the exercise price of such
Option is fixed if such exercise price is not fixed at the date
of grant of such Option, or for such other period as the
Committee may determine;
c. provide an arrangement through registered broker-dealers
whereby temporary financing may be made available to an optionee
by the broker-dealer, under the rules and regulations of the
Board of Governors of the Federal Reserve, for the purpose of
assisting the optionee in the exercise of an Option, such
authority to include the payment by the Company of the
commissions of the broker-dealer; PROVIDED, HOWEVER, that such
financing does not cause the Company to recognize compensation,
or additional compensation expense, with respect to such Option
for financial reporting purposes;
d. provide the establishment of procedures for an optionee (i)
to have withheld from the total number of shares of Common Stock
to be acquired upon the exercise of an Option that number of
shares having a Fair Market Value which, together with such cash
as shall be paid in respect of fractional shares, shall equal the
aggregate exercise price under such Option for the number of
shares then being acquired (including the shares to be so
withheld), and (ii) to exercise a portion of an Option by
delivering that number of shares of Common Stock already owned by
such optionee having an aggregate Fair Market Value which shall
equal the partial Option exercise price and to deliver the shares
thus acquired by such optionee in payment of shares to be
received pursuant to the exercise of additional portions of such
Option, the effect of which shall be that such optionee can in
sequence utilize such newly acquired shares in payment of the
exercise price of the entire Option, together with such cash as
shall be paid in respect of fractional shares; PROVIDED, HOWEVER,
that in the case of an Incentive Option, no shares shall be used
to pay the exercise price under this paragraph unless (A) such
shares were not acquired through the exercise of an Incentive
Option, or (B) if so acquired, (x) such shares have been held for
more than two years since the grant of such Incentive Option and
for more than one year since the exercise of such Incentive
Option (the "HOLDING PERIOD"), or (y) if such shares do not meet
the Holding Period, the optionee elects in writing to use such
shares to pay the exercise price under this paragraph;
e. provide that all or a portion of the exercise price of the
Options may be paid with a full recourse promissory note, with
such terms as the Committee may prescribe (except as provided
below); PROVIDED, HOWEVER, that the term of such promissory note
shall not extend beyond the period(s) during which such Options
shall be exercisable; the shares of Common Stock issuable upon
exercise of such Options shall be pledged as security for the
payment of the principal amount of the promissory note and
interest thereon; and the interest rate payable under the
promissory note shall be fixed, non-refundable, non-prepayable
and shall not be less than the minimum rate required under the
Code;
f. provide for (in accordance with Section 15 or otherwise) the
establishment of a procedure whereby a number of shares of Common
Stock or other securities may be withheld from the total number
of shares of Common Stock or other securities to be issued upon
exercise of an Option to meet the obligation of withholding for
income, social security and other taxes incurred by an optionee
upon such exercise or required to be withheld by the Company or a
Related Entity in connection with such exercise unless, as
determined by the Committee in the exercise of its discretion,
such procedure is not permitted by applicable law;
g. prescribe, amend, modify and rescind rules and regulations
relating to the Plan; and
h. make all determinations permitted or deemed necessary,
appropriate or advisable for the administration of the Plan,
interpret any Plan or Option provision, perform all other acts,
exercise all other powers, and establish any other procedures
determined by the Committee to be necessary, appropriate, or
advisable in administering the Plan or for the conduct of the
Committee's business. Any act of the Committee, including
interpretations of the provisions of the Plan or any Option and
determinations under the Plan or any Option, made in good faith,
shall be final, conclusive and binding on all parties.
The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee or any Person to whom it has delegated duties as aforesaid may
employ one or more Persons to render advice with respect to any
responsibility the Committee or such Person may have under the Plan;
PROVIDED, HOWEVER, that any such delegation shall be in writing; and
PROVIDED, HOWEVER, that, any determination of Performance-Based Options
applicable to Key Employees who constitute "covered employees" within the
meaning of Section 162(m) of the Code may not be delegated to a member of
the Board of Directors who, if elected to serve on the Committee, would not
qualify as an "outside director" within the meaning of Section 162(m) of
the Code. The Committee may employ attorneys, consultants, accountants, or
other Persons and the Committee, the Company, and its officers and
directors shall be entitled to rely upon the advice, opinions, or
valuations of any such Persons. No member or agent of the Committee shall
be personally liable for any action, determination or interpretation made
in good faith with respect to the Plan and all members and agents of the
Committee shall be fully protected by the Company in respect of any such
action, determination or interpretation.
6. STOCK OPTION GRANTS TO KEY EMPLOYEES.
Subject to the express provisions of the Plan, the Committee shall
have the authority to grant incentive stock options pursuant to Section 422
of the Code ("INCENTIVE OPTIONS"), to grant non-qualified stock options
(options which do not qualify under Section 422 of the Code)
("NON-QUALIFIED OPTIONS"), and to grant both types of Options to Key
Employees. No Incentive Option shall be granted pursuant to the Plan after
the earlier of ten years from the date of adoption of the Plan or ten years
from the date of approval of the Plan by the shareholders of the Company.
Incentive Options may be granted only to Key Employees. The terms and
conditions of the Options granted under this Section 6 shall be determined
from time to time by the Committee; PROVIDED, HOWEVER, that the Options
granted under this Section 6 shall be subject to all terms and provisions
of the Plan (other than Section 7), including the following:
a. OPTION EXERCISE PRICE. Subject to Section 4, the Committee
shall establish the Option exercise price at the time any Option
is granted to a Key Employee at such amount as the Committee
shall determine; PROVIDED, that, in the case of an Incentive
Option, such price shall not be less than the Fair Market Value
per share of Common Stock at the date the Option is granted; and
PROVIDED, FURTHER, that in the case of an Incentive Option
granted to a person who, at the time such Incentive Option is
granted, owns shares of the Company or any Related Entity which
possess more than 10% of the total combined voting power of all
classes of shares of the Company or of any Related Entity, the
option exercise price shall not be less than 110% of the Fair
Market Value per share of Common Stock at the date the Option is
granted. The Option exercise price shall be subject to
adjustment in accordance with the provisions of Section 12 of the
Plan.
b. PAYMENT. The price per share of Common Stock with respect
to each Option exercise by a Key Employee shall be payable at the
time of such exercise. Such price shall be payable in cash or by
any other means acceptable to the Committee, including by the
delivery to the Company of shares of Common Stock owned by the
optionee or by the delivery or withholding of shares pursuant to
a procedure created pursuant to subsection 5(d) of the Plan (but,
with respect to Incentive Options, subject to the limitations
described in such subsection 5(d)). Shares delivered to or
withheld by the Company in payment of the Option exercise price
shall be valued at the Fair Market Value of the Common Stock on
the day preceding the date of the exercise of the Option.
c. EXERCISABILITY OF STOCK OPTION. Unless otherwise determined
by the Committee at the time of grant, and subject to the
provisions of subsections 6(d), (e), (f), (g) and (i) below,
stock options granted to Key Employees hereunder shall vest and
become exercisable according to the vesting schedule set forth
below:
one-fifth of the shares of Common Stock underlying the stock
option grant shall vest and become exercisable on the first
anniversary of the date of grant and remain exercisable until the
stock option expires; and
an additional one-fifth of the shares of Common Stock underlying
the stock option grant shall vest and become exercisable on the
second anniversary of the date of grant and remain exercisable
until the stock option expires; and
an additional one-fifth of the shares of Common Stock underlying
the stock option grant shall vest and become exercisable on the
third anniversary of the date of grant and remain exercisable
until the stock option expires; and
an additional one-fifth of the shares of Common Stock underlying
the stock option grant shall vest and become exercisable on the
fourth anniversary of the date of grant and remain exercisable
until the stock option expires; and
the final one-fifth of the shares of Common Stock underlying the
stock option grant shall vest and become exercisable on the fifth
anniversary of the date of grant and remain exercisable until the
stock option expires.
No Option by its terms shall be exercisable after the expiration
of ten years from the date of grant of the Option, unless, as to
any Non-Qualified Option, otherwise expressly provided in such
Option; PROVIDED, HOWEVER, that no Incentive Option granted to a
person who, at the time such Option is granted, owns stock of the
Company, or any Related Entity, possessing more than 10% of the
total combined voting power of all classes of stock of the
Company, or any Related Entity, shall be exercisable after the
expiration of five years from the date such Option is granted.
d. DEATH. If an optionee's employment with the Company or a
Related Entity terminates due to the death of such optionee, the
estate of such optionee, or a Person who acquired the right to
exercise such Option by bequest or inheritance or by reason of
the death of the optionee, shall have the right to exercise the
vested portion of such Option in accordance with its terms at any
time and from time to time within 180 days after the date of
death unless a longer or shorter period is expressly provided in
such Option or established by the Committee pursuant to Section
10 (but in no event after the expiration date of such Option),
and thereafter such Option shall lapse and no longer be
exercisable.
e. DISABILITY. If the employment of an optionee terminates
because of his or her Disability (as defined in Section 20), such
optionee or his or her legal representative shall have the right
to exercise the vested portion of such Option in accordance with
its terms at any time and from time to time within 180 days after
the date of such termination unless a longer or shorter period is
expressly provided in such Option or established by the Committee
pursuant to Section 10 (but in no event after the expiration date
of the Option), and thereafter such Option shall lapse and no
longer be exercisable; PROVIDED, HOWEVER, that in the case of an
Incentive Option, the optionee or his or her legal representative
shall in any event be required to exercise the vested portion of
such Incentive Option within one year after termination of the
optionee's employment due to his or her Disability.
f. TERMINATION FOR GOOD CAUSE; VOLUNTARY TERMINATION. Unless
an optionee's Option expressly provides otherwise, such optionee
shall immediately forfeit all rights under his or her Option,
except as to the shares of stock already purchased thereunder, if
the employment of such optionee with the Company or a Related
Entity is terminated by the Company or any Related Entity for
Good Cause (as defined below) or if such optionee voluntarily
terminates employment without the consent of the Company or any
Related Entity. The determination that there exists Good Cause
for termination shall be made by the Committee (unless otherwise
agreed to in writing by the Company and the optionee) and any
decision in respect thereof by the Committee shall be final and
binding on all parties in interest.
g. OTHER TERMINATION OF EMPLOYMENT. If the employment of an
optionee with the Company or a Related Entity terminates for any
reason other than those specified in subsections 6(d), (e) or (f)
above, such optionee shall have the right to exercise the vested
portion of his or her Option in accordance with its terms, within
30 days after the date of such termination, unless a longer or
shorter period is expressly provided in such Option or
established by the Committee pursuant to Section 10 (but in no
event after the expiration date of the Option), and thereafter
such Option shall lapse and no longer be exercisable; PROVIDED,
that (i) no Incentive Option shall be exercisable more than three
months after such termination, and (ii) the Committee may, in the
exercise of its discretion, extend the exercise date of any
Option upon termination of employment for a period not to exceed
six months plus one day (but in no event after the expiration
date of the Option) if the Committee determines that the stated
exercise date will have an inequitable result under Section 16(b)
of the Exchange Act.
h. MAXIMUM EXERCISE. To the extent that the aggregate Fair
Market Value of Common Stock (determined at the time of the grant
of the Option) with respect to which Incentive Options are
exercisable for the first time by an optionee during any calendar
year under all plans of the Company and any Related Entity
exceeds $100,000, such Incentive Options shall be treated as Non-
Qualified Options.
i. CONTINUATION OF EMPLOYMENT. Each Incentive Option shall
require the optionee to remain in the continuous employ of the
Company or any Related Entity from the date of grant of the
Incentive Option until at least three months prior to the date of
exercise of the Incentive Option.
j. INTERPRETATION OF PLAN. Any termination of employment of an
optionee with the Company or any Related Entity shall in no way
change or amend the Company's at-will termination policy.
7. STOCK OPTION GRANTS TO ELIGIBLE NON-EMPLOYEES.
Subject to the express provisions of the Plan, the Committee shall have
the authority to grant Non-Qualified Options (and not Incentive Options) to
Eligible Non-Employees; PROVIDED, HOWEVER, that whenever the Company has any
class of equity securities registered pursuant to Section 12 of the Exchange
Act, no Eligible Non-Employee then serving on the Committee (or such other
committee then administering the Plan) shall be granted Options hereunder if
the grant of such Options would cause such Eligible Non-Employee to no
longer be a "Non-Employee Director" as set forth in Section 2 hereof. The
terms and conditions of the Options granted under this Section 7 shall be
determined from time to time by the Committee; PROVIDED, HOWEVER, that the
Options granted under this Section 7 shall be subject to all terms and
provisions of the Plan (other than Section 6), including the following:
a. OPTION EXERCISE PRICE. Subject to Section 4, the Committee
shall establish the Option exercise price at the time any Non-
Qualified Option is granted to an Eligible Non-Employee at such
amount as the Committee shall determine. The Option exercise
price shall be subject to adjustment in accordance with the
provisions of Section 12 of the Plan.
b. PAYMENT. The price per share of Common Stock with respect
to each Option exercise by an Eligible Non-Employee shall be
payable at the time of such exercise. Such price shall be
payable in cash or by any other means acceptable to the
Committee, including by the delivery to the Company of shares of
Common Stock owned by the optionee or by the delivery or
withholding of shares pursuant to a procedure created pursuant to
subsection 5(d) of the Plan. Shares delivered to or withheld by
the Company in payment of the Option exercise price shall be
valued at the Fair Market Value of the Common Stock on the day
preceding the date of the exercise of the Option.
c. EXERCISABILITY OF STOCK OPTION. Unless otherwise determined
by the Committee at the time of grant and subject to the
provisions of subsections 7(d), (e), (f), (g) and (i) below,
stock options granted to Eligible Non-Employees hereunder shall
vest and become exercisable according to the vesting schedule set
forth below:
one-fifth of the shares of Common Stock underlying the stock
option grant shall vest and become exercisable on the first
anniversary of the date of grant and remain exercisable until the
stock option expires; and
an additional one-fifth of the shares of Common Stock underlying
the stock option grant shall vest and become exercisable on the
second anniversary of the date of grant and remain exercisable
until the stock option expires; and
an additional one-fifth of the shares of Common Stock underlying
the stock option grant shall vest and become exercisable on the
third anniversary of the date of grant and remain exercisable
until the stock option expires; and
an additional one-fifth of the shares of Common Stock underlying
the stock option grant shall vest and become exercisable on the
fourth anniversary of the date of grant and remain exercisable
until the stock option expires; and
the final one-fifth of the shares of Common Stock underlying the
stock option grant shall vest and become exercisable on the fifth
anniversary of the date of grant and remain exercisable until the
stock option expires.
No Option shall be exercisable after the expiration of ten years
from the date of grant of the Option, unless otherwise expressly
provided in such Option.
d. DEATH. If the retention by the Company or any Related
Entity of the services of any Eligible Non-Employee that is a
natural person terminates because of his or her death, the estate
of such optionee, or a Person who acquired the right to exercise
the vested portion of such Option by bequest or inheritance or by
reason of the death of the optionee, shall have the right to
exercise such Option in accordance with its terms, at any time
and from time to time within 180 days after the date of death
unless a longer or shorter period is expressly provided in such
Option or established by the Committee pursuant to Section 10
(but in no event after the expiration date of such Option), and
thereafter such Option shall lapse and no longer be exercisable.
e. DISABILITY. If the retention by the Company or any Related
Entity of the services of any Eligible Non-Employee that is a
natural person terminates because of his or her Disability, such
optionee or his or her legal representative shall have the right
to exercise the vested portion of such Option in accordance with
its terms at any time and from time to time within 180 days after
the date of the optionee's termination unless a longer or shorter
period is expressly provided in such Option or established by the
Committee pursuant to Section 10 (but in no event after the
expiration of the Option), and thereafter such Option shall lapse
and no longer be exercisable.
f. TERMINATION FOR GOOD CAUSE; VOLUNTARY TERMINATION. If the
retention by the Company or any Related Entity of the services of
any Eligible Non-Employee is terminated (i) for Good Cause, (ii)
as a result of removal of the optionee from office as a director
of the Company or of any Related Entity for cause by action of
the shareholders of the Company or such Related Entity in
accordance with the articles of incorporation or the by-laws of
the Company or such Related Entity, as applicable, and the
corporate law of the jurisdiction of incorporation of the Company
or such Related Entity, or (iii) as a result of the voluntary
termination by such optionee of the optionee's service without
the consent of the Company or any Related Entity, then such
optionee shall immediately forfeit his, her or its rights under
such Option except as to the shares of stock already purchased.
The determination that there exists Good Cause for termination
shall be made by the Committee (unless otherwise agreed to in
writing by the Company and the optionee) and any decision in
respect thereof by the Committee shall be final and binding on
all parties in interest.
g. OTHER TERMINATION OF RELATIONSHIP. If the retention by the
Company or any Related Entity of the services of any Eligible Non-
Employee terminates for any reason other than those specified in
subsections 7(d), (e) or (f) above, such optionee shall have the
right to exercise the vested portion of his, her or its Option in
accordance with its terms within 30 days after the date of such
termination, unless a longer or shorter period is expressly
provided in such Option or established by the Committee pursuant
to Section 10 (but in no event after the expiration date of the
Option), and thereafter such Option shall lapse and no longer be
exercisable; PROVIDED, that the Committee may, in the exercise of
its discretion, extend the exercise date of any Option upon
termination of retention of an Eligible Non-Employee's services
for a period not to exceed six months plus one day (but in no
event after the expiration date of the Option) if the Committee
determines that the stated exercise date will have an inequitable
result under Section 16(b) of the Exchange Act.
h. INELIGIBILITY FOR OTHER GRANTS. Any Eligible Non-Employee
who receives an Option pursuant to this Section 7 shall be
ineligible to receive any Options under any other Section of this
Plan.
8. EARLY EXERCISE.
The Committee, in its sole discretion, may provide that an option is
exercisable prior to vesting. In the event the optionee's employment (or,
in the case of any Option granted under Section 7, the optionee's
relationship) with the Company or a Related Entity terminates for any
reason while the optionee holds such unvested shares, the Company will have
the right to repurchase any unvested shares. The terms and procedures of
any right of early exercise (and the repurchase procedures) shall be
established by the Committee and shall be set forth in the optionee's
option agreement.
9. PERFORMANCE-BASED OPTIONS.
The Committee, in its sole discretion, may designate and design
Options granted under the Plan as Performance-Based Options if it
determines that compensation attributable to such Options might not
otherwise be tax deductible by the Company due to the deduction limitation
imposed by Section 162(m) of the Code. Accordingly, Options granted under
the Plan may be granted in such a manner that the compensation attributable
to such Options is intended by the Committee to qualify as "performance-
based compensation" as such term is used in Section 162(m) of the Code and
the regulations promulgated thereunder and thus be exempt from the
deduction limitation imposed by Section 162(m) of the Code ("PERFORMANCE-
BASED OPTIONS").
Options granted under the Plan to Key Employees who constitute
"covered employees" within the meaning of Section 162(m) of the Code shall
be deemed to qualify as Performance-Based Options only if:
a. The Option exercise price is not less than the Fair Market
Value per share of Common Stock at the date the Option is
granted; PROVIDED, that in the case of an Incentive Option, such
price is subject to the limitations described in subsection 6(a);
PROVIDED, FURTHER, that the Option exercise price shall be
subject to adjustment in accordance with the provisions of
Section 12 of the Plan; or
b. With respect to a Non-Qualified Option granted at an
exercise price that is below the Fair Market Value per share of
the Common Stock on the date of grant, such Option satisfies the
following requirements:
(i) the granting or vesting of such Non-Qualified Option is
subject to the achievement of a performance goal or goals
based on one or more of the following performance measures
(either individually or in any combination): net sales; pre-
tax income before allocation of corporate overhead and
bonus; budget; cash flow; earnings per share; net income;
division, group or corporate financial goals; return on
stockholders' equity; return on assets; attainment of
strategic and operational initiatives; appreciation in
and/or maintenance of the price of the Common Stock or any
other publicly-traded securities of the Company; market
share; gross profits; earnings before interest and taxes;
earnings before interest, taxes, depreciation and
amortization; economic value-added models; comparisons with
various stock market indices; increase in number of
customers; and/or reductions in costs;
(ii) the Committee establishes in writing (A) the objective
performance-based goals applicable to a given performance
period, and (B) the individual employees or class of
employees to which such performance-based goals apply no
later than ninety days after the commencement of such
performance period (but in no event after twenty-five
percent of such performance period has elapsed);
(iii) no compensation attributable to Performance-Based
Options will be paid to or otherwise received by a Key
Employee who constitutes a "covered employee" within the
meaning of Section 162(m) of the Code until the Committee
certifies in writing that the performance goal or goals (and
any other material terms) applicable to such performance
period have been satisfied;
(iv) after the establishment of a performance goal, the
Committee shall not revise such performance goal (unless
such revision will not disqualify compensation attributable
to the Performance-Based Options as "performance-based
compensation" under Section 162(m) of the Code) or increase
the amount of compensation payable with respect to such
Performance-Based Options upon the attainment of such
performance goal; and
(v) as required by the regulations promulgated under
Section 162(m) of the Code, the material terms of
performance goals as described in subsection 9(b)(i) shall
be disclosed to and reapproved by the Company's shareholders
no later than the first shareholder meeting that occurs in
the fifth year following the year in which the Company's
shareholders previously approved such performance goals.
10. CHANGE OF CONTROL.
If (i) a Change of Control shall occur, (ii) the Company shall enter
into an agreement providing for a Change of Control, or (iii) any member of
the HMC Group shall enter into an agreement providing for a Change of
Control, then all Options outstanding under the Plan shall become
exercisable immediately upon the Change of Control.
11. PURCHASE OPTION.
a. Except as otherwise expressly provided in any particular
Option, if (i) any optionee's employment (or, in the case of any
Option granted under Section 7, the optionee's relationship) with
the Company or a Related Entity terminates for any reason at any
time or (ii) a Change of Control occurs, the Company and/or its
designee(s) shall have the option (the "PURCHASE OPTION") to
purchase, and if the option is exercised, the optionee (or, with
respect to Common Stock acquired pursuant to the exercise of an
Option, the optionee's assignee, or the optionee's executor or
the administrator of the optionee's estate, in the event of the
optionee's death, or the optionee's legal representative in the
event of the optionee's incapacity (hereinafter, collectively
with such optionee, the "GRANTOR")) shall sell to the Company
and/or its assignee(s), all or any portion (at the Company's
option) of the shares of Common Stock and/or Options held by the
Grantor (such shares of Common Stock and Options collectively
being referred to as the "PURCHASABLE SHARES").
b. The Company shall give notice in writing to the Grantor of
the exercise of the Purchase Option within one year after the
earlier of the date of the termination of the optionee's
employment or engagement or such Change of Control. Such notice
shall state the number of Purchasable Shares to be purchased and
the purchase price of such Purchasable Shares. If no notice is
given within the time limit specified above, the Purchase Option
shall terminate.
c. The purchase price to be paid for the Purchasable Shares
purchased pursuant to the Purchase Option shall be, in the case
of any Common Stock, the Fair Market Value per share as of the
date of the notice of exercise of the Purchase Option times the
number of shares being purchased, and in the case of any Option,
the Fair Market Value per share times the number of vested shares
(including by acceleration) subject to such Option which are
being purchased, less the applicable per share Option exercise
price. The purchase price shall be paid in cash. The closing of
such purchase shall take place at the Company's principal
executive offices within ten days after the purchase price has
been determined. At such closing, the Grantor shall deliver to
the purchaser(s) the certificates or instruments evidencing the
Purchasable Shares being purchased, duly endorsed (or accompanied
by duly executed stock powers) and otherwise in good form for
delivery, against payment of the purchase price by check of the
purchaser(s). In the event that, notwithstanding the foregoing,
the Grantor shall have failed to obtain the release of any pledge
or other encumbrance on any Purchasable Shares by the scheduled
closing date, at the option of the purchaser(s) the closing shall
nevertheless occur on such scheduled closing date, with the cash
purchase price being reduced to the extent of, and paid to the
holder of, all unpaid indebtedness for which such Purchasable
Shares are then pledged or encumbered.
d. To assure the enforceability of the Company's rights under
this Section 11, each certificate or instrument representing
Common Stock or an Option held by him or it shall bear a
conspicuous legend in substantially the following form:
"THE SHARES [REPRESENTED BY THIS CERTIFICATE] [ISSUABLE PURSUANT
TO THIS AGREEMENT] ARE SUBJECT TO AN OPTION TO REPURCHASE
PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1998 STOCK OPTION
PLAN FOR KEY EMPLOYEES AND A STOCK OPTION AGREEMENT ENTERED INTO
PURSUANT THERETO. A COPY OF SUCH OPTION PLAN AND OPTION
AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT
ITS PRINCIPAL EXECUTIVE OFFICES."
The Company's rights under this Section 11 shall terminate upon the
consummation of a Qualifying Public Offering.
12. ADJUSTMENT OF SHARES.
Except as otherwise contemplated in Section 10, and unless otherwise
expressly provided in a particular Option, in the event that, by reason of
any merger, consolidation, combination, liquidation, recapitalization,
stock dividend, stock split, split-up, split-off, spin-off, combination of
shares, exchange of shares or other like change in capital structure of the
Company (collectively, an "ADJUSTMENT EVENT"), the Common Stock is
substituted, combined, or changed into any cash, property, or other
securities, or the shares of Common Stock are changed into a greater or
lesser number of shares of Common Stock, the number and/or kind of shares
and/or interests subject to an Option and the per share price or value
thereof shall be appropriately and equitably adjusted by the Committee to
give appropriate effect to such Adjustment Event. Any fractional shares or
interests resulting from such adjustment shall be eliminated.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Option shall comply with the rules of Section 424(a) of the Code
to an Incentive Option, and (ii) in no event shall any adjustment be made
which would render any Incentive Option granted hereunder other than an
"incentive stock option" for purposes of Section 422 of the Code.
In the event the Company is not the surviving entity of an Adjustment
Event and, following such Adjustment Event, any optionee will hold Options
issued pursuant to the Plan which have not been exercised, cancelled, or
terminated in connection therewith, the Company shall cause such Options to
be assumed (or cancelled and replacement Options issued) by the surviving
entity or a Related Entity. In the event of any perceived conflict between
the provisions of Section 10 and this Section 12, the Committee's
determinations under Section 10 shall control.
13. ASSIGNMENT OR TRANSFER.
Except as otherwise expressly provided in any Non-Qualified Option, no
Option granted under the Plan or any rights or interests therein shall be
assignable or transferable by an optionee except by will or the laws of
descent and distribution, and during the lifetime of an optionee, Options
granted to him or her hereunder shall be exercisable only by the optionee
or, in the event that a legal representative has been appointed in
connection with the Disability of an optionee, such legal representative.
14. COMPLIANCE WITH SECURITIES LAWS.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or any applicable state securities laws, to permit
exercise of any Option or to issue any Common Stock in violation of the
Securities Act or any applicable state securities laws. Each optionee (or,
in the event of his or her death or, in the event a legal representative
has been appointed in connection with his or her Disability, the Person
exercising the Option) shall, as a condition to his or her right to
exercise any Option, deliver to the Company an agreement or certificate
containing such representations, warranties and covenants as the Company
may deem necessary or appropriate to ensure that the issuance of shares of
Common Stock pursuant to such exercise is not required to be registered
under the Securities Act or any applicable state securities laws.
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE
SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER
HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER
(WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT
SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION
WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE LAWS."
This legend shall not be required for shares of Common Stock issued
pursuant to an effective registration statement under the Securities Act
and in accordance with applicable state securities laws.
15. WITHHOLDING TAXES.
By acceptance of the option, the optionee will be deemed to (i) agree
to reimburse the Company or any Related Entity by which the optionee is
employed for any federal, state, or local taxes required by any government
to be withheld or otherwise deducted by such corporation in respect of the
optionee's exercise of all or a portion of the Option; (ii) authorize the
Company or any Related Entity by which the optionee is employed to withhold
from any cash compensation paid to the optionee or on the optionee's
behalf, an amount sufficient to discharge any federal, state, and local
taxes imposed on the Company or the Related Entity by which the optionee is
employed, and which otherwise has not been reimbursed by the optionee, in
respect of the optionee's exercise of all or a portion of the Option; and
(iii) agree that the Company may, in its discretion, hold the stock
certificate to which the optionee is entitled upon exercise of the Option
as security for the payment of the aforementioned withholding tax
liability, until cash sufficient to pay that liability has been
accumulated, and may, in its discretion, effect such withholding by
retaining shares issuable upon the exercise of the Option having a Fair
Market Value on the date of exercise which is equal to the amount to be
withheld.
16. COSTS AND EXPENSES.
The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Option nor to any employee
receiving an Option.
17. FUNDING OF THE PLAN.
The Plan shall be unfunded. The Company shall not be required to make
any segregation of assets to assure the payment of any Option under the
Plan.
18. OTHER INCENTIVE PLANS.
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for employees.
19. EFFECT ON EMPLOYMENT.
Nothing contained in the Plan or any agreement related hereto or
referred to herein shall affect, or be construed as affecting, the terms of
employment of any Key Employee except to the extent specifically provided
herein or therein. Nothing contained in the Plan or any agreement related
hereto or referred to herein shall impose, or be construed as imposing, an
obligation on (i) the Company or any Related Entity to continue the
employment of any Key Employee, and (ii) any Key Employee to remain in the
employ of the Company or any Related Entity.
20. DEFINITIONS.
In addition to the terms specifically defined elsewhere in the Plan,
as used in the Plan, the following terms shall have the respective meanings
indicated:
"ADJUSTMENT EVENT" shall have the meaning set forth in Section 12
hereof.
"AFFILIATE" shall mean, as to any Person, a Person that directly,
or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person.
"BOARD OF DIRECTORS" shall have the meaning set forth in Section
2 hereof.
"CHANGE OF CONTROL" shall mean the first to occur of the
following events: (i) any sale, lease, exchange, or other
transfer (in one transaction or series of related transactions)
of all or substantially all of the assets of the Company to any
Person or group of related Persons as determined pursuant to
Section 13(d) of the Exchange Act and the regulations and
interpretations thereunder (a "Group") other than one or more
members of the HMC Group, (ii) a majority of the Board of
Directors of the Company shall consist of Persons who are not
Continuing Directors; or (iii) the acquisition by any Person or
Group other than one or more members of the HMC Group of the
power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for
the election of directors of the Company.
"CODE" shall have the meaning set forth in Section 1 hereof.
"COMMITTEE" shall have the meaning set forth in Section 2 hereof.
"COMMON STOCK" shall have the meaning set forth in Section 3
hereof.
"COMPANY" shall have the meaning set forth in Section 1 hereof.
"CONTINUING DIRECTOR" shall mean, as of the date of
determination, any Person who (i) was a member of the Board of
Directors of the Company on the date of adoption of the Plan,
(ii) was nominated for election or elected to the Board of
Directors of the Company with the affirmative vote of a majority
of the Continuing Directors who were members of such Board of
Directors at the time of such nomination or election, or (iii) is
a member of the HMC Group.
"DISABILITY" shall mean (i) permanent disability as defined under
the appropriate provisions of the applicable long-term disability
plan maintained for the benefit of employees of the Company or
any Related Entity who are regularly employed on a salaried basis
or (ii) if no such long-term disability plan exists, an inability
to perform a participant's employment duties and responsibilities
by reason of any physical or mental condition for a period of 26
consecutive weeks or a period of 26 weeks during any 12-month
period in connection with the same physical or mental condition
or (iii) another meaning agreed to in writing by the Committee
and the optionee; PROVIDED, HOWEVER, that in the case of the
optionee holding an Incentive Option "disability" shall have the
meaning specified in Section 22(e)(3) of the Code.
"ELIGIBLE NON-EMPLOYEE" shall have the meaning set forth in
Section 4 hereof.
"EXCHANGE ACT" shall have the meaning set forth in Section 2
hereof.
"FAIR MARKET VALUE" shall, as it relates to the Common Stock,
mean the average of the high and low prices of such Common Stock
as reported on the principal national securities exchange on
which the shares of Common Stock are then listed or the NASDAQ
National Market, as applicable, on the date specified herein for
such a determination; or if there were no sales on such date, on
the next preceding day on which there were sales; or, if such
Common Stock is not listed on a national securities exchange, the
last reported bid price in the over-the-counter market; or, if
such shares are not traded in the over-the-counter market, the
per share cash price for which all of the outstanding Common
Stock could be sold to a willing purchaser in an arms length
transaction (without regard to minority discount, absence of
liquidity, or transfer restrictions imposed by any applicable law
or agreement) at the date of the event giving rise to a need for
a determination. Except as may be otherwise expressly provided
in a particular Option, Fair Market Value shall be determined in
good faith by the Committee.
"GOOD CAUSE", with respect to any Key Employee, shall mean
(unless another definition is agreed to in writing by the Company
and the optionee) termination by action of the Board of Directors
because of: (A) the optionee's conviction of, or plea of nolo
contendere to, a felony or a crime involving moral turpitude;
(B) the optionee's personal dishonesty, willful misconduct,
willful violation of any law, rule, or regulation (other than
minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the optionee's
willful commission of material mismanagement in the conduct of
his or her duties as assigned to him by the Board of Directors or
the optionee's supervising officer or officers of the Company;
(D) the optionee's willful failure to execute or comply with the
policies of the Company or his or her stated duties as
established by the Board of Directors or the optionee's
supervising officer or officers of the Company, or the optionee's
intentional failure to perform the optionee's stated duties; or
(E) substance abuse or addiction on the part of the optionee.
"GOOD CAUSE", with respect to any Eligible Non-Employee, shall
mean (unless another definition is agreed to in writing by the
Company and the optionee) termination by action of the Board of
Directors because of: (A) the optionee's conviction of, or plea
of nolo contendere to, a felony or a crime involving moral
turpitude; (B) the optionee's personal dishonesty, willful
misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or
breach of fiduciary duty which involves personal profit; (C) the
optionee's willful commission of material mismanagement in
providing services to the Company or any Related Entity; (D) the
optionee's willful failure to comply with the policies of the
Company in providing services to the Company or any Related
Entity, or the optionee's intentional failure to perform the
services for which the optionee has been engaged; (E) substance
abuse or addiction on the part of the optionee; or (F) the
optionee's willfully making any material misrepresentation or
willfully omitting to disclose any material fact to the board of
directors of the Company or any Related Entity with respect to
the business of the Company or any Related Entity.
"GRANTOR" has the meaning set forth in Section 11 hereof.
"HMC GROUP" shall mean Hicks, Muse, Tate & Furst Incorporated,
its Affiliates, and their respective employees, officers,
partners and directors (and members of their respective families
and trusts for the primary benefit of such family members).
"HOLDING PERIOD" shall have the meaning set forth in subsection
5(d) hereof.
"INCENTIVE OPTIONS" shall have the meaning set forth in Section 6
hereof.
The term "INCLUDING" when used herein shall mean "including, but
not limited to".
"KEY EMPLOYEE" shall have the meaning set forth in Section 4
hereof.
"NON-QUALIFIED OPTIONS" shall have the meaning set forth in
Section 6 hereof.
"OPTIONS" shall have the meaning set forth in Section 1 hereof.
"PERFORMANCE-BASED OPTIONS" shall have the meaning set forth in
Section 9 hereof.
"PERSON" shall have the meaning set forth in Section 4 hereof.
"PLAN" shall have the meaning set forth in Section 1 hereof.
"PURCHASABLE SHARES" shall have the meaning set forth in Section
11 hereof.
"PURCHASE OPTION" shall have the meaning set forth in Section 11
hereof.
"QUALIFYING PUBLIC OFFERING" shall mean a firm commitment
underwritten public offering of Common Stock the result of which
is that the HMC Group shall own less than 10% of the fully
diluted Common Stock of the Company.
"RELATED ENTITIES" shall have the meaning set forth in Section 1
hereof.
"RULE 16B-3" shall have the meaning set forth in Section 2
hereof.
"SECURITIES ACT" shall have the meaning set forth in Section 14
hereof.
"TERM" shall have the meaning set forth in Section 22 hereof.
21. AMENDMENT OF PLAN.
The Board of Directors shall have the right to amend, modify, suspend
or terminate the Plan at any time; PROVIDED, that no amendment shall be
made which shall increase the total number of shares of the Common Stock
which may be issued and sold pursuant to Options granted under the Plan or
decrease the minimum Option exercise price in the case of an Incentive
Option, or modify the provisions of the Plan relating to eligibility with
respect to Incentive Options unless such amendment is made by or with the
approval of the shareholders. The Board of Directors shall be authorized
to amend the Plan and the Options granted thereunder, without the consent
or joinder of any optionee or other Person, in such manner as may be deemed
necessary or appropriate by the Board of Directors in order to cause the
Plan and the Options granted thereunder (i) to qualify as "incentive stock
options" within the meaning of Section 422 of the Code, (ii) to comply with
Rule 16b-3 (or any successor rule) under the Exchange Act (or any successor
law) and the regulations (including any temporary regulations) promulgated
thereunder or (iii) to comply with Section 162(m) of the Code (or any
successor section) and any regulations (including any temporary
regulations) promulgated thereunder. Except as provided above, no
amendment, modification, suspension or termination of the Plan shall
materially impair the value of any Options previously granted under the
Plan, without the consent of the holder thereof.
22. EFFECTIVE DATE.
The Plan shall be effective as of March 1, 2000, and shall be void
retroactively as to any Incentive Option if not approved by the
shareholders of the Company within twelve months thereafter. The Plan
shall terminate on the tenth anniversary of the date of adoption of the
Plan or the date of approval of the Plan by the shareholders of the
Company, whichever is earlier, unless sooner terminated by the Board of
Directors (the "TERM").
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 906
<SECURITIES> 0
<RECEIVABLES> 39,193
<ALLOWANCES> 0
<INVENTORY> 4,206
<CURRENT-ASSETS> 63,083
<PP&E> 10,035
<DEPRECIATION> 0
<TOTAL-ASSETS> 262,442
<CURRENT-LIABILITIES> 47,043
<BONDS> 179,133
31,348
0
<COMMON> 4
<OTHER-SE> (32,206)
<TOTAL-LIABILITY-AND-EQUITY> 262,442
<SALES> 37,470
<TOTAL-REVENUES> 115,719
<CGS> 29,974
<TOTAL-COSTS> 73,034
<OTHER-EXPENSES> 51,832
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,611
<INCOME-PRETAX> (18,318)
<INCOME-TAX> (5,181)
<INCOME-CONTINUING> (13,137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,137)
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</TABLE>
