UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: October 31,1995
Commission File Number: 0-3713
NATIONAL COMPUTER SYSTEMS, INC.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0850527
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55344
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612)829-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months 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 last practicable date:
The number of shares of common stock, par value $.03 per share,outstanding
on November 30, 1995, was 15,537,325.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months
Ended October 31,
-----------------
1995 1994
---- -----
(In thousands, except
per share amounts)
<S> <C> <C>
REVENUES
Net sales $81,580 $78,680
Maintenance and support 15,741 15,928
------- -------
Total revenues 97,321 94,608
COST OF REVENUES
Cost of sales 51,722 52,043
Cost of maintenance and support 10,562 11,326
------- -------
Gross margin 35,037 31,239
OPERATING EXPENSES
Sales and marketing 11,310 10,649
Research and development 3,312 3,477
General and administrative 9,728 8,510
------- -------
INCOME FROM OPERATIONS 10,687 8,603
Interest expense 700 840
Other (income) expense, net (285) 260
------- -------
INCOME BEFORE INCOME TAXES 10,272 7,503
Income tax provision 4,100 2,925
------- -------
NET INCOME $ 6,172 $ 4,578
======= =======
NET INCOME PER SHARE $ .39 $ .30
AVERAGE SHARES OUTSTANDING 15,821 15,361
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended October 31,
-----------------
1995 1994
----- ----
(In thousands, except
per share amounts)
<S> <C> <C>
REVENUES
Net sales $212,592 $195,348
Maintenance and support 47,468 48,141
-------- --------
Total revenues 260,060 243,489
COST OF REVENUES
Cost of sales 130,791 120,015
Cost of maintenance and support 31,161 33,989
-------- --------
Gross margin 98,108 89,485
OPERATING EXPENSES
Sales and marketing 33,177 32,467
Research and development 10,450 9,019
General and administrative 28,713 27,003
-------- --------
INCOME FROM OPERATIONS 25,768 20,996
Interest expense 2,672 2,390
Other (income) expense, net (335) 163
-------- --------
INCOME BEFORE INCOME TAXES 23,431 18,443
Income tax provision 9,250 7,200
-------- --------
NET INCOME $ 14,181 $ 11,243
======== ========
NET INCOME PER SHARE $ .90 $ .74
AVERAGE SHARES OUTSTANDING 15,688 15,160
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
---------- -----------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,312 $ 1,195
Receivables:
Trade 62,903 77,209
Other 1,801 1,940
-------- --------
Total receivables 64,704 79,149
Inventories:
Finished products 6,894 6,408
Scoring services and work in process 14,000 8,974
Raw materials and purchased parts 3,995 5,073
-------- --------
Total inventories 24,889 20,455
Prepaid expenses and other 9,527 9,925
-------- --------
TOTAL CURRENT ASSETS 103,432 110,724
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements 49,761 48,202
Machinery and equipment 105,365 101,336
Rotable service parts 8,497 9,256
Equipment held for lease 7,815 7,583
Accumulated depreciation (90,606) (83,648)
-------- --------
Net property, plant and equipment 80,832 82,729
OTHER ASSETS
Acquired and internally developed
software products 24,943 27,234
Non-current receivables, investments
and other assets 14,158 17,027
Goodwill 2,575 3,043
-------- --------
Total other assets 41,676 47,304
-------- --------
TOTAL ASSETS $225,940 $240,757
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
----------- -----------
(In thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities $ 3,590 $ 5,212
Accounts payable 14,606 20,655
Accrued expenses 29,452 29,495
Deferred income 17,684 18,645
Income taxes 2,172 1,103
-------- --------
TOTAL CURRENT LIABILITIES 67,504 75,110
DEFERRED INCOME TAXES 8,329 7,211
LONG-TERM DEBT -- less current maturities 24,717 45,313
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock--issued and outstanding -
15,562 and 15,310 shares,
respectively 465 459
Paid-in capital 7,219 3,795
Retained earnings 123,709 114,546
Deferred compensation (6,003) (5,677)
-------- --------
Total stockholders' equity 125,390 113,123
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $225,940 $240,757
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
------------------
1995 1994
------- -------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $14,181 $11,243
Depreciation, amortization and other
noncash expenses 22,038 18,131
Provision for deferred income taxes 1,118 316
Changes in operating assets and liabilities:
Decrease in accounts receivable 15,290 14,795
Increase in inventory and other
current assets (5,468) (4,016)
Decrease in accounts payable and
accrued expenses (5,030) (6,221)
Decrease in deferred income (1,027) (2,200)
------- -------
Net cash provided by
operating activities 41,102 32,048
------- -------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (10,623) (23,038)
Capitalized software products (3,785) (4,648)
Acquisitions, net - (3,216)
Other - net 113 (2,737)
------- -------
Net cash used in investing activities (14,295) (33,639)
------- -------
FINANCING ACTIVITIES
Net increase (decrease) in revolving
credit borrowing (19,600) 1,700
Net proceeds (repayments) of other borrowings (1,618) 2,265
Issuance of common stock, net 1,700 730
Dividends paid (4,172) (4,074)
------- -------
Net cash provided (used)
by financing activities (23,690) 621
------- -------
Increase (decrease) in cash 3,117 (970)
CASH AND CASH EQUIVALENTS - beginning of period 1,195 1,724
------- -------
CASH AND CASH EQUIVALENTS - beginning of period $ 4,312 $ 754
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for all periods presented have been made. The results of operations
for the period ended October 31, 1995, are not necessarily indicative of the
operating results that may be expected for the entire fiscal year ending January
31, 1996.
Note B - Earnings per share for the respective operating periods are computed
based on average shares outstanding and common stock equivalents.
Note C - The Company has 10,000,000 shares of $.01 par value Preferred Stock
authorized of which none is outstanding.
50,000,000 shares of $.03 par value Common Stock are authorized.
Note D - The Company has received a claim from a customer for expenses, alleged
loan defaults, and other damages related to performance under a loan processing
and servicing contract. The Company has tendered the defense of this claim to
its insurer and the insurer has accepted that defense subject to a reservation
of rights. The Company and its insurer intend to vigorously contest this claim.
While the claim has not yet been fully articulated, the Company believes that
any such claim would be substantially covered by insurance and would not have a
material effect on the Company's financial position.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
National Computer Systems, Inc. is an information services company serving the
education; business, government, and health care; and banking and financial
markets. The Company's 1994 Annual Report contains descriptions of its
activities in each of these markets.
Recap of 1995 Results
For the quarter ended October 31, 1995, total revenues were up by $2.7 million
or 2.9% from the quarter ended October 31, 1994. Overall gross margin, as a
percentage of revenues, increased by 3.0 percentage points from the prior year.
These factors, somewhat offset by higher operating expenses, resulted in a $2.1
million or 24% increase in operating income over the same period in 1994. Sales
to Business and Government customers continued to increase significantly as the
Company's focus on certain key application areas such as quality measurement and
human resources produced positive results. The Company's Financial Systems
business also continued to report improved results in the third quarter.
Total revenues for the nine months ended October 31, 1995, increased by $16.6
million or 6.8% over the same period of the prior year. Net income rose 26.1% to
$14.2 million or $.90 per share. The year-to-date increases are the result of
the same business developments described above. In addition, on a year-to-date
basis, the Company's Education business also reported improved results, with
growth in the test processing and administrative software businesses. A more
detailed discussion of the various income statement items follows.
Revenues
Total revenues for the quarter ended October 31, 1995 were up 2.9% to $97.3
million from $94.6 million in the comparable 1994 quarter. On a year-to-date
basis, revenues were up 6.8% to $260.1 million from $243.5 million in the prior
year. Total third quarter and year-to-date revenues as compared to the prior
year, by the Company's major business areas, were as follows:
Third Quarter Year-to-Date
Education - 12% + 4%
Business, Government
Health Care and Other + 10% + 7%
Banking and Financial + 41% + 15%
Total revenues from the Education market were down for the quarter as a result
of the timing of certain educational test processing at the Company's Iowa City
service center. For the nine-month period, higher volumes of student financial
aid processing and higher software licensing revenues from administrative
software generated the year-to-year increase in revenues from Education. Total
revenues from Business, Government, and Healthcare were up for both the quarter
and year-to-date periods as higher forms sales, proprietary hardware sales and
services revenues were partially offset by lower third-party maintenance
revenues. Total revenues in the Banking and Financial market were also up for
both periods, as higher software licensing and support revenues generated from a
fiscal 1994 third quarter acquisition of an international private banking
software business, plus improved domestic hardware revenues, resulted in the
period-to-period increases. The revenue increases for the three and nine-month
periods ended October 31, 1995, are not necessarily indicative of the revenue
increases expected for the entire fiscal year ended January 31, 1996.
Cost of Revenues and Gross Margins
For the quarter ended October 31, 1995, the Company's overall gross margin
improved to 36.0% from 33.0% for the same period in the prior year. The gross
margin on net sales revenue increased by 2.7 percentage points from the same
period in fiscal 1994. Improved processing margins in Education's Iowa City
service center as a result of new contracts being in full production cycles, and
higher margins on other services revenues accounted for the quarter-to-quarter
improvement. Gross margins on maintenance and support revenues improved by 4.0
percentage points in the third quarter as compared to the prior year quarter as
a result of improved software support margins across the Company's major
businesses.
For the nine months ended October 31, 1995, the Company's overall gross margin
improved by .9 percentage points to 37.7%. Gross margin on net sales revenue was
essentially flat year-to-year. However, gross margins on maintenance and support
revenues improved by 5.0 percentage points, also as a result of improved
software support margins across the Company's major businesses.
Operating Expenses
Sales and marketing expenses increased $.7 million for the three and nine-month
periods ended October 31, 1995, over the prior year periods. As a percentage of
revenue, sales and marketing expenses increased by .3 percentage points for the
three-month period ended October 31, 1995, as compared to the same prior year
period. However, on a year-to-date basis, sales and marketing expenses have
declined by .5 percentage points as a percent of revenue. For the remainder of
fiscal 1995, the Company expects sales and marketing expenditures to trend
slightly higher than fiscal 1994. Research and development costs decreased $.2
million for the quarter ended October 31, 1995, over the year earlier quarter.
For the nine months ended October 31, 1995, research and development expenses
were up $1.4 million over the same period of 1994. The year-to-date increase
relates principally to Banking and Financial software and enhancements to the
Company's scanning and imaging technology. On a full-year basis, these expenses
are likely to continue at higher levels than the previous year.
General and administrative expenses increased by $1.2 million and $1.7 million,
respectively, in the three and nine-month periods ended October 31, 1995, from
the comparable prior year periods. On a year-to-date basis, these expenses are
relatively constant as a percentage of revenues. This should continue to be the
case for the full fiscal year.
Non-operating Expenses
Interest expense decreased slightly for the quarter ended October 31, 1995, as
compared to the prior year quarter, as a result of lower aggregate debt levels.
For the nine months ended October 31, 1995, interest expense increased by $.3
million, from the comparable prior year period. This increase is primarily the
result of slightly higher interest rates.
Provision for Income Taxes
The effective income tax rate of 39.5% for the first nine months of fiscal 1995
was greater than the 39.0% effective tax rate for the first nine months of
fiscal 1994. This year-to-year increase in the effective income tax rate is the
result of losses from its foreign subsidiaries which the Company is unable to
realize as a benefit in the current tax provision. The Company expects its
annual effective income tax rate for fiscal 1995 to approximate 39.5%.
Liquidity and Capital Resources
For the nine-month period ended October 31, 1995, the Company generated $41.1
million of cash flow from operating activities. This compares favorably to the
corresponding prior year period as a result of increased net income and higher
noncash expenses, primarily software product amortization. Cash provided from
operations and cash on hand were used to fund investments in property, plant and
equipment and product software, as well as reduce the Company's revolving credit
borrowings. The Company's revolving credit borrowings were zero at October 31,
1995, but that facility will be utilized as day-to-day operating requirements
dictate. Funds to be generated from operations and funds available from the
Company's existing revolving credit facility are expected to be adequate to meet
current cash requirements.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
*10.1 -- NCS 1990 Employee Stock Option Plan, as amended
*10.2 -- NCS 1995 Employee Stock Option Plan, as amended
*10.3 -- NCS 1990 Long-Term Incentive Plan, as amended
27 -- Financial Data Schedule
---------------
* Indicates management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report.
(b) There were no reports on Form 8-K filed for the three months ended
October 31, 1995.
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.
NATIONAL COMPUTER SYSTEMS, INC.
/s/ Jeffrey W. Taylor
---------------------------
Jeffrey W. Taylor
Vice President and
Chief Financial Officer
Dated: December 13, 1995
<PAGE>
FORM 10-Q
NATIONAL COMPUTER SYSTEMS, INC.
For the quarterly period ended October 31, 1995
---------------
EXHIBIT INDEX
---------------
Exhibit 10.1 -- NCS 1990 Employee Stock Option Plan, as amended
10.2 -- NCS 1995 Employee Stock Option Plan, as amended
10.3 -- NCS 1990 Long-Term Incentive Plan, as amended
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for National Computer Systems, Inc. and Subsidiaries, for
the quarterly period ended October 31, 1995, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 4,312
<SECURITIES> 0
<RECEIVABLES> 62,903
<ALLOWANCES> 0
<INVENTORY> 24,889
<CURRENT-ASSETS> 103,432
<PP&E> 171,438
<DEPRECIATION> (90,606)
<TOTAL-ASSETS> 225,940
<CURRENT-LIABILITIES> 67,504
<BONDS> 24,717
<COMMON> 465
0
0
<OTHER-SE> 124,925
<TOTAL-LIABILITY-AND-EQUITY> 225,940
<SALES> 81,580
<TOTAL-REVENUES> 97,321
<CGS> 51,722
<TOTAL-COSTS> 62,284
<OTHER-EXPENSES> 24,350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 700
<INCOME-PRETAX> 10,272
<INCOME-TAX> 4,100
<INCOME-CONTINUING> 6,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,172
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
EXHIBIT 10.1
NATIONAL COMPUTER SYSTEMS, INC.
1990 EMPLOYEE STOCK OPTION PLAN
(As Amended in 1993 and 1995)
1. Objectives of Plan.
This 1990 Employee Stock Option Plan (the "Plan") has been adopted by
and subsequently amended by the Board of Directors of National Computer Systems,
Inc., a Minnesota corporation (herein called the "Company"), to secure the
advantages of stock ownership on the part of its present and future key
employees, including salaried officers and directors, and including salaried
officers and directors of any one or more subsidiary corporations wholly-owned
by it (herein called "related companies"), to provide incentives for such
individuals to remain with the Company or related companies and to devote their
energies to strengthen and maintain the continued success of the Company through
stock ownership. Options granted under this Plan may be either incentive stock
options ("Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or options which do not
qualify as Incentive Stock Options.
2. Administration of Plan.
(A) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
Committee shall be composed of not less than such number of directors as shall
be required to permit the Plan to qualify under Section 16b-3 ("Section 16b-3")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Each
member of the Committee shall be a "disinterested person" with respect to the
Plan within the meaning of Section 16b-3 and shall be an "outside director"
within the meaning of Section 162 (m) of the Internal Revenue Code of 1986, as
amended (the "Code").
(B) Subject to the provisions of the Plan, the Committee shall have
authority, in its discretion:
(1) To construe and interpret the Plan and all options granted
hereunder, and to determine the terms and provisions (and
amendments thereof) of the options granted under the Plan
(which need not be identical).
(2) To determine individuals to whom and the time or times at
which options shall be granted, the number of shares to be
subject to each option, the option price, and the duration
of leaves of absence which may be granted to participants
without constituting a termination of their employment for
the purposes of the Plan.
(3) To adopt, amend and rescind rules and regulations relating
to administration of the Plan and make all determinations
necessary or advisable for the administration of the Plan,
which shall be binding and conclusive on all participants in
the Plan and on their legal representatives and
beneficiaries.
(4) To accelerate the time at which all or any part of an option
may be exercised.
(5) To determine which options (that are not Incentive Stock
Options), whether granted before or after the date of
adoption or any amendments to this Plan, shall be deemed to
be stock options governed by and subject to the terms and
conditions of this Plan.
3. Participants.
Options may be granted under the Plan to such key full or part time
executive, administrative, supervisory, technical, or professional employees
(including salaried officers and directors) of the Company, or of subsidiaries
of the Company, including subsidiaries which become such after adoption of the
Plan, in such amounts as shall be determined from time to time by the Committee.
In determining the persons to whom options shall be granted and the
number of shares subject to each option, the Committee may take into account the
nature of services rendered by the proposed grantees, their past, present and
potential contributions to the success of the Company, and such other factors as
the Committee in its discretion shall deem relevant. A person who has been
granted an option under this Plan may be granted an additional option or options
under the Plan if the Committee shall so determine; provided, however, that to
the extent that the aggregate fair market value, determined at the time an
Incentive Stock Option is granted, of the stock with respect to which all
Incentive Stock Options owned by a Participant are exercisable for the first
time by such optionee during any calendar year under all plans of the employer
corporation and its parent and subsidiary corporations exceeds $100,000, such
options shall be treated as options that do not qualify as Incentive Stock
Options.
4. Number of Shares Available for Options.
Under this Plan, options may be granted for shares of the Company's
Common Stock, $.03 par value. The Common Stock subject to options shall be
either authorized but unissued shares or shares reacquired by the Company.
Subject to the provisions of paragraph 5 hereof, the number of shares of Common
Stock that may be made the subject of options shall not exceed the aggregate of
700,000 shares. In the event that any outstanding option under the Plan for any
reason expires or is terminated unexercised, the common shares allocable to the
unexercised portion of such option may again be subject to an option under the
Plan.
5. Adjustments.
If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the capitalization or corporate structure of the Company, the
Committee shall make appropriate adjustments in the Plan and any options
outstanding under the Plan. Such adjustments shall include, where appropriate,
changes in the aggregate number of shares subject to the Plan and such changes
in the number of shares and the price per share subject to outstanding options
as are necessary in order to prevent dilution or enlargement of option rights.
6. Term of Plan.
No option shall be granted pursuant to this Plan later than January 31,
2000, but options theretofore granted may extend beyond that date in accordance
with their terms.
7. Terms and Conditions of Options.
Options granted hereunder shall be evidenced by a written notice from
the Company to the participant evidencing the granting of an option hereunder,
or shall be evidenced by an agreement in such form as the Committee shall from
time to time require. Said notice or agreement shall refer to this Plan, and
make acceptance thereof by a participant subject to the provisions hereof. Such
option shall comply with and be subject to the following terms and conditions:
(A) Number of Shares. Each option shall state the number of shares to
which it pertains.
(B) Option Price. Each option shall state the option price, which shall
not be less than 100% of the fair market value of the shares of the Common Stock
of the Company on the date of the granting of the option. During such time as
the Common Stock is not listed upon an established stock exchange, the fair
market value per share shall be the "last trade price" as reported by the
National Association of Security Dealers, Inc. If the Common Stock is listed
upon an established stock exchange or exchanges, such fair market value shall be
deemed to be the highest closing price of the Common Stock on such stock
exchange or exchanges on the date the option is granted, or if no sale of the
Company's Common Stock shall have been made on any stock exchange on that day,
on the next preceding day on which there was a sale of such stock. Subject to
the foregoing, the Committee in fixing the option price shall have full
authority and discretion and be fully protected in doing so.
(C) Option Period and Exercise of Option.
(1) No option period shall exceed ten years, and except
as otherwise provided on subdivisions (D) and (E)
hereof, no option period shall be for less than one
year.
(2) Any option granted under the Plan may be exercised by
notifying the Company in writing of such exercise
prior to the termination of such option. The option
price for the number of shares of Common Stock for
which the option is exercised shall become
immediately due and payable; provided, however, that
in lieu of cash an optionee may, with the approval of
the Committee, exercise an option by tendering to the
Company shares of the Common Stock of the Company
owned by the optionee and with the certificates
therefor registered in the optionee's name, having a
fair market value equal to the cash exercise price of
the shares being purchased.
(3) During the lifetime of the optionee, the option shall
be exercisable only by the optionee and shall not be
assignable or transferable, and no other person shall
acquire any rights therein. Except as provided in
Subdivisions (D) and (E) hereof, no option may be
exercised at any time unless the holder thereof is
then an employee of the Company or a subsidiary of
the Company.
(D) Termination of Employment Except Death. In the event an optionee
shall cease to be employed by the Company or a related company for any reason
other than death, then, and in that event, but subject to the condition that no
option shall be exercisable after its expiration date, such optionee shall have
the right to exercise the option at any time within three months after such
termination of employment, to the extent the optionee's right to exercise same
had accrued pursuant to Article 7(C) of the Plan and had not previously been
exercised at the date of such termination. Whether authorized leaves of absence
or absence because of military or governmental service shall constitute
termination of employment, for the purpose of the Plan, shall be determined by
the Committee, which determination shall be final and conclusive.
(E) Death of Optionee and Transfer of Option. If any optionee shall die
while in the employ of the Company or a related company, or within a period of
three months after the termination of employment with the Company or related
companies and shall not have fully exercised the option, said option may be
exercised (subject to the condition that no option shall be exercisable after
its expiration date), to the extent that the optionee's right to exercise such
option had accrued pursuant to Article 7(C) of the Plan at the time of death and
had not previously been exercised, at any time within one year after the
optionee's death, by the executors or administrators of the optionee or by any
person or persons who shall have acquired the option directly from the optionee
by bequest or inheritance. No option shall be transferable by the optionee
otherwise than by will or by the laws of descent and distribution.
(F) 10 - Percent Shareholder Rule. Notwithstanding any other provision
in the Plan, if at the time an Option is otherwise to be granted pursuant to the
Plan, the optionee owns directly or indirectly (within the meaning of Section
424(d) of the Code) Common Stock of the Company possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its parent
or subsidiary corporations, if any (within the meaning of Section 422(b)(6) of
the Code), then any Incentive Stock Option to be granted to such optionee
pursuant to the Plan shall satisfy the requirements of Section 422(c)(5) of the
Code, and the option price shall be not less than 110% of the fair market value
of the Common Stock of the Company on the date of grant, determined as described
herein, and such option by its terms shall not be exercisable after the fifth
anniversary of the date of grant.
(G) Rights as a Shareholder. An optionee or a transferee of an option
shall have no rights as a shareholder with respect to any shares covered by an
option until the date of the issuance of a stock certificate for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
provided in Article 5 hereof.
(H) Discontinuance and Amendment of the Plan. The Board of Directors
may, from time to time, alter, amend, suspend, or discontinue the Plan with
respect to any shares as to which options have not been granted, and, with the
consent of the participant who is a party thereto, any option agreement may be
modified or amended.
Unless approved by the stockholders of the Company, no amendment to the
Plan shall (a) increase the number of shares subject to the Plan subject to the
provisions of paragraph 5 hereof, (b) extend the term of the Plan, (c) extend
the term for which options may be granted beyond ten years, (d) reduce the
option price at which options may be granted to less than 100% of fair market
value at the date of grant, or (e) in any other fashion cause the options
granted hereunder which are intended to be Incentive Stock Options, and which
are designated as such by the form of agreement evidencing the granting of such
option, to fail to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code.
(I) Compliance with Laws Relating to Sale of Securities.
Notwithstanding any other provisions contained herein, the Company shall have
the right, in its exclusive discretion, to withhold the issuance of any
certificates for shares of stock in respect of which any option has been
exercised until, in the opinion of counsel for the Company, any applicable
registration requirements of the Securities Act of 1933, as amended, any
applicable listing requirements of any national securities exchange on which the
stock may then be listed, and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance and delivery, shall have been duly
complied with. Pending the receipt of such opinion of counsel for the Company,
the Company may issue certificates for such stock provided they contain a legend
indicating that said stock represented thereby is not registered and may not be
sold except in compliance with applicable law or the release of said
restrictions by the Company, and, in such event, the Company shall have the
right to instruct the transfer agent and registrar of its common shares to
effect "stop-transfer" procedures with respect to such shares.
Until the shares reserved for options are registered and/or listed, if
required by law, the Committee may condition the delivery of any certificate for
option shares upon the receipt of a written representation from the participant
that at the time of exercising such option the participant intends to acquire
the shares being purchased for investment and not for resale or further
distribution.
(J) Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions as the Committee shall deem advisable.
8. Notification of Disposition.
If an optionee shall dispose of any of the shares of Common Stock of
the Company acquired pursuant to the exercise of an Incentive Stock Option
issued pursuant to the Plan within two years from the date said option was
granted or within one year after the transfer of any such shares to the optionee
upon exercise of said option, then, in order to provide the Company with the
opportunity to claim the benefit of any income tax deduction which may be
available to it under the circumstances, the optionee shall promptly notify the
Company of the dates of acquisition and disposition of such shares, the number
of shares so disposed of, and the consideration, if any, received for such
shares.
In order to comply with all applicable federal or state income tax laws
or regulations, the Company may take such action as it deems appropriate to
insure (i) notice to the Company of any disposition of the common stock of the
Company within the time periods described above and (ii) that, if necessary, all
applicable federal or state payroll, withholding, income or other taxes are
withheld or collected from the optionee.
9. Reliance on Information.
Each member of the Committee and the Board of Directors and each
officer and employee of the Company shall be fully justified in relying or
acting upon any information furnished in connection with the administration of
the Plan, by any other person or persons. In no event shall any person who is or
shall have been a member of the Committee or of the Board of Directors or an
officer or employee of the Company, be liable for any determination made or
other action taken or omission to act in reliance upon any such information or
for any action (including the furnishing of information) taken or any failure to
act, if in good faith.
10. Application of Funds.
The proceeds received by the Company from the sale of its Common Stock
pursuant to options will be used for general corporate purposes.
11. No Obligation to Exercise Option.
The granting of an option hereunder shall impose no obligation upon the
optionee to exercise such option, nor shall it be deemed to or construed to
impose any obligation on the Company or any related company to retain the
optionee in its employ for any period of time.
12. Compliance with Section 16b-3.
The Plan is intended to comply with all applicable conditions of
Section 16b-3 or its successors, all transactions involving persons subject to
Section 16(b) of the Exchange Act ("Insider-Participants") are subject to such
conditions regardless of whether the conditions are expressly set forth in the
Plan and any provision of the Plan that is contrary to a condition of Section
16b-3 shall not apply to Insider-Participants.
- ------------------------
Original Plan - Approved by the Board on March 4, 1990
- Approved by the Company's Stockholders on May 24, 1990
Plan Amendment(to increase shares available by 350,000 to 700,000)
- Approved by the Board on March 1, 1993
- Approved by the Company's Stockholders on May 20, 1993
Plan Amendment(to change administration of Plan to Compensation Committee of the
Committee of the Board of Directors)
- Approved by the Board on August 27, 1995
<PAGE>
EXHIBIT 10.2
NATIONAL COMPUTER SYSTEMS, INC.
1990 LONG-TERM INCENTIVE PLAN
1. Objectives of Plan.
This 1990 Long-Term Incentive Plan (the "Plan") has been adopted by the
Board of Directors of National Computer Systems, Inc., a Minnesota corporation
(the "Company"), to promote the interests of the Company by enhancing its
ability to attract, retain and motivate its key executive employees, and
increase their identification with the interests of the Company's stockholders,
through the granting of conditional cash bonuses and restricted stock awards as
incentives based on financial performance of the Company.
2. Administration of Plan.
(A) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"); provided,
however, that the Board shall have the power to override actions by the
Committee. All actions of the Board with respect to the Plan shall be approved
by the affirmative vote of directors constituting a majority of the members of
the Board and all of whom are "disinterested persons" with respect to the Plan
within the meaning of Rule 16b-3(d)(3) under the Securities Act of 1934 as
presently in effect.
(B) Subject to the other provisions of the Plan, the Committee shall
have authority, in its discretion:
(1) To construe and interpret the terms and provisions of the
Plan and all conditional cash bonuses and restricted stock awards
granted hereunder, and to determine the terms and provisions (and
amendments thereof) of such awards (which need not be identical).
(2) To determine the individuals to whom, and the time or times
at which, conditional cash bonuses and restricted stock awards shall
be granted, the amount of cash and the number of shares to be the
subject of each award, and the conditions and restrictions under which
each award is granted.
(3) To adopt, amend and rescind rules and regulations relating to
administration of the Plan and make all determinations necessary or
advisable for the administration of the Plan, which shall be binding
and conclusive on all participants in the Plan and on their legal
representatives and beneficiaries.
3. Participants.
Awards may be granted under the Plan to such key full-time executives
and members of the corporate staff of the Company as shall be determined from
time to time by the Committee. In determining the persons to whom conditional
cash bonuses and restricted stock awards shall be granted and the amount of such
cash bonuses and the number of shares to be the subject of such awards, the
Committee may take into account the nature of services rendered by the proposed
grantees, their past, present and potential contributions to the success of the
Company, and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted a conditional cash bonus or a restricted
stock award under this Plan may be granted additional awards under the Plan if
the Committee shall so determine.
4. Number of Shares Available for Options.
Under this Plan, restricted stock awards may be granted for shares of
the Company's common stock, $.03 par value (the "Common Stock"). The Common
Stock subject to such awards shall be either authorized but unissued shares or
shares reacquired by the Company. Subject to the provisions of Section 5 hereof,
the number of shares of Common Stock that may be made the subject of restricted
stock awards hereunder shall not exceed the aggregate of 250,000 shares. In the
event that any outstanding restricted stock award under the Plan for any reason
expires or is terminated unexercised, the Common Stock allocable to the
unexercised portion of such award may again be subject to an award granted under
the Plan.
5. Adjustments.
If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the capitalization or corporate structure of the Company, the
Committee shall make appropriate adjustments in the Plan and any restricted
stock awards outstanding under the Plan. Such adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan and
such changes in the number of shares subject to awards hereunder as are
necessary in order to prevent dilution or enlargement of the rights of the
grantees of such awards.
6. Term of Plan.
No conditional cash bonuses or restricted stock awards shall be granted
pursuant to this Plan later than January 31, 2000, but the vesting of
conditional cash bonuses and the terms of restricted stock awards theretofore
granted may extend beyond such date in accordance with their terms.
7. Terms and Conditions of Awards.
Conditional cash bonuses and restricted stock awards granted hereunder
shall be evidenced by a written notice from the Company to the participant
evidencing the granting of a conditional cash bonus, or restricted stock award
hereunder, or shall be evidenced by an agreement in such form as the Committee
shall from time to time require. Said notice or agreement shall refer to this
Plan, and make acceptance thereof by a participant subject to the provisions
hereof. Such awards shall comply with and be subject to the following terms and
conditions:
(A) Each conditional cash bonus and restricted stock award granted
under the Plan (1) shall be for an amount of cash or a number of shares of
Common Stock determined by the Committee, and (2) shall require the grantee to
remain in the continuous employment of the Company for a restricted period
determined by the Committee in order for the conditions and restrictions
relating to such award set forth in subsection (B) below to lapse. The
conditional or restricted period need not be the same for all awards, and the
conditions or restrictions shall lapse with respect to such awards as determined
by the Committee. The Committee, in its discretion, shall also establish
performance or other conditions that must be satisfied in order for the
restrictions set forth in subsection (B) to lapse. In addition, the Committee,
in its discretion, may waive all or part of the restrictions applicable to any
or all outstanding awards, whether or not a restricted period has expired or
other specified conditions have been met.
(B) At the time of a restricted stock award, a certificate representing
the number of shares of Common Shares awarded thereunder shall be registered in
the name of the grantee. Such certificate shall be held by the Company or any
custodian appointed by the Company for the account of the grantee subject to the
terms and conditions of the Plan, and shall bear such a legend setting forth the
restrictions imposed thereon as the Committee, in its discretion, may determine.
The grantee shall have all rights of a shareholder with respect to such Common
Stock, including the right to receive dividends and the right to vote such
shares, subject to the following restrictions: (1) the grantee shall not be
entitled to delivery of the stock certificate until the expiration of the
restricted period and the fulfillment of any other restrictive conditions set
forth in the restricted stock award agreement with respect to such Common Stock,
(2) none of such Common Stock may be sold, assigned, transferred, pledged,
hypothecated or otherwise encumbered or disposed of during such restricted
period or until after the fulfillment of any such other restrictive conditions,
and (3) except as otherwise determined by the Committee, all of the shares of
such Common Stock shall be forfeited and all rights of the grantee to such
Common Stock shall terminate, without further obligation on the part of the
Company, unless the grantee remains in the continuous employment of the Company
for the entire restricted period in relation to which such shares were granted
and unless any other restrictive conditions relating to the restricted stock
award are met. Any other property (except for cash dividends) distributed with
respect to the Common Stock subject to restricted stock awards hereunder shall
be subject to the same restrictions, terms and conditions as such restricted
Common Stock.
(C) At the end of the restricted period and provided that any other
restrictive conditions of a restricted stock award are met, or at such earlier
time as otherwise determined by the Committee, all restrictions set forth in the
agreement relating to the restricted stock award or in the Plan shall lapse as
to the restricted Common Stock subject thereto, and subject to the provisions of
Section 9 hereof, a stock certificate for the appropriate number of Common
Shares, free of the restrictions and the restricted stock legend, shall be
delivered to the grantee (or, if determined by the Committee, his beneficiary or
estate).
8. Discontinuance and Amendment of the Plan.
The Committee may, from time to time, alter, amend, suspend or
discontinue the Plan with respect to any shares of Common Stock as to which
restricted stock awards have not been granted, and, with the consent of the
participant who is a party thereto, any option agreement may be modified or
amended; provided, however, that unless approved by the stockholders of the
Company, no amendment to the Plan shall (a) increase the number of shares
subject to the Plan, or (b) extend the term during which awards may be granted
hereunder beyond January 31, 2000.
9. Compliance with Laws Relating to Sale of Securities.
Notwithstanding any other provisions contained herein, the Company
shall have the right, in its exclusive discretion, to withhold the issuance of
any certificates for shares of Common Stock in respect of which any award has
been granted hereunder until, in the opinion of counsel for the Company, any
applicable registration requirements of the Securities Act of 1933, as amended,
any applicable listing requirements of any national securities exchange on which
the Common Stock may then be listed, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery, shall
have been duly complied with. Pending the receipt of such opinion of counsel for
the Company, the Company may issue certificates for such Common Stock provided
they contain a legend indicating that said Common Stock represented thereby is
not registered and may not be sold except in compliance with applicable law or
the release of said restrictions by the Company, and, in such event, the Company
shall have the right to instruct the transfer agent and registrar of its Common
Stock to effect "stop-transfer" procedures with respect to such shares. Until
the shares of Common Stock that are the subject of restricted stock awards
granted hereunder are registered and listed, if applicable and if required by
law, the Committee may condition the delivery of any certificate for such shares
upon the receipt of a written representation from the grantee that at the time
of exercising such option the grantee intends to acquire the shares being
purchased for investment and not for resale or further distribution.
10. Reliance on Information.
Each member of the Committee and the Board and each officer and
employee of the Company shall be fully justified in relying or acting upon any
information furnished in connection with the administration of the Plan by any
other person or persons. In no event shall any person who is or shall have been
a member of the Committee or the Board or an officer or employee of the Company,
be liable for any determination made or other action taken or omission to act in
reliance upon any such information or for any action (including the furnishing
of information) taken or any failure to act, if in good faith.
11. No Employment Rights.
Nothing in the Plan or in any agreement thereunder shall confer on any
employee any right to continue in the employ of the Company or any of its
subsidiaries or affect, in any way, the right of the Company or any of its
subsidiaries to terminate his employment at any time.
12. Income Tax Withholding; Tax Offset Bonuses
In order to comply with all applicable federal, state and local income
tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal, state and local withholding
taxes due as a result of the receipt or acquisition by a grantee of a cash
payment or of Common Stock pursuant to the Plan, which taxes are the sole and
absolute responsibility of such grantee, are withheld or collected from such
grantee. In order to assist a grantee in paying all federal, state and local
taxes to be withheld or collected upon the payment of a cash bonus or the grant
of a restricted stock award or the lapse of restrictions relating to such an
award hereunder, the Committee, in its sole discretion and subject to such rules
as it may adopt, may permit the optionee or grantee to satisfy such tax
obligation, in whole or in part, by (1) electing to have the Company withhold
shares of Common Stock otherwise to be delivered to such grantee with a fair
market value equal to the amount of such tax obligation, or (2) electing to
surrender to the Company previously owned Common Stock with a fair market value
equal to the amount of such tax obligation.
- ---------------------
Original Plan - Approved by the Board on March 4, 1990
- Approved by the Company's Stockholders on May 24, 1990
<PAGE>
EXHIBIT 10.3
NATIONAL COMPUTER SYSTEMS, INC.
1995 EMPLOYEE STOCK OPTION PLAN
(As Amended in 1995)
1. Objectives of Plan.
This 1995 Employee Stock Option Plan (the "Plan") has been adopted by the
Board of Directors of National Computer Systems, Inc., a Minnesota
corporation (herein called the "Company"), to secure the advantages of
stock ownership on the part of its present and future key employees,
including salaried officers and directors, and including salaried
officers and directors of any one or more subsidiary corporations wholly
owned by it (herein called "related companies"), to provide incentives
for such individuals to remain with the Company or related companies and
to devote their energies to strengthen and maintain the continued success
of the Company through stock ownership. Options granted under this Plan
may be either incentive stock options ("Incentive Stock Options") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or options which do not qualify as Incentive Stock
Options.
2. Administration of Plan.
(A) The Plan shall be administered by the Compensation Committee ,(the
"Committee") of the Board of Directors of the Company (the
"Board"). The Committee shall be composed of not less than such
number of directors as shall be required to permit the Plan to
qualify under Section 16b-3 ("Section 16b-3") under the Securities
Exchange Act of 1934, as amended (The "Exchange Act"). Each member
of the Committee shall be a "disinterested person" with respect to
the Plan within the meaning of Section 16b-3 and shall be an
"outside director" within the meaning of Section 162(m) of the
Code.
(B) Subject to the provisions of the Plan, the Committee shall have
authority, in its discretion:
(1) To construe and interpret the Plan and all options granted
hereunder, and to determine the terms and provisions (and
amendments thereof) of the options granted under the Plan
(which need not be identical).
(2) To determine individuals to whom and the time or times at
which options shall be granted, the number of shares to be
subject to each option, the option price, and the duration
of leaves of absence which may be granted to participants
without constituting a termination of their employment for
the purposes of the Plan.
(3) To adopt, amend and rescind rules and regulations relating
to administration of the Plan and make all determinations
necessary or advisable for the administration of the Plan,
which shall be binding and conclusive on all participants in
the Plan and on their legal representatives and
beneficiaries.
(4) To accelerate the time at which all or any part of an option
may be exercised.
(5) To determine which options (that are not Incentive Stock
Options), whether granted before or after the date of
adoption of this Plan or any amendments to this Plan, shall
be deemed to be stock options governed by and subject to the
terms and conditions of this Plan.
3. Participants.
Options may be granted under the Plan to such key full or part time
executive, administrative, supervisory, technical, or professional
employees (including salaried officers and directors) of the Company, or
of subsidiaries of the Company, including subsidiaries which become such
after adoption of the Plan, in such amounts as shall be determined from
time to time by the Committee.
In determining the persons to whom options shall be granted and the
number of shares subject to each option, the Committee may take into
account the nature of services rendered by the proposed grantees, their
past, present and potential contributions to the success of the Company,
and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option under this Plan may be
granted an additional option or options under the Plan if the Committee
shall so determine; provided, however, that to the extent that the
aggregate fair market value, determined at the time an Incentive Stock
Option is granted, of the stock with respect to which all Incentive Stock
Options owned by a Participant are exercisable for the first time by such
optionee during any calendar year under all plans of the employer
corporation and its parent and subsidiary corporations exceeds $100,000,
such options shall be treated as options that do not qualify as Incentive
Stock Options. No person may be granted options under the Plan for more
than 100,000 shares in the aggregate in any calendar year.
4. Number of Shares Available for Options.
Under this Plan, options may be granted for shares of the Company's
Common Stock, $.03 per value. The Common Stock subject to options shall
be either authorized but unissued shares or shares reacquired by the
Company. Subject to the provisions of paragraph 5 hereof, the number of
shares of Common Stock that may be made the subject of options shall not
exceed the aggregate of 350,000 shares. In the event that any outstanding
option under the Plan for any reason expires or is terminated
unexercised, the common shares allocable to the unexercised portion of
such option may again be subject to an option under the Plan.
5. Adjustments.
If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, stock dividend, stock
split or other change in the capitalization or corporate structure of the
Company, the Committee shall make appropriate adjustments in the Plan and
any options outstanding under the Plan. Such adjustments shall include,
where appropriate, changes in the aggregate number of shares subject to
the Plan and such changes in the number of shares and the price per share
subject to outstanding options as are necessary in order to prevent
dilution or enlargement of option rights.
6. Term of Plan.
No option shall be granted pursuant to this Plan later than January 31,
2005, but options theretofore granted may extend beyond that date in
accordance with their terms.
7. Terms and Conditions of Options.
Options granted hereunder shall be evidenced by a written notice from the
Company to the participant evidencing the granting of an option
hereunder, or shall be evidenced by an agreement in such form as the
Committee shall from time to time require. Said notice or agreement shall
refer to this Plan, and make acceptance thereof by a participant subject
to the provisions hereof. Such option shall comply with and be subject to
the following terms and conditions:
(A) Number of Shares. Each option shall state the number of shares to
which it pertains.
(B) Option Price. Each option shall state the option price, which
shall not be less than 100% of the fair market value of the shares
of the Common Stock of the Company on the date of the granting of
the option. During such time as the Common Stock is not listed
upon an established stock exchange, the fair market value per
share shall be the "last trade price" as reported by the National
Association of Security Dealers, Inc. If the Common Stock is
listed upon an established stock exchange or exchanges, such fair
market value shall be deemed to be the highest closing price of
the Common Stock on such stock exchange or exchanges on the date
the option is granted, or, if no sale of the Company's Common
Stock shall have been made on any stock exchange on that day, on
the next preceding day on which there was a sale of such stock.
Subject to the foregoing, the Committee in fixing the option price
shall have full authority and discretion and be fully protected in
doing so.
(C) Option Period and Exercise of Option.
(1) No option period shall exceed ten years, and except as
otherwise provided on subdivisions (D) and (E) hereof, no
option period shall be for less than one year.
(2) Any option granted under the Plan may be exercised by
notifying the Company in writing of such exercise prior to
the termination of such option. The option price for the
number of shares of Common Stock for which the option is
exercised shall become immediately due and payable;
provided, however, that in lieu of cash an optionee may,
with the approval of the Committee, exercise an option by
tendering to the Company shares of the Common Stock of the
Company owned by the optionee and with the certificates
therefor registered in the optionee's name, having a fair
market value equal to the cash exercise price of the shares
being purchased.
(3) During the lifetime of the optionee, the option shall be
exercisable only by the optionee and shall not be assignable
or transferable, and no other person shall acquire any
rights therein. Except as provided in Subdivisions (D) and
(E) hereof, no option may be exercised at any time unless
the holder thereof is then an employee of the Company or a
subsidiary of the Company.
(D) Termination of Employment Except Death. In the event an optionee
shall cease to be employed by the Company or a related company for
any reason other than death, then, and in that event, but subject
to the condition that no option shall be exercisable after its
expiration date, such optionee shall have the right to exercise
the option at any time within three months after such termination
of employment, to the extent the optionee's right to exercise same
had accrued pursuant to Article 7(C) of the Plan and had not
previously been exercised at the date of such termination. Whether
authorized leaves of absence or absence because of military or
governmental service shall constitute termination of employment,
for the purpose of the Plan, shall be determined by the Committee,
which determination shall be final and conclusive.
(E) Death of Optionee and Transfer of Option. If any optionee shall
die while in the employ of the Company or a related company, or
within a period of three months after the termination of
employment with the Company or related companies and shall not
have fully exercised the option, said option may be exercised
(subject to the condition that no option shall be exercisable
after its expiration date), to the extent that the optionee's
right to exercise such option had accrued pursuant to Article 7(C)
of the Plan at the time of death and had not previously been
exercised, at any time within one year after the optionee's death,
by the executors or administrators of the optionee or by any
person or persons who shall have acquired the option directly from
the optionee by bequest or inheritance. No option shall be
transferable by the optionee otherwise than by will or by the laws
of descent and distribution.
(F) 10 - Percent Shareholder Rule. Notwithstanding any other provision
in the Plan, if at the time an Option is otherwise to be granted
pursuant to the Plan, the optionee owns directly or indirectly
(within the meaning of Section 424 (d) of the Code) Common Stock
of the Company possessing more than 10% of the total combined
voting power of all classes of stock of the Company or its parent
or subsidiary corporations, if any (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be
granted to such optionee pursuant to the Plan shall satisfy the
requirements of Section 422(c)(5) of the Code, and the option
price shall be not less than 110% of the fair market value of the
Common Stock of the Company on the date of grant, determined as
described herein, and such option by its terms shall not be
exercisable after the fifth anniversary of the date of grant.
(G) Rights as a Shareholder. An optionee or a transferee of an option
shall have no rights as a shareholder with respect to any shares
covered by an option until the date of the issuance of a stock
certificate for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary whether in cash, securities
or other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is issued,
except as provided in Article 5 hereof.
(H) Discontinuance and Amendment of the Plan. The Board of Directors
may, from time to time, alter, amend, suspend, or discontinue the
Plan with respect to any shares as to which options have not been
granted, and, with the consent of the participant who is a party
thereto, any option agreement may be modified or amended.
Unless approved by the stockholders of the Company, no amendment
to the Plan shall (a) increase the number of shares subject to the
Plan subject to the provisions of paragraph 5 hereof, (b) extend
the term of the Plan, (c) extend the term for which options may be
granted beyond ten years, (d) reduce the option price at which
options may be granted to less than 100% of fair market value at
the date of grant, or (e) in any other fashion cause the options
granted hereunder which are intended to be Incentive Stock
Options, and which are designated as such by the form of agreement
evidencing the granting of such option, to fail to qualify as an
Incentive Stock Option within the meaning of Section 422 of the
Code.
(I) Compliance with Laws Relating to Sale of Securities.
Notwithstanding any other provisions contained herein, the Company
shall have the right, in its exclusive discretion, to withhold the
issuance of any certificates for shares of stock in respect of
which any option has been exercised until, in the opinion of
counsel for the Company, any applicable registration requirements
of the Securities Act of 1933, as amended, any applicable listing
requirements of any national securities exchange on which the
stock may then be listed, and any other requirements of law or of
any regulatory bodies having jurisdiction over such issuance and
delivery, shall have been duly complied with. Pending the receipt
of such opinion of counsel for the Company, the Company may issue
certificates for such stock provided they contain a legend
indicating that said stock represented thereby is not registered
and may not be sold except in compliance with applicable law or
the release of said restrictions by the Company, and, in such
event, the Company shall have the right to instruct the transfer
agent and registrar of its common shares to effect "stop-transfer"
procedures with respect to such shares.
Until the shares reserved for options are registered and/or
listed, if required by law, the Committee may condition the
delivery of any certificate for option shares upon the receipt of
a written representation from the participant that at the time of
exercising such option the participant intends to acquire the
shares being purchased for investment and not for resale or
further distribution.
(J) Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions as the Committee shall deem
advisable.
8. Notification of Disposition.
If an optionee shall dispose of any of the shares of Common Stock of the
Company acquired pursuant to the exercise of an Incentive Stock Option
issued pursuant to the Plan within two years from the date said option
was granted or within one year after the transfer of any such shares to
the optionee upon exercise of said option, then, in order to provide the
Company with the opportunity to claim the benefit of any income tax
deduction which may be available to it under the circumstances, the
optionee shall promptly notify the Company of the dates of acquisition
and disposition of such shares, the number of shares so disposed of, and
the consideration, if any, received for such shares.
In order to comply with all applicable federal or state income tax laws
or regulations, the Company may take such action as it deems appropriate
to insure (i) notice to the Company of any disposition of the common
stock of the Company within the time periods described above and (ii)
that, if necessary, all applicable federal or state payroll, withholding,
income or other taxes are withheld or collected from the optionee.
9. Reliance on Information.
Each member of the Committee and the Board of Directors and each officer
and employee of the Company shall be fully justified in relying or acting
upon any information furnished in connection with the administration of
the Plan by any other person or persons. In no event shall any person who
is or shall have been a member of the Committee or of the Board of
Directors or an officer or employee of the Company, be liable for any
determination made or other action taken or omission to act in reliance
upon any such information or for any action (including the furnishing of
information) taken or any failure to act, if in good faith.
10. Application of Funds.
The proceeds received by the Company from the sale of its Common Stock
pursuant to options will be used for general corporate purposes.
11. No Obligation to Exercise Option.
The granting of an option hereunder shall impose no obligation upon the
optionee to exercise such option, nor shall it be deemed to or construed
to impose any obligation on the Company or any related company to retain
the optionee in its employ for any period of time.
12. Compliance with Section 16b-3.
The Plan is intended to comply with all applicable conditions of Section
16b-3 or its successors, all transactions involving persons subject to
Section 16(b) of the Exchange Act ("Insider-Participants") are subject to
such conditions regardless of whether the conditions are expressly set
forth in the Plan and any provision of the Plan that is contrary to the
condition of Section 16b-3 shall not apply to InsiderParticipants.
- ---------------------------
Original Plan - Approved by the Board on March 6, 1995.
- Approved by the Company's Stockholders on May 25, 1995.
Plan Amendment - Approved by the Board on August 27, 1995.
