<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED December 31, 1999 COMMISSION FILE NUMBER 0-14229
---------------------- ---------------
CROWN ANDERSEN INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-1653577
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
306 Dividend Drive, Peachtree City, Georgia 30269
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 486-2000
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing such
requirements for the past 90 days. Yes X No___
-
===============================================================================
Class Outstanding at December 31, 1999
----------------------------- --------------------------------
Common Stock, $0.10 Par Value 1,833,822 shares
Page 1 of 12
<PAGE>
CROWN ANDERSEN INC.
------------------
INDEX
-----
PAGE NO.
--------
Part I. FINANCIAL INFORMATION:
Consolidated Balance Sheets--
December 31, 1999 and September 30, 1999 3
Consolidated Statements of Income--
Three Months Ended December 31, 1999 and 1998 4
Consolidated Statements of Cash Flows--
Three Months Ended December 31, 1999 and 1998 5
Notes to Consolidated Financial Information 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
2
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 1,450,840 $ 1,653,516
Receivables:
Trade, less allowance of $190,748 and $174,543 possible losses 4,961.811 4,924,700
Other 53,642 41,928
Income taxes 18,146 -
Costs and estimated earnings in excess of billings on uncompleted contracts 4,268,322 2,635,324
Inventories 2,867,508 2,364,616
Prepaid expenses 123,593 154,708
Deferred income taxes 152,868 152,868
----------- -----------
TOTAL CURRENT ASSETS 13,896,730 11,927,660
RESTRICTED CASH 1,036,000 1,036,000
EQUIPMENT HELD FOR RESALE 490,000 490,000
PROPERTY AND EQUIPMENT, less accumulated depreciation 2,834,265 2,806,522
DEFERRED INCOME TAXES 1,027,251 1,027,251
PROPERTY HELD FOR SALE 1,500,000 1,500,000
GOODWILL, net of accumulated amortization of $63,822 820,101 834,833
OTHER ASSETS 123,781 124,253
----------- -----------
$21,728,128 $19,746,519
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 450,000 $ 393,171
Accounts payable 5,195,162 3,801,352
Accruals:
Income taxes 31,218 4,714
Compensation 423,417 357,015
Warranty 157,000 228,000
Miscellaneous 394,401 417,507
Billings on uncompleted contracts in excess of cost and estimated earnings 641,654 -
Current maturities of long-term debt 749,188 783,265
Deferred income taxes 370,733 378,322
----------- -----------
TOTAL CURRENT LIABILITIES 8,412,773 6,363,346
----------- -----------
LONG-TERM DEBT, less current maturities - 18,744
DEFERRED INCOME TAXES 251,932 251,932
----------- -----------
TOTAL LIABILITIES 8,664,705 6,634,022
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.10 par; shares authorized 20,000,000; issued
1,875,918; outstanding 1,833,822 and 1,832,939 187,592 187,364
Additional paid-in capital 3,836,572 3,826,301
Treasury stock; 42,096 and 40,696 shares, at cost (280,735) (270,235)
Retained earnings 9,375,986 9,327,567
Foreign currency translation adjustment (55,992) 41,500
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,063,423 13,112,497
----------- -----------
$21,728,128 $19,746,519
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
-----------------------------------
1999 1998
------------- -----------
<S> <C> <C>
REVENUES:
Contracts $ 4,992,897 $ 3,568,113
Sales 409,288 535,679
Other - 27,138
------------- -----------
5,402,185 4,130,930
------------- -----------
COSTS AND EXPENSES:
Cost of contracts and sales 4,268,311 3,373,594
Selling, general and administrative 1,076,080 720,808
Interest and other (17,025) 3,562
------------- -----------
5,327,366 4,097,964
------------- -----------
Income from operations before taxes on income 74,819 32,966
TAXES ON INCOME 26,400 12,500
------------- -----------
NET INCOME $ 48,419 $ 20,466
============= ===========
AVERAGE NUMBER OF SHARES - BASIC 1,833,233 1,590,571
AVERAGE NUMBER OF SHARES - DILUTED 1,961,420 1,590,571
EARNINGS PER SHARE
BASIC $ 0.03 $ 0.01
DILUTED $ 0.02 $ 0.01
</TABLE>
COMPREHENSIVE STATEMENTS OF COMPREHENSIVE INCOME:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net income $ 48,419 $ 20,466
Other Comprehensive Income Foreign Currency Translation Adjustment (97,492) 896
--------- ----------
COMPREHENSIVE INCOME (LOSS) $ (49,073) $ 21,362
========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
4
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from operations $ 48,419 $ 20,466
Items in income from operations not affecting cash:
Depreciation and amortization 82,131 63,394
Gain on sale of assets (16,000) -
Cash provided by (used for)
Trade and other receivables (120,410) (958,411)
Refundable income taxes - 53,590
Costs and estimated earnings in excess of billings on
uncompleted contracts (1,632,998) 428,462
Inventories (538,725) 457,433
Prepaid expenses 28,587 (6,563)
Accounts payable 1,456,697 (24,773)
Accrued expenses (3,989) 77,973
Billings on uncompleted contracts in excess of costs and
estimated earnings 641,654 (6,113)
Other (25,756) 60,038
------------ -------------
Cash provided by (used for) operating activities (80,390) 165,496
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 16,000 -
Investment in Griffin Environmental Company Inc. - (2,292,820)
Capital expenditures (135,977) (5,648)
------------ -------------
Cash used for investing activities (119,977) (2,298,468)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction in long-term debt (52,821) (33,747)
Increase in notes payable 56,829 1,044,829
Sale of common stock - 900,000
------------ -------------
Cash provided by financing activities 4,008 1,911,082
------------ -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (6,317) 432
------------ -------------
CASH AND CASH EQUIVALENTS:
Net decrease during the year (202,676) (221,458)
Balance at beginning of year 1,653,516 1,171,097
------------ -------------
BALANCE AT END OF PERIOD $ 1,450,850 $ 949,639
============ =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
1. Condensed footnotes:
-------------------
As contemplated by the Securities and Exchange Commission instructions
to Form 10-Q, the following footnotes have been condensed and therefore do not
contain all disclosures required in connection with annual financial statements.
Reference should be made to the notes to Crown Andersen Inc.'s annual financial
statements set forth in its Form 10-K for the year ended September 30, 1999.
2. Earnings per share:
------------------
Earnings per share is computed based on the weighted average of common
shares, common stock options and warrants (using the treasury stock method) in
accordance with FAS 128 "Earnings Per Share."
3. Stock options and warrants:
--------------------------
As of December 31, 1999, options to purchase 275,900 shares at an
average price of $4.42 were outstanding under the Company's stock option plan.
The Company also has outstanding warrants to purchase 300,000 shares of
common stock under the Directors Stock Warrant Plan at $4.45 per share. Of the
total 300,000 warrants outstanding, only 36,000 are vested.
4. Revenue recognition:
-------------------
Revenues from contracts are reported on the percentage-of-completion
method. Under this method, the percentage of contract revenue to be recognized
currently is based on the ratio of costs incurred to date to total estimated
contract costs, after giving effect to the most recent estimate of costs to
complete. Revenues other than contracts are recorded when the product is shipped
or the service is rendered to the customers.
5. Inventories:
-----------
Inventories were $2,867,508 and $2,364,616 as of December 31, 1999 and
September 30, 1999. Included in inventories is approximately $870,000 related to
incineration equipment purchased from a former competitor.
6. Restricted cash:
---------------
As of December 31, 1999, $1,036,000 of the Company's short-term
investments were held by banks as collateral for an outstanding letter of
credit. The letter of credit expires in June 2000.
7. Equipment held for resale:
-------------------------
On September 30, 1992, the Company sold a soil processor unit under a
financing-type lease arrangement. As a result of the customer's default, the
Company, during 1994, terminated the lease and repossessed the equipment. On
September 30, 1994, the Company reclassified this asset as equipment held for
resale and reduced its carrying value from approximately $2.1 million to $1.8
million. The Company
6
<PAGE>
employs an outside appraiser and reviews the carrying value
of this unit on a periodic basis. Through December 31, 1999, the carrying value
of this unit has been reduced to $490,000.
8. Commitments and contingencies:
-----------------------------
There are no significant changes to the information discussed in the
Company's annual report on Form 10K for the year ended September 30, 1999.
9. Litigation settlement:
----------------------
During fiscal 1998, the Company settled the litigation over principal
and interest for certain Kansas property formerly occupied by Struthers
Thermo-Flood Corporation, a former Crown Andersen subsidiary. Under terms of the
settlement, the Company paid $1,630,000 in cash and issued a one year,
non-interest bearing promissory note and the amount of $670,000. The note was
paid in May 1999. In exchange, the Company received the rights (without further
obligation) to transfer title of this property to a purchaser or to the Company.
The estimated value of these assets is presently $1,500,000. This transaction
was recorded as of June 30, 1998 and the Company recognized a net loss of
approximately $900,000. The Company's December 31, 1999 balance sheet includes
these assets as "property held for sale."
10. Acquisition of business:
------------------------
On December 16, 1998 the Company purchased all the outstanding shares
of stock of Griffin Environmental Company Inc. ("Griffin"). Griffin is a
manufacturer of fabric filter and cartridge dust collector pollution control
equipment. Griffin sells its pollution control equipment to a wide variety of
industries, including concrete, steel, other metals, clays, paper, glass, and
other industries.
The Company purchased Griffin for $2.6 million. This was comprised of
cash of $2.3 million and a one-year promissory note of $273,000 secured by a
second mortgage on the real estate. The note bears interest at 4.33% payable
monthly. The note was paid on December 16, 1999.
The acquisition included the purchase of assets comprised primarily of
inventories, accounts receivable, and property, plant, and equipment.
Liabilities assumed in the acquisition consist primarily of trade accounts
payable, customer deposits, long term debt , and other accrued liabilities. The
transaction was accounted for under the purchase method of accounting whereby
all assets and liabilities were valued at their current fair market value at
December 16, 1998.
* * *
The financial information included in this report has not been
certified and should not be relied upon to the same extent as certified
financial statements. The financial information included in this report reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim period. Nevertheless, the results
shown are for interim periods and are not necessarily indicative of results to
be expected for the year.
7
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Introduction:
- ------------
Crown Andersen Inc. (Crown Andersen or the Company) is a publicly-
traded holding company for Andersen 2000 Inc. (Andersen) and Griffin
Environmental Company, Inc. (Griffin). Through Andersen, the Company owns all of
the outstanding stock of Montair Andersen bv (Montair). The Company is engaged
exclusively in the pollution control, product recovery, and waste processing
equipment businesses.
Liquidity and Capital Resources:
- -------------------------------
Cash and cash equivalents of $1,450,840 at December 31, 1999 decreased
$202,676 from the September 30, 1999 balance of $1,653,516. The decrease was
attributable to an increase in inventories at Montair and capital expenditures
of $135,977. Costs and estimated earnings in excess of billings on uncompleted
contracts increased $1,632.998. This increase was offset by increases in
accounts payable of $1,456,697 and billings on uncompleted contracts in excess
of costs and estimated earnings of $641,654. Cash used for operating activities
amounted to $80,390.
Cash used for investing activities totaled $119,977. This amount
includes capital expenditures of $135,977 (mostly at Griffin) and proceeds from
sale of fixed assets of $16,000.
Cash provided by financing activities totaled $4,008. This amount
reflects an increase in notes payable of $56,829, offset by reductions in
long-term debt of $52,821.
All operations were profitable in the first quarter of fiscal 2000.
Montair realized a positive cash flow from operations which partially offset
negative operating cash flows at Andersen and Griffin. Operating cash flows at
all operations were the result of changes in receivables and inventories.
As disclosed in Note 7 to the Consolidated Financial Statements, during
1994 the Company repossessed certain equipment sold under a lease arrangement.
The Company has reduced the carrying value of this asset to $490,000 as of
September 30, 1998 and it is reflected as equipment held for resale in the
accompanying consolidated balance sheet. The Company is attempting to market
this equipment for sale and has active negotiations underway for its sale.
As discussed in Note 13 to Consolidated Financial Statements in the
Company's 1999 Annual Report, on June 17, 1999, the Company filed a claim for
arbitration in Singapore seeking to settle a contractual dispute with a customer
in connection with the sale of equipment in Indonesia. The equipment has been
delivered, installed and, in management's opinion, has operated in accord with
the contract. The customer his claiming the equipment has not met certain
performance specifications, but has provided no evidence to support this
position. The Company's claim is for $2.3 million. As of December 31, 1999, the
Company has recorded $1.9 million in accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts associated with this
customer. Management believes that it will prevail and recover the amount
claimed in this dispute. Accordingly, no specific reserve has been established
for this matter. The inability of management to satisfactorily resolve this
matter with the customer and collect the outstanding receivable could have a
material unfavorable effect on the Company's financial position and liquidity.
8
<PAGE>
The Company had a $5.0 million line of credit and a term loan with a
U.S. bank. During 1999, the Company's bank notified the Company that the bank
was not going to renew the line of credit beyond September 30, 1999 and was
reducing the available borrowing limit to $2.0 million. As of December 31, 1999,
there were no amounts outstanding under the line of credit. However, there was
$650,000 outstanding on the term loan and $517,000 on letters of credit issued
by this bank and guaranteed by the line of credit. Letters of credit amounting
to $321,000 will expire in February 2000 and $196,000 will expire in June 2000.
Since September 30, 1999, the Company has continued to make scheduled debt
payments to this bank. On January 14, 2000, the bank agreed to extend the term
loan to June 15, 2000 with no further advances allowed under the line of credit.
The Company has been actively seeking financing from other sources
since mid September 1999 to replace this line of credit. The discussions for
other financing include banks with similar collateral requirements and mortgage
loans on the Company's real estate holdings. The Company has reviewed the
current collateral available to it and has determined that there exists
sufficient collateral to refinance its loan obligation and obtain the necessary
cash to fund operations in fiscal 2000. The Company's cash flow projections for
fiscal 2000 indicate a need for about $900,000 of working capital in excess of
anticipated bank balances. This is projected to occur in February and March 2000
as the Company incurs costs associated with payments on the term loan, tax
deposits and investments in its contracts. The inability of the Company to be
able to obtain necessary financing within a timely fashion could have an
unfavorable impact on the Company's ability to maintain projected operating
levels and to meet certain obligations when they become due.
Under the current loan agreement, the Company is required to obtain the
bank's consent to pay cash dividends, purchase treasury stock, or to sell assets
which constitute collateral. The Company obtained permission to purchase up to
$400,000 of treasury stock. A total of $280,735 of net treasury stock purchases
is reflected in the Company's balance sheet as of December 31, 1999.
As of December 31, 1999, the Company's equity in its Montair operation
had decreased in value by $97,492 from September 30, 1999 as a result of a
decrease in the foreign currency translation adjustment, reflecting a 6%
increase in the U.S. dollar against the Dutch guilder.
The Company experienced no disruptions in its operations as a result of
the year 2000 issue.
Results of Operations:
- ---------------------
Revenues.
- --------
Revenues for the first quarter of fiscal 2000 were $5,402,185 compared
with $4,130,930 for the comparable period in 1999 and $2,287,364 for the last
quarter of fiscal 1999. Foreign sales (including export sales by Andersen and
sales by Montair) were $1.4 million for the first quarter of 2000 and 1999, and
accounted for 25.3% and 33.4% of revenues, respectively. All changes in revenues
are related to the quantity of products sold, not to pricing changes. The
$1,271,255 (30.8%) increase in revenues was entirely attributable to Griffin.
Griffin contributed one month of revenues in 1999.
The Company continues to rely on the international market for some of
its revenues. Demand for the Company's products in the domestic market has
remained low over the last five years because of uncertainty in changes in
United States regulations. However, the Company experienced an increase in
domestic business during fiscal 1999. Domestic revenues accounted for 66.7% of
total revenues in fiscal 1999 and 74.7% for the first quarter of fiscal 2000.
This trend is expected to continue in fiscal 2000 as a result of the additional
revenues generated by Griffin.
9
<PAGE>
First quarter 2000 revenues increased $3,114,821 from the preceding
quarter revenues. The revenue increase was primarily attributed to Andersen and
Griffin.
Cost of Sales.
- -------------
Cost of sales for the first quarter of fiscal 2000 increased $894,717
(26.5%) to $4,268,311 from 1999 costs of $3,373,594. The increase in cost of
sales was attributable to higher revenues (primarily at Griffin) and reflect a
gross margin improvement of 2.7%. Griffin contributed one month of costs in the
1999 fiscal quarter.
First quarter 2000 cost of sales increased $2,289,401 from the
preceding fiscal quarter, as a result of higher revenues.
Selling, General and Administrative Costs.
Selling, general and administrative costs for the first three months of
fiscal 2000 were $1,076,080 compared with $720,808 for the first fiscal quarter
of 1999 and $646,638 in the fourth quarter of fiscal 1999. The increase of
$355,272 (49.3%) from the comparable quarter in 1999 is primarily attributable
to Griffin's operations (Griffin contributed one month of costs in fiscal 1999
versus three months in fiscal 2000). In addition, the first 2000 quarter
reflects increases in professional fees, salaries and commissions at Andersen.
As a percentage of revenues, selling, general and administrative costs were
19.9%, 17.5% and 23.5% for the first fiscal quarters of 2000 and 1999 and the
fourth quarter of 1999. Expenses for the current 2000 quarter increased $39,482
from the preceding fiscal quarter. This increase reflects increases in
professional fees at Andersen.
Interest and Other (Income) Expenses.
- ------------------------------------
Interest and other (income) expenses for the first three months of
fiscal 2000 resulted in a credit of $17,025, compared to an expense of $3,562
for the first quarter of 1999 and a credit of $23,800 for the fourth quarter of
fiscal 1999. The decrease in costs of $20,587 in the current quarter from the
first quarter of 1999 reflects an increase in rental income and a gain realized
on disposal of assets. The lower credit of $6,775 from the preceding fiscal
quarter reflects higher interest cost recorded by Griffin.
Taxes on Income.
- ---------------
The effective tax rate for the first quarter of fiscal 2000 was 35.3%
compared to 37.9% for the first quarter of 1999 and 35.3% (benefit) for the
fourth quarter of 1999.
Net Income.
- ----------
Net income for the first quarter of fiscal 2000 was $48,419 or $0.03
per share (basic) and $0.02 per share (diluted), compared with $20,466 or $0.01
per share, and a loss of $455,844 or $0.25 per share for the fourth quarter of
1999.
The increase in earnings of $27,953 was the result of higher revenues
and an improvement in operating margins of 2.7%. All operations were profitable
during the quarter.
Net earnings increased $504,263 from the preceding fiscal quarter (from
a loss of $455,844 to net income of $48,419), primarily as a result of higher
revenues.
10
<PAGE>
Shares Outstanding.
- ------------------
The average shares and equivalent shares outstanding were:
<TABLE>
<CAPTION>
Basic Diluted
----- -------
<S> <C> <C>
First quarter - 2000 1,833,233 1,961,420
First quarter - 1999 1,590,571 1,590,571
Fourth quarter - 1999 1,832,939 1,832,939
</TABLE>
Forward-Looking Statements.
- --------------------------
Certain forward-looking statements are made in this Management's
Discussion and Analysis. The Company's results may differ materially from those
in the forward-looking statements. Forward-looking statements are based on
management's current views and assumptions, and involve risks and uncertainties
that significantly affect expected results. For example, operating results may
be affected by external factors. Such factors include, but are not limited to,
changes in the regulatory environment, general conditions in the environmental
industry, the Company's competitive position, and economic conditions in
international markets.
11
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
-----------------
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27 Financial Data Schedules
(b) Exhibit 10y 1998 Directors Warrant Plan (as Amended in 1999)
(C) Exhibit 10z 1998 Incentive Stock Option Plan (as Amended in
1999)
(d) No reports on Form 8K were filed during the quarter ended
December 31, 1999
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.
CROWN ANDERSEN INC.
Dated: February 7, 2000 By: /s/ Jack D. Brady
------------------ --------------------------------
Jack D. Brady
Chairman of the Board
(Duly Authorized Officer)
Dated: February 7, 2000 By: /s/ Milton Emmanuelli
----------------- --------------------------------
Milton Emmanuelli
Secretary and Treasurer
(Principal Financial Officer)
12
<PAGE>
CROWN ANDERSEN INC. Exhibit 10y
------------------- -----------
1998 DIRECTORS STOCK WARRANT PLAN
---------------------------------
(As Amended In 1999)
1.
PURPOSE
-------
The Directors Stock Warrant Plan (the "Plan") is intended to provide
additional incentive to those members of the Board of Directors of Crown
Andersen Inc. (the "Company") who are not employees of the Company or any of its
subsidiaries by encouraging them to acquire share ownership in the Company, thus
giving them a proprietary interest in the Company's business and providing them
with a personal interest in the Company's continued success and progress. These
objectives will be promoted through the issuance and sale of warrants to acquire
shares of the Company's common stock pursuant to the terms hereof ("Warrants").
2.
EFFECTIVE DATE OF PLAN
----------------------
This Plan shall take effect upon approval by the shareholders of the
Company.
3.
ADMINISTRATION
--------------
This Plan shall be administered by a committee (the "Warrant
Committee") which shall consist initially of those persons so designated by the
Board of the Directors of the Company (the "Board"). The Warrant Committee shall
consist at all times of not fewer than two members who may, but need not, also
be members of the Board, but no person eligible to purchase Warrants or stock
upon the exercise of Warrants pursuant to this Plan may serve as a member of the
Warrant Committee. The Board from time to time may remove members from, or add
members to, the Warrant Committee. Vacancies on the Warrant Committee, howsoever
caused, shall be filled by the Board. The Warrant Committee shall select one of
its members as Chairman and shall hold meetings at such times and places as the
Chairman shall determine. Minutes of all meetings shall be made and observed. A
majority of the members of the Warrant Committee shall control its actions at
any meeting. The interpretation and construction by the Warrant Committee of any
provision of this Plan or of any Warrant sold pursuant to the terms hereof shall
be final unless otherwise determined by the Board. No
1
<PAGE>
member of the Board or the Warrant Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any Warrant sold
pursuant to the terms hereof.
4.
ELIGIBILITY
-----------
The persons who shall be eligible to purchase Warrants hereunder shall
be all members of the Board of Directors of the Company who are not employees of
the Company or any of its subsidiaries. The current eligible board members are
Michael P. Marshall, Ruyintan E. Mehta, Richard A. Beauchamp, Lester K.
Legatski, and Jack C. Hendricks. Such person or persons to whom Warrants are
sold hereunder are hereinafter individually referred to as "Holder" and
collectively as "Holders." An eligible director may purchase more than one
Warrant, but only on the terms and subject to the restrictions hereinafter set
forth.
5.
STOCK
-----
(a) Authorized Shares. The stock to be issued upon the exercise of
-----------------
Warrants sold pursuant to this Plan shall be the $0.10 par value common stock of
the Company and, at the election of the Committee, may be either treasury stock
or stock original issued for purposes of this Plan. The maximum aggregate number
of shares of stock which may be available and sold pursuant to this Plan during
the term of this Plan shall be 300,000 shares of the common stock of the
Company, subject to adjustment upon changes in capitalization of the Company in
as provided in Paragraph 9 hereof.
(b) Rights of Holder. A Holder of a Warrant shall have no rights as a
----------------
shareholder with respect to any shares subject to a Warrant sold pursuant to
this Plan until the date of the issuance of a stock certificate to such person
for such shares as a result of such person's exercise of such Warrant. Subject
to the provisions set forth in Paragraph 9 hereof, 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 the stock certificate is issued to the older.
2
<PAGE>
6.
SALE OF WARRANTS
----------------
(a) Amount and Price of Warrants. Subject to the terms of this Plan,
----------------------------
Warrants covering up to a maximum of 100,000 shares common stock of the Company
may be purchased by each eligible current direct on or before January 25, 2008.
Any eligible future directors may make such purchase on or before the
termination date of this Plan established pursuant to Paragraph 6(c)(ii) below.
The price for which the Warrants are to be sold shall be the fair market value
thereof prior to their issuance as determined by the Warrant Committee.
(b) Form of Warrant. Each Warrant shall be in writing, in the form
---------------
prepared by the Warrant Committee and executed and dated by the Company, and
shall set forth the terms and conditions of the Warrant in accordance with this
Plan. The Warrant Committee shall present the form of Warrant to the eligible
director, and upon execution of the form of Warrant by the eligible director and
payment of the full purchase price of the Warrant, such Warrant shall be deemed
to have been purchased as of the date of the latest of such events. Payment
shall be in cash or, at the election of the Holder, with common stock of the
Company having a fair market value as of the date of payment equal to the
purchase price, with such fair market value to be determined in accordance with
the provisions of Paragraph 7(a) hereof. The failure of the eligible director to
execute the form of Warrant and pay the full purchase price of the Warrant
within seven (7) days of the date of receipt of the form of Warrant shall render
the Warrant and the form of Warrant null and void.
(c) Limitations on Sale of Warrants. Notwithstanding any
-------------------------------
provisions to the contrary contained herein, no Warrant shall be sold hereunder:
(i) If the sale thereof would cause the maximum aggregate number of
shares of stock of the Company made available under this Plan
during the term of this Plan, or would cause the maximum number
of shares of stock of the Company made available to any eligible
director pursuant to this Plan, to exceed the maximum number of
shares allowed by Paragraphs 5(a) or 6(a), respectively, hereof;
or
(ii) After 5:00 p.m., Atlanta, Georgia time, on the date ten years
subsequent to the Effective Date of this Plan (the "Termination
Date").
3
<PAGE>
7.
VESTING AND EXERCISE OF WARRANTS
--------------------------------
(a) Vesting. Warrants shall vest with respect to each Holder,
-------
and each Holder shall be entitled to exercise Warrants for the purchase of
shares of common stock in accordance with the following schedule.
No. of Shares
as % of
Individual Grant
(Cumulative) Vesting Date
- --------------------------------------------------------------------------------
20% 12 months after Warrant purchase or Jan 25,2008,
whichever comes first
40% 24 months after Warrant purchase or Jan 25, 2008,
whichever comes first
60% 36 months after Warrant purchase or Jan 25, 2008,
whichever comes first
80% 48 months after warrant purchase or Jan 25, 1008,
whichever comes first
100% 60 months after Warrant purchase or Jan 25, 2008,
whichever comes first
The actual Stock Purchase Warrants will be revised in accordance
with the Plan revisions above.
(b) Exercise Price. In the event a Holder elects to purchase shares
--------------
of common stock of the Company under a Warrant, the exercise price per share
shall be equal to the fair market value of a share of common stock of the
Company on the date said Warrants are purchased. The fair market value per share
of the common stock of the Company for purposes of this Plan shall be the
closing price of the stock on such stock exchange the stock is listed, on the
date preceding the date the Warrant is purchased. If, for any reason, the fair
market value per share of common stock of the Company cannot be ascertained or
is unavailable for the date preceding the date on which the Warrant is
purchased, the fair market value of such stock shall be determined as of the
nearest preceding date on which such fair market value can be ascertained
pursuant to the term hereof.
(c) Exercise Procedure. A Holder who elects to purchase shares of
------------------
common stock by exercising a Warrant shall surrender the Warrant to the Company,
prior to the Termination Date, at the principal offices of the Company, together
with the purchase price for the shares to be purchased. Payment shall be in cash
or, at
4
<PAGE>
the election of the Holder, with common stock of the Company having a fair
market value as of the date of payment equal to the purchase price, with such
fair market value to be determined in accordance with the provisions of
Paragraph 7(b) hereof. If exercise for less than full value, the Holder shall be
issued another Warrant for the balance of the shares not purchased, which shall
be subject to all of the terms and conditions of his original Warrant. The right
of exercise shall be limited to whole shares.
8.
TERMS AND CONDITIONS OF WARRANTS
--------------------------------
Each Warrant shall contain terms and conditions as determined in this
Paragraph 8 and also shall incorporate by reference all of the other terms and
conditions set forth in this Plan.
(a) Holder and Number of Shares. Each Warrant shall state the
---------------------------
name of the Holder and the number of shares of stock of the Company which are
subject to the Warrant.
(b) Price. Each Warrant shall set forth the amount which the
-----
Holder must pay to the Company for (i) the Warrant, and (ii) each share of stock
subject to the Warrant, which in each case shall be the fair market value
thereof determined as of the dates and in the manner specified in Paragraphs 6
and 7, respectively, of this Plan.
(c) Vesting, Exercise and Term of Warrants. Each Warrant shall
--------------------------------------
provide that the Warrant may be exercised only in accordance with the vesting
schedule set forth in Section 7(a) hereof and shall be exercised only by
delivery by the Holder to the Warrant Committee of written notice of exercise
executed by the Holder on the exercise form attached as Exhibit "A" to the
Warrant, which exercise form shall identify the Warrant for which the exercise
is being made, together with the number of shares with respect to which the
Holder is exercising the Warrant. The exercise of a Warrant may be for fewer
than the full number of shares of stock subject to such Warrant and, subject to
the other restrictions on exercise set forth herein, the unexercised portion of
a Warrant may be exercised at a later date by the Holder. Notwithstanding any
provisions to the contrary herein set forth, no Warrant shall be exercisable
either in whole or in part:
(i) After the Termination Date; or
5
<PAGE>
(ii) After the date upon which the shareholders of the Company have
voted to liquidate or dissolve the Company.
(d) Medium and Time of Payment. Payments for Warrants and for shares
--------------------------
of common stock upon the exercise of Warrants shall be in cash or, at the
election of the Holder (or his successors pursuant to Paragraph 8(g) below, with
common stock of the Company having a fair market value as of the date of payment
equal to the purchase price, with such fair market value to be determined in
accordance with the provisions of Paragraph 7(a) hereof.
(e) Warrants Non-Transferable. During the lifetime of a Holder, any
-------------------------
Warrant purchased by such Holder shall be exercisable only by such Holder and
shall not be assignable or transferable by him, and subject to Paragraph 8(g)
below, no other person shall acquire any rights therein. No Warrant may be
pledged or hypothecated nor shall any such Warrant be subject to execution,
attachment or similar process.
(f) Termination of Directorship. If the Holder ceases to be a
---------------------------
director of the Company for any reason other than death or legal incapacity, the
Company shall repurchase such Holder's unexercised and outstanding Warrants
within 60 days from the effective date of termination of his directorship,
provided a written request for repurchase and the Warrants covered by such
request are delivered to the Company within such period. If no such request is
made within said 60 day period, said Holder's Warrants, upon expiration of said
period, shall become null and void. The repurchase price shall be based upon
whichever of the following is applicable as of the effective date of the
termination of directorship.
(i) If the market value per share of the common stock of the Company
is equal to or above the exercise price per share specified in the
Warrant, the Company shall purchase the Warrant from the Holder a the
price that the Holder originally paid for said Warrant based upon the
number of shares of common stock covered thereby which remain
unexercised and outstanding plus interest at the rate of eight percent
(8%) per annum from date of original purchase to date of repurchase.
(ii) If the market value per share of the common stock of the Company
is less than the exercise price per share specified in the Warrant,
the Company shall purchase the Warrant from the Holder for a price
equal to said market value divided by said exercise price, multiplied
by the
6
<PAGE>
Holder's original purchase price for the number of shares of common
stock covered by said Warrant which remains unexercised and
outstanding.
(g) Death or Incapacity of Holder. In the event of the legal
-----------------------------
incapacity or death of a Holder while a director of the Company, an unexercised
Warrant owned by such incapacitated or deceased Holder may be exercised at any
time within one year of the date of declaration of incapacity or death of such
Holder, subject to the restrictions or exercisability set forth in Paragraphs
8(c)(i) and 8(c)(ii) above, by the legal guardian, executors, or administrators
of the estate of the Holder or by any person or persons who shall have acquired
the Warrant directly from the Holder by bequest or inheritance. Such exercise
shall be effected in a accordance with the terms set forth in this Paragraph 8
as if such legal guardian, executor, or administrator was the named Holder. No
Warrant shall be transferable by any Holder otherwise than by will or the laws
of descent and distribution.
(h) Agreement of Holder. Each Holder shall agree to hold all Warrants
-------------------
and all shares of stock acquired by such Holder pursuant to such Holder's
exercise of any Warrant for investment purposes and not with a view to resale or
distribution thereof to the public.
(i) Delivery of Stock Certificates. As promptly as practicable
------------------------------
after the date of exercise of a Warrant the receipt by the Company of full
payment therefor, the Company shall deliver to each Holder a stock certificate
representing the stock of the Company purchased by the Holder pursuant to the
such Holder's exercise of the Warrant.
9.
CHANGES IN CAPITALIZATION
-------------------------
(a) Recapitilizations and Reorganization. In the event that
------------------------------------
subsequent to the Effective Date of this Plan and as a result of a stock split,
stock dividend, combination or exchange of shares, exchange for other
securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization or other such change, the shares of common stock
of the Company are increased or decreased or change into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation, then (i) there shall be substituted for each share of
common stock subject to an unexercised Warrant (in whole or in part) sold under
this
7
<PAGE>
Plan the number and kind of shares of stock or other securities into which each
such share of common stock shall be changed or into which each such share of
commons stock shall be exchanged; (ii) the exercise price per share of commons
stock or unit of securities shall be increased or decreased proportionately so
that the aggregate purchase price for the securities subject to the Warrant
shall remain the same as immediately prior to such event; and (iii) the
Committee shall make such other adjustments to the securities subject to
Warrants and the provisions of the Plan as may be appropriate and equitable. Any
such adjustment may provide for the elimination of fractional shares.
(b) Rights of Holder. Except as hereinabove expressly provided, no
----------------
Holder of a Warrant shall have any rights by reason of any subdivision or
consolidation of shares of stock or any class or the payment of any stock
dividend or any other increase, decrease or change in the number of shares of
stock of the Company of any class by reason of any merger, consolidation,
recapitalization or spinoff of assets or stock of another corporation. Except as
hereinabove expressly provided, any issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or purchase price of shares of common stock subject to a Warrant. The
purchase of a Warrant pursuant to the Plan shall not affect in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes in its capital or business structure or to merge or to consolidate or
to dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
10.
SECURITIES REGISTRATION; LEGEND
-------------------------------
In the event that the Company shall deem it necessary to register,
under the Securities Act of 1933 or other applicable statutes, any shares with
respect to which a Warrant shall have been exercised, or to qualify any such
shares for exemption from the Securities Act of 1933 under the Rules and
Regulations of the Securities and Exchange Commission or any state securities
statute, then the Company shall take such action at its own expense before
delivery of the certificates representing such shares to a Holder. In any event,
any shares with respect to which a Warrant is exercised shall contain a legend
on the share certificate reflecting all restrictions on transferability which
may be require pursuant to federal and state securities laws.
8
<PAGE>
11.
AMENDMENT, TERMINATION OR SUSPENSION
------------------------------------
In the event the Board shall determine that this Plan is not in the
best interest of the Company or its shareholders for any reason, the Board shall
have the power to add to, amend, or repeal any of the provisions of this Plan,
to suspend the operation of the entire Plan or any of its provisions for any
period or periods or to terminate this Plan in whole or in part. In the event of
any such action, the Warrant Committee shall prepare written procedures which,
when approved by the Board, shall govern the administration of the Plan
resulting from such addition, amendment, repeal, suspension or termination shall
affect, in any way, the rights of the Holders of outstanding Warrants without
the consent of the Holders.
12.
NOTICES
-------
All notices or other communications by a Holder to the Warrant
Committee pursuant to or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Warrant Committee at
the location, or by the person, designated by the Warrant Committee for the
receipt therof.
13.
TERM OF PLAN
------------
Subject to Paragraph 11 hereof, this Plan shall terminate and the last
date upon which a Warrant may be purchased shall be the Termination Date as
defined in Paragraph 6(c)(ii) hereof.
14.
INDEMNIFICATION OF WARRANT COMMITTEE
------------------------------------
In addition to such other rights of indemnification as they have as
directors or officers of the Company or as members of the Warrant Committee, the
members of the Warrant Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees, actually incurred in connection
with the defense of any action, suit, or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act pursuant to or in connection with this Plan or
any Warrant purchased hereunder, and
9
<PAGE>
against all amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any action, suit, or proceeding; provided,
however, that no Warrant Committee member shall be indemnified by the Company
hereunder in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such Warrant Committee member is liable for
negligence or misconduct in the performance of his duties.
10
<PAGE>
CROWN ANDERSEN INC. Exhibit 10z
------------------- -----------
1998 INCENTIVE STOCK OPTION PLAN
--------------------------------
(As Amended In 1999)
1.
PURPOSE
-------
This incentive Stock Option Plan (the "Plan") is intended as an incentive
and to encourage stock ownership by certain key executive employees of CROWN
ANDERSEN INC. (the "Company") so they may acquire or increase their proprietary
interest in the success of the Company and to encourage them to remain in the
employ of the Company. It is further intended that this Plan qualify as an
"Incentive Stock Option Plan" and that the options which may be granted
hereunder qualify as "Incentive Stock Options" within the meaning of Section 422
of the Internal Revenue Code of 1954, as amended (the "Code"). Options to
purchase stock of the Company which may be granted to employees of the Company
pursuant to this Plan hereinafter are referred to as "Incentive Stock Options."
2.
EFFECTIVE DATE OF PLAN
----------------------
This Plan shall take effect on the date upon approval by the shareholders
of the Company.
3.
ADMINISTRATION
--------------
This Plan shall be administered by a committee (the "Committee") which
shall consist initially of those persons so designated by the Board of Directors
of the Company (the "Board"). The Committee shall consist at all times of not
less than three members who may, but need not, also be members of the Board. The
Board from time to time may remove members from, or add members to, the
Committee. Vacancies on the Committee shall select one of its members as
Chairman and shall hold meetings at such times and places as the Chairman shall
determine. Minutes of all meetings shall be made and observed. A majority of the
members of the Committee shall control its actions at any meeting. The
interpretation and construction by the Committee of any provision of this Plan
or any Incentive Stock Option granted pursuant to the terms hereof shall be
final unless otherwise determined by the Board. Notwithstanding anything herein
to the contrary, no action taken by the Board or the Committee pursuant to the
terms of this Plan shall be valid unless, at the time of exercise of discretion
-1-
<PAGE>
with regard to the Plan and at all times within one year prior thereto, a
majority of the Board and a majority of the Board acting with respect to any
matter concerning such Incentive Stock Option or all of the members of the
Committee, as applicable, are ineligible for selection as a person to whom stock
options may be granted pursuant to this Plan or to whom shares may be allocated
or stock options, stock warrants or stock appreciation rights may be granted
pursuant to any other plan of the Company or any of its affiliates (i.e.,
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 or any successor rule or regulation). No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to this Plan or any Incentive Stock Option granted
pursuant to the terms hereof.
4.
ELIGIBILITY
-----------
The persons who shall be eligible to receive Incentive Stock Options
hereunder shall be such key executive employees (including officers, whether or
not they are directors) of the Company as the Board may select from time to
time. Such person or persons to whom Incentive Stock Options are granted
hereunder shall not exceed twenty-five in number and are hereinafter
individually referred to as "Optionee" and collectively as "Optionees." An
Optionee may hold more than one Incentive Stock Option, but only on the terms
and subject to the restrictions hereinafter set forth.
5.
STOCK
------
(a) Authorized Shares. The stock subject to the Incentive Stock Options
-----------------
which may be granted pursuant to this Plan shall be the $0.10 par value common
stock of the Company and, at the election of the Committee, may be either
treasury stock or stock originally issued for purposes of this Plan. The maximum
aggregate number of shares of stock which may be made available and sold
pursuant to this Plan during the term of this Plan shall be 300,000 shares of
the common stock of the Company, subject to adjustment upon changes in
capitalization of the Company as provided in Paragraph 8 hereof. In the event
that any outstanding Incentive Stock Option for any reason expires, the shares
of stock allocable to the unexercised portion of such Incentive Stock Option may
again be subjected to another Incentive Stock Option granted pursuant to this
Plan.
-2-
<PAGE>
(b) Rights of Optionee. An Optionee shall have no rights as a shareholder
------------------
with respect to any shares subject to an Incentive Stock Option granted pursuant
to this Plan until the date of the issuance of a stock certificate to him for
such shares as a result of such Optionee's exercise of such Incentive Stock
Option. Subject to the provisions set forth in Paragraph 8 hereof, 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 the stock certificate is issued to the
Optionee.
6.
GRANTING OF OPTIONS
-------------------
(a) Designation of Optionees and Execution of Option Agreements. Incentive
-----------------------------------------------------------
Stock Options may be granted hereunder from time to time and at such times as
may be authorized by the Board. In its authorization of the granting of an
Incentive Stock Option hereunder, the Board shall designate the name of the
Optionee and the number of shares of stock subject to such Incentive Stock
Option. The Committee then shall prepare a written agreement, executed and dated
by the Company, evidencing such Incentive Stock Option (the "Option Agreement")
and setting forth the terms and conditions of the Incentive Stock Option in
accordance with Paragraph 7 below, and shall present the Option Agreement to the
Optionee. Upon execution of the Option Agreement by the Optionee, such Incentive
Stock Option shall be deemed to have been granted with the date of its granting
being the date of execution of the Option Agreement by the Company. The failure
of the Optionee to execute the Option Agreement within seven days of the date of
receipt of same shall render the Option Agreement and the Incentive Stock Option
null and void.
(b) Limitations on Grant of Options. Notwithstanding any provisions to
-------------------------------
the contrary contained herein, no Incentive Option shall be granted
hereunder:
(i) If the granting thereof would cause the maximum aggregate number
of shares of stock of the Company made available during the term
of this Plan to exceed the maximum number of shares allowed by
Paragraph 5(a) hereof; or
(ii) After 5:00 p.m., Atlanta, Georgia time, on the date ten years
subsequent to the earlier of the date the Plan is adopted by the
Board or the date the Plan is approved by the holders of a
majority
-3-
<PAGE>
of the outstanding shares of common stock of the Company; or
(iii) If, with respect to any Optionee, the aggregate fair market
value of the stock (determined in accordance with Paragraph 7
hereof as of the date of grant of an Incentive Stock Option)
for which such Optionee may be granted Incentive Stock Options
in any calendar year (pursuant to all Incentive Stock Option
Plans of the Company and its parent and subsidiary
corporations, if any) would exceed an amount equal to $100,000.
7.
TERMS AND CONDITIONS OF OPTION AGREEMENTS
-----------------------------------------
Each Option Agreement shall contain terms and conditions as determined in
this Paragraph 7 and also shall incorporate by reference all of the other terms
and conditions set forth in this Plan.
(a) Optionee and Number of Shares. Each Option Agreement shall state the
-----------------------------
name of the Optionee and the number of shares of stock of the Company which are
subject to the Incentive Stock Option evidenced by the Option Agreement. The
Optionee and the number of shares subject to the Incentive Stock Option shall be
determined in accordance with Paragraph 6 above.
(b) Option Price. Each Option Agreement shall set forth the amount
------------
which the Optionee must pay to the Company for each share of stock subject to
the Incentive Stock Option (hereinafter referred to as the "Option Price"). The
Option Price for each Incentive Stock Option shall be determined as follows:
(i) For each Optionee who owns 10% or less of the total combined
voting power of all classes of outstanding stock of the Company
at the time the Incentive Stock Option is granted, the Option
Price shall be an amount equal to the fair market value of the
stock subject to the Incentive Stock Option at the time the
Incentive Stock Option is granted, with such fair market value to
be determined as set forth below; or
(ii) For each Optionee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Company
at the time
-4-
<PAGE>
Incentive Stock Option is granted, the Option Price shall be an
amount equal to 110% of the fair market value of the stock
subject to the Incentive Stock Option at the time the Incentive
Stock Option is granted, with the fair market value of the stock
to be determined as set forth below.
The fair market value per share of common stock of the Company for purposes of
this Plan shall be the closing price of the stock by NASDAQ the date the
Incentive Stock Option is granted. If, for any reason, the fair market value per
share of common stock of the Company cannot be ascertained or is unavailable for
the date on which the Incentive Stock Option is granted, the fair market value
of such stock shall be determined as of the nearest preceding date on which such
fair market value can be ascertained pursuant to the terms hereof.
(c) Exercise and Term of Incentive Stock Options. Each Option Agreement
--------------------------------------------
shall provide that the Incentive Stock Option may be exercised only by delivery
by the Optionee to the Committee of written notice of exercise executed by the
Optionee on the exercise form attached as Exhibit A to the Option Agreement,
which exercise form shall identify the Incentive Stock Option for which the
exercise is being made, together with the number of shares with respect to which
the Optionee is exercising the Incentive Stock Option. The exercise of an
Incentive Stock Option may be for less than the full number of shares of stock
subject to such Incentive Stock Option, but such exercise shall not be made for
less than 25% of the number of shares of stock initially subject to such
Incentive Stock Option. Subject to the other restrictions on exercise set forth
herein, the unexercised portion of an Incentive Stock Option may be exercised at
a later date by the Optionee. The 25% requirement set forth above shall not
apply to any exercise of an incentive Stock Option whereby all remaining shares
of stock subject to such Incentive Stock Option are exercised. Notwithstanding
any provisions to the contrary herein set forth, no Incentive Stock Option shall
be exercisable either in whole or in part:
(i) After the expiration of five years from the date upon which such
Incentive Stock Option was granted;
(ii) While there is outstanding all or any unexercised portion of an
Incentive Stock Option which was granted to the same Optionee on a
date prior to the granting of the Incentive Stock Option to which
this Paragraph 7(c)(ii) applies. For purposes hereof, any
-5-
<PAGE>
unexercised portion of an Incentive Stock Option shall be treated as
outstanding until such Incentive Stock Option is exercised in full or
becomes unexercisable by reason of lapse of time pursuant to
Paragraph 7(c)(i) above, and a disclaimer of any outstanding
Incentive Stock Option, in whole or in part, or a mutual termination
of such Incentive Stock Option by the Optionee and the Company shall
not operate to cause such Incentive Stock Option to cease to be
outstanding for the purposes of this Paragraph 7(c)(ii);
(iii) By any Optionee who was not, at all times during the period beginning
on the date of the grant of the Incentive Stock Option and ending on
the day three months before the proposed date of exercise of the
Incentive Stock Option, an employee of the Company, except if such
discontinuance of employment was caused by the death of the Optionee
(provided that in the case of an Optionee whose discontinuance of
employment was caused as a result of the disability of the Optionee,
as defined in Section 105(d)(4) of the Code, rather than the three-
month period set forth herein, such period shall be one year).
Whether authorized leave of absence or absence for military or
governmental service shall constitute a discontinuance of employment
for purposes hereof shall be determined by the Committee, which
determination, unless overruled by the Board, shall be final and
conclusive; or
(iv) After the date upon which the shareholders of the company have voted
to liquidate or dissolve the Company.
(d) Incentive Stock Options Non-Transferable. During the lifetime of an
----------------------------------------
Optionee, any Incentive Stock Option granted to such Optionee shall be
exercisable only by him and shall not be assignable or transferable by him, and,
subject to Paragraph 7(e) below, no other person shall acquire any rights
therein.
(e) Death of Optionee and Transfer of Incentive Stock Option. In the event
--------------------------------------------------------
of the death of an Optionee while in the employ of the Company or within a
period of three months after the termination of his employment with the Company,
any unexercised Incentive Stock Option owned by such deceased Optionee may be
exercised at any time within one year of the death of such Optionee, subject to
the restrictions on exercisability set forth in Paragraphs 7(c)(k),
-6-
<PAGE>
7(c)(ii) and 7(c)(iv) above, by the executors or administrators of the estate of
the Optionee or by any person or persons who shall have acquired the Incentive
Stock Option directly from the Optionee by bequest or inheritance. Such exercise
shall be effected in accordance with the terms set forth in this Paragraph 7 as
if such executor, administrator or legatee was the named Optionee. No Incentive
Stock Option shall be transferable by any Optionee otherwise than by will or the
laws of descent and distribution.
(f) Medium and Time of Payment. The Option Price shall be payable by
--------------------------
the Optionee (or his successors in accordance with Paragraph 7(e) above) upon
the exercise of the Incentive Stock Option and shall be paid in cash or, at the
election of the Optionee (or his successors pursuant to Paragraph 7(e) above),
with common stock of the Company having a fair market value as of the date of
the exercise of the Incentive Stock Option equal to the Option Price, with such
fair market value to be determined in accordance with the provisions of
Paragraph 7(b) hereof.
(g) Agreement of Optionee. Each Optionee shall agree to hold all of the
---------------------
shares of stock acquired by him pursuant to his exercise of any Incentive Stock
Option for investment purposes and not with a view to resale or distribution
thereof to the public. Each Optionee shall agree that he shall make no
disposition of any shares of stock acquired by him pursuant to an exercise of
any Incentive Stock Option within two years from the date of the grant of such
Incentive Stock Option nor within one year after the transfer of such shares to
him resulting from the exercise of an Incentive Stock Option.
(h) Delivery of Stock Certificates. As promptly as practicable after
------------------------------
the date of exercise of an Incentive Stock Option and the receipt by the Company
of full payment therefor, the Company shall deliver to each Optionee a stock
certificate representing the stock of the Company purchased by the Optionee
pursuant to his exercise of the Incentive Stock Option.
8.
CHANGES IN CAPITALIZATION
-------------------------
(a) Action by Company. Subject to any required action by the shareholders
-----------------
of the Company, the number of shares subject to each outstanding Incentive Stock
Option and the number of shares available under the Plan shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of common stock of the Company resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or
-7-
<PAGE>
decrease in the number of outstanding shares effected without receipt of
consideration by the Company. If any adjustment hereunder would create a
fractional share or the right to acquire a fractional share, such fractional
share shall be disregarded, and the number of shares available under the Plan or
the number of shares subject to any outstanding Incentive Stock Option shall be
the next lower number of shares, rounding all fractions downward.
(b) Reorganization. Subject to any required action by the shareholders
--------------
of the Company, in the event the Company is a party to a merger, consolidation,
recapitalization or other reorganization ("Reorganization"), a corresponding
adjustment shall be made in the amount and class of securities available under
the Plan and a corresponding adjustment shall be made with respect to each
outstanding Incentive Stock Option such that the amount and class of securities
subject to each Incentive Stock Option outstanding at the time of the
Reorganization shall be adjusted so as to correspond with the amount and class
of securities to which a holder of the same number of shares of the common stock
of the Company would be entitled to receive upon the Reorganization. As an
example, if, at the time of the Reorganization, a holder of ten shares of the
common stock of the Company would be entitled to receive five shares of common
stock and five shares of preferred stock upon the Reorganization, then the
amount and class of securities subject to each Incentive Stock Option
outstanding at the time of the Reorganization would be five shares of the common
stock and five shares of preferred stock. The Option Price for each of the
securities subject to each Incentive Stock Option outstanding at the time of a
Reorganization shall be determined by allocating, for each such Incentive Stock
Option, the aggregate Option Price, as determined pursuant to Paragraph 7(b)
hereof, of all shares of common stock subject to such Incentive Stock Option
after the Reorganization, such allocation to be executed in a reasonable and
equitable manner as determined by the Committee. The Option Price for the
securities subject to each Incentive Stock Option granted subsequent to a
Reorganization shall be determined in accordance with the method set forth in
Paragraph 7(b) hereof, and if the Option Price cannot be determined in
accordance with the method set forth in Paragraph 7(b) hereof, the Board shall
devise a formula for the good faith determination of the Option Price such that
the Incentive Stock Option shall continue to constitute an "Incentive Stock
Option" as defined by Section 422 of the Code. Nothing set forth herein shall
prevent an Optionee from exercising (subject to the restrictions on exercise set
forth in Paragraph 79c) hereof) any Incentive Stock Option in whole or in part
at any time prior to the effectuation of a Reorganization to which the Company
is a party.
-8-
<PAGE>
(c) Par Value. In the event of a change in the capital stock of the
---------
Company as presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with a different
par value or without par value, the shares resulting from any such change shall
be deemed to be the common stock of the Company within the meaning of this Plan.
(d) Adjustment by Committee. To the extent that the foregoing adjustments
-----------------------
relate to stock or securities of the Company, such adjustments shall be made by
the Committee, whose determination in that regard shall be final, biding and
conclusive, provided that each Incentive Stock Option granted pursuant to this
Plan shall not be adjusted in a manner that causes the Incentive Stock Option to
fail to continue to qualify as an "Incentive Stock Option" issued pursuant to an
"Incentive Stock Option Plan" within the meaning of Section 422 of the Code.
(e) Optionee Rights. Except as hereinabove expressly provided, no
---------------
Optionee shall have any rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or any other
increase, decrease or change in the number of shares of stock of the Company of
any class by reason of any merger, consolidation, recapitalization or spinoff of
assets or stock of another corporation. Except as hereinabove expressly
provided, any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Option Price of shares of common stock subject to an Incentive Stock Option. The
grant of an Incentive Stock Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustment, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
9.
SECURITIES REGISTRATION; LEGEND
-------------------------------
In the event that the Company shall deem it necessary to register, under
the Securities Act of 1933 or other applicable statutes, any shares with respect
to which an Incentive Stock Option shall have been exercised, or to qualify any
such shares for exemption from the Securities Act of 1933 under the Rules and
Regulations of the Securities and Exchange Commission or any state securities
statute, then the Company shall take such action at its own expense before
delivery of the certificates representing such
-9-
<PAGE>
shares to an Optionee. In the event the shares of stock of the Company shall be
listed on any national stock exchange at the time of the exercise of an
Incentive Stock Option pursuant to this Plan, then whenever required, the
Company shall register the shares with respect to which such Incentive Stock
Option is exercised under the Securities Exchange Act of 1934 and 7under any
applicable state securities statute and shall make prompt application for the
listing on such stock exchange of such shares, at the sole expense of the
Company. In any event, any shares with respect to which an Incentive Stock
Option is exercised shall contain a legend on the share certificate reflecting
all restrictions on transferabililty which may be required pursuant to federal
and state securities laws.
10.
AMENDMENT, TERMINATION OR SUSPENSION
------------------------------------
In the event the Board shall determine that this Plan does not qualify as
an "Incentive Stock Option Plan" pursuant to Section 422 of the Code or that
this Plan is not in the best interest of the Company or its shareholders for any
reason, the Board shall have the power to add to, amend or repeal any of the
provisions of this Plan, to suspend the operation of the entire Plan or any of
its provisions for any period or periods or to terminate this Plan in whole or
in part. In the event of any such action, the Committee shall prepare written
procedures which, when approved by the Board, shall govern the administration of
the Plan resulting from such addition, amendment, repeal, suspension or
termination. Notwithstanding the above provisions, no such addition, amendment,
repeal, suspension or termination shall affect, in any way, the rights of the
Optionees of outstanding Incentive Stock Options without the consent of the
Optionee nor may any change in the Plan be made without the prior approval of
the holders of a majority of the outstanding common stock of the Company if such
change would cause the Plan to fail to qualify as an "Incentive Stock Option
Plan" pursuant to Section 422 of the Code.
11.
NOTICES
-------
All notices or other communications by an Optionee to the Committee
pursuant to or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Committee at the location, or
by the person, designated by the Committee for the receipt thereof.
-10-
<PAGE>
12.
TERM OF PLAN
-------------
Subject to Paragraph 10 hereof, this Plan shall terminate and the last date
upon which an Incentive Stock Option may be granted shall be the date ten years
subsequent to the earlier of the date of adoption of this Plan by the Board or
the date this Plan is approved by the holders of a majority of the outstanding
common stock of the Company.
13.
INDEMNIFICATION OF COMMITTEE
----------------------------
In addition to such other rights of indemnification as they may have as
directors or officers of the Company or as members of the Committee, the members
of the Committee shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees, actually incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act pursuant to or in connection with this Plan or any
Incentive Stock Option granted hereunder, and against all amounts paid by them
in settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any action, suit or proceeding; provided, however, that no Committee member
shall be indemnified by the Company hereunder in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such Committee
member is liable for negligence or misconduct in the performance of his duties.
-11-
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<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 1,450,840
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0
0
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