FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 0-15486
MIKRON INSTRUMENT COMPANY, INC.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEW JERSEY 22-1895668
---------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
16 Thornton Road, Oakland, New Jersey 07436
-------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(201) 405-0900
--------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares of registrant's Common Stock, $.003 par value, outstanding
as of September 13, 1999 was 4,285,700 shares.
1
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION:
Balance Sheet - July 31, 1999 3
Statement of Operations - Three and nine months ended July 31,
1999 and 1998 4
Statement of Cash Flows - Nine months ended July 31,
1999 and 1998 5
Notes to Financial Statements 6
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations 7
PART II - OTHER INFORMATION 9
SIGNATURES 11
2
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
July 31, 1999 October 31, 1998
------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,287,365 $ 415,400
Trade accounts receivable, less allowance for
doubtful accounts of $83,000 and $83,000 925,899 1,057,079
Inventories 2,125,690 2,285,052
Prepaid expenses and other current assets 36,632 93,484
---------- ----------
TOTAL CURRENT ASSETS 4,375,586 3,851,015
---------- ----------
PROPERTY AND EQUIPMENT, net 239,297 286,470
---------- ----------
OTHER ASSETS 63,982 --
---------- ----------
$4,678,865 $4,137,485
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 436,935 $ 537,038
Current portion of capital lease obligation -- 4,360
---------- ----------
TOTAL CURRENT LIABILITIES 436,935 541,398
---------- ----------
LONG TERM LIABILITIES
Capital lease obligation -- 6,475
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $.003 par value;
Authorized - 15,000,000 shares; issued and
Outstanding - 4,285,700 shares and 3,785,700 shares,
respectively 12,857 12,181
Additional paid-in capital 4,051,394 3,151,831
Retained earnings 177,679 425,600
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,241,930 3,589,612
---------- ----------
$4,678,865 $4,137,485
========== ==========
</TABLE>
See notes to financial statements
3
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 1,800,113 $ 1,817,400 $ 4,971,653 $ 6,276,723
Royalties 24,993 48,000 98,993 144,541
----------- ----------- ----------- -----------
TOTAL REVENUES 1,825,106 1,865,400 5,070,646 6,421,264
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 803,052 974,434 2,329,736 3,053,477
Selling, general and administrative 839,810 923,057 2,510,781 2,697,062
Research and development 144,147 221,676 496,456 576,745
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 1,787,009 2,119,167 5,336,973 6,327,284
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 38,097 (253,767) (266,327) 93,980
----------- ----------- ----------- -----------
OTHER INCOME:
Investment and interest income 9,295 7,130 18,405 14,984
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 47,392 $ (246,637) $ (247,922) $ 108,964
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE - BASIC AND
DILUTED $ 0.01 $ (0.07) $ (0.06) $ 0.03
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 4,274,830 3,654,200 3,921,152 3,654,200
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (247,922) $ 108,964
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 57,860 48,249
Amortization -- 37,500
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable 131,180 (217,211)
Decrease in inventories 159,362 119,139
Decrease (increase) in prepaid and other current assets 56,852 (14,756)
(Increase) in other assets (63,982) --
(Decrease) in accounts payable and accrued liabilities (100,103) (341,164)
----------- -----------
241,169 (368,243)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (6,753) (259,279)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,686) (49,480)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (10,686) (49,480)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligation (10,835) (2,754)
Proceeds from Issuance of stock 750,000 --
Sale of stock pursuant to exercise of stock options 150,239 --
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 889,404 (2,754)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 871,965 (311,513)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 415,400 547,995
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,287,365 $ 236,482
=========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
MIKRON INSTRUMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of the financial
position and the results of operations for the interim periods presented.
Certain financial information which is normally included in financial statements
prepared in accordance with generally accepted accounting principles, but which
is not required for interim reporting purposes has been condensed or omitted.
The accompanying financial statements should be read in conjunction with the
financial statements and notes thereto as of October 31, 1998 contained in the
Company's Annual Report on Form 10-KSB for the fiscal year then ended. Results
of operations for the period ended July 31, 1999 are not necessarily indicative
of the results to be expected for the full year.
2. ISSUANCE OF STOCK
On May 3, 1999, the Company sold 333,333 and 166,667 unregistered shares of
common stock to its President and Vice President, respectively, for an aggregate
of $750,000 in private investment transactions.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein.
Net sales for the quarter ended July 31, 1999 were $1,800,113 as compared to net
sales of $1,817,400 for the quarter ended July 31, 1998. The cost of sales as a
percentage of net sales for the 1999 period was 45% as compared to 54% for the
comparable 1998 period. Net sales for the nine months ended July 31, 1999 were
$4,971,653 as compared to net sales of $6,276,723 for the nine months ended July
1998. The 21% decrease in net sales for the nine month period ended July 31,
1999, as compared to the comparable period in 1998, was primarily due to a
slowdown in sales to OEM and international markets located in Southeast Asia and
Japan. The cost of sales as a percentage of net sales for the nine months ended
July 31,1999 was 47% as compared to 49% for the comparable 1998 period. The
decreases in the cost of sales as a percentage of net sales were due to higher
margins derived with respect to the products sold during the fiscal 1999
periods, as compared to the same periods of 1998.
Selling, general and administration expenses for the three and nine month
periods ended July 31,1999 were $840,000 and $2,511,000 as compared to $923,000
and $2,697,000 for the respective 1998 periods. The decreases in such expenses
for the three month and nine month periods ended July 31,1999 were due to
reductions in costs of advertising, trade show expenses and sales commissions.
Research and development expenses for the quarter ended July 31, 1999 were
$144,000 as compared to $222,000 for the quarter ended July 31, 1998. As for the
nine months ended July 31, 1999 research and development expenses were $497,000
as compared to $577,000 for the nine months ended July 31, 1998. The decreases
in such expenses for the three and nine months periods ended July, 31, 1999 over
the compared 1998 periods are attributable to a decrease in hiring additional
personnel and consultants for the Company's research and development activities.
Other income for the quarter ended July 31, 1999 was $9,295 as compared to
$7,130 for the quarter ended July 31,1998. As for the nine months ended July 31,
1999 other income was $18,405 as compared to $14,984 for the nine months July
31,1998.
Liquidity and Capital Resources
The Company's working capital increased from $3,310,000 at October 31, 1998 to
$3,939,000 at July 31, 1999. The increase is due primarily to the equity
investments of Messrs. Gerald Posner and Dennis Stoneman, the Company's new
President and Vice President, respectively.
At July 31, 1999 the Company's capital resources and its sources of liquidity
were $1,287,000 in cash and temporary cash investments and accounts receivable
of $926,000.
7
<PAGE>
Management does not believe that a return of inflation will have a material
adverse effect on the Company's operations because it believes that the Company
will be able to increase its selling price to reflect most increases in its
cost.
8
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On August 20, 1999, the Company held its Annual Meeting of Shareholders for the
current fiscal year (the "Meeting"). At the Meeting, the shareholders approved
an amendment to the Company's Certificate of Incorporation which replaced the
Board of Directors consisting of three classes, each of which was elected
annually, with an unclassified Board of Directors elected annually. That
amendment was approved by a vote of 2,507,812 (out of a total of 4,285,700)
shares cast in favor of the proposal, with 398,320 shares cast in opposition
thereto and 7,860 shares abstaining.
At the Meeting, the shareholders also elected management's nominees for
directors (who were the only nominees proposed for election), i.e., Steven N.
Bronson (Chairman), Gerald D. Posner, Keikhosrow Irani, Dennis Stoneman, Jeffery
Adduci and Paul M. Bronson. 3,892,693 shares voted in favor of the election of
each of the nominees and 85,800 shares voted against each of the nominees. The
terms of each of the elected directors commenced on August 31, 1999, the date of
filing of the Certificate of Amendment to the Company's Certificate of Amendment
providing for the above-mentioned annual election of directors, and will end one
year from that date, or when their respective successors shall have been duly
elected or appointed.
At the Meeting, the shareholders also approved:
(a) (by a vote of 2,381,922 shares cast in favor, and 482,320 shares cast
in opposition, with 16,760 shares abstaining) a proposal to establish the Mikron
Instrument Company, Inc. 1999 Omnibus Stock Incentive Plan;
(b) (by a vote of 3,492,328 votes cast in favor, and 122,905 shares cast
in opposition, with 363,260 shares abstaining) a proposal to amend the Company's
certificate of incorporation to delete Article Twelfth thereof, thereby
eliminating the supermajority shareholder voting requirements imposed by such
Article;
(c) (by a vote of 3,588,773 votes cast in favor, and 387,920 shares cast
in opposition, with 7,060 shares abstaining) a proposal to amend the Company's
certificate of incorporation to add new Article Twelfth which shall limit the
liability of the Corporation's officers and directors to the fullest extent
permitted by New Jersey law; and
(d) (by a vote of 3,787,567 votes cast in favor, and 73,566 shares cast in
opposition, with 115,560 shares abstaining) a proposal to ratify the selection
of the accounting firm of Feldman Sherb Ehrlich & Co., P.C., as the Company's
independent auditors for the fiscal year ending October 31, 1999.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
9
<PAGE>
The exhibits listed below are filed as part of this report.
Exhibit 3.3 Certificate of Amendment of the Company's Certificate of
Incorporation, as filed with the New Jersey Department of State on
August 31, 1999.
Exhibit 4.1 Mikron Instrument Company, Inc. 1999 Omnibus Stock Incentive Plan.
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter for which this report has been filed.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
September 14, 1999
MIKRON INSTRUMENT COMPANY, INC.
By: /s/ Gerald D. Posner
----------------------------------------
Gerald D. Posner, President (Principle
Executive Officer), as Registrant's duly
authorized officer
11
Exhibit 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MIKRON INSTRUMENT COMPANY, INC.
Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3),
Corporations General, of the New Jersey Statutes, the undersigned Corporation
executes the following Certificate of Amendment of its Certificate of
Incorporation:
1. The name of the Corporation is:
MIKRON INSTRUMENT COMPANY, INC.
2. The following amendments to the Certificate of Incorporation were approved
by the directors and thereafter duly adopted by the shareholders of the
Corporation on the 20th day of August, 1999:
(a) Article FIFTH of the Certificate of Incorporation is hereby amended to
read in its entirety as follows:
"FIFTH: The business and affairs of the Corporation shall be manage
by or under the direction of a Board of Directors consisting of not less
than three directors or more than nine directors, the exact number of
directors to be determined from time to time solely by resolution adopted
by the Board of Directors. All directors shall be of one class and serve
for a term ending at the annual meeting following the annual meeting at
which the director was elected. Each director shall hold office after the
annual meeting at which his or her term is scheduled to end until his or
her successor shall be elected and shall qualify, subject, however, to
prior death, resignation, disqualification or removal from office. Any
newly created directorship resulting from an increase in the number of
directors may be filled by a majority of the Board of Directors then in
office, provided that a quorum is present, and any other vacancy on the
Board of Directors may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director."
(b) Article TWELFTH of the Certificate of Incorporation is deleted in its
entirety and is replaced with new Article TWELFTH which shall read in its
entirety as follows:
"TWELFTH: Subject to, and to the fullest extent permitted by,
N.J.S.A. 14A:2-
<PAGE>
7(3), as amended from time to time, no director or officer shall be liable
to the Corporation or to any of its shareholders for monetary damages for
breach of any duty as a director or officer, except with respect to (1) a
breach of a duty of loyalty to the Corporation or its shareholders; (2)
acts or omissions not in good faith or which involve a knowing violation
of law; or (3) a transaction from which the director or officer derived an
improper personal benefit."
3. The foregoing amendments to the Certificate of Incorporation were adopted
upon the receipt of the affirmative vote of a majority of the votes cast
by the holders of shares entitled to vote thereon at a meeting of the
shareholders of the Corporation held on August 20, 1999.
4. This amendment of the Certificate of Incorporation is to become effective
upon filing.
I, GERALD POSNER, President of Mikron Instrument Company, Inc., a New
Jersey corporation, do hereby certify that the aforementioned amendments to the
Certificate of Incorporation have been duly adopted pursuant to the procedures
set forth in N.J.S.A. 14A:9-2(4) at a meeting of the shareholders of the
Corporation upon the affirmative vote of a majority of the votes cast by the
holders of shares entitled to vote thereon, and that the Board of Directors of
Mikron Instrument Company, Inc. directed that the Amendment to the Certificate
of Incorporation be duly filed with the Secretary of State of New Jersey.
I do hereby certify that the Corporation is not in the hands of a
receiver, trustee or other court appointed officer.
--------------------------------
GERALD POSNER, President
Mikron Instrument Company, Inc.
16 Thornton Road
Oakland, New Jersey 07436
2
Exhibit 4.1
MIKRON INSTRUMENT COMPANY, INC.
OMNIBUS STOCK INCENTIVE PLAN
ARTICLE I
DEFINITIONS
1.01. Agreement means a written agreement between the Company and a Participant
or any written instrument issued by the Company to a Participant (including any
amendment or supplement thereto) specifying the terms and conditions of an award
of Restricted Shares or Performance Shares or a grant of an Option or SAR made
to such Participant.
1.02. Board means the Board of Directors of the Company.
1.03. Code means the Internal Revenue Code of 1986, as amended.
1.04. Committee means the Compensation Committee of the Board, consisting solely
of not less than two non-employee directors who have been appointed to
administer the Plan.
1.05. Common Stock means the Company's common stock, one-third cent par value.
1.06. Company means Mikron Instrument Company, Inc.
1.07. Corresponding SAR means a SAR that is granted in relation to a particular
Option and that can be exercised only upon the surrender to the Company,
unexercised, of that portion of the Option to which the SAR relates.
1.08. Date of Exercise means (i) with respect to an Option, the date that the
Option price is received by, and (ii) with respect to a SAR, the date that the
notice of exercise is received by, the Company.
1.09. Fair Market Value of the Common Stock shall be the mean between the
following prices, as applicable, for the date as of which fair market value is
to be determined, as quoted in The Wall Street Journal (or in such other
reliable publication as the Committee, in its discretion, may determine to rely
upon): (a) if the Common Stock is listed on the New York Stock Exchange, the
highest and lowest sales prices per share of the Common Stock as quoted in the
NYSE-Composite Transactions listing for such date, (b) if the Common Stock is
not listed on such exchange, the highest and lowest sales prices per share of
Common Stock for such date on (or on any composite index including) the
principal United States securities exchange registered under the Exchange Act on
which the Common Stock is listed, or (c) if the Common Stock is not listed on
any such exchange, the
<PAGE>
highest and lowest sales prices per share of the Common Stock for such date on
the Nasdaq Stock Market or any successor thereto ("Nasdaq"). If there are no
such sale price quotations for the date as of which fair market value is to be
determined, but there are such sale price quotations within a reasonable period
both before and after such date, then fair market value shall be determined by
taking a weighted average of the means between the highest and lowest sales
prices per share of the Common Stock as so quoted on the nearest date before and
the nearest date after the date as of which fair market value is to be
determined. The average should be weighted inversely by the respective numbers
of trading days between the selling dates and the date as of which fair market
value is to be determined. If there are no such sale price quotations on or
within a reasonable period both before and after the date as of which fair
market value is to be determined, then fair market value of the Common Stock
shall be the mean between the bona fide bid and asked prices per share of Common
Stock as so quoted for such date on Nasdaq, or if none, the weighted average of
the means between such bona fide bid and asked prices on the nearest trading
date before and the nearest trading date after the date as of which fair market
value is to be determined, if both such dates are within a reasonable period.
The average is to be determined in the manner described above in this paragraph.
If the fair market value of the Common Stock cannot be determined on the basis
previously set forth in this paragraph on the date as of which fair market value
is to be determined, the Committee shall in good faith determine the fair market
value of the Common Stock on such date. Fair market value shall be determined
without regard to any restriction other than a restriction which, by its terms,
will never lapse.
1.10. Incentive Stock Option shall have the meaning given to it by Section 422
of the Code.
1.11. Initial Value means, with respect to a SAR, the Fair Market Value of one
share of Common Stock on the date of grant, as set forth in an Agreement.
1.12. Involuntary Termination means a Termination of Employment for a reason
other than death, Retirement, Total Disability or voluntary resignation.
1.13. Non-Employee Director means a director who:
(a) is not currently an officer of the Company or a parent or subsidiary
of the Company, or otherwise currently employed by the Company or a parent or
subsidiary of the Company;
(b) does not receive compensation, either directly or indirectly, for
services rendered as a consultant or in any capacity other than as a director,
except for an amount which does not exceed the dollar amount for which
disclosure would be required pursuant to any provision of Regulations S-K
promulgated by the Commission;
(c) does not possess an interest in any other transaction for which
disclosure
2
<PAGE>
would be required by any provision of said Regulation S-K; and
(d) is not engaged in a business relationship for which disclosure would
be required by any provision of said Regulation S-K.
1.13 Nonstatutory Option means any Option granted by the Company pursuant to
this Plan which is not an Incentive Stock Option.
1.14. Option means any stock option that entitles the holder to purchase from
the Company a stated number of shares of Common Stock at the price set forth in
an Agreement including, but not limited to, an Incentive Stock Option, a
Nonstatutory Option and a Performance Option..
1.15. Participant means an employee of the Company, or of a Subsidiary,
including an employee who is a member of the Board, or a non-employee director,
and any other person who satisfies the requirements of Article IV and is
selected by the Committee or by the Board to receive a Restricted Share or
Performance Share award, an Option, a SAR, or a combination thereof.
1.16 Performance Option means an Option entitling the Participant to purchase
from the Company a stated number of shares of Common Stock at the price set
forth in an Agreement, the exercise of which is conditioned upon the achievement
of one or more of the Performance Targets set forth in such Option or the
Agreement.
1.17 Performance Period means an accounting period of the Company or a
Subsidiary of not less than one year, as determined by the Committee in its
discretion.
1.18. Performance Share means an award, expressed in dollars or shares of Common
Stock, granted to a Participant with respect to a Performance Period. Awards of
Performance Shares expressed in dollars may be established as fixed dollar
amounts, as a percentage of salary, as a percentage of a pool based on earnings
of the Company, a Subsidiary or Subsidiaries or any branch, department or other
portion thereof or in any other manner determined by the Committee in its
discretion, provided that the amount thereof shall be capable of being
determined as a fixed dollar amount as of the close of the Performance Period.
1.19 Performance Target means that level of performance established by the
Committee which must be met in order for an award of Performance Shares to be
fully earned. The Performance Target may be expressed in terms of earnings per
share, return on assets, asset growth, ratio of capital to assets or such other
level or levels of accomplishment by the Company, a Subsidiary or Subsidiaries,
any branch, department or other portion thereof or the Participant individually
as may be established or revised from time to time by the
3
<PAGE>
Committee.
1.20. Plan means the Mikron Instrument Company, Inc. Omnibus Stock Incentive
Plan.
1.21. Restricted Shares means shares of Common Stock awarded to a Participant
under Article VII. Shares of Common Stock shall cease to be Restricted Shares
when, in accordance with the terms of the applicable Agreement, they become
transferable and free of substantial risks of forfeiture.
1.22. Retirement means a Termination of Employment by reason of a Participant's
cessation of employment (or, in the case of a non-employee director, the
cessation of his or her tenure as such), other than by reason of a Total
Disability or Termination for Cause.
1.23. SAR means a stock appreciation right that entitles the holder to receive,
with respect to each share of Common Stock encompassed by the exercise of such
SAR, the amount determined by the Committee and specified in an Agreement. In
the absence of such a determination, the holder shall be entitled to receive,
with respect to each share of Common Stock encompassed by the exercise of such
SAR, the excess of the Fair Market Value on the Date of Exercise over the
Initial Value. References to "SARs" include both Corresponding SARs and SARs
granted independently of Options, unless the context requires otherwise.
1.24. Subsidiary means any "subsidiary corporation" as such term is defined in
Code section 424.
1.25. Termination of Employment means with respect to (a) Participants who are
employees of the Company or a Subsidiary, the time when the employee-employer
relationship between the Participant and the Company ceases to exist for any
reason including, but not limited to termination by resignation, discharge,
death, Total Disability or Retirement; and (b) Participants who are non-employee
directors, the time when the Participant ceases to be a director by reason of
his or her resignation, failure to stand for re-election or dismissal.
1.26. Termination for Cause means an Involuntary Termination of a Participant:
(a) if the Participant has a written employment agreement with the Company or
any Subsidiary, "for cause" as that or a similar term is defined in the
employment agreement; or (b) if the Participant does not have a written
employment agreement with the Company or any Subsidiary, by reason of (i) the
Participant's dishonesty or misconduct (including substance abuse) in the
performance of his or her duties; or (ii) a wilful failure by the Participant to
perform his or her assigned duties which adversely affects the Company; of (iii)
the conviction of the Participant of a felony or other criminal act. All
determinations of whether or not a Termination for Employment is "for cause"
will be made by the
4
<PAGE>
Committee in its sole and absolute discretion.
1.27. Total Disability means the inability of a Participant to engage in any
substantial gainful activity by reason of a medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12 months.
All determinations as to the date and extent of disability of a Participant will
be made by the Committee in its sole and absolute discretion.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company in recruiting and retaining
employees and directors with ability and initiative by enabling them to
participate in its future success and to associate their interests with those of
the Company and its shareholders. The Plan is intended to permit the award of
Restricted Shares, the award of Performance Shares, the grant of SARs, and the
grant of Performance Options, Incentive Stock Options and Nonstatutory Options.
The proceeds received by the Company from the sale of Common Stock pursuant to
this Plan shall be used for general corporate purposes.
ARTICLE III
ADMINISTRATION
Except as provided in this Article III, the Plan shall be administered by
the Committee. The Committee shall have authority to award Restricted Shares and
Performance Shares and to grant Options and SARs upon such terms (not
inconsistent with the provisions of this Plan) as the Committee may consider
appropriate. Such terms may include conditions (in addition to those contained
in this Plan) on the exercisability of all or any part of an Option or SAR or on
the transferability or forfeitability of Restricted Shares. Notwithstanding any
such conditions, the Committee may, in its discretion, accelerate the time at
which any Option or SAR may be exercised or the time at which Restricted Shares
may become transferable or nonforfeitable. In addition the Committee shall have
complete authority to interpret all provisions of this Plan; to prescribe the
form of Agreements; to adopt, amend, and rescind rules and regulations
pertaining to the administration of the Plan; and to make all other
determinations necessary or advisable for the administration of this Plan. The
express grant in the Plan of any specific power to the Committee shall not be
construed as limiting any power or authority of the Committee. Any decision
made, or action taken, by the Committee or in connection with the
5
<PAGE>
administration of this Plan shall be final and conclusive. No member of the
Committee shall be liable for any act done in good faith with respect to this
Plan or any Agreement, or Option, SAR, Restricted Share award or Performance
Share award. All expenses of administering this Plan shall be borne by the
Company.
The Committee, in its discretion, may delegate to one or more officers of
the Company all or part of the Committee's authority and duties with respect to
Participants who are not subject to the reporting and other provisions of
Section 16 of the Securities Exchange Act of 1934, as in effect from time to
time (the "Exchange Act"). In the event of such delegation, and as to matters
encompassed by the delegation, references in the Plan to the Committee shall be
interpreted as a reference to the Committee's delegate or delegates. The
Committee may revoke or amend the terms of a delegation at any time, but such
action shall not invalidate any prior actions of the Committee's delegate or
delegates that were consistent with the terms of the Plan.
In addition to, and not in substitution or replacement of, the powers and
authority conferred upon the Committee pursuant to this Plan, the Board shall
also be entitled to award Restricted Shares or Performance Shares and/or to
grant one or more Options, SARs, or Options and SARs to any eligible
Participant, and when it makes such awards and/or grants, all of the provisions
of this Plan which pertain to the Committee shall be construed as though the
word "Board" appeared in place of the word "Committee," and the Board shall
have, and shall be entitled to exercise, all of the powers and authority
conferred upon the Committee when making, amending, modifying canceling,
settling or rescinding any of such awards and/or grants.
ARTICLE IV
ELIGIBILITY
4.01. General. Any employee of the Company or of any Subsidiary (including any
corporation that becomes a Subsidiary after the adoption of this Plan) is
eligible to participate in this Plan if the Committee, in its sole discretion,
determines that such person has contributed or can be expected to contribute to
the profits or growth of the Company or a Subsidiary. Any such employee may be
awarded Restricted Shares or Performance Shares or may be granted one or more
Options, SARs, or Options and SARs. A director of the Company who is an employee
of the Company or a Subsidiary, and a non-employee director of the Company or a
Subsidiary, may be awarded Restricted Shares and Performance Shares and may be
granted Options or SARs under this Plan. Further, the Committee may from time to
time in its sole discretion award Restricted Shares and Performance Shares and
may grant Options or SARs to non-employees or non-key employees in conjunction
with mergers and acquisition transactions.
6
<PAGE>
4.02. Grants. The Committee will designate individuals to whom Restricted Shares
and Performance Shares are to be awarded and to whom Options and SARs are to be
granted and will specify the number of shares of Common Stock subject to each
award or grant. An Option may be granted with or without a related SAR. The
Committee may grant Incentive Stock Options and Nonstatutory Options to the same
Participant, but not in tandem. A SAR may be granted with or without a related
Option. All Restricted Shares and Performance Shares awarded, and all Options
and SARs granted, under this Plan shall be evidenced by Agreements which shall
be subject to the applicable provisions of this Plan and to such other
provisions as the Committee may adopt. No Participant may be granted Incentive
Stock Options or related SARs (under all Incentive Stock Option plans of the
Company and its Subsidiaries) which are first exercisable in any year for Common
Stock having an aggregate Fair Market Value (determined as of the date an Option
is granted) exceeding $100,000.
ARTICLE V
COMMON STOCK SUBJECT TO PLAN
5.01. Source of Shares. Upon the award of Restricted Shares and when a
Performance Share is earned, the Company may issue authorized but unissued
shares of Common Stock. Upon the exercise of an Option or SAR, the Company may
deliver to the Participant (or the Participant's broker if the Participant so
directs), authorized but unissued Common Stock.
5.02. Maximum Number of Shares. The maximum aggregate number of shares of Common
Stock that may be issued pursuant to the exercise of Options and SARs and the
award of Restricted Shares and the settlement of Performance Shares under this
Plan is 857,140, subject to increases and adjustments as provided in Article IX.
5.03. Forfeitures, etc. If an Option or SAR is terminated, in whole or in part
for any reason other than its exercise, the number of shares of Common Stock
allocated to the Option or SAR or portion thereof may be reallocated to other
Options, SARs granted, or Restricted Shares and Performance Share awards to be
granted under this Plan. Any Restricted Shares that are forfeited or Performance
Shares that are unearned may be reallocated to other Options or SARs granted, or
Restricted Shares awarded, under this Plan.
ARTICLE VI
OPTIONS AND STOCK APPRECIATION RIGHTS
6.01. Nonstatutory Options. The Committee may grant Nonstatutory Options under
this Plan. Such Nonstatutory Stock Options must comply with all applicable
requirements of
7
<PAGE>
this Plan except for those which pertain solely to Incentive Stock Options.
6.02. Incentive Stock Options. The Committee may grant Incentive Stock Options
under this Plan which shall comply with all of the restrictions and limitations
set forth in Section 422 of the Code. To the extent that any Option does not
qualify as an Incentive Stock Option, it shall constitute a Nonstatutory Stock
Option.
6.03. Performance Options. The Committee may grant Performance Options under
this Plan. All such options shall be Nonstatutory Options.
6.04. Vesting of Options. The Participant's Agreement shall specify the date or
dates on which the Participant may begin to exercise all or a portion of his
Option. Subsequent to such dates or dates, the Option shall be deemed "vested."
Notwithstanding the terms of any Agreement, the Committee at any time may
accelerate such date or dates and otherwise waive or amend any conditions of the
grant.
6.05. Grant and Exercise of SARs. SARs may be granted to Participants by the
Committee independently of any Option granted pursuant to this Article or as a
Corresponding SAR. In the case of a Corresponding SAR granted in tandem with a
Nonstatutory Option, such SAR may be exercised either at or after the time of
the exercise of such Nonstatutory Option. In the case of a Corresponding SAR
granted in tandem with an Incentive Stock Option, such SAR may be exercised only
at the time of the exercise of such Incentive Stock Option.
A Corresponding SAR, shall terminate and no longer be exercisable upon the
termination or exercise of related Option. However, if a Corresponding SAR is
granted with respect to less than the full number of shares covered by a related
Option, such SAR shall terminate only if and to the extent that the number of
shares covered by the exercise or termination of the related Option exceeds the
number of shares not covered by such SAR.
6.06. Exercise of Options and SARs Conditioned on Continuous Employment. Except
as otherwise provided in this Plan or by the Compensation Committee, no
Participant may exercise an Option or SAR unless at the time of exercise he or
she has been continuously in the employ of the Company or a Subsidiary since the
date of grant thereof.
6.07. Terms and Conditions of Stock Appreciation Rights. SARs shall be subject
to such terms and conditions as shall be determined from time to time by the
Committee and embodied in the Agreements and in procedures established by the
Committee. The Committee at any time may accelerate the exercisability of any
SAR and otherwise waive or amend any conditions of the grant of a SAR.
6.08. Maximum Option or Stock Appreciation Right Period. The maximum period in
8
<PAGE>
which an Option or SAR may be exercised shall be determined by the Committee on
the date of grant except that no Option that is an Incentive Stock Option and
any Corresponding SAR that relates to such Option shall be exercisable after the
expiration of ten years from the date the Option or SAR was granted. The terms
of any Option or SAR may provide that it is exercisable for a period less than
such maximum period.
6.09. Option Exercise Price. The price per share for Common Stock purchased on
the exercise of an Option shall not be less than 100% of the Fair Market Value
of the Common Stock on the date the Option is granted.
6.10. Payment of Option Exercise Price. Unless otherwise provided by the
Agreement, payment of the Option exercise price shall be made in cash or a cash
equivalent acceptable to the Committee. If the Agreement so provides, payment of
all or part of the exercise price may be made by surrendering shares of Common
Stock to the Company. If Common Stock is used to pay all or part of the exercise
price, the shares surrendered must have a Fair Market Value (determined as of
the day preceding the Date of Exercise) that is not less than such price or part
thereof.
6.11. Determination of Payment of Cash and/or Common Stock Upon Exercise of SAR.
At the Committee's discretion, the amount payable as a result of the exercise of
a SAR may be settled in cash, Common Stock, or a combination of cash and common
Stock. A Fractional share shall not be deliverable upon the exercise of a SAR
but a cash payment will be made in lieu thereof.
6.12. Reload Options. The Committee shall have the authority to specify at the
time of grant that a Participant shall be granted another Option (a "Reload
Option") in the event such Participant exercises all or part of a Nonstatutory
Option (an "Original Option") by surrendering in accordance with Section 6.10
hereof already owned shares of Common Stock in full or partial payment of the
exercise price under such Original Option, subject to the availability of shares
of Common Stock under the Plan at the time of exercise. Each Reload Option shall
cover a number of shares of Common Stock equal to the number of shares of Common
Stock surrendered in payment of the exercise price, shall have an exercise price
per share of Common Stock equal to the Fair Market Value of the Common Stock on
the date of grant of such Reload Option and shall expire on the stated
expiration date of the Original Option. A Reload Option shall be exercisable at
any time and from time to time from and after the date of grant of such Reload
Option (or, as the Committee, in its sole discretion, shall determine at the
time of grant, at such time or times as shall be specified in the Reload
Option); provided, however, that a Reload Option granted to a Participant
subject to the provisions of Section 16(b) of the Exchange Act shall not be
exercisable during the first six months from the date of grant of such Reload
Option. The first such Reload Option may provide for the grant, when exercised,
of one subsequent Reload Option to the extent and upon such terms and
conditions, consistent with this
9
<PAGE>
Section 6.12, as the Committee, in its sole discretion, shall specify at or
after the time of grant of such Reload Option. A Reload Option shall contain
such other terms and conditions which may include a restriction on the
transferability of the number of shares of Common Stock received upon exercise
of the Original Option reduced by a number of shares equal in value to the tax
liability incurred upon exercise as the Committee, in its sole discretion, may
deem desirable which may be set forth in the Agreement evidencing the Reload
Option.
6.13. Nontransferability. Any Option or SAR granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution. In
the event of any such transfer, the Option and any Corresponding SAR that
relates to such Option must be transferred to the same person or persons or
entity or entities. During the lifetime of a Participant to whom an Option or
SAR is granted, the Option or SAR may be exercised only by the Participant. No
right or interest of a Participant in any Option or SAR shall be liable for, or
subject to, any lien, obligation, or liability of such Participant.
6.14. Cancellation and New Grant of Options. The Committee shall have the
authority to effect, at any time, and from time to time, with the consent of the
affected Participants, the cancellation of any or all outstanding Options under
the Plan and the grant in substitution therefor of new Options under the Plan
covering the same or different numbers of shares of Common Stock having an
Option exercise price per share which may be lower or higher than the exercise
price per share of the canceled Options.
6.15. Shareholder Rights. No Participant shall have any rights as a shareholder
with respect to shares subject to an Option or SAR until the Date of Exercise of
such Option or SAR.
6.16. Retirement of Holder of Options or Stock Appreciation Rights. If there is
a Termination of Employment of a Participant to whom an Option and/or SAR has
been granted due to Retirement, each Incentive Stock Option held by the retired
Participant, whether or not then vested, may be exercised until the earlier of
(a) the end of the three month period immediately following the date of such
Termination of Employment; or (b) the expiration of the term specified in the
Option or SAR. In the case of a Nonstatutory Option, there shall be substituted
the words, "the end of the twelve month period" for the words "the end of the
three month period" in the immediately preceding sentence.
6.17. Total Disability of Holder of Options or Stock Appreciation Rights. If
there is a Termination of Employment of a Participant to whom an Option and/or a
SAR has been granted by reason of his or her Total Disability, each Option
and/or SAR held by the Participant, whether or not then vested, may be exercised
until the earlier of: (a) the end of the twelve month period immediately
following the date of such Termination of Employment; or (b) the expiration of
the term specified in the Option or SAR.
10
<PAGE>
6.18. Death of Holder of Options or Stock Appreciation Rights. If there is a
Termination of Employment of a Participant to whom an Option or SAR has been
granted by reason of his or her death, or (b) the death of a former employee
within three months following the date of his or her Retirement (or, in the case
of a Non-statutory Option, within twelve months following the date of his or her
Retirement), or (c) the death of a former employee within twelve months
following the date of his or her Termination of Employment by reason of Total
Disability, then each Option and SAR held by the person at the time of his or
her death, whether or not then vested, may be exercised by the person or persons
to whom the Option or SAR shall pass by will or by the laws of descent and
distribution (but by no other persons) until the earlier of (i) the end of the
twelve month period immediately following the date of death (or such longer
period as is permitted by the Committee); and (ii) the expiration of the term
specified in the Option or SAR.
6.19. Termination of Employment for Cause: Voluntary Termination Prior to
Retirement. If there is a Termination of Employment for Cause of a Participant
to whom an Option or SAR has been granted under this Plan, or if a Participant
voluntarily terminates his or her employment prior to Retirement (other than by
reason of Total Disability), then all Options and SARs held by such Participant,
whether or not then vested, shall automatically be canceled at the time of such
Termination of Employment and shall be of no further force or effect thereafter.
This section shall not affect any Common Stock acquired by the Participant upon
exercise of Options or SARs prior to such Termination of Employment by the
Participant.
ARTICLE VII
RESTRICTED SHARE AWARDS
7.01. Award. In accordance with the provisions of this Article VII, the
Committee will designate each individual to whom an award of Restricted Shares
is to be made and will specify the number of shares of Common Stock covered by
the award.
7.02. Vesting. The Committee, on the date of the award, may prescribe that a
Participant's rights in the Restricted Shares shall be forfeitable or otherwise
restricted for a period of time set forth in the Agreement. By way of example
and not of limitation, the restrictions may postpone transferability of the
shares or may provide that the shares will be forfeited if the Participant
separates from the service of the Company and its Subsidiaries before the
expiration of a stated term or if the Company and its Subsidiaries or the
Participant fail to achieve stated objectives.
7.03. Shareholder Rights; Escrow. Prior to their forfeiture in accordance with
the terms as the Agreement and while the shares are Restricted Shares, a
Participant will have all
11
<PAGE>
rights of a shareholder with respect to Restricted Shares, including the right
to receive dividends and vote the shares; provided, however, that (a) a
Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of Restricted Shares, (b) the Company shall retain custody of the
certificates evidencing Restricted Shares and (c) the Participant will deliver
to the Company a stock power, endorsed in blank, with respect to each award of
Restricted Shares. The limitations set forth in the preceding sentence shall not
apply after the shares cease to be Restricted Shares.
7.04 Restricted Share Agreement. Restricted Share awards shall be evidenced by
an Agreement in the form prescribed by the Committee which shall set forth such
terms, conditions and restrictions as the Committee in its discretion deems
appropriate. Restricted Share awards shall be effective only upon execution of
the applicable Agreement on behalf of the Company by the Chief Executive Officer
(if other than the President), the President or any Vice President, and by the
Participant.
ARTICLE VIII
PERFORMANCE SHARE AWARDS; PERFORMANCE OPTION GRANTS
8.01 Award and Grant. The Committee may award Performance Shares and grant
Performance Options which shall be earned by a Participant based on the level of
performance over a specified period of time by the Company, a Subsidiary or
Subsidiaries, any branch, department or other portion thereof or the Participant
individually, as determined by the Committee.
8.02 Procedure for Earning Award or Grant. A Participant shall earn awarded
Performance Shares, and shall be entitled to exercise granted Performance
Options by meeting the Performance Target for the Performance Period. If the
Minimum Target has not been attained at the end of the Performance Period, no
part of the Performance Share shall have been earned by the Participant, and no
part of the Performance Option grant for such Performance Period shall be
exercisable. If the Minimum Target is attained but the Performance Target is not
attained, the portion of the Performance Share award earned by the Participant,
or the portion of the Performance Option grant which shall be exercisable by the
Participant, shall be determined on the basis of a formula established by the
Committee.
8.03 Adjustments to Awards and Grants. At any time prior to the end of a
Performance Period, the Committee may adjust downward (but not upward) the
Performance Target and/or the Minimum Target as a result of major events
unforeseen at the time of the Performance Share award or Performance Option
grant, such as changes in the economy, the industry, laws affecting the
operations of the Company or a Subsidiary
12
<PAGE>
or any other event the Committee determines would have a significant impact upon
the probability of attaining the previously established Performance Target.
8.04 Payment of Awards. Payment of earned Performance Shares shall be made to
Participants following the close of the Performance Period as soon as
practicable after the time the amount payable is determined by the Committee.
Payment in respect of earned Performance Shares, whether expressed in dollars or
shares, may be made in cash, in shares of Common Stock, or partly in cash and
partly in shares of Common Stock, as determined by the Committee at the time of
payment. For this purpose, Performance Shares expressed in dollars shall be
converted to shares, and Performance Shares expressed in shares shall be
converted to dollars, based on the Fair Market Value of the Common Stock as of
the date the amount payable is determined by the Committee.
8.04 Effects of Termination of Employment. If prior to the close of the
Performance Period the employment of a Participant who received an award of
Performance Shares or a grant of Performance Options is voluntarily terminated
with the consent of the Company or a Subsidiary or the Participant retires, or
if the Participant dies during employment, (a) the Committee may in its absolute
discretion determine to pay all or any part of the Performance Share award based
upon the extent to which the Committee determines the Performance Target or
Minimum Target has been achieved as of the date of termination of employment,
retirement or death, the period of time remaining until the close of the
Performance Period and/or such other factors as the Committee may deem relevant;
and (b) the exercisability of the Performance Option shall be governed by the
applicable provisions of Article VI, unless the Committee, in its absolute
discretion, determines otherwise. If the Committee in its discretion determines
that all or any part of the Performance Share award shall be paid, payment shall
be made to the Participant or his or her estate as promptly as practicable
following such determination and may be made in cash, in shares of Common Stock,
or partly in cash and partly in shares of Common Stock, as determined by the
Committee at the time of the payment. For this purpose, Performance Shares
expressed in dollars shall be converted to shares, and Performance Shares
expressed in shares shall be converted to dollars, based on the Fair Market
Value of the Common Stock as of the date the amount payable is determined by the
Committee.
If, prior to the close of a Performance Period, a Termination of
Employment of a Participant who received an award of Performance Shares occurs
for any reason other than voluntary termination with the consent of the Company
or a Subsidiary, Retirement or death, the Performance Shares of the Participant
shall be deemed not to have been earned, and no portion of such Performance
Shares may be paid. Whether Termination of Employment is a voluntary termination
with the consent of the Company or a Subsidiary shall be determined, in its
discretion, by the Committee. Any determination by the Committee on any matter
with respect to Performance Shares shall be final and binding on both the
Company and the awardee.
13
<PAGE>
8.05 Performance Share Agreement. Performance Share awards shall be evidenced by
an Agreement in the form prescribed by the Committee which shall set forth the
amount or manner of determining the amount of the Performance Shares, the
Performance Period, the Performance Target and any Minimum Target and such other
terms and conditions as the Committee in its discretion deems appropriate.
Performance Share awards shall be effective only upon execution of the
applicable Performance Share Agreement on behalf of the Company by the Chief
Executive Officer (if other than the President), the President or any Vice
President, and by the Participant.
ARTICLE IX
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares that may be issued pursuant to the exercise
of Options and SARs and the award of Restricted Shares and the settlement of
Performance Shares under this Plan shall be proportionately adjusted, and the
terms of outstanding Restricted Share awards, Performance Share Awards, Options,
and SARs shall be adjusted, as the Committee shall determine to be equitably
required in the event that (a) the Company (i) effects one or more stock
dividends, stock split-ups, subdivisions or consolidations of shares or (ii)
engages in a transaction to which Code section 424 applies or (b) there occurs
any other event which, in the judgment of the Committee necessitates such
action. Any determination made under this Article IX by the Committee shall be
final and conclusive.
The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, outstanding
awards of Restricted Shares, Performance Shares, Options or SARs.
The Committee may award Restricted Shares and Performance Shares, may
grant Options, and may grant SARs in substitution for stock awards, stock
options, stock appreciation rights, or similar awards held by an individual who
becomes an employee of the Company or a Subsidiary in connection with a
transaction described in the first paragraph of this Article IX. Notwithstanding
any provision of the Plan (other than the limitations of Article V), the terms
of such substituted Restricted Share and Performance Share awards and Option or
SAR grants shall be as the Committee, in its discretion, determines is
appropriate.
ARTICLE X
14
<PAGE>
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Option or SAR shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with all applicable federal and
state laws and regulations (including, without limitation, withholding tax
requirements) and the rules of all domestic stock exchanges on which shares may
be listed. The Company shall have the right to rely on an opinion of its counsel
as to such compliance. Any share certificate issued to evidence Common Stock for
which Restricted Shares are awarded, Performance Shares were earned or for which
an Option or SAR is exercised may bear such legends and statements as the
Committee may deem advisable to assure compliance with federal and state laws
and regulations. No Option or SAR shall be exercisable, no Common Stock shall be
issued, no certificate for shares shall be delivered, and no payment shall be
made under this Plan until the Company has obtained such consent or approval as
the Committee may deem advisable from regulatory bodies having jurisdiction over
such matters.
ARTICLE XI
GENERAL PROVISIONS
11.01. Effect on Employment. Neither the adoption of this Plan, its operation,
nor any documents describing or referring to this Plan (or any part thereof)
shall confer upon any employee any right to continue in the employ of the
Company or a Subsidiary or in any way affect any right and power of the Company
or a Subsidiary to terminate the employment of any employee at any time with or
without assigning a reason therefor.
11.02. Unfunded Plan. The Plan, insofar as it provides for grants and awards,
shall be unfunded, and the Company shall not be required to segregate any assets
that may at any time be represented by grants or awards under this Plan. Any
liability of the Company to any person with respect to any grant under this Plan
shall be based solely upon any contractual obligations that may be created
pursuant to this Plan. No such obligation of the Company shall be deemed to be
secured by any pledge of, or other encumbrance on, any property of the Company
or any Subsidiary
11.03. Rules of Construction. Headings are given to the articles and sections of
this Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation, or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
11.04. Employee Status. For purposes of determining the applicability of Code
section 422 (relating to Incentive Stock Options), or in the event that the
terms of any Option or SAR
15
<PAGE>
provide that it may be exercised or that awards of Restricted Shares or
Performance Shares may become vested or earned only during employment or within
a specified period of time after Termination of Employment, the Committee may
decide to what extent leaves of absence for governmental or military service,
illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment.
11.05 Tax Withholding. Each Participant shall, no later than the date as of
which the value of a grant of an Option or SAR, or an award of any Restricted
Shares or Performance Shares or other amount received thereunder first becomes
includable in the gross income of the Participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of any Federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Committee may permit payment
of such taxes to be made through the tender of cash or Common Stock, the
withholding of Common Stock or cash to be received through grants or awards of
any other arrangement satisfactory to the Committee. The Company and its
Subsidiaries shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the Participant.
11.06 Indemnification. No member of the Board or the Committee shall be liable
for any action or determination taken or made in good faith with respect to this
Plan nor shall any member of the Board or the Committee be liable for any
Agreement issued pursuant to this Plan or any grants or awards made under it.
Each member of the Board and the Committee shall be indemnified by the Company
against any losses incurred in such administration of the Plan, unless his or
her action constitutes serious and willful misconduct.
11.07 Other Compensation Plans. The adoption of the Plan shall not affect any
other existing or future incentive or compensation plans for directors, officers
or employees of the Company or its Subsidiaries. Moreover, the adoption of this
Plan shall not preclude the Company or its Subsidiaries from: (a) establishing
any other forms for incentive or other compensation for directors, officers or
employees of the Company or its Subsidiaries; or (b) assuming any forms of
incentives or other compensation of any person or entity in connection with the
acquisition or the business or assets, in whole or in part, of any person or
entity.
11.08 Non-Contravention of Securities Laws. Notwithstanding anything to the
contrary expressed in this Plan, any provisions hereof that vary from or
conflict with any applicable Federal or State securities laws (including any
regulations promulgated thereunder) shall be deemed to be modified to conform to
and comply with such laws.
11.09 Unenforceability of a Particular Provision. The unenforceability of any
particular provision of this document shall not affect the other provisions, and
the document shall be
16
<PAGE>
construed in all respects as if such unenforceable provision were omitted.
ARTICLE XII
AMENDMENT
The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is
obtained if (i) the amendment increases the aggregate number of shares of Common
Stock that may be issued under the Plan or (ii) the amendment changes the class
of individuals eligible to become Participants. No amendment shall, without a
Participant's consent, adversely affect any rights of such Participant under any
outstanding Restricted Share or Performance Share award or under any Option or
SAR outstanding at the time such amendment is made.
ARTICLE XIII
DURATION OF PLAN
No Restricted Shares or Performance Shares may be awarded and no Option or
SAR may be granted under this Plan after October 31, 2004. Restricted Share and
Performance Share awards and Option and SAR grants made before that date shall
remain valid in accordance with their terms.
Restricted Shares and Performance Shares may be awarded and Options and
SARs may be granted under this Plan upon its adoption by the Board, provided
that no Restricted Share or Performance Share award, or Option or SAR grant will
be effective unless this Plan is approved by a majority of the Company's
shareholders voting either in person or by proxy at a duly held shareholders'
meeting within twelve months of such adoption.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at july 31, 1999 and the Statement of Operations for the period ended July
31, 1999, as included in this Form 10Q-SB, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 1,287,365
<SECURITIES> 0
<RECEIVABLES> 1,008,899
<ALLOWANCES> (83,000)
<INVENTORY> 2,125,690
<CURRENT-ASSETS> 4,375,586
<PP&E> 1,049,433
<DEPRECIATION> (810,136)
<TOTAL-ASSETS> 4,678,865
<CURRENT-LIABILITIES> 436,935
<BONDS> 0
0
0
<COMMON> 12,857
<OTHER-SE> 4,229,073
<TOTAL-LIABILITY-AND-EQUITY> 4,678,865
<SALES> 4,971,653
<TOTAL-REVENUES> 5,070,646
<CGS> 2,329,736
<TOTAL-COSTS> 5,336,973
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (247,922)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (247,922)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
