<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
COMMISSION FILE NUMBER: 1-12881
LONE STAR TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
14681 MIDWAY ROAD, SUITE 200
DALLAS, TEXAS 75244
972/386-3981
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 75-2085454
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
As of July 12, 1999, the number of shares of Common Stock outstanding at
$1.00 par value per share was 22,586,373.
- ------------------------------------------------------------------------------
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<PAGE>
LONE STAR TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Earnings.............................. 3
Consolidated Balance Sheets.......................................4
Consolidated Statements of Cash Flows.............................5
Notes to Consolidated Financial Statements........................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..............................7
Results of Operations.............................................8
Financial Condition and Liquidity.................................9
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............10
Item 5. OTHER INFORMATION................................................10
Item 6. REPORTS ON FORM 8-K..............................................10
</TABLE>
In the opinion of management, the unaudited consolidated financial statements
include all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the financial position as of June 30, 1999 and the
cash flows and the results of operations for the three months and six months
ended June 30, 1999 and 1998. Unaudited financial statements are prepared on a
basis substantially consistent with those audited for the year ended December
31, 1998. The results of operations for the interim periods presented may not be
indicative of total results for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations promulgated by the Securities and Exchange
Commission. However, management believes that the disclosures contained herein
are adequate to make the information presented not misleading. Certain
reclassifications of prior period amounts have been made to conform with the
current period. The unaudited financial statements should be read in conjunction
with the audited financial statements and accompanying notes in Lone Star
Technologies, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998.
2
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED; IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------------------ -------------------------
<S> <C> <C> <C> <C>
Net revenues $ 77.2 129.0 $ 140.9 280.0
Cost of goods sold (77.7) (121.3) (143.6) (256.9)
--------------------------------------------------------------
Gross earnings (loss) (0.5) 7.7 (2.7) 23.1
Selling, general and administrative expenses (3.6) (5.1) (7.4) (10.2)
--------------------------------------------------------------
Operating earnings (loss) (4.1) 2.6 (10.1) 12.9
Interest income 0.4 0.5 0.8 1.0
Interest expense (1.0) (1.0) (1.9) (1.7)
Other income (expense) (0.1) 0.1 (0.2) 0.1
--------------------------------------------------------------
Earnings (loss) before income tax (4.8) 2.2 (11.4) 12.3
Income tax - - - (0.2)
--------------------------------------------------------------
NET EARNINGS (LOSS) $ (4.8) 2.2 $ (11.4) 12.1
===========================================================================================================================
Per common share - basic:
NET EARNINGS (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (0.21) 0.09 $ (0.51) 0.53
===========================================================================================================================
Per common share - diluted:
NET EARNINGS (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (0.21) 0.09 $ (0.51) 0.52
===========================================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20.7 $ 20.9
Short-term investments 1.1 3.1
Accounts receivable, net 41.9 36.3
Current inventories, net 77.5 88.9
Other current assets 3.4 3.7
-------------------------------------------
TOTAL CURRENT ASSETS 144.6 152.9
Marketable securities 11.0 9.0
Property, plant, and equipment, net 153.1 157.8
Other noncurrent assets 16.0 16.1
-------------------------------------------
TOTAL ASSETS $ 324.7 $ 335.8
================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Current portion of term loan $ 2.0 $ -
Accounts payable 27.7 15.8
Accrued liabilities 20.2 25.6
-------------------------------------------
TOTAL CURRENT LIABILITIES 49.9 41.4
-------------------------------------------
Term loan 8.0 -
Revolving credit facility 29.0 46.0
Postretirement benefit obligations 43.3 41.5
Other noncurrent liabilities 16.1 17.8
-------------------------------------------
TOTAL LIABILITIES 146.3 146.7
-------------------------------------------
Commitments and contingencies (See Note 6) - -
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value
(authorized: 10,000,000 shares, issued: none) - -
Common stock, $1 par value
(authorized: 80,000,000 shares, issued: 23,061,864) 23.1 23.1
Capital surplus 209.9 209.9
Accumulated other comprehensive loss (12.8) (12.8)
Retained deficit (26.9) (15.5)
Treasury stock (475,491 and 566,116 common shares, respectively) (14.9) (15.6)
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 178.4 189.1
-------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 324.7 $ 335.8
================================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN MILLIONS)
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
BEGINNING CASH AND CASH EQUIVALENTS $ 23.1 5.2 $ 20.9 14.2
==========================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) (4.8) 2.2 (11.4) 12.1
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 4.1 3.9 8.3 7.7
Accounts receivable, net (8.1) 6.2 (5.6) 7.0
Current inventories, net (3.1) (17.0) 11.4 (30.8)
Accounts payable and accrued liabilities 9.8 10.0 6.5 (9.5)
Other 3.3 (3.2) (0.1) 0.2
--------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1.2 2.1 9.1 (13.3)
--------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1.6) (5.4) (3.0) (10.8)
Short-term investments - - 2.0 4.0
Marketable securities (4.0) 1.1 (2.0) 1.1
--------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (5.6) (4.3) (3.0) (5.7)
--------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - - 10.0 -
Initial borrowings under new revolving credit facility - - 34.0 -
Net borrowings (payments) under revolving credit facility 1.3 14.0 (7.0) 21.0
Net payments under old revolving credit facility - - (44.0) -
Treasury stock purchases - (1.2) - (1.5)
Issuance of common stock 0.7 0.1 0.7 1.2
--------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2.0 12.9 (6.3) 20.7
--------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2.4) 10.7 (0.2) 1.7
ENDING CASH AND CASH EQUIVALENTS $ 20.7 15.9 $ 20.7 15.9
==========================================================================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BUSINESS SEGMENTS DATA
<TABLE>
<CAPTION>
(in millions) (in millions)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
OILFIELD PRODUCTS
Net revenues $ 37.2 80.1 $ 67.2 178.9
Operating earnings (loss) (4.0) 2.3 (8.6) 11.0
Identifiable assets 145.0 244.2 145.0 244.2
Capital expenditures 0.5 3.0 1.1 6.0
Depreciation and amortization 2.1 2.3 4.3 4.6
SPECIALTY TUBING
Net revenues $ 29.7 32.2 $ 56.4 67.6
Operating earnings 2.2 1.7 2.6 4.6
Identifiable assets 124.6 123.7 124.6 123.7
Capital expenditures 1.1 2.4 1.9 4.7
Depreciation and amortization 1.8 1.4 3.6 2.7
FLAT ROLLED STEEL AND OTHER TUBULAR PRODUCTS
Net revenues $ 10.3 16.7 $ 17.3 33.5
Operating loss (1.6) (0.5) (2.8) (1.0)
Identifiable assets 17.6 21.6 17.6 21.6
Capital expenditures - - - 0.1
Depreciation and amortization 0.2 0.2 0.4 0.4
CORPORATE AND OTHER NON-SEGMENTS
Net revenues $ - - $ - -
Operating loss (0.7) (0.9) (1.3) (1.7)
Identifiable assets 37.5 40.5 37.5 40.5
CONSOLIDATED TOTALS
Net revenues $ 77.2 129.0 $ 140.9 280.0
Operating earnings (loss) (4.1) 2.6 (10.1) 12.9
Identifiable assets 324.7 430.0 324.7 430.0
Capital expenditures 1.6 5.4 3.0 10.8
Depreciation and amortization 4.1 3.9 8.3 7.7
</TABLE>
NOTE 2 - LONE STAR STEEL COMPANY ("STEEL") REVOLVING CREDIT AGREEMENT
Steel has a $90.0 million revolving line of credit and a three year $10.0
million term loan. Under the revolving credit facility, Steel can borrow an
amount based on a percentage of eligible accounts receivable and inventories,
reduced by outstanding letters of credit. At June 30, 1999, borrowings
totaled $39.0 million including the term loan with a remaining availability
of $44.5 million. At Steel's option, the interest rate is the prime lending
rate plus 1.0% or the LIBOR plus 3.0%. Steel also pays a 0.375% per annum fee
on the unused portion of the credit facility. The term loan is repayable in
quarterly installments of $0.5 million, plus interest at the prime lending
rate plus 1.5% or the LIBOR plus 3.5%. Steel's assets other than real estate
secure these loans.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common
6
<PAGE>
stock. The numbers of shares used to compute basic earnings per share for the
three months ended June 30, 1999 and 1998, respectively, were 22.5 million and
22.6 million, and the six months ended June 30, 1999 and 1998, were 22.5 million
and 22.6 million, respectively. Diluted earnings per share is computed by
dividing net income by the weighted average number of shares of common stock and
other dilutive securities. The numbers of shares used to compute dilutive
earnings per share for the three months ended June 30, 1999 and 1998, were 22.5
million and 22.9 million, respectively, and the six months ended June 30, 1999
and 1998, were 22.5 million and 23.0 million, respectively.
NOTE 4 - INVENTORIES
At June 30, 1999, inventories totaled $104.0 million before LIFO reserves and
were composed of finished goods, $31.3 million; work in process, $32.3 million;
and raw materials and supplies, $40.4 million. Net of LIFO reserves of $19.0
million, inventories were $85.0 million, of which $7.5 million (consisting of
supplies and spare parts) were classified as noncurrent assets.
NOTE 5 - CASH, INVESTMENTS, AND MARKETABLE SECURITIES
Lone Star Technologies, Inc.'s (Lone Star) cash equivalents include highly
liquid investments in a fund consisting of U.S. government and related agencies
obligations with original maturities of less than three months. Short-term
investments consist of U.S. government and related agencies obligations with
maturities at purchase greater than three months and up to one year. Marketable
securities consist of U.S. government and related agencies obligations with
maturities at purchase greater than one year and up to two years. Lone Star's
total cash equivalents, short-term investments and marketable securities, the
weighted average maturity of which is less than one year, are classified as
held-to-maturity because Lone Star has the intent and ability to hold them to
maturity.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Steel has various commitments for the purchase of raw materials, certain tubular
goods, supplies, services, and energy arising in the ordinary course of
business. The majority of these commitments are for a period of less than one
year.
Steel's operations are subject to numerous environmental laws. The three major
areas of regulation are air quality, water quality, and solid and hazardous
waste management. The primary governmental oversight agencies include the Texas
Natural Resource Conservation Commission and the Environmental Protection
Agency. Steel has agreements with these agencies to conduct numerous
environmental studies and to develop plans to ensure continuous compliance with
applicable laws and regulations. Steel is engaged in various ongoing
environmental studies, monitoring programs, and capital projects. Steel believes
that its environmental expenditures will continue to fall within its
contemplated operating and capital plans.
NOTE 7 - INCOME TAXES
Lone Star had federal tax net operating loss carryforwards of approximately
$245.6 million at December 31, 1998, a portion of which may be related to
American Federal Bank (AFB), a previous subsidiary of Lone Star, and subject to
an agreement with the Federal Deposit Insurance Corporation (FDIC) whereby Lone
Star may be required to pay the FDIC for certain tax benefits. Because of the
net losses for the three months and six months ended June 30, 1999, no
provisions for taxes were recognized in these periods. A provision for
alternative minimum tax of $.02 million was recognized for the six months ended
June 30, 1998. If not utilized, the net operating loss carryforwards will expire
between years 2003 and 2013.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Lone Star Technologies, Inc. (Lone Star) is a management and holding company
whose principal operating subsidiary, Lone Star Steel Company (Steel),
manufactures and globally markets oilfield products consisting of casing, tubing
and line pipe to the oil and gas drilling industry, specialty tubing products to
automotive, fluid power, and other markets for various mechanical applications,
and flat rolled steel and other tubular products to domestic industrial markets.
Substantial uncertainty exists regarding the future levels of oil and gas prices
and related drilling activity. Therefore, no assurance can be given regarding
the extent of future demand for Steel's oilfield products.
7
<PAGE>
RESULTS OF OPERATIONS
Revenues of $77.2 million for the three months ended June 30, 1999 decreased 40%
from the second quarter of 1998. Revenues comprised $37.2 million from oilfield
products, $29.7 million from specialty tubing products, and $10.3 million from
flat rolled steel and other tubular products, representing a decrease of 54%,
8%, and 38%, respectively.
Revenues for the first six months of 1999 of $140.9 million were 50% lower than
the same 1998 period. Oilfield, specialty tubing, and flat rolled steel and
other tubular products revenues declined 62%, 17% and 48%, respectively.
Second quarter 1999 shipments decreased 29% when compared to the same period
1998 to 135,300 tons and consisted of 73,300 tons of oilfield products, 28,200
tons of specialty tubing products and 33,800 tons of flat rolled steel and other
tubular products. Oilfield products, specialty tubing products, and flat rolled
steel and other tubular products shipments decreased by 37%, 4%, and 27%,
respectively.
Consolidated revenues reported in the statements of earnings are as follows:
<TABLE>
<CAPTION>
($ in millions) ($ in millions)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1999 % 1998 % 1999 % 1998 %
---- - ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oilfield products revenues 37.2 48 80.1 62 67.2 48 178.9 64
Specialty tubing products revenues 29.7 39 32.2 25 56.4 40 67.6 24
Flat rolled steel and other tubular products revenues 10.3 13 16.7 13 17.3 12 33.5 12
---- -- ---- -- ---- -- ---- --
Consolidated net revenues 77.2 100 129.0 100 140.9 100 280.0 100
---- --- ----- --- ----- --- ----- ---
---- --- ----- --- ----- --- ----- ---
</TABLE>
Shipments of products by segment are as follows:
<TABLE>
<CAPTION>
(in tons) (in tons)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1999 % 1998 % 1999 % 1998 %
---- - ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oilfield products 73,300 54 115,900 61 129,200 54 251,400 62
Specialty tubing products 28,200 21 29,300 15 52,700 22 61,400 15
Flat rolled steel and other tubular products 33,800 25 46,000 24 57,100 24 90,800 23
------ -- ------ -- ------ -- ------ --
Total tons shipped 135,300 100 191,200 100 239,000 100 403,600 100
------- --- ------- --- ------- --- ------- ---
------- --- ------- --- ------- --- ------- ---
</TABLE>
Decreased revenues for the second quarter of 1999 were due to reduced shipment
volumes and prices for all products. Demand for oilfield products declined as
the active rig count continued falling to a record low of 488 during the
quarter. Shipments of specialty tubing were down due to reduced demand in
certain Asian markets. Flat rolled steel and other tubular markets were weak due
to the continued effect of low-priced imports on the domestic market.
The gross loss and operating loss for the three months ended June 30, 1999 was
$0.5 million and $4.1 million, respectively, compared to gross earnings and
operating earnings of $7.7 million and $2.6 million, respectively, for the same
1998 period. The gross loss and operating loss were due to lower realized prices
and shipments in Lone Star's three business segments. Significantly decreased
production volumes also negatively impacted gross and operating margins as fixed
and semi-fixed costs were absorbed by fewer units of production.
The net loss from second quarter of 1999 was $4.8 million, or $.21 per diluted
share.
8
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Lone Star has no direct business operations other than Steel or significant
sources of cash other than from investments or the sale of securities. Lone Star
is reimbursed by Steel for most of its operating costs as provided by its
cost-sharing agreement with Steel. Under Steel's new revolving credit agreement,
Lone Star's operating costs and Steel's portion of Lone Star's consolidated
taxes are the only funds that can be distributed to Lone Star.
At June 30, 1999, Lone Star had available cash and cash equivalents, short-term
investments, and marketable securities of $32.8 million, compared to $33.0
million at December 31, 1998. Lone Star has no immediate cash requirements as
Steel reimburses Lone Star for those expenses incurred for Steel's benefit under
a cost-sharing plan. Lone Star has no debt.
Steel requires capital primarily to fund general working capital needs and
capital expenditures. Principal sources of funds include cash generated by
operations, borrowings under Steel's revolving credit facility and from Lone
Star.
Steel has a $90.0 million revolving line of credit. Under the revolving credit
facility, Steel can borrow an amount based on a percentage of eligible accounts
receivable and inventories, reduced by outstanding letters of credit. At June
30, 1999, borrowings totaled $39.0 million including the term loan with a
remaining availability of $44.5 million. At Steel's option, the interest rate is
the prime lending rate plus 1.0% or the LIBOR plus 3.0%. Steel also pays a
0.375% per annum fee on the unused portion of the credit facility. The term loan
is repayable in quarterly installments of $0.5 million, plus interest at the
prime lending rate plus 1.5% or the LIBOR plus 3.5%. Steel's assets other than
real estate secure these loans.
Steel's operations are subject to numerous environmental laws. The three major
areas of regulation are air quality, water quality, and solid and hazardous
waste management. Steel believes that its environmental expenditures will
continue to fall within its contemplated operating and capital plans.
YEAR 2000. In order to prepare Lone Star and Steel for the Year 2000, a plan has
been implemented detailing a process to ensure that its various computer systems
are or become Year 2000 compliant. This plan encompasses three primary areas:
business systems (both hardware and software), communications equipment, and
manufacturing equipment. The various stages in this process include assessment
(identifying systems which need change), remediation (making changes in the
software or hardware), verification (testing the changes), and implementation of
the Year 2000 compliant systems. All stages of the process were completed for
the business systems hardware and software and communication equipment of Lone
Star and Steel and they are now Year 2000 compliant. All of the manufacturing
equipment has been assessed at June 30, 1999 with minimal changes required.
This plan also entails assessing certain Year 2000 risks related to third party
relationships through communications with key suppliers and customers. The
processes described above will be performed on identified third party issues
that are correctable. For those key suppliers and customers that may be
identified as a concern, such concerns will be addressed in Lone Star and
Steel's contingency plan. Lone Star and Steel have not identified the "most
reasonably likely worst case year 2000 scenarios"; however, risks identified
through the process described above will be analyzed and evaluated and a
contingency plan will be developed in the third quarter of 1999 on how those
identified risks will be handled if that is deemed necessary. The cumulative
costs incurred through June 30, 1999 to achieve Year 2000 compliance are
approximately $1.5 million, and are estimated to total $1.6 million upon
completion in 1999.
Steel believes that funds generated by operations and its borrowing capacity
under the revolving credit agreement will provide the liquidity necessary to
fund its cash requirements for the remainder of 1999.
The matters discussed or incorporated by reference in this report on Form 10-Q
that are forward-looking statements involve risks and uncertainties including,
but not limited to, economic conditions, product demand, the regulatory and
trade environment, and other risks indicated in other filings with the
Securities and Exchange Commission.
9
<PAGE>
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Shareholders of the registrant was held on May 11,
1999. At that meeting, two proposals were voted on: the election of one director
and the adoption of amendments to the 1985 Long-Term Incentive Plan. Dean P.
Guerin was elected a director of the registrant and received affirmative votes
of 20,421,227 and negative votes of 695,066. The amendments to the Plan were
approved by an affirmative vote of 19,187,565, with 1,868,989 shares voted
against and 59,738 shares abstaining.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
No. 10.1(c) Amendments to the 1985 Long-Term Incentive Plan adopted on
May 11, 1999.
No. 27. Financial Data Schedule
(b) Reports on Form 8-K: none
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.
LONE STAR TECHNOLOGIES, INC.
By: /s/ Charles J. Keszler
----------------------------------
(Charles J. Keszler)
Vice President - Finance
Dated: July 22, 1999
10
<PAGE>
Exhibit 10.1(c)
LONE STAR TECHNOLOGIES, INC.
AMENDMENTS TO THE
1985 LONG-TERM INCENTIVE PLAN (THE "PLAN")
APPROVED BY THE BOARD OF DIRECTORS ON MARCH 9, 1999
AND SHAREHOLDERS ON MAY 11, 1999
Section 3 of the Plan is amended by amending the first sentence of said
Section to read as follows (the new language is in bold type): "The aggregate
number of shares of stock which may be issued under the Plan shall not exceed
THREE MILLION SEVEN HUNDRED THOUSAND (3,700,000) shares of Common Stock."
Section 5 of the Plan is amended by amending the second sentence of
said Section to read as follows (the new language is in bold type): "The
aggregate number of shares with respect to which Options and stock appreciation
rights can be granted under Sections 5 and 9 of the Plan to any one individual
during any calendar year shall not exceed 200,000, subject to adjustment
pursuant to Section 14 hereof."
Section 8 of the Plan is amended and restated to read in its entirety
as follows (the new language in the amended and restated Section 8 is in bold
type):
"Non-executive directors shall not be eligible to participate in the
Plan beyond the granting of Options; further, not more than 1,000,000 shares of
Common Stock may be issued under Options awarded to non-executive directors.
Only shares of Common Stock issued upon exercise of Options which, when granted,
were granted to individuals who were at the time non-executive directors shall
be deemed `issued under Options awarded to non-executive directors.' Shares
issued to non-executive directors under Options granted when they were
participants shall not count towards the 1,000,000 share limitation provided in
this Section. Outstanding Options in effect immediately prior to the Company's
annual shareholders meeting in 1993 to non-executive directors shall remain in
effect according to their terms and as the same may be amended as contemplated
under Section 18 hereof. Beginning with the year 1993, and continuing with the
years 1995, 1997, and ending with the year 1997, on the first business day after
the Company's annual shareholders meeting each such year, each non-executive
director in office at such time shall receive automatically, by virtue of this
Plan, the award and grant of an Option for 25,000 shares of Common Stock.
Beginning with the year 1998, and every year thereafter, on the first business
day after the Company's annual shareholders meeting each such year, each
non-executive director in office at such time shall receive automatically, by
virtue of this Plan, the award and grant of an Option for 12,500 shares of
Common Stock. WHENEVER A NEW NON-EXECUTIVE DIRECTOR IS ELECTED,
<PAGE>
HE OR SHE MAY BE GRANTED OPTIONS, AT THE DISCRETION OF THE COMMITTEE, FOR ANY
NUMBER OF SHARES OF COMMON STOCK NOT TO EXCEED 12,500. All Options awarded to
non-executive directors shall be non-qualified stock Options, and each such
Option granted pursuant to the terms of the THREE foregoing sentences shall
become exercisable for up to 25% of the total number of shares of Common
Stock into which the Option may be exercised on and after the first
anniversary of the date of the award, for up to 25% more (i.e., in total 50%)
of those total shares on and after the second anniversary, for up to 25% more
(i.e., in total 75%) of those total shares on and after the third anniversary
and for up to 100% of those total shares (i.e., all other shares into which
the Option may be exercised) on and after the fourth anniversary of the date
of the Option award (each such Option to the extent exercisable may be
exercised in full or in part at any time for the shares under the Option), at
all times subject to the terms of Section 10 regarding the continued right to
exercise under certain circumstances."
Section 10 of the Plan is amended by amending and restating subparts
(a)(3), (a)(4), (b) and (c) to read as follows (the new language is in bold
type):
"(3) 36 months after the date of a participant's or non-executive
director's Retirement, unless the participant or non-executive director
dies during that 36-month period.
(4) 36 months after the date of a participant's or non-executive
director's death.
(b) If a participant's employment by the Company or a subsidiary or
directorship, in the case of a non-executive director, ceases for any
reason other than Retirement or death without the participant or
non-executive director having fully exercised the Option, the
participant or non-executive director shall be entitled within three
months (or any later period applicable under paragraph (c)) following
the date of such cessation (but not more than ten years from the date
such Option was granted) to exercise the Option to the full extent such
Option was exercisable on the date of such cessation. In the case of a
participant's or non-executive director's Retirement without the
participant or non-executive director having fully exercised the
Option, the Option shall become fully exercisable for up to 100% of the
unexercised shares under the Option, and the participant or
non-executive director shall be entitled within 36 months (or any later
period applicable under paragraph (c)) following the date of Retirement
(but not more than ten years from the date such Option was granted) to
exercise the Option to the full extent such Option is exercisable.
(c) If a participant or non-executive director dies while employed by
the Company or a subsidiary, or while a director in the case of a
non-executive director, or within three months after cessation of such
employment or directorship or within 36 months after Retirement,
without having fully exercised his Option,
2
<PAGE>
such Option shall become fully exercisable for up to 100% of the
unexercised shares under the Option, and the Option may be exercised
within 36 months following such participant's or non-executive
director's death (but not more than ten years from the date such
Option was granted) by participant's or non-executive director's
estate or by a person who acquired the right to exercise such Option
by will or the laws of descent, to the full extent such Option is
exercisable."
Section 15 of the Plan is amended by amending and restating subparts
(a) (A) and (b) to read as follows (the new language is in bold type):
"(A) each Option (including any stock appreciation rights) held by that
participant shall become fully exercisable for up to 100% of the
unexercised shares under the Option and that participant shall be
entitled within 36 months (or any later period applicable under
paragraph (c) of Section 10) following the date of the termination of
his employment or the date on which his employer ceases to be a
subsidiary (but not more than ten years from the date the Option was
granted) to exercise the Option to the full extent the Option is
exercisable;
(b) If a non-executive director of the Company is removed from the Board of
Directors of the Company without Cause or he ceases to be a director of the
Company as a result of a failure to be reelected or to be nominated for
reelection without Cause, in either event within two years after a Change in
Control of the Company, each Option held by that non-executive director shall
become fully exercisable for up to 100% of the unexercised shares under the
Option and that non-executive director shall be entitled within 36 months (or
any later period applicable under paragraph (c) of Section 10) following the
date of the termination of his directorship (but not more than ten years from
the date the Option was granted) to exercise the Option to the full extent the
Option is exercisable."
3
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<PERIOD-START> JAN-01-1999
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