<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ----- EXCHANGE ACT OF 1934
For the Quarter ended July 31, 1994
-------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ----- EXCHANGE ACT OF 1934
Commission File Number 1-5276
------
PROLER INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter.)
Delaware 74-1051251
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4265 San Felipe, Suite 900 77027
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: [713] 627-3737
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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X NO
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
stock, as of September 9, 1994:
Common 4,710,960
------ ---------
(Title of Class) (Number of Shares Outstanding)
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Consolidated Balance Sheet at July 31, 1994 and
January 31, 1994 1
Consolidated Statement of Operations for the three and
six months ended July 31, 1994 and 1993 2
Consolidated Statement of Cash Flows for the six months
ended July 31, 1994 and 1993 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION 12
SIGNATURE PAGE 13
<PAGE>
PART I
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS July 31, 1994 January 31, 1994
------ ------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,042 $ 7,307
Accounts receivable, net 1,725 6,608
Inventories 2,820 3,060
Prepaid expenses 362 775
------- -------
Total current assets 16,949 17,750
Investments in joint operations, at equity 28,947 26,273
Property, plant and equipment, net 16,822 18,671
Other assets 2,017 3,889
------- -------
Total assets $64,735 $66,583
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, trade $ 924 $ 2,267
Accrued liabilities 1,872 2,971
Deferred revenue 250 200
------- -------
Total current liabilities 3,046 5,438
Deferred compensation 2,964 2,989
Contingencies
Stockholders' equity:
Common stock 5,351 5,351
Capital in excess of par value 192 192
Retained earnings 59,300 58,731
------- -------
64,843 64,274
Less treasury stock, at cost (6,118) (6,118)
------- -------
Total stockholders' equity 58,725 58,156
------- -------
Total liabilities and stockholders' equity $64,735 $66,583
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1994 1993 1994 1993
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $ 3,581 $10,031 $11,404 $18,200
Cost of sales 3,535 9,914 11,121 17,912
------- ------- ------- -------
Gross profit 46 117 283 288
Earnings from joint operations 1,646 1,172 651 1,078
General and administrative expense (1,077) (1,108) (2,152) (2,143)
Research and development expense (415) (99) (787) (145)
------- ------- ------- -------
Operating income (loss) 200 82 (2,005) (922)
------- ------- ------- -------
Gain on sale of assets, net -- -- 2,894 --
------- ------- ------- -------
Other income (expense):
Interest income 84 24 140 78
Interest expense (69) (208) (249) (509)
Other, net 28 196 (63) 189
------- ------- ------- -------
43 12 (172) (242)
------- ------- ------- -------
Income (loss) before income taxes and
accounting change 243 94 717 (1,164)
Provision for income taxes 98 20 148 20
------- ------- ------- -------
Income (loss) before accounting change 145 74 569 (1,184)
Cumulative effect of change in accounting
for income taxes -- -- -- 118
------- ------- ------- -------
Net income (loss) $ 145 $ 74 $ 569 $(1,066)
======= ======= ======= =======
Weighted average shares outstanding 4,711 4,711 4,711 4,711
======= ======= ======= =======
Income (loss) per share:
Income (loss) before accounting change $.03 $.02 $.12 $ (.26)
Cumulative effect of change in
accounting for income taxes -- -- -- .03
------- ------- ------- -------
Net income (loss) $.03 $.02 $.12 $ (.23)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended July 31,
---------------------------
1994 1993
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 569 $ (1,066)
Adjustments to reconcile net income (loss) to cash:
Depreciation 514 591
Gain on sale of assets (2,894) --
Cumulative effect of accounting change -- (118)
Earnings from joint operations and advances,
net of distributions (2,674) --
Decrease (increase) in assets, net of effects of assets sold:
Accounts receivable, net 4,823 370
Inventories (269) (1,200)
Prepaid expenses 413 116
Other assets 71 157
Increase (decrease) in liabilities, net of effects of
assets sold:
Accounts payable, trade (1,406) (374)
Accrued liabilities (1,374) 237
Deferred compensation (25) (41)
------- --------
Net cash used in operating activities (2,252) (1,328)
------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (683) (1,342)
Proceeds from asset sales 7,670 51
Distributions from joint operations, net of earnings
and advances -- 15,057
------- --------
Net cash provided by investing activities 6,987 13,766
------- --------
Cash flows from financing activities:
Payments on bank debt -- (10,000)
------- --------
Net cash used in financing activities -- (10,000)
------- --------
Net increase in cash and cash equivalents 4,735 2,438
Cash and cash equivalents, beginning of period 7,307 7,057
------- --------
Cash and cash equivalents, end of period $12,042 $ 9,495
======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Proler
International Corp. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal, recurring adjustments considered necessary for a fair presentation, have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended January 31, 1994, included
in the Company's 1994 Annual Report on Form 10-K filed pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. The results for the three and six
months ended July 31, 1994 are not necessarily indicative of the results of
operations for the entire year. Certain reclassifications have been made in the
prior period financial statements to conform to current classifications.
NOTE 2: INVENTORIES
The Company's inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method. As of July 31, 1994 and January 31, 1994
inventories were comprised of the following:
<TABLE>
<CAPTION>
July 31, 1994 January 31, 1994
------------- ----------------
(In Thousands)
<S> <C> <C>
Processed scrap $ 1,449 $ 1,089
Unprocessed scrap and other 525 821
Maintenance parts 846 1,150
------- -------
$ 2,820 $ 3,060
======= =======
</TABLE>
NOTE 3: COMBINED JOINT OPERATIONS
A condensed summary of the financial position of the combined joint operations
(100% basis) is as follows:
<TABLE>
<CAPTION>
July 31, 1994 January 31, 1994
------------- ----------------
(In Thousands)
<S> <C> <C>
Current assets $52,255 $48,593
Property and other assets, net 26,606 26,668
------- -------
$78,861 $75,261
======= =======
Current liabilities $11,733 $ 9,708
Other liabilities 372 639
Stockholders' and partners' equity 66,756 64,914
------- -------
$78,861 $75,261
======= =======
</TABLE>
4
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Two of the 50%-owned joint operations account for inventories using the last-
in, first-out (LIFO) method while the other joint operations follow FIFO. Such
LIFO inventories are carried at $10.8 million and $16.9 million at July 31, 1994
and January 31, 1994, respectively, and the excess of replacement cost over the
LIFO value at those dates was approximately $21.2 million. For the six months
ended July 31, 1994, approximately $3.5 million of LIFO income, net to the
Company's interest, generated by these two joint operations has been deferred
since management cannot currently estimate their year-end inventory quantities
and costs with certainty. The excess of replacement cost over the LIFO value
may be increased or decreased in the second half of fiscal 1995 depending upon
actual year-end inventory quantities and costs.
The Company's investment in the joint operations and its percentage interest in
their assets and liabilities as of July 31, 1994 and January 31, 1994 are set
forth below:
<TABLE>
<CAPTION>
July 31, 1994 January 31, 1994
------------- ----------------
(In Thousands)
<S> <C> <C>
Current assets $ 24,804 $ 23,432
Property and other assets, net 11,734 11,752
Liabilities (5,793) (4,948)
Adjustment to conform reporting periods (1,798) (3,963)
-------- --------
Net investment $ 28,947 $ 26,273
======== ========
</TABLE>
A summary of the results of operations of the combined joint operations is as
follows (in thousands):
Combined 100% Basis:
<TABLE>
<CAPTION>
Three months ended July 31, Six months ended July 31,
--------------------------- -------------------------
1994 1993 1994 1993
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $76,056 $76,521 $146,055 $146,914
======= ======= ======== ========
Gross profit $ 4,643 $ 3,342 $ 3,788 $ 5,460
======= ======= ======== ========
Earnings $ 2,981 $ 2,465 $ 682 $ 2,419
======= ======= ======== ========
</TABLE>
Company Percentage Interest:
<TABLE>
<CAPTION>
Three months ended July 31, Six months ended July 31,
--------------------------- -------------------------
1994 1993 1994 1993
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $35,653 $34,965 $ 68,794 $ 68,251
======= ======= ======== ========
Gross profit $ 2,430 $ 1,553 $ 2,101 $ 2,477
======= ======= ======== ========
Earnings $ 1,646 $ 1,172 $ 651 $ 1,078
======= ======= ======== ========
</TABLE>
5
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4: ASSET SALES
Effective February 28, 1994, Prolerized Steel Corporation, a wholly-owned
subsidiary of the Company, sold substantially all of its assets used in
connection with the operation of a scrap metal processing facility located in
Kansas City, Kansas. The assets were sold to an unrelated third party for a
purchase price of approximately $5.1 million. Also, on April 29, 1994, the
Company's Vinton, Texas scrap processing facility was sold to an unrelated third
party for approximately $2.6 million. The Company recorded a gain on the sale
of these assets of $2.9 million.
During the three months ended April 30, 1994, the Company recorded net sales of
$4.7 million and an operating profit of $0.1 million attributable to the
operations at the Kansas City and Vinton plants. For the three months and six
months ended July 31, 1993, these plants contributed net sales of $6.3 million
and $11.4 million, respectively, and operating losses of $0.1 million and $0.3
million, respectively.
NOTE 5: INCOME TAXES
Effective February 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes." The cumulative effect on prior years of the adoption of SFAS No. 109
decreased net loss by $118,000 or $.03 per share for the six months ended July
31, 1993.
The provision for income taxes for the six months ended July 31, 1994 is for
alternative minimum tax and the Company's share of income taxes attributable to
its corporate joint operations. The provision for federal income taxes
otherwise payable was eliminated by the utilization of net operating loss
carryforwards.
NOTE 6: BANK CREDIT FACILITIES
As of July 31, 1994, no borrowings were outstanding under the Company's $15
million revolving line of credit and $5.4 million of letters of credit were
outstanding under the $7 million letter of credit facility. Under the terms of
the agreement with the bank, the Company is required to maintain, among other
things, a minimum net worth and other specified financial covenants. In
addition, the Company is restricted as to the payment of cash dividends, limited
as to incurring additional indebtedness and limited as to incurring capital
expenditures in excess of certain amounts.
NOTE 7: CONTINGENCIES
Certain materials resulting from the Company's operations must be handled
consistent with federal and state environmental laws and regulations. As with
any business that produces significant amounts of industrial wastes, the Company
could face substantial additional costs if past disposal practices would no
longer be deemed acceptable by the federal or state regulatory agencies,
although this result is not currently expected.
6
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the Company,
and the Port of Los Angeles are in the completion stages of negotiating the
renewal of HNP's lease, the original term of which expired on August 30, 1994.
HNP is currently operating under month-to-month extensions to the lease. In
December 1992, HNP signed a Memorandum of Understanding with the Port relating
to the lease renewal and in fiscal 1994 provided letters of credit totaling $7.9
million ($3.95 million each from the Company and HNP's other owner) to secure
HNP's remediation obligations under the lease. HNP is required to provide
additional letters of credit and/or incur additional costs of up to $2.0 million
(or $1.0 million by each joint owner) in connection with such environmental
obligations by September, 1994. The Port is developing an Environmental Impact
Report of HNP activities and site conditions in connection with the lease
renewal. Under the current lease, HNP would be responsible for remediating
certain environmental conditions on the property caused by HNP, the extent and
cost of which are uncertain. Currently, HNP estimates that it will incur
capital expenditures of a minimum of $4.0 million to $5.0 million in connection
with environmental control facilities at the Terminal Island location over the
next six-year period. In addition, HNP has accrued approximately $0.7 million
as of July 31, 1994 to cover the costs of anticipated remediation at this site.
As reported earlier, the EPA contacted the Company in August 1989 regarding
testing for possible contamination at a site in Tampa, Florida previously
operated by MRI Corporation, a wholly-owned subsidiary of the Company. The
Company and the EPA took split soil and groundwater samples from the site for
analysis. The Company has learned that in late 1990, an EPA consultant issued a
report recommending that further consideration be given to the possibility of
ranking this site using the EPA's hazardous ranking package. Based on that
recommendation the EPA took additional samples at the site in 1992. The Company
had previously conducted extensive clean-up operations at the Tampa site when it
was closed in 1988. The financial implications of the Company's current
investigation or any agency action are uncertain at this time, and the Company
is continuing to evaluate whether any further corrective action is necessary or
appropriate.
MRI Corporation has been notified that it may be a potentially responsible
party ("PRP") with respect to three sites in Hillsborough County, Florida. In
addition, in October 1992, Hillsborough County filed an action seeking
contribution, response cost recovery, and damages from PRP's at one of these
sites and named the Company, among others, as a defendant in this action. Based
on information provided to the Company, management believes that MRI
Corporation's involvement is de minimis and amounts ultimately payable, if any,
will not have a material adverse effect on the Company's financial position or
results of operations.
The Company is also subject to certain other litigation and claims arising in
the ordinary course of business. In the opinion of management, the ultimate
resolution of these claims and lawsuits will not have a material adverse effect
on the Company's financial position or results of operations.
NOTE 8: PER SHARE INFORMATION
Per share calculations are based on the average number of common shares
outstanding during the period. The per share calculations do not include the
common equivalent shares attributable to the assumed exercise of outstanding
stock options since the effect was not significant for all periods presented.
7
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is primarily engaged, directly and through its subsidiaries and its
corporate and unincorporated joint operations, in buying, processing for
recycling and selling ferrous and other scrap metals. While the Company sells
products from its consolidated operations primarily to domestic markets, the
joint operations primarily export scrap to foreign markets. The Company's and
its joint operations' business is characterized by cyclical fluctuations in
profitability depending upon the availability and price of raw scrap and the
demand and prices for processed scrap by the iron and steel industries and the
non-ferrous metals industries.
The Company's joint operations are structured so that the participants advance
and withdraw funds equally. In general, policy decisions of the joint
operations require the unanimous consent of the participants. As a result, the
Company's control over its joint operations is limited and must be exercised in
concert with its partners in those operations. The Company has made advances to
the joint operations, on a regular basis, primarily for the purchase of
inventory and for operating costs. The Company receives periodic distributions
from its joint operations, primarily from sales of inventory. During the first
six months of fiscal 1995, the Company's advances to joint operations exceeded
distributions from joint operations by $2.1 million.
The terms of the agreements covering the HPI and HPNJ joint operation expired
May 25, 1994. The Company's future involvement with this joint operation is
uncertain at this time; however, the venture continues to operate a scrap metal
business in Newark, New Jersey.
The Company continues to implement the business plan described in its 1994
Annual Report on Form 10-K with the goals of restructuring, selling or otherwise
disposing of certain underperforming and unproductive assets, and supplementing
its core commodity metals business by investing in technologies that profit from
processing and recycling waste materials. As previously reported, the Company
completed the planned divestiture of its domestic scrap steel operations in
April, 1994. Accordingly, the Company's principal scrap steel processing
business will be conducted through its joint operations. In fiscal 1995, the
Company plans to continue to develop and test new waste processing and recovery
technologies through its two subsidiaries, Proler Recycling, Inc. ("Proler
Recycling") and Proler Environmental Services, Inc. ("Proler Environmental").
See 1994 Annual Report on Form 10-K.
LIQUIDITY, FINANCING AND CAPITAL RESOURCES
As of July 31, 1994, the Company had net working capital of $13.9 million and
no outstanding bank debt. As discussed in Note 4 to the financial statements,
the Company has received proceeds in the first quarter of $7.7 million from the
sale of its Kansas City and Vinton scrap processing plants.
The Company expended $0.8 million during the six months ended July 31, 1994 on
research and development activities through Proler Recycling and Proler
Environmental. Proler Recycling has also commenced the construction of a new
plant located on existing Company property in Coolidge, Arizona.
8
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
This plant will increase the Company's capacity to recycle metal-bearing wastes
from a variety of industries and is expected to become operational in early
1995. The estimated plant construction cost of $4 to $5 million to be incurred
in the second half of this year will be funded from general working capital
and/or new or existing credit facilities.
The Company continues to assess the opportunities for and feasibility of
various commercial applications of Proler Environmental's gasification process,
and is having discussions with several companies which may lead to the
construction of one or more full-scale gasification plants. The construction
and other associated costs of a full-scale plant would likely exceed $20
million, a portion of which would be borne and financed by the Company.
However, the Company does not anticipate incurring any significant expenditures
until fiscal 1996 at the earliest given the lead time required for permitting,
construction and other matters.
Capital expenditures of $0.7 million in the first six months of fiscal 1995
were primarily for the replacement and improvement of plant and equipment. The
Company's share of joint operations' capital expenditures for the first six
months of fiscal 1995 was $1.3 million. As discussed in Note 7 to the financial
statements, the Company expects to provide an additional letter of credit and/or
incur additional costs of $1.0 million in fiscal 1995 in connection with its Los
Angeles joint operation facility.
The Company is engaged in ongoing proceedings and communications with
regulatory authorities concerning environmental matters. An adverse outcome in
these proceedings, or any significant additional expenditures that may be
required in order for the Company or its joint operations to operate in
accordance with environmental laws and regulations, or to clean up sites now or
formerly used by them, could affect the Company's financial position.
RESULTS OF OPERATIONS
Consolidated net sales and cost of sales decreased 37% and 38%, respectively,
during the six months ended July 31, 1994 as compared to the six months ended
July 31, 1993. These decreases were principally due to the sale of the
Company's Kansas City and Vinton plants during the first quarter of fiscal 1995.
The Company recorded net sales and cost of sales of $11.4 million and $11.7
million, respectively, for the six months ended July 31, 1993 attributable to
these plants. The first six months of fiscal 1995 included $4.7 million in net
sales and $4.6 million in cost of sales attributable to these plants.
Excluding the Kansas City and Vinton plants from the results of operations, the
following table highlights the more significant operating information and
percentage changes of the remaining Company-operated plants (dollars in
thousands):
9
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
For the six months
ended July 31,
------------------
1994 1993 % Change
------- ------- ---------
<S> <C> <C> <C>
Sales volumes (gross tons).. 49,298 49,107 -- %
Net sales................... $ 6,737 $ 6,749 -- %
Cost of sales............... 6,491 6,185 5%
------- -------
Gross profit................ $ 246 $ 564
======= =======
</TABLE>
The increase in cost of sales of the Company-operated plants during the first
half of fiscal 1995 as compared to the first half of fiscal 1994 is partially
due to certain non-recurring disposal charges. Additionally, the purchase cost
per ton of scrap has increased approximately 9% during the periods presented.
Corresponding sales price increases were less than the cost increases because
the majority of the Company's precipitation iron sales are under fixed-price
annual contracts. The above table also includes approximately $471,000 and
$422,000 for the six months ended July 31, 1994 and 1993, respectively, of net
costs attributable to the Company's real estate holdings.
Earnings from joint operations increased 40% in the second quarter of fiscal
1995 compared to the same quarter in fiscal 1994, and decreased by 40% during
the six months ended July 31, 1994 compared to the same period in the prior
year. In the second quarter of fiscal 1995, the Company recorded income of $1.8
million attributable to the sale of inventory which had no cost basis at one
joint operation and which substantially offset the losses incurred in the other
joint operations. In the first and second quarters of fiscal 1994, the Company
recorded sales of inventory which had no cost basis of $0.5 million and $0.4
million, respectively, at another joint operation. The production and
accounting process utilized by the joint operations to record inventory
quantities (particularly shredded scrap) relies on significant estimates which
can be affected by weight imprecisions, moisture and other factors. Such
factors historically have a tendency to understate actual scrap quantities. In
periods, such as 1993 and 1994, when inventories are substantially depleted due
to high sales volumes, certain unrecorded quantities which have no cost basis
are realized.
10
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table highlights the more significant operating information for
the joint operations:
<TABLE>
<CAPTION>
Three Months Six Months
Ended July 31, Ended July 31,
------------------ ----------------------
1994 1993 1994 1993
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Sales Volume (gross tons) 601,000 679,000 1,136,000 1,353,000
Sales Price (per ton) $ 127 $ 113 $ 129 $ 109
Cost of Sales (per ton
excluding tonnage sold
with no cost basis) 125 109 128 106
-------- -------- ---------- ----------
Gross Margin (per ton) $ 2 $ 4 $ 1 $ 3
</TABLE>
Sales volumes declined in fiscal 1995 due to fewer shipments. Gross margins
declined this year primarily due to the joint operations paying higher costs for
inventories in the fourth quarter of fiscal 1994 and the first quarter of fiscal
1995 which were not fully recovered by the higher sales prices.
Research and development expense for the three and six months ended July
31, 1994 increased significantly compared to the same periods of fiscal 1994.
The Company has intensified its efforts (via Proler Recycling and Proler
Environmental) towards the research, development and marketing of technologies
involving the processing and recycling of waste materials.
Interest expense for the three and six months ended July 31, 1994 decreased
67% and 51% compared to the same periods in 1993 due to the decrease in
outstanding indebtedness between such quarters. The reduction in interest costs
was partially offset by the inclusion of approximately $0.1 million of interest
costs associated with the payment of a tax dispute in the first quarter of
fiscal 1995. Interest income increased for the three and six months ended July
31, 1994 as compared to the same periods in 1993 due to an increase in average
cash balances.
Effective February 1, 1993, the Company changed its method of accounting
for income taxes as more fully described in Note 5 to consolidated financial
statements.
ENVIRONMENTAL MATTERS
The Company and its joint operations are subject to environmental laws
and regulations and are involved in ongoing proceedings and communications with
regulatory authorities concerning environmental matters. It is possible that,
as a result of these proceedings and communications, the Company may in the
future incur additional costs to assure compliance with environmental laws and
regulations, or it may be required to modify or curtail operations. In the past,
the Company has incurred significant environmental costs in connection with the
clean-up and handling of materials at sites operated by the Company. See Note 7
to consolidated financial statements.
11
<PAGE>
PART II
OTHER INFORMATION
Items 1 through 3 are not applicable.
Item 4. Submission of Matters to a Vote of Shareholders
The Company's annual meeting of shareholders was held on June 17, 1994. At
the annual meeting, shareholders voted in favor of the election of John McKenna
as director of the Company, the adoption of the Company's 1994 Non-Employee
Director Stock Option Plan, and the adoption of an amendment to the Company's
1988 Stock Option Plan as described in the proxy statement for the meeting. The
total number of shares entitled to vote at the annual meeting was 4,710,960, of
which 3,894,083 shares were present in person or by proxy.
Mr. McKenna was reelected as a director by a vote of 3,859,747 shares, with
34,336 shares withholding authority to vote.
The Non-Employee Director Stock Option Plan was approved by a vote of
3,526,137 shares, with 224,357 shares against and 143,589 shares abstaining.
The amendment to the 1988 Stock Option Plan was approved by a vote of
3,308,265 shares, with 437,627 shares against and 148,191 shares abstaining.
In addition to Mr. McKenna who was reelected at the meeting, Herman Proler,
Richard Mayor, and Harvey Alter continued as directors of the Company after the
meeting.
Item 5 is not applicable.
Item 6(a) Exhibits:
10.1 Proler International Corp. 1994 Non-Employee Director Stock Option Plan.
10.2 Amendment to the Proler International Corp. 1988 Stock Option Plan.
27 Financial Data Schedule
Item 6(b) Reports on Form 8-K:
The Company filed a report on Form 8-K dated May 9, 1994 which contained
proforma financial statements regarding the dispositions of certain assets at
the Company's Kansas City, Kansas and Vinton, Texas locations.
12
<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.
PROLER INTERNATIONAL CORP.
--------------------------
(Registrant)
Date: September 13, 1994 /s/ Herman Proler
------------------ ---------------------------------------------------
Herman Proler
Chairman of the Board
(Principal Executive Officer)
Date: September 13, 1994 /s/ Michael F. Loy
------------------ --------------------------------------------------
Michael F. Loy
Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<PAGE>
PROLER INTERNATIONAL CORP.
1994 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
I. Purposes
The purposes of this 1994 Non-Employee Director Stock Option Plan (the
"Plan") are (i) to provide additional incentive for securing and retaining
qualified non-employee persons to serve on the Board of Directors of the Company
and (ii) to enhance the future growth of the Company by furthering the Non-
Employee Directors' identification with the interests of the Company and its
stockholders. It is intended that Options granted under this Plan will be Non-
Qualified Stock Options.
II. Definitions
(a) In this Plan, except where the context otherwise indicates, the
following definitions apply:
(1) "Board" means the Board of Directors of the Company.
(2) "Code" means the Internal Revenue Code of 1986, as amended.
(3) "Company" means Proler International Corp.
(4) "Designated Beneficiary" means the person designated to be entitled,
on the death of a Participant, to any remaining rights arising out of a
Stock Option.
(5) "Effective Date" means June 17, 1994.
(6) "Fair Market Value" means, with respect to a share of Common Stock
on any date herein specified, the average daily reported closing price per
share of Common Stock on the New York Stock Exchange or other principal
exchange or market on which the Common Stock is then traded for the ten (10)
consecutive trading days commencing fifteen (15) trading days before the
date in question. In the event the Common Stock is not publicly traded at
the time a determination of its Fair Market Value is required to be made
hereunder, the determination of its Fair Market Value shall be made by the
Board in good faith in such manner as it deems appropriate.
(7) "Non-Employee Director" means a person who as of any applicable date
is a member of the Board, is not an officer of the Company or any subsidiary
of the Company, and is not a full-time employee of the Company or any of its
subsidiaries.
(8) "Non-Qualified Stock Option" means an option which does not meet the
requirements of Section 422A(b) of the Code.
<PAGE>
(9) "Participant" means a Non-Employee Director who is granted a Stock
Option hereunder.
(10) "Securities Act" means the Securities Act of 1933, as now in effect
or as hereafter amended.
(11) "Share" means a share of Stock that has been previously (i)
authorized but unissued, or (ii) issued and reacquired by the Company.
(12) "Stock" or "Common Stock" means the common stock, $1.00 par value
per share, of the Company.
(13) "Stock Option" or "Option" means an option to purchase Shares.
(14) "Terminate" means cease to be a Director of the Company.
(15) "Termination of Directorship" means the date upon which any
Participant ceases to be a Director for any reason whatsoever. The effective
date of such Termination of Directorship shall be the actual date of such
termination (by death, disability, retirement, resignation, non-election or
otherwise).
III. Grants of Stock Options and Option Price
(a) Options will be granted only to individuals who are Non-Employee
Directors of the Company. On the Effective Date, each Non-Employee Director
shall receive, without the exercise of the discretion of any person or persons,
Options exercisable for 2,000 Shares. Thereafter, as of the date of the annual
meeting of stockholders in each year after 1994 that the Plan is in effect as
provided in Section V hereof, each Non-Employee Director then in office shall
receive, without the exercise of the discretion of any person or persons,
Options exercisable for 1,000 Shares. If, as of such annual meeting date in any
year that the Plan is in effect there are not sufficient Shares available under
this Plan to allow for the grant to each Non-Employee Director of Options for
the number of shares provided herein, each Non-Employee Director shall receive
Options for a pro rata share of the total number of Shares available under the
Plan. All Options granted under the Plan shall be at the Option price set forth
in the following subsection (b) and shall be subject to adjustment as provided
in Section VII and to the terms and conditions set forth in Section VIII.
(b) The purchase price of Shares issued under each Option shall be the Fair
Market Value of Shares subject to the Option on the date the Option is granted.
2
<PAGE>
IV. Administration
(a) The Plan shall be administered by the Board or by a duly appointed
committee of the Board having such powers as shall be specified by the Board.
Any subsequent references herein to the Board shall also mean the committee if
such committee has been appointed and, unless the powers of the committee have
been specifically limited, the committee shall have all of the powers of the
Board granted herein, including, without limitation, the power to terminate or
amend the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law. All questions of interpretation of the Plan or of
any Options shall be determined by the Board, and such determinations shall be
final and binding upon all persons having an interest in the Plan or any Option.
(b) The Board may, in its discretion, delegate duties to an officer or
employee or a committee composed of officers or employees of the Company, but it
may not delegate its authority to apply and interpret this Plan.
V. Term
The term of this Plan commences on the Effective Date and terminates
following the 1998 annual meeting of shareholders. This Plan shall remain in
effect for the purposes of administration of any Stock Option granted pursuant
to its provisions and no such Stock Option granted during the term of this Plan
shall be adversely affected by the termination of the Plan.
VI. Shares Reserved; Options Grantable and Exercisable
(a) Subject to adjustments as provided in Section VII hereof, a total of
30,000 Shares shall be subject to the Plan. The Shares subject to the Plan shall
be and are hereby reserved for sale for such purposes. Any of the Shares which
remain unsold and which are not subject to outstanding Options at the
termination of the Plan shall cease to be reserved for the purposes of the Plan.
Should any Option expire or be canceled prior to its exercise in full, the
Shares theretofore subject to such Option may again be subjected to an Option
under the Plan.
(b) As to a Participant, an Option ceases to be exercisable, as to any
Share, when the Participant purchases the Share or when the Option lapses.
VII. Adjustments
(a) The existence of outstanding Stock Options shall not affect in any way
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of, or affecting, the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
3
<PAGE>
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of Common Stock outstanding, without
receiving compensation therefor in money, services or property, then (a) the
number and per share price of shares of Common Stock subject to outstanding
Stock Options hereunder shall be appropriately adjusted in such a manner as to
entitle a Participant to receive upon exercise of a Stock Option, for the same
aggregate cash consideration, the same total number and class of shares as the
Participant would have received had he or she exercised his or her Stock Option
in full immediately prior to the event requiring the adjustment; and (b) the
number and class of shares then reserved for issuance under the Plan shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved that number and class of shares of Common Stock that would have been
received by the owner of an equal number of outstanding shares of Common Stock
as the result of the event requiring the adjustment.
(c) After a merger of one or more corporations into the Company or after a
consolidation of the Company and one or more corporations in which the Company
is the surviving corporation, each holder of an outstanding Stock Option, upon
exercise of such Stock Option, shall be entitled to receive (at no additional
cost but subject to any required action by stockholders) in lieu of the number
of shares of Common Stock with respect to which such Stock Option is
exercisable, the number and class of shares of stock (or other securities or
consideration) to which such holder would have been entitled pursuant to the
terms of the agreement of merger or consolidation if, immediately prior to such
merger or consolidation, such holder had been the holder of record of the same
number of shares of Common Stock which he or she would have otherwise received
upon exercise of such Stock Option.
(d) If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated, or sells or otherwise disposes of substantially all
its assets to another corporation while unexercised Stock Options remain
outstanding under the Plan, (i) subject to the provisions of clause (iii) below,
after the effective date of such merger, consolidation, liquidation, or sale, as
the case may be, each holder of an outstanding Stock Option shall be entitled,
upon exercise of such Stock Option, to receive at no additional cost, in lieu of
shares of Common Stock, shares of such stock (or other securities or
consideration) as the holders of shares of Common Stock received pursuant to the
terms of the merger, consolidation, liquidation, or sale; (ii) any limitations
set forth in or imposed pursuant to Section VIII hereof shall automatically
lapse so that all Stock Options, from and after a thirty (30) day period
preceding the effective date of such merger, consolidation, liquidation or sale,
as the case may be, shall be exercisable in full; and (iii) all outstanding
Stock Options may be canceled by the Board as of the effective date of any such
merger, consolidation, liquidation or sale provided that (a) notice of such
cancellation shall be given to each holder of a Stock Option, and (b) each
holder of a Stock Option shall have the right to exercise such Stock Option in
full (without regard to any limitations set forth in or
4
<PAGE>
imposed pursuant to Section VIII hereof) during a thirty (30) day period
preceding the effective date of such merger, consolidation, liquidation, or
sale. In the event any acceleration of vesting provided by clause (ii) or (iii)
above would result in imposition of the excise tax imposed by Section 4999 of
the Code, a Participant may elect to waive such acceleration with respect to
such number of shares subject to unvested Stock Options as the Participant shall
designate, and the Participant shall be entitled to designate from among his or
her unvested Stock Options those Stock Options which shall not be subject to
accelerated vesting.
(e) Except as expressly provided herein, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash, property, labor, or services, either upon direct sale,
exercise of rights or warrants to subscribe therefor, or 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, the number, class or price of shares of Common Stock then subject to
outstanding Stock Options.
VIII. Terms and Conditions of Stock Options
(a) During the Participant's life, the Stock Option is exercisable only by
the Participant or by his or her guardian or legal representative.
(b) A Stock Option under this Plan is not assignable or transferable,
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order (as defined in the Code), and is not subject,
in whole or in part, to attachment, execution or levy of any kind.
(c) Any Stock Option or portion thereof that is exercisable shall be
exercisable for the full amount or for any part thereof.
(d) Stock Options shall be exercised by the delivery of written notice to
the Company setting forth the number of shares of Common Stock with respect to
which the Stock Option is to be exercised and, subject to the subsequent
provisions hereof, the address to which the certificates representing shares of
the Common Stock issuable upon the exercise of such Stock Option shall be
mailed. In order to be effective, such written notice shall be accompanied at
the time of its delivery to the Company by payment of the exercise price of such
shares of Common Stock, which payment shall be made in cash or by check, bank
draft, or postal or express money order payable to the order of the Company in
an amount (in United States dollars) equal to the exercise price of such shares
of Common Stock. Such notice shall be delivered in person to the Secretary of
the Company, or shall be sent by registered mail, return receipt requested, to
the Secretary of the Company, in which case, delivery shall be deemed made on
the date such notice is deposited in the mail. Whenever shares of Common Stock
are to be issued or delivered pursuant to the Plan, the Company shall require
the Participant to remit to the Company an amount sufficient to satisfy federal,
state, and local withholding tax requirements prior to the
5
<PAGE>
delivery of any certificate or certificates for such shares, which payment may
be made in the manner set forth above or in the manner permitted by clause (e)
below.
(e) Alternatively, payment of the exercise price may be made, in whole or
in part, by delivery of shares of Common Stock previously issued to the
Participant. Unless otherwise permitted by the Board, payment of the exercise
price with shares of Common Stock shall be made only with shares owned by the
Participant for at least six (6) months. If payment is made in whole or in part
in shares of Common Stock owned by the Participant, then the Participant shall
deliver to the Company, in payment of the option price of the shares of Common
Stock with respect to which such Stock Option is exercised, (i) certificates
registered in the name of such Participant representing a number of shares of
Common Stock legally and beneficially owned by such Participant, free of all
liens, claims and encumbrances of every kind and having a Fair Market Value as
of the date of delivery of such notice that is not greater than the exercise
price of the shares of Common Stock with respect to which such Stock Option is
to be exercised, such certificates to be accompanied by stock powers duly
endorsed in blank by the record holder of the shares represented by such
certificates; and (ii), if the exercise price of the shares of Common Stock with
respect to which such Stock Option is to be exercised exceeds such Fair Market
Value, cash or a check, bank draft, or postal or express money order payable to
the order of the Company in an amount (in United States dollars) equal to the
amount of such excess.
(f) Stock Options granted to any Participant under this Plan shall be
subject to the following conditions:
(1) The price per share shall be as set forth in Section III.
(2) Each Stock Option shall have a term of ten (10) years from the
date such Stock Option is granted and shall vest and become exercisable on
and after the date that is six (6) months after the date on which such
Stock Option was granted.
(3) A Stock Option shall lapse in the following situations:
(i) If a Termination of Directorship shall occur with respect to
any Participant, for any reason other than death, all unexercised
Stock Options, theretofore granted shall expire [three (3) months]
after the date of such Termination of Directorship, unless they shall
have terminated earlier under their terms or under other provisions of
this Plan.
(ii) If a Termination of Directorship shall occur with respect to
any Participant by reason of the death of such Participant, and if any
Stock Option granted to such Participant was in effect at the time of
the Participant's death, all unexercised Stock Options, if any, shall
become immediately exercisable and may be exercised until the
expiration of one (1) year from the date of death of the Participant
or until the expiration of the term of the Stock Option, whichever is
6
<PAGE>
earlier. Such Stock Option may be exercised by the Designated
Beneficiary of the deceased Participant, subject to all other
provisions of the Plan.
IX. Power to Amend
The Board of Directors may modify, revise or terminate this Plan at any
time and from time to time; provided, however, that the Plan shall not be
amended more than once every six (6) months, other than to comport with changes
in the Code, or the regulations thereunder, or the Employee Retirement Income
Security Act of 1974, as amended, or the regulations hereunder; and provided,
further, that without the approval of the holders of at least a majority of the
outstanding shares of the Company's voting stock, the Board of Directors may not
(i) materially increase the benefits accruing to participants under the Plan;
(ii) change the aggregate number of Shares which may be issued under Options
pursuant to the provisions of the Plan; (iii) reduce the Option price at which
Options have been granted; or (iv) change the class of persons eligible to
receive Options. However, no termination or amendment of the Plan may, without
the consent of the holder of any Option then outstanding adversely affect the
rights of such holder under the Option.
X. Exercise of Options; Registration
The Company shall not be required to sell or issue any shares of Common
Stock under any Stock Option if the issuance of such shares shall constitute a
violation by the Participant or the Company of any provision of any law,
statute, or regulation of any governmental authority whether it be Federal or
State. Specifically, in connection with the Securities Act, upon exercise of any
Stock Option, unless a registration statement under the Securities Act is in
effect with respect to the shares of Common Stock covered by such Stock Option,
the Company shall not be required to issue such shares unless the Board has
received evidence satisfactory to it to the effect that the holder of such Stock
Option is acquiring such shares of Common Stock for investment and not with a
view to the distribution thereof, and that such shares of Common Stock may
otherwise be issued without registration under the Securities Act or State
securities laws. Any determination in this connection by the Board shall be
final, binding and conclusive. The Company may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Securities
Act. The Company shall not be obligated to take any affirmative action in order
to cause the exercise of a Stock Option, or the issuance of shares pursuant
thereto, to comply with any law or regulation of any governmental authority.
XI. Shareholder Approval
Notwithstanding any other provisions of the Plan, in order for the Plan to
continue as effective, on or before the date which occurs twelve (12) months
after the date the Plan is adopted by the Board, the Plan must be approved by
the holders of at least a majority of the outstanding stock of the Company
present, or represented, and entitled to vote thereon, at a duly held
stockholders' meeting, and no shares of Common Stock shall be issued under the
Plan until such approval has been secured.
7
<PAGE>
XII. Interpretations
The provisions of the Plan shall be construed, administered, and governed
by the laws of the State of Texas, without giving effect to principles of
conflicts of laws, and, to the extent applicable, the laws of the United States.
XIII. Government Regulations
The Plan, the granting and exercise of Stock Options thereunder, and the
obligation of the Company to sell and deliver Shares under such Stock Options,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
8
<PAGE>
Third Amendment
to the
Proler International Corp.
1988 Stock Option Plan
This Amendment dated June 17, 1994 to the Proler International Corp. 1988
Stock Option Plan (the "Plan"):
WITNESSETH:
WHEREAS, the Board of Directors of Proler International Corp. (the
"Company") has determined that the number of shares of the Company's common
stock, $1.00 par value per share, subject to the Plan shall be increased by
100,000 shares, from 180,000 shares to 280,000 shares, and
WHEREAS, the shareholders of the Company have approved an amendment to the
Plan providing for such increase and certain other changes,
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The third sentence of Section 2 of the Plan is hereby amended to read in
its entirety as follows:
"Members of the Committee shall be disinterested persons as defined under
the rules and regulations promulgated under Section 16(b) of the Securities
Exchange Act of 1934, as amended."
2. The second sentence of Section 3 of the Plan is hereby amended to read in
its entirety as follows:
"The total amount of the Stock with respect to which Options may granted
shall not exceed in the aggregate 280,000 shares; provided, that such
aggregate number of shares shall be subject to adjustment in accordance with
the provisions of Section 16 hereof."
3. Section 4 of the Plan is hereby amended to read in its entirety as
follows:
"4. Eligibility. The individuals who shall be eligible to participate in
the Plan shall be such key employees (including officers who may be members
of the Board of Directors) of the Company, or of any subsidiary corporation,
as the Committee shall determine from time to time. Except as may otherwise
be specifically provided herein, for all purposes of the Plan, the term
`subsidiary corporation' shall have the meaning set forth in Section 424(f)
of the Code, or any successor provision thereto."
<PAGE>
4. The second, third and fourth paragraphs of Section 16 of the Plan are
hereby amended to read in their entirety as follows:
"If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Stock outstanding,
without receiving compensation therefor in money, services or property, then
(a) the number and per share price of shares of Stock subject to outstanding
Options hereunder shall be appropriately adjusted in such a manner as to
entitle an optionee to receive upon exercise of an Option, for the same
aggregate cash consideration, the same total number and class of shares as
he would have received had he exercised his Option in full immediately prior
to the event requiring the adjustment; and (b) the number and class of
shares then reserved for issuance under the Plan shall be adjusted by
substituting for the total number and class of shares of Stock then reserved
for that number and class of shares of Stock that would have been received
by the owner of an equal number of outstanding shares of Stock as the result
of the event requiring the adjustment.
"After the merger of one or more corporations into the Company or after
a consolidation of the Company and one or more corporations in which the
Company is the surviving corporation, each holder of an outstanding Option,
upon exercise of such Option, shall be entitled to receive (at no additional
cost but subject to any required action by stockholders) in lieu of the
number of shares of Stock with respect to which such Option is exercisable,
the number and class of shares of stock (or other securities or
consideration) to which such holder would have been entitled pursuant to the
terms of the agreement of merger or consolidation if, immediately prior to
such merger or consolidation, such holder had been the holder of record of
the same number of shares of Stock which he would have otherwise received
upon exercise of such Option.
"If the Company is merged with or into or consolidated with another
corporation under circumstances where the Company is not the surviving
corporation, or if the Company is liquidated, or sells or otherwise disposes
of substantially all its assets to another corporation while unexercised
Options remain outstanding under the Plan, (i) subject to the provisions of
clause (iii) below, after the effective date of such merger, consolidation,
liquidation, or sale, as the case may be, each holder of an outstanding
Option shall be entitled, upon exercise of such Option, to receive at no
additional cost in lieu of shares of Stock, shares of such stock (or other
securities or consideration) as the holders of shares of Stock received
pursuant to the terms of the merger, consolidation, liquidation, or sale;
(ii) the Board of Directors may waive any limitations set forth in or
imposed pursuant to Section 8 so that all Options, from and after a date
prior to the effective date of such merger, consolidation, liquidation or
sale, as the case may be, shall be exercisable in full; and (iii) all
outstanding Options may be canceled by the Board of Directors as of the
effective date of any such merger, consolidation, liquidation or sale
provided that (a) notice of such cancellation shall
<PAGE>
be given to each holder of an Option, and (b) each holder of an Option shall
have the right to exercise such Option in full (without regard to any
limitations set forth in or imposed pursuant to Section 8 hereof) during a
30-day period preceding the effective date of such merger, consolidation,
liquidation, or sale."
5. The reference to "Section 422A" of the Internal Revenue Code of 1986, as
amended (the "Code"), appearing in the last sentence of Section 2 of the Plan is
amended to read "Section 422."
6. Each reference to "Section 425(f)" of the Code appearing in the last
paragraph of Section 12 of the Plan is amended to read "Section 424(f)."
7. As modified and amended hereby, the Plan and all of the provisions
thereof remain in full force and effect.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the consolidated balance sheet of Proler International Corp. and subsidiaries as
of July 31, 1994 and the related consolidated statement of operations for the
six month period ended July 31, 1994, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JUL-31-1994
<CASH> 12,042
<SECURITIES> 0
<RECEIVABLES> 1,725
<ALLOWANCES> 0
<INVENTORY> 2,820
<CURRENT-ASSETS> 16,949
<PP&E> 32,346
<DEPRECIATION> 15,524
<TOTAL-ASSETS> 64,735
<CURRENT-LIABILITIES> 3,046
<BONDS> 0
<COMMON> 5,351
0
0
<OTHER-SE> 53,374
<TOTAL-LIABILITY-AND-EQUITY> 64,735
<SALES> 11,404
<TOTAL-REVENUES> 11,404
<CGS> 11,121
<TOTAL-COSTS> 11,121
<OTHER-EXPENSES> 787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249
<INCOME-PRETAX> 717
<INCOME-TAX> 148
<INCOME-CONTINUING> 569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
