SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15 (d) of the
- ------ Securities Exchange Act of 1934
For the Quarterly Period Ended: April 30, 1997
Transition Report Pursuant to Section 13 or 15 (d) of the
- ------ Securities Exchange Act of 1934
For the Transition Period From ______________ to _______________
Commission File Number: 0-18252
ULTRA PAC, INC.
(Exact name of Registrant as specified in its Charter)
Minnesota 41-1581031
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
21925 Industrial Boulevard, Rogers, Minnesota 55374
(Address of principal executive offices) Zip Code
(612) 428-8340
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. __X__ Yes ____ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock No Par Value 3,838,265
Class of Common Stock Shares outstanding as of
May 15, 1997
ULTRA PAC, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of April 30,
1997 and January 31, 1997 3
Statements of Operations for the
three months ended April 30, 1997
and 1996 5
Statements of Cash Flows for the
three months ended April 30, 1997
and 1996 6
Notes to Interim Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on
Form 8-K 17
Ultra Pac, Inc.
BALANCE SHEETS
ASSETS
April 30, January 31,
1997 1997
----------- -----------
(unaudited)
CURRENT ASSETS
Cash $ 538,513 $ 663,072
Accounts receivable
Principally trade, less allowance for
doubtful receivables and sales discounts
of $370,661 and $312,854 at April 30,
1997 and January 31, 1996 respectively 3,787,987 3,422,970
Refundable sales taxes 22,750 22,335
Inventories
Raw materials 1,765,669 1,783,640
Work in process 1,635,980 1,379,856
Finished goods 3,894,042 3,708,934
Deferred income taxes 1,896,000 1,822,000
Other current assets 211,623 216,086
----------- -----------
Total current assets 13,752,564 13,018,893
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Building and improvements 3,492,768 3,492,768
Manufacturing equipment and tooling 21,916,384 21,957,017
Extrusion equipment 12,370,370 12,355,550
Other equipment and furnishings 1,095,701 1,029,281
Leasehold improvements 962,440 957,738
----------- -----------
39,837,663 39,792,354
Less accumulated depreciation and
amortization 13,814,826 12,851,061
----------- -----------
26,022,837 26,941,293
Deposits on manufacturing equipment 67,500 --
Land 737,317 737,317
----------- -----------
26,827,654 27,678,610
OTHER
Security deposits 500,530 499,186
Leasehold costs
less accumulated amortization
of $54,750 at April 30
and $48,667 at January 31 310,250 316,333
Investments in affiliates 206,115 232,350
Other 229,194 283,215
----------- -----------
1,246,089 1,331,084
----------- -----------
$41,826,307 $42,028,587
=========== ===========
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
April 30, January 31,
1997 1997
----------- -----------
(unaudited)
CURRENT LIABILITIES
Current maturities of long-term
obligations $ 5,105,433 $ 4,819,961
Accounts payable - principally trade 5,321,218 5,838,416
Accrued liabilities
Compensation 1,321,679 1,140,975
Interest and other 1,035,587 883,638
Income taxes payable 195,465 65,465
----------- -----------
Total current liabilities 12,979,382 12,748,455
LONG-TERM OBLIGATIONS, less current
maturities 14,134,558 15,977,599
DEFERRED INCOME TAXES 2,192,000 1,775,000
SHAREHOLDERS' EQUITY
Common stock - authorized, 10,000,000
shares of no par value; issued and
outstanding, 3,835,865 at April 30,
and 3,814,015 shares at January 31 7,873,415 7,784,972
Additional contributed capital 1,360,334 1,360,334
Retained earnings 3,286,618 2,382,227
----------- -----------
12,520,367 11,527,533
----------- -----------
$41,826,307 $42,028,587
=========== ===========
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
April 30,
------------------------------
1997 1996
------------ ------------
Net Sales $ 14,950,282 $ 15,760,404
Cost of products sold 9,200,205 12,155,317
------------ ------------
Gross profit 5,750,077 3,605,087
Operating expenses
Marketing and sales 2,929,475 2,641,186
Administrative 832,044 649,612
------------ ------------
3,761,519 3,290,798
------------ ------------
Operating profit 1,988,558 314,289
Other income(expense)
Interest expense (505,607) (626,582)
Equity in net loss of
affiliates (26,236) (17,000)
Other 7,676 (107,303)
------------ ------------
(524,167) (750,885)
------------ ------------
Earnings(loss) before income taxes 1,464,391 (436,596)
Income tax provision (benefit) 560,000 (110,000)
------------ ------------
NET EARNINGS (LOSS) $ 904,391 $ (326,596)
============ ============
Earnings (loss) per common share $ .23 $ (.09)
============ ============
Weighted average number of
shares outstanding 3,967,656 3,766,215
============ ============
See accompanying notes to interim financial statements.
<TABLE>
<CAPTION>
Ultra Pac, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
April 30,
Increase (Decrease) in Cash 1997 1996
----------- -----------
<S> <C> <C>
Cash flows provided by operating activities
Net earnings (loss) $ 904,391 $ (326,596)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation 1,023,765 1,063,632
Amortization of warrants 29,058 --
Non cash compensation to employees 28,125 --
Equity in undistributed net loss of affiliates 26,235 17,000
Net deferred income taxes 343,000 (128,528)
Change in operating assets and liabilities:
Accounts receivable (365,432) (76,947)
Inventories (423,261) 478,265
Other current assets 4,463 (17,014)
Accounts payable (517,198) (494,749)
Accrued liabilities 383,909 245,384
Income taxes payable 130,000 --
----------- -----------
Net cash provided by operating
activities 1,567,055 760,447
Cash flows from investing activities
Capital expenditures (172,809) (146,756)
Investments in affiliates -- (15,314)
Security deposits and other 29,702 1,336
----------- -----------
Net cash used in investing activities (143,107) (160,734)
Cash flows from financing activities
Principal payments under long-term obligations (1,557,569) (785,571)
Exercise of stock options 9,062 --
----------- -----------
Net cash used in financing
activities (1,548,507) (785,571)
----------- -----------
Net change in cash (124,559) (185,858)
Cash at beginning of period 663,072 345,906
----------- -----------
Cash at end of period $ 538,513 $ 160,048
=========== ===========
See accompanying notes to interim financial statements.
</TABLE>
Ultra Pac, Inc.
NOTES TO INTERIM FINANCIAL STATEMENTS
April 30, 1997
(unaudited)
(1) Basis of Presentation
The interim financial statements presented herein are unaudited, but in
the opinion of management reflect all adjustments necessary for a fair
presentation of results for such periods. The results of operations for
any interim period are not necessarily indicative of results for the full
year. Information as of January 31, 1997 was taken from the Company's
Annual Report on Form 10-K for the year ended January 31, 1997. These
financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's Annual Report on
Form 10-K for the year ended January 31, 1997.
(2) Shareholders' Equity
The following table summarizes stock option activity for the three months
ended April 30, 1997:
<TABLE>
<CAPTION>
Outside
Grant Expiration Exercise Total 1996 1991 Directors
Recipient Date Date Price Shares Plan Plan Plan Other
--------- ----- ---------- -------- ------ ---- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C>
OPTIONS OUSTANDING AS OF JANUARY 31, 1997 361,500 145,500 66,500 14,500 135,000
GRANTED
COO March 1997 March 2002 $ 5.63 25,000(1) - 25,000 - -
EXPIRED OR FORFEITED
Employees - - - (4,000) - (4,000) - -
EXERCISED
Employees - - 2.94 (2,950) (2,950) - - -
------- ------- ------ ------ -------
OPTIONS OUTSTANDING AS OF APRIL 30, 1997 379,550 142,550 87,500 14,500 135,000
======= ======= ====== ====== ======
OPTIONS EXERCISABLE AS OF APRIL 30, 1997 294,550 132,550 87,500 14,500 60,000
======= ======= ====== ====== ======
(1) Non statutory stock options.
</TABLE>
At the time of employment, the Company's new Chief Operating Officer was
issued compensation in the form of 5,000 shares of the Company's common
stock.
In August 1996, the Company amended its Articles of Incorporation to
increase the number of authorized shares of Capital Stock from 5,000,000
to 10,000,000 shares, as approved by the Company's shareholders at the
July 17, 1996, Annual Shareholders meeting.
(3) Recently Issued Accounting Standard
During February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share." This pronouncement provides a different
method of calculating earnings per share than is currently used in
accordance with APB No. 15, "Earnings per Share." SFAS 128 provides for
the calculation of basic and diluted earnings per share. Basic earnings
per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share.
SFAS 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997 and early adoption is not
permitted. When adopted, the statement will require restatement of prior
year's earnings per share. The Company will adopt this statement for its
fourth quarter and year ending January 31, 1998. Assuming that SFAS 128
had been implemented, basic earnings per share would have been $.24 per
share for the three months ended April 30, 1997 versus primary earnings
per share of $.23 per share as reported. Basic earnings per share would
have been the same as previously reported primary earnings per share for
the three months ended April 30, 1996. Dilutive earnings per share would
have been the same as previously reported primary earnings per share for
the three months ended April 30, 1997 and 1996.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Information
THE FOLLOWING DISCUSSION CONTAINS CERTAIN STATEMENTS WHICH REFLECT THE COMPANY'S
CURRENT EXPECTATIONS REGARDING FUTURE RESULTS OF OPERATIONS AND PERFORMANCE OF
THE COMPANY. WHEN USED IN THIS REPORT, THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS" AND OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER SIGNIFICANTLY FROM THOSE SET FORTH IN SUCH
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO THOSE DISCUSSED BELOW AS WELL AS ELSEWHERE IN THIS DOCUMENT AND IN
THE COMPANY'S ANNUAL REPORT ON FORM 10-K. READERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF. THE COMPANY IS NOT OBLIGATED TO UPDATE OR REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT NEW EVENTS OR CIRCUMSTANCES.
Background
Ultra Pac, Inc. designs, manufactures, markets and sells plastic containers and
packaging to the food industry, including supermarkets, distributors of food
packaging, wholesale bakery companies, fruit and vegetable growers,
delicatessens, processors and retailers of prepared foods, and foodservice
providers. The Company's packaging is primarily made from virgin and recycled
polyethylene terephthalate ("PETE") which the Company extrudes into plastic
sheet and thermoforms into various shapes.
Management believes that future sales and earnings could be affected by various
factors. These include: supply and demand for PETE raw material (including both
virgin and recycled material) and the resulting impact on the Company's raw
material costs; competitive pressures in the marketplace for the Company's
products both from existing competitors and new entrants into the market place
and from competitors who use lower-cost non PETE resins such as OPS (oriented
polystyrene); weather conditions during the growing season of fresh produce and
the resulting impact on the demand for plastic packaging, principally during the
Company's first, second and third quarters; the Company's ability to estimate
future sales and react to any significant unforeseen increases or decreases in
sales and the impact on its fixed overhead cost structure including the possible
need for significant capital expenditures; and the cost, availability and amount
of debt financing.
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the Statements of Operations of the Company expressed as a percentage of
net sales.
Three Months
Ended
April 30,
----------------
1997 1996
----- -----
Net sales 100.0% 100.0%
Cost of products sold 61.5 77.1
----- -----
Gross profit 38.5 22.9
Operating expenses
Marketing and sales 19.6 16.8
Administrative 5.6 4.1
----- -----
25.2 20.9
----- -----
Operating profit 13.3 2.0
Interest expense and other 3.5 4.8
----- -----
Earnings (loss) before income taxes 9.8 (2.8)
Income tax provision (benefit) 3.8 (.7)
----- -----
NET EARNINGS (LOSS) 6.0% (2.1)%
===== =====
Net Sales:
Net sales decreased 5.1% from $15,760,404 to $14,950,282 for the three months
ended April 30, 1997, as compared to the three months ended April 30, 1996. The
decrease in net sales is primarily due to a significant decline in sales of
produce containers. The Company believes this decline is primarily due to the
recent hepatitis alert related to frozen strawberries. While the Company's
containers are used for packaging of fresh strawberries, it believes that
consumers decreased purchases of fresh strawberries as a result of the publicity
surrounding the hepatitis outbreak, which resulted in strawberry growers selling
a higher percentage of their crop for use in frozen applications and preserves.
The decrease in produce container sales was offset in part by an increase in
sales of the Company's line of bakery containers, Ultra Lite Bakeable products
and the manufacture of plastic sheet for others. While the Company expects sales
to increase over the prior year, it does not expect this growth to materialize
until the third and fourth quarters of fiscal 1998. The Company expects this
growth to come in its Ultra Lite Bakeable products, including the recently
introduced Reservations series of plastic food containers for the rapidly
expanding home meal replacement and food service markets.
Management continues its efforts to identify and analyze long term market trends
and opportunities, competitive strategies, and other factors that influence
market conditions or result in competitive pressures. Management believes that
this activity will assist the Company in developing future markets, developing
product and price strategies, as well as improving its production planning
process. In connection with its efforts in this area, during the last half of
fiscal 1997 the Company hired a Director of Sales, in addition to expanding its
sales and marketing support staff.
Gross Profit:
Gross profit margins improved from 22.9% to 38.5% for the three months ended
April 30, 1997, as compared to the three months ended April 30, 1996. The
improvement in gross profit margins can be primarily attributed to lower prices
of PETE resin and of other raw materials and improved manufacturing efficiencies
and related manufacturing costs, and also to the manufacture of plastic sheet
for others.
Prices for virgin PETE resin and recycled material declined dramatically during
the second and third quarters of fiscal 1997 due in part to increased capacity
of refiners and lower market prices for paraxylene, a major component of PETE
resins. These prices remained relatively flat during the fourth quarter of
fiscal 1997 and increased slightly late in the first quarter of fiscal 1998.
However, material prices remain relatively low historically.
The Company has a resin supply agreement through December 31, 1997 which
provides for pricing to float with market conditions, subject to limits on the
amount by which prices may increase, with no limit on price decreases. Under
this agreement, the Company is required to purchase minimum resin quantities
which will supply a major portion of its virgin PETE resin needs.
The Company has received notification that its virgin PETE resin pricing will
increase to the maximum price allowable under the agreement, effective June 1997
(approximately a 6% increase from April 30, 1997 prices). This pricing will
remain in effect through December 31, 1997 unless the Company receives
notification of a price decrease. The Company anticipates that its prices for
recycled PETE materials will also increase slightly during the second quarter
ending July 31, 1997, however, it has obtained commitments for a major portion
of its recycled material requirements for such quarter at current market prices.
Since the installation of its fifth and sixth extrusion lines in fiscal 1996,
the Company has been able to supply all its PETE sheet needs and expects to be
able to do so during all of fiscal 1998. In fact, at various times, the Company
has and expects to extrude PETE sheet at less than its full production capacity.
The Company has also been extruding plastic sheet for other manufacturing firms.
The cost of plastic sheet extruded by the Company has been significantly lower
than the cost of plastic sheet purchased from outside sources.
The Company expects its gross margin percentage to improve slightly for the
second quarter as compared to prior year levels due to the factors discussed
above.
Operating Expenses:
Marketing and sales expense increased from $2,641,186 or 16.8% of net sales, to
$2,929,475 or 19.6% of net sales during the three months ended April 30, 1997,
as compared to the three months ended April 30, 1996. The increase was primarily
due to increased salaries as a result of the hiring of a Director of Sales and
additional sales and marketing support personnel in the last half of fiscal
1997. The increase was also attributable to increased freight costs and
commissions. The increase as a percentage of sales was primarily due to lower
sales and the increase in marketing and sales expense as discussed above. The
increase in commission expense in both dollars and as a percentage of sales, was
a result of an increase in the commission rate paid, effective February 1997.
Administrative expense increased from $649,612 or 4.1% of net sales to $832,044
or 5.6% of net sales during the three months ended April 30, 1997, as compared
to the three months ended April 30, 1996. The increase in administrative expense
was due in part to an increase in administrative salaries primarily from the
hiring of a Director of Management Information Systems and other administrative
support personnel during the third and fourth quarters of last year and the
hiring of a Chief Operating Officer in March 1997. In addition, employee benefit
costs increased as a result of the Company's reinstatement of its practice of
matching a portion of employee contributions to its 401k plan.
Interest Expense and Other:
Interest expense decreased from $626,582 or 4.0% of net sales to $505,607 or
3.4% of net sales for the three months ended April 30, 1997, as compared to the
three months ended April 30, 1996. The decrease was principally due to lower
debt levels and lower interest rates. The Company anticipates a decrease in
interest expense for the remainder of fiscal 1998 as compared to fiscal 1997 as
a result of lower debt levels and lower interest rates resulting from the
refinancing of its bank debt in February 1997, as discussed in Liquidity and
Capital Resources.
During the quarter ended April 30, 1996, other expense was $107,303 or .7% of
sales, while during the quarter ended April 30, 1997, other income was $7,676 or
.1% of sales. Legal costs associated with the Company's claim for patent
infringement, incurred in the first quarter of last year, were reclassified from
"Administrative Expense" to "Other Income and Expense". The Company received a
settlement related to this litigation in January 1997.
Inflation:
The Company believes inflation has not significantly affected its results of
operations.
Liquidity and Capital Resources
Because the Company's business is highly capital intensive, it has traditionally
relied heavily on bank and other debt financing to fund its capital
requirements. While the Company expects to continue to rely on bank and other
debt financing, it anticipates that its debt levels will continue to decrease
during fiscal 1998 due to its improved operating performance and modest planned
capital expenditures for the balance of fiscal 1998. As of April 30, 1997, the
Company had borrowed $2,353,732 under its $8,000,000 revolving credit facility,
leaving $5,646,268 potentially available. However, under the Company's borrowing
base, only $2,831,200 of the $5,646,268 was in fact available at April 30, 1997.
In February 1997, the Company amended its credit facility and term note with its
principal lender to reduce the interest rate differentials on both by 1%, to
extend the maturity date to May 31, 1999 and to reduce the amount available
under the revolving credit facility by $1,500,000 to $8,000,000 reflecting the
Company's decreased credit needs.
The Company believes its existing revolving credit facility is adequate to
support its operations through the term of such facility.
Working capital increased from $270,438 on January 31, 1997 to $773,182 on April
30, 1997. This increase is primarily due to an increase in accounts receivable
and inventories and a decrease in accounts payable partially offset by increases
in current maturities of long-term obligations and accrued liabilities. Accounts
receivable increased from $3,422,970 on January 31, 1997 to $3,787,987 on April
30, 1997 primarily due to an increase in net sales during the first quarter of
fiscal 1998 as compared to the fourth quarter of fiscal 1997. Inventories
increased from $6,872,430 on January 31, 1997 to $7,295,691 on April 30, 1997
due to an increase in the levels of work in process and finished goods
inventories related to anticipated sales growth.
For the three months ended April 30, 1997, $1,567,055 of cash was provided by
operating activities as compared to $760,447 for the three months ended April
30, 1996 primarily due to improved earnings.
As of April 30, 1997, the Company had outstanding capital commitments of
$1,010,000 for thermoforming equipment and molds and was reviewing $365,000 of
additional capital expenditures. The Company anticipates that capital
expenditures for fiscal 1998 will be approximately $1,500,000, as compared to
$570,000 incurred in fiscal 1997. The Company believes the current level of
production equipment and facilities along with the committed capital
expenditures will be sufficient to meet anticipated fiscal 1998 requirements.
The fiscal 1998 expenditures will be financed from funds available through the
Company's credit facility, capital expenditure term note facility and funds
generated from operations.
Seasonality of Sales and Operating Profits
Historically, the Company's sales were highest during the third quarter and
declined in the fourth quarter. Since the introduction of its line of produce
containers during 1992, the percentage of the Company's sales occurring during
the first two quarters has progressively increased and the Company expects this
trend to continue.
Because the Company's sales have historically declined during the fourth quarter
while its fixed overhead costs have remained relatively constant, the Company's
gross margins and operating profit have generally been lowest during the fourth
quarter. Since the introduction of the Company's line of produce containers,
this has also impacted the third quarter gross margins and operating profit.
Prices for virgin PETE resin and recycled material increased significantly
during fiscal 1996 and declined significantly in fiscal 1997, however the
Company believes that as refiners continue to expand capacity, the supply of
PETE will exceed the increase in demand and there will be a more stable pricing
environment. As a result, the relationship of gross margins from quarter to
quarter should be more consistent with historical results.
PART II
OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 1996 Stock Option Plan dated May 10, 1996
(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.
DATED: June 4, 1997 ULTRA PAC, INC.
By: /s/ Calvin Krupa
-----------------------
Calvin Krupa
Its: President and Chief
Executive Officer
/s/ Bradley Yopp
-----------------------
Bradley Yopp
Chief Financial Officer
ULTRA PAC, INC.
1996 STOCK OPTION PLAN
1.) Purposes. The principal purposes of the Ultra Pac, Inc. (the
"Company") 1996 Stock Option Plan (the "Plan") are (a) to improve individual
performance by providing long-term incentives and rewards to employees and
consultants of the Company, (b) to assist the Company in attracting, retaining
and motivating employees and consultants with experience and ability, and (c) to
associate the interests of such persons with those of the Company's
shareholders.
Options granted under this Plan are Non-Qualified Options.
This Plan is separate from the Company's 1991 Stock Option Plan and the
Company's Outside Directors' Stock Option Plan.
2.) Definitions. For purposes of this Plan, the following terms shall
have the meanings indicated below:
(01) "Capital Stock" - any of the Company's authorized but
unissued shares of voting common stock, no par value per share.
(02) "Code" - the Internal Revenue Code of 1986, as amended
from time to time.
(03) "Company" - Ultra Pac, Inc., a Minnesota corporation and
any of its Subsidiaries.
(04) "Exchange Act" - the Securities Exchange Act of 1934, as
amended.
(05) "Fair Market Value" - the price per share determined as
follows: (a) if the security is listed for trading on one or more
national securities exchanges (including the Nasdaq National Market
System), the reported last sales price on such principal exchange on
the date in question, or if such security shall not have been traded on
such principal exchange on such date, the reported last sales price on
such principal exchange on the first day prior thereto on which such
security was so traded; or (b) if the security is not listed for
trading on a national securities exchange (including the Nasdaq
National Market System) but is traded in the over-the-counter market,
the mean of the highest and lowest bid prices for such security on the
date in question, or if there are no such bid prices for such security
on such date, the mean of the highest and lowest bid prices on the
first day prior thereto on which such prices existed; or (c) if neither
(a) nor (b) is applicable, by any means deemed fair and reasonable by
the Committee (as defined below), which determination shall be final
and binding on all parties.
(06) "Non-Qualified Stock Option" - an option, not intended to
qualify as an Incentive Stock Option as defined in Section 422 of the
Code, to purchase Capital Stock of the Company.
(07) "Option" - the term shall refer to a Non-Qualified Stock
Option.
(08) "Option Agreement" - a written agreement pursuant to
which the Company grants an option to an Optionee and sets the terms
and conditions of the option.
(09) "Option Date" - the date upon which an Option Agreement
for an option granted pursuant to this Plan is duly executed by or on
behalf of the Company.
(10) "Option Stock" - the voting common stock of the Company,
no par value per share, (subject to adjustment as described in Section
7) reserved for options pursuant to this Plan, or any other class of
stock of the Company which may be substituted therefor by exchange,
stock split or otherwise.
(11) "Optionee" - an officer, management level employee, other
employee, and consultant of the Company to whom an option has been
granted under the Plan.
(12) "Plan" - this 1996 Stock Option Plan, as amended
hereafter from time to time.
(13) A "Subsidiary" - any corporation in an unbroken chain of
corporations beginning with the Company, if, at the time of granting
the option, each of the corporations other than the last corporation in
the chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. The term shall include any subsidiaries
which become such after adoption of this Plan.
3.) Options Available Under Plan. The Company's authorized Capital
Stock in an amount equal to 200,000 shares is hereby made available, and shall
be reserved for issuance under this Plan. The aggregate number of shares
available under this Plan shall be subject to adjustment on the occurrence of
any of the events and in the manner set forth in Section 7. Except as provided
in Section 7, in no event shall the number of shares reserved be reduced below
the number of shares issuable upon exercise of outstanding Options. If an Option
shall expire or terminate for any reason without having been exercised in full,
the unpurchased shares, shall (unless the Plan shall have been terminated)
become available for other Options under the Plan.
4.) Administration. The Plan shall be administered by a committee
consisting of not less than two (2) members of the Board of Directors of the
Company (the "Committee") who are "disinterested" within the meaning of and to
the extent required by the General Rules and Regulations promulgated pursuant to
Section 16 of the Exchange Act (the "Section 16 Regulations"). Any such
committee shall exercise those functions delegated to it by the Board of
Directors. To the extent permitted by the Section 16 Regulations, the Board of
Directors may serve as the Committee.
The Company shall grant Options pursuant to the Plan upon
determinations of the Committee as to which of the eligible persons shall be
granted Options, the number of shares to be Optioned and the term during which
any such Options may be exercised. The Committee may from time to time adopt
rules and regulations for carrying out the Plan and interpretations and
constructions of any provision of the Plan, which shall be final and conclusive.
5.) Eligibility for Non-Qualified Options. Non-Qualified Options may be
granted only to an officer, management level employee, other employee or
consultant of the Company or a subsidiary. No further restrictions are placed on
the Committee in determining eligibility for granting Non-Qualified Options.
6.) Terms and Conditions of Options. Whenever the Committee shall
designate an Optionee, it shall communicate to the Secretary of the Company the
name of the Optionee, the number of shares to be Optioned and such other terms
and conditions as it shall determine, not inconsistent with the provisions of
this Plan. The President or other officer of the Company shall then enter into
an Option Agreement with the Optionee, complying with and subject to the
following terms and conditions and setting forth such other terms and conditions
of the Option as determined by the Committee:
(01) Number of Shares and Option Price. The Option Agreement
shall state the total number of shares to which it pertains. The price
of the Option Stock for a Non-Qualified Stock Option shall be
determined by the Committee and may be less than the Fair Market Value
at the Option Date. The Option price shall be subject to adjustment as
provided in Section 7 hereof.
(02) Time and Manner of Exercise of Option. The vesting and
time of exercise of each Option shall be determined from time to time
by the Committee and shall be set forth in the Option Agreement with
each Optionee. In no event may an Option be exercised after ten (10)
years from the date on which the Option was granted.
(03) Termination of Employment, Except Death or Disability. In
the event that an Optionee shall cease to be employed by the Company
for any reason other than his or her death, disability or "for cause,"
such Optionee shall have the right to exercise any vested outstanding
Options which were exercisable at the time of termination of employment
at any time within three (3) months after the termination of the
employee or until the earlier date of termination thereof under this
Plan or the Option Agreement. Any vested Options not exercised within
the three (3) month period shall terminate at the expiration of such
period. In the event that the Optionee shall be terminated "for cause"
including but not limited to: (i) willful breach of any agreement
entered into with the Company; (ii) misappropriation of the Company's
property, fraud, embezzlement, other acts of dishonesty against the
Company; or (iii) conviction of any felony or crime involving moral
turpitude, the Option shall terminate as of the date of the Optionee's
termination of employment.
(04) Death or Disability of Optionee. If the Optionee shall
die or become disabled within the definition of Section 105(d)(4) of
the Code, (i) while in the employ of the Company or any Subsidiary, or
(ii) within a period of three (3) months after the termination of his
or her employment with the Company or any Subsidiary as provided in
paragraph (03) of this section, and in either case shall not have fully
exercised his or her vested Options, any vested Options granted
pursuant to the Plan which were exercisable at the date of termination
of employment shall be exercisable only within six (6) months following
his or her death or date of disability or until the earlier originally
stated expiration thereof. In the case of death, such Option shall be
exercised pursuant to subparagraph (06) of this Section by the person
or persons to whom the Optionee's rights under the Option shall pass by
the Optionee's will or by the laws of descent and distribution, and
only to the extent that such Options were exercisable at the time of
death.
(05) Transfer of Option. Each Option granted hereunder shall,
by its terms, be not transferable by the Optionee other than by will or
by the laws of descent and distribution, and shall be, during the
Optionee's lifetime, exercisable only by the Optionee or Optionee's
guardian or legal representative. Except as permitted by the preceding
sentence, each Option granted under the Plan and the rights and
privileges thereby conferred shall not be transferred, assigned or
pledged in any way (whether by operation of law or otherwise), and
shall not be subject to execution, attachment or similar process. Upon
any attempt to so transfer, assign, pledge, or otherwise dispose of the
Option, or of any right or privilege conferred thereby, contrary to the
provisions of the Option or the Plan, or upon levy of any attachment or
similar process upon such rights and privileges, the Option, and such
rights and privileges, shall immediately become null and void.
(06) Manner of Exercise of Options. An Option may be
exercised, in whole or in part, at such time or times and with such
rights with respect to such shares which have accrued and are in
effect. Such Option shall be exercisable only by: (i) written notice to
the Company of intent to exercise the Option with respect to a
specified number of shares of stock; (ii) tendering the original Option
Agreement to the Company; and (iii) payment to the Company of the
amount of the Option purchase price for the number of shares of stock
with respect to which the Option is then exercised. Payment of the
Option purchase price may be made in cash (including certified check,
bank draft or postal or express money order), by delivery of shares of
common stock of the Company with a Fair Market Value equal to the
Option purchase price, by a combination of cash and such shares, whose
value together with such cash shall equal the Option purchase price or
by any other method of payment which the Committee shall approve;
provided, however, that there shall be no such exercise at any one time
as to fewer than one hundred (100) shares or all of the remaining
shares then purchasable by the Optionee or person exercising the
Option. When shares of stock are issued to the Optionee pursuant to the
exercise of an Option, the fact of such issuance shall be noted on the
Option Agreement by the Company before the Option Agreement is returned
to the Optionee. When all shares of Optioned stock covered by the
Option Agreement have been issued to the Optionee, or the Option shall
expire, the Option Agreement shall be cancelled and retained by the
Company.
(07) Option Certificate. The Board of Directors shall have
discretion to issue a certificate representing an Option granted
pursuant to this Plan. Such certificate shall be surrendered to the
Company upon exercise of the Option.
(08) Delivery of Certificate. Except where shares are held for
unpaid withholding taxes, between fifteen (15) and thirty (30) days
after receipt of the written notice and payment specified above, the
Company shall deliver to the Optionee certificates for the number of
shares with respect to which the Option has been exercised, issued in
the Optionee's name; provided, however, that such delivery shall be
deemed effected for all purposes when the Company, or the stock
transfer agent for the Company, shall have deposited such certificates
in the United States mail, postage prepaid, addressed to the Optionee
and the address specified in the written notice of exercise.
(09) Other Provisions. The Option Agreements under this
Section shall contain such other provisions as the Committee shall deem
advisable.
7.) Adjustments. In the event that the outstanding shares of the
common stock of the Company are changed into or exchanged for a different number
or kind of shares or other securities of the Company or of another corporation
by reason of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares or dividends payable in
capital stock, appropriate adjustment shall be made in the number and kind of
shares as to which Options may be granted under the Plan and as to which
outstanding Options or portions thereof then unexercised shall be exercisable,
to the end that the proportionate interest of the participant shall be
maintained as before the occurrence of such event; such adjustment in
outstanding Options shall be made without change in the total price applicable
to the unexercised portion of such Options and with a corresponding adjustment
in the Option Price per share. No such adjustment shall be made which shall,
within the meaning of any applicable sections of the Code, constitute a
modification, extension or renewal of an Option or a grant of additional
benefits to a participant.
If the Company does not exercise its right under paragraph 12 hereof to
accelerate the date of any Options and is a party to a merger, consolidation,
reorganization or similar corporate transaction and if, as a result of that
transaction, its shares of common stock are exchanged for: (i) other securities
of the Company or (ii) securities of another corporation which has assumed the
outstanding options under the Plan or has substituted for such Options its own
Options, then each Optionee shall be entitled (subject to the conditions stated
herein or in such substituted Options, if any), in respect of that Optionee's
Options, to purchase that amount of such other securities of the Company or of
such other corporation as is sufficient to ensure that the value of the
Optionee's Options immediately before the corporate transaction is equivalent to
the value of such Options immediately after the transaction, taking into account
the Option Price of the Option before such transaction, the fair market value
per share of the common stock immediately before such transaction and the fair
market value immediately after the transaction, of the securities then subject
to that Option (or to the option substituted for that Option, if any). Upon the
happening of any such corporate transaction, the class and aggregate number of
shares subject to the Plan which have been heretofore or may be hereafter
granted under the Plan shall be appropriately adjusted to reflect the events
specified in this clause.
8.) Rights as Stockholder. An Optionee shall not, by reason of any
Option granted hereunder, have any right of a stockholder of the Company with
respect to the shares covered by his Option until such shares shall have been
issued to the Optionee.
9.) No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Optionee to exercise such Option. Neither shall
the Plan confer upon the Optionee any rights respecting continued employment nor
limit the Optionee's rights or the Company's rights to terminate such
employment.
10.) Withholding Taxes. Whenever under the Plan shares of Option Stock
are to be issued upon exercise of the Options granted hereunder and prior to the
delivery of any certificate or certificates for said shares by the Company, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy any federal and state withholding or other
employment taxes resulting from such exercise. In the event that withholding
taxes are not paid within five days after the date of exercise, to the extent
permitted by law the Company shall have the right, but not the obligation, to
cause such withholding taxes to be satisfied by reducing the number of shares of
stock deliverable or by offsetting such withholding taxes against amounts
otherwise due from the Company to the Optionee. If withholding taxes are paid by
reduction of the number of shares deliverable to Optionee, such shares shall be
valued at the Fair Market Value as of the fifth business day following the date
of exercise.
11.) Purchase for Investment; Rights of Holder on Subsequent
Registration. Unless the shares to be issued upon exercise of an Option granted
under the Plan have been effectively registered under the Securities Act of 1933
as now in force or hereafter amended (the "1933 Act"), the Company shall be
under no obligation to issue any shares covered by any Option unless the person
who exercises such Option, whether such exercise is in whole or in part, shall
give a written representation and undertaking to the Company which is
satisfactory in form and scope to counsel for the Company and upon which, in the
opinion of such counsel, the Company may reasonably rely, that he or she is
acquiring the shares issued to him or her pursuant to such exercise of the
Option for his or her own account as an investment and not with a view to, or
for sale in connection with, the distribution of any such shares, and that he or
she will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the 1933 Act, or any
other applicable law, and that if shares are issued without such registration a
legend to this effect may be endorsed on the securities so issued. In the event
that the Company shall, nevertheless, deem it necessary or desirable to register
under the 1933 Act or other applicable statutes any shares with respect to which
an Option shall have been exercised, or to qualify any such shares for exemption
from the 1933 Act or other applicable statutes, then the Corporation shall take
such action at its own expense and may require from each participant such
information in writing for use in any registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors from such holder against all losses, claims, damages and liabilities
arising from such use of the information so furnished and caused by any untrue
statement of any material fact required to be stated therein or necessary to
make the statement therein not misleading in light of the circumstances under
which they were made.
12.) Modification of Outstanding Options. The Committee, without the
consent of the Optionee, may accelerate the exercisability of an outstanding
Option upon the merger, consolidation, reorganization or similar transaction
with another entity and shorten the time period within which an Optionee must
exercise his or her Options. In addition, the Committee, at any time, may
authorize modification of any outstanding Option with the consent of the
participant when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
13.) Foreign Employees. Without amending the Plan, the Committee may
grant Options to eligible employees who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of the
purposes of the Plan, and, in furtherance of such purposes the Committee may
make such modification, amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in other countries in
which the Company operates or has employees.
14.) Approval of Board of Directors. This Plan is subject to approval
of the majority of the members of the Board of Directors of the Company.
15.) Liquidation. Upon the complete liquidation of the Company, any
unexercised Options theretofore granted under this Plan shall be deemed
cancelled, except as otherwise provided in Section 7 in connection with a
merger, consolidation or reorganization of the Company.
16.) Restrictions on Issuance of Shares. Notwithstanding the provisions
of Section 6, the Company may delay the issuance of shares covered by the
exercise of any Option and the delivery of a certificate for such shares until
one of the following conditions shall be satisfied:
(01) The shares with respect to which the Option has been
exercised are at the time of the issue of such shares effectively
registered under applicable Federal and state securities acts as now in
force or hereafter amended; or
(02) A no-action letter in respect of the issuance of such
shares shall have been obtained by the Company from the Securities and
Exchange Commission and any applicable state securities commissioner;
or
(03) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that
such shares are exempt from registration under applicable federal and
state securities acts as now in force or hereafter amended.
It is intended that all exercises of Options shall be effective, and
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to cause a registration statement or a post-effective amendment to
any registration statement to be prepared at its expense solely for the purpose
of covering the issue of shares in respect of which any option may be exercised.
17.) Termination and Amendment of the Plan. This Plan shall terminate
ten (10) years after March 14, 1996, the effective date of the Plan, or at such
earlier time as the Board of Directors shall determine. Any termination shall
not affect any Options then outstanding under the Plan.
The Board may make such modifications of the Plan as it shall deem
advisable, including, but not limited to the following: (a) increase the number
of shares reserved for Options under this Plan, (b) increase the maximum term of
the Options provided for herein, or (c) change the class of persons eligible to
receive Options under the Plan.
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