U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the transition period from ---------- to----------
Commission file number 0-27552
REALCO, INC.
_______________
(Exact name of small business issuer as specified in its charter)
New Mexico 85-0316176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 University Blvd., N.E., Suite 5-100
Albuquerque, New Mexico 87102
(Address of principal Executive offices)
(505) 242-4561
(Issuer's telephone number)
--------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer has (1) filed all documents
and reports required to be filed by Sections 13 or 15(d)
of the Securities Exchange Act of 1934 during the past
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 XX No
------- -------
The number of shares of the registrants no par
value common stock, the issuers only class of
common stock, outstanding as of May 15, 1997, was:
2,820,000
Transitional Small Business Format (check one) Yes [ ]No[XX]
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION.
Item 1. FINANCIAL STATEMENTS
REALCO, INC.
CONDENSED BALANCE SHEET
March 31, 1997
ASSETS (Unaudited)
<S> <C>
Cash and cash equivalents $ 3,455,670
Restricted cash 456,506
Securities available for sale 267,790
Accounts and notes receivable 4,914,813
Inventories 9,244,197
Property & equipment (net) 822,282
Investments - equity method 1,300,388
Deferred income taxes 175,188
Other assets 2,109,739
-----------
$22,746,573
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 6,486,945
Lease obligations 141,497
Billings in excess of costs
and estimated earnings on
uncompleted contracts 7,156
Construction advances and notes
payable, collateralized by inventories 3,341,773
Accounts payable and accrued
liabilities 1,160,162
Escrow funds held for others 456,506
----------
Total liabilities 11,594,039
----------
Stockholders' equity
Preferred stock no par value - authorized
500,000 shares;
Series A - issued and outstanding
82,569 shares 825,690
Series B - issued and outstanding
217,859 shares 2,178,590
Series D - issued and outstanding
24,297 shares 242,970
Common stock no par value;
authorized, 6,000,000 shares, issued
2,845,000 shares 7,712,461
Retained earnings 213,249
Unrealized gains on available-for-sale
securities, net of tax 15,792
----------
11,188,752
Less cost of 14,500 shares held in treasury 36,218
----------
11,152,534
----------
$22,746,573
===========
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
REALCO, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months Three months
Ended Ended
March 31, March 31,
1997 1996
<S> <C> <C>
REVENUES
Brokerage commissions and fees $ 3,377,320 $ 2,657,872
Sales of homes 5,182,448 1,563,883
Sales of developed lots 268,000 69,000
Equity in net earnings of investees 268,082 91,262
Interest and other, net 185,671 215,184
----------- -----------
9,281,521 4,597,201
COSTS AND EXPENSES
Cost of brokerage revenue 2,348,383 1,793,953
Cost of home sales 4,855,516 1,365,979
Cost of developed lots sold 288,301 68,045
Selling, general and administrative 1,440,726 1,022,197
Depreciation and amortization 120,294 92,893
Interest and other expense 160,956 98,371
----------- -----------
9,214,176 4,441,438
----------- -----------
Income before provision
for income taxes 67,345 155,763
INCOME TAX EXPENSE 31,331 51,060
----------- -----------
NET EARNINGS BEFORE PREFERRED
STOCK DIVIDEND REQUIREMENT 36,014 104,703
PREFERRED STOCK DIVIDEND REQUIREMENT 30,547 29,100
----------- -----------
NET EARNINGS AVAILABLE FOR COMMON
SHARES $ 5,467 $ 75,603
=========== ===========
Earnings per common share $ 0.01 $ 0.04
Earnings after preferred
stock dividend requirement $ - - $ 0.03
=========== ===========
Weighted average shares outstanding 2,839,844 2,460,385
----------- -----------
The accompanying notes are an integral part of these statements.
</TABLE>
REALCO, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months Six months
Ended Ended
March 31, March 31,
1997 1996
<S> <C> <C>
REVENUES
Brokerage commissions and fees $ 5,705,850 $ 5,146,295
Sales of homes 9,505,679 3,994,357
Sales of developed lots 389,000 708,092
Equity in net earnings of investees 442,178 137,660
Interest and other, net 520,376 306,211
----------- -----------
16,563,083 10,292,615
COSTS AND EXPENSES
Cost of brokerage revenue 4,125,103 3,568,485
Cost of home sales 8,827,384 3,559,406
Cost of developed lots sold 406,776 712,883
Selling, general and administrative 2,546,830 2,077,959
Depreciation and amortization 217,014 160,228
Interest and other expense 319,697 114,815
----------- -----------
16,442,804 10,193,776
----------- -----------
Income before provision
for income taxes 120,279 98,839
INCOME TAX EXPENSE 52,500 29,880
----------- -----------
NET EARNINGS BEFORE PREFERRED
STOCK DIVIDEND REQUIREMENT $ 67,779 $ 68,959
PREFERRED STOCK DIVIDEND REQUIREMENT 61,094 58,200
----------- -----------
NET EARNINGS AVAILABLE FOR COMMON
SHARES $ 6,685 $ 10,759
=========== ===========
Earnings per common share $ 0.02 $ 0.04
Earnings after preferred
stock dividend requirement $ - - $ - -
=========== ===========
Weighted average shares outstanding 2,842,451 1,845,000
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
REALCO, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six months ended
March 31,
1997 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 67,779 $ 68,959
Adjustments to reconcile net earnings
to net cash used by operating activities
Depreciation and amortization 217,014 160,228
Accretion of discount on notes payable 27,617 --
(Net earnings of investees in excess of
distributions) distributions in excess
of earnings (421,471) 21,100
(Gain) on sale of securities (45,365) (77,774)
Change in operating assets and liabilities
(Increase) in accounts receivable (139,519) (1,837,321)
Decrease (increase) in inventories 1,077,336 (2,381,883)
Decrease in net billings related to costs
and estimated earnings on uncompleted
contracts 314,589 --
(Increase) in other assets (784,631) (32,577)
Decrease in accounts payable and
accrued liabilities (624,755) (1,432)
Increase in deferred tax asset (87,454) (28,070)
---------- ----------
Net cash used by operating
activities (398,860) (4,108,770)
---------- ----------
Cash flows from investing activities
Purchases of property and equipment (547,315) (96,311)
Proceeds from sale of securities 41,411 144,757
Advances on notes receivable (1,056,468) --
Purchases of investments - equity method (100) --
Cash acquired from purchase of Mull Realty 205,912 --
----------- ---------
Net cash (used ) provided in investing
activities (1,356,560) 48,446
----------- ---------
Cash flows from financing activities
Construction advances and notes
payable, net 812,466 (815,359)
Payments on capital lease obligations (46,038) (43,228)
Proceeds from issue of subordinated notes -- 5,160,625
Proceeds from issue of common stock -- 6,172,974
Purchase of common stock (36,218) --
Purchase of Series B preferred stock -- (5,000)
----------- ----------
Net cash provided from financing
activities 730,210 10,470,012
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,025,210) 6,409,688
Cash and cash equivalents at beginning
of period 4,480,880 642,829
--------- ---------
Cash and cash equivalents at end
of period $ 3,455,670 $ 7,052,517
============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
REALCO, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The condensed balance sheet as of March 31, 1997, the
statements of operations for the three month and six month
periods ended March 31, 1997 and 1996 and the statements of
cash flows for the six month periods ended March 31, 1997
and 1996 have been prepared by the Company without audit.
In the opinion of Management all adjustments (which include
normal recurring adjustments) necessary to present fairly
the financial position as of March 31, 1997 and results of
operations and cash flows for the six month periods ended
March 31, 1997 and 1996 have been made.
Certain information and footnotes normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or
omitted. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Form
10KSB for the fiscal year ended September 30, 1996. The
results of operations for the period ended March 31, 1997
are not necessarily indicative of the operating results for
a full year.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are computed using the
weighted number of common shares outstanding of 2,842,451
for the six month period ended March 31, 1997 and 1,845,000
for the six month period ended March 31, 1996, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operation by Group
The following is Management's discussion and analysis
of the financial condition and results of operations of the
Company during the six month quarter ended March 31, 1997.
Revenues of the Company are generated through
commercial and residential real estate brokerage services,
commercial and residential home construction sales, and
various financing activities, which include residential
construction lending through participation agreements with
banks, land acquisition and development loans for single
family residential subdivisions, and from recognition of
revenues generated by other corporations in which the
Company owns equity interests ("Investees), whose
business currently consists of residential mortgage
lending, title insurance and property and casualty insurance
including all forms of life, accident and health insurance.
The Company may participate from time to time as a 50% joint
venture partner while affiliated companies may act as a
financier, mortgage banker or insurance agent to the joint
venture. The Company recognizes its share of income from
affiliate Investee's profits and losses on the equity
recognition method.
The Company currently operates its business within the
Albuquerque, New Mexico and Phoenix, Arizona metropolitan
areas. Since inception, management has planned expanding
the Company's businesses and business concepts to other
geographical areas, preferably within the southwest, that
have similar demographics.
Because of the various businesses in which the Company
is engaged, it has defined the following business groups for
purposes of accounting for revenue, costs and expenses:
Financial Services Group, Real Estate Brokerage Group and
Construction and Land Development Group. Those areas of the
Company's business are more fully discussed below.
Real Estate Brokerage Group.
The Real Estate Brokerage Group currently consists of
Hooten/Stall, Inc. located in Albuquerque, New Mexico and
Mull-Smith, Inc., located in Sun City, Arizona. The
business of each of these corporations is that of a real
estate brokerage firm.
During the past two quarters the real estate market in
Albuquerque experienced a marked and general decline in
residential sales. The Albuquerque Board of Realtors
reported on April 14, 1997, that first-quarter home sales
were down by approximately 18.3% when compared with the
first quarter of 1996. The decline in sales is reflected in
the revenue generated from commissions and sales by
Hooten/Stall was $1,829,109 for the quarter ended March 31,
1997, a 32.33 % decline from its revenue from commissions
and fees during the quarter ended March 31, 1996, of
$2,702,657. Combined sales, which include a January 1, 1997
acquisition of Prudential Mull-Smith, a Northwest Phoenix
based brokerage firm. Revenues for the six months ended
March 31, 1997 were $5,949,576 compared to sales of
$5,301,311, a 12.2% increase over 1996 results, however,
Hooten/Stahl sales were $4,291,114 for the six month
period, a decrease of $1,010,197, or 19.1% decrease from the
six months ended March 31, 1996. Although the exact reason
for the decline is unknown, there is speculation that the
Albuquerque market is experiencing a correction of its
current growth pattern. Historically, Albuquerque has
experienced high levels of activity in both construction of
new homes and resale of existing homes on a cyclical basis.
Such cycles occurred from 1969 to 1972, from 1975 to 1978,
from 1982 to 1986 and, most recently, from 1991 through the
third quarter of 1996. If the Albuquerque market is
following this cyclical pattern, it may last for as long as
two years prior to experiencing new stimulated growth.
An indication that in Albuquerque, New Mexico, the past
two quarters may not be part of a cyclical period is the
fact that sales have steadily increased during the first
four months of 1997, but have not yet achieved the levels of
1996. The reasons for this increase is also speculative,
with some suggestion that the increased sales may have been
influenced by recent increases in interest rates. In any
event, Management believes that it is too early to predict
what the future market conditions will be. Because of these
cyclical trends in each area of the country, Management
believes that the Company should strive to locate similar
businesses in cities that have cycles differing from those
of Albuquerque. For that reason, the company acquired
Prudential Mull-Smith, a real estate brokerage firm in the
Phoenix, Arizona area. This new subsidiary was acquired
only at the beginning of the quarter, which produced revenue
of $1,658,462 and a pre-tax profit of $134,496 during the
quarter ended March 31, 1997.
Construction and Land Development Group.
The Construction and Land Development Group currently
consists of Charter Building & Development Corp., Amity Inc.,
and various joint ventures involved in the acquisition and
development of residential subdivisions, all located in the
Albuquerque, New Mexico area.
While the residential real estate market in Albuquerque
was declining, the average cost of a residence was
increasing. The Company's residential builder, Charter
Homes, experienced revenues of $2,901,003, and a pre-
tax loss of $91,921 during the period. During the quarter
ended March 31, 1996, Charters revenues were $1,654,342
and it contributed $577 to the Company's pre-tax profits. The
loss incurred during the current quarter was primarily due
to an increase in administrative overhead of approximately
32% over the quarter ended March 31,1996, which was incurred
in anticipation of increased building activity. Also, interest
expense rose by approximately 135% to $115,437 as a result
of investment in spec homes held for sale and increased inventory
of building lots.
The commercial real estate market in Albuquerque
remained stable throughout the period. Amity, the Company's
commercial builder, experienced sales of $2,585,742 for the
quarter March 31, 1997 and contributed $72,253 to the
Company's pre-tax profit. Amity was acquired by the
Company on July 1, 1996 and no prior years comparisons of
its performance is possible.
Combined construction and land development revenues for
the six months ended March 31, 1997 were $9,944,688, which
includes revenues of $3,467,125 contributed by Amity, Inc.,
compared to revenues of $4,732,658 for the six months ended
March 31, 1996. Pre-tax earnings for the six months ended
March 31, 1997, were $279,008 compared to pre-tax earnings
of $121,778 for the six months ended March 31, 1996. The
increase in net pre-tax earnings for the period ended March
31, 1997, were primarily due to the following; a $88,177 pre-
tax income from Amity, a $334,216 income from the Company's
land development investee activities, and a $145,015 loss
from Charter. The Charter loss was primarily due to an
increase in interest expense of $106,913 and increase in
general and administrative expense of approximately $82,000.
As discussed previously, the increase in interest expense is
due to increased spec home inventory and building lot
inventory.
At March 31, 1997, Charter had a backlog of 31 units
suggesting sales of $5,525,731, compared to a backlog of 23
units at December 31, 1996; valued at $4,378,936. New home
sales have improved in recent weeks, however, it is not
clear at this time whether the improved sales is due to an
upswing in the new home building cycle, or whether
consumers are accelerating their purchases in anticipation
of increased interest costs which some economists are
projecting.
As reported in the Company's Form 10-QSB for the period
ended December 31, 1996, on November 25, 1996, the Company
purchased approximately 90.5 acres of land adjacent to
Albuquerque to be developed into 125 home building sites.
This land purchase was completed through a combination of
seller financing, bank borrowings and utilization of the
restricted cash set aside for the purchase. During the
current quarter, Albuquerque voters approved acquisition of
certain lands to be preserved as open space. This parcel was
selected as one of the tracts of land to acquired by the
City. The City has filed a lawsuit to condemn the property,
See Litigation below. The City paid $7,905,000 to the Joint
Venture, an amount equal to the City's determination of the
value of the parcel. This amount is sufficient to pay all
obligations of the joint venture including all principal,
interest and preferred return owed to the Company. To the
extent that the price paid for the property is increased,
either through further negotiations with the City or through
a Court Order, the Company will participate in the increased
funds when distributed to the Joint Ventures by the Joint
Venture.
Financial Services Group
The Financial Services Group currently consists of all
the Company's businesses and business interests that are not
directly related to its real estate brokerage business or
its real estate construction business. It includes Great
American Equity, Inc., a wholly owned subsidiary that
provides financing for the acquisition and development of
residential home subdivisions, interim construction loans to
certain clients of Hooten/Stahl , and minority interests
in various Investee's whose business' includes, residential
mortgage lending, title insurance and a general agency which
provides a full line of liability, casualty, life, accident
and health insurance, and the Company's investment
portfolio.
This group's income is currently derived primarily
from investee investments and direct lending activities
which utilizes the Company's uncommitted funds, in addition,
it further leverages its investments through the use of
participation agreements with assorted unrelated investors
and financial institutions. All corporate expenses not
specifically identifiable as having a direct relationship to
a corporate subsidiarys business activities are charged to
this group. Charges include all corporate general and
administrative costs, which includes interest expense associated
with the Company's publicly held subordinated debt.
During the quarter ended March 31, 1997, gross revenues
of $277,000 from this group, was derived from interest,
investing gains and investee equity recognition, while
similar revenues for the quarter ended March 31, 1996, were
$266,000. General and administrative expense, depreciation
and interest expense for the quarter ended March 31, 1997
were approximately $297,000, producing a loss of
approximately $20,000 while the similar expense for the
quarter ended March 31, 1996 was $215,000, producing pre-tax
earnings of approximately $51,000. Revenues for the six
months ended March 31, 1997 were 790,000 compared to
revenues of $355,000 for the period ended March 31, 1996.
General administrative expense, depreciation and interest
expense for the six months ended March 31, 1997 were
approximately $585,000, producing pre-tax earnings of
approximately $205,000, while the similar expense for the
six months ended March 31, 1996, was $274,000, producing pre-
tax earnings of approximately $81,000.
The Company concluded an Initial Public Offering of
common stock and subordinated notes on February 2, 1996.
The increase in expense for the quarter ended March 31, 1997
and the six months ended March 31, 1997 compared to the
quarter ended March 31, 1996, and the six months ended March
31, 1996, was primarily due to the increase in and
recognition of expenses associated with being a public
company, including increased legal and accounting costs, key
man life and directors and officers liability insurance,
NASDAQ listing fees and goodwill amortization associated
with previously concluded acquisitions. The loss of
approximately $20,000 sustained by this group for the
quarter ended March 31, 1997 compared to earnings of
approximately $51,000 for the quarter ended March 31, 1996,
was primarily the result of the additional expenses
attributed to this group.
Consolidated Quarterly and Six Months Operating Results
for Periods Ended March 31, 1997 and 1996:
Revenues:
The Company's total consolidated revenue for the
quarter ended March 31, 1997 was $9,281,52 as compared to
$4,597,201 during the same period in the preceding year.
This difference is primarily the result of income
recognition of two subsidiaries, Amity, Inc., which was
acquired on July 1, 1996 and Mull-Smith, Inc., which was
acquired on January 1, 1997. These two subsidiaries
contributed $4,244,204 in revenues during this three month
reporting period. Revenues for the six months ended March
31, 1997 were $16,563,083 compared to revenues of $10,292,615
for the period ended March 31, 1996 again with the new
subsidiaries contributing $5,125,587 of the increased revenues.
Consolidated pre-tax earnings for the quarter ended
March 31, 1997 were $67,345 compared to consolidated pre-tax
earnings of $155,763 for the quarter ended March 31, 1996.
Consolidated pre-tax earnings for the six month period ended
March 31, 1997 were $120,279, compared to consolidated pre-
tax earnings of $98,839 for the period ended March 31, 1996.
The difference in pre-tax earnings for these three month and
six month reporting periods was explained above in the group
operating results discussion.
Net Earnings:
The percentage of net earnings before preferred stock
dividend requirements to total revenues was less than 1% for
both the quarter and the six months period ended March 31,
1997, as a result of the previously noted factors.
Liquidity and Sources of Capital
The Company's principal sources of liquidity are cash
flow from operating activities, bank borrowing under both
term and revolving credit arrangements and approximately
$3,456,000 of the Registrant's current cash and cash
equivalents. During the current quarter, the Company had
utilized approximately $3,342,000 of revolving interim
construction and inventory lines of credit from the
approximately $15,000,000 available with various banks.
The Company believes that the cash flow from its
operations and its current cash and equivalents will sustain
its operations and anticipated internal growth for the
ensuing twelve months.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is subject to certain legal claims from
time to time and is involved in litigation that has arisen
in the ordinary course of business. It is the Company's
opinion that it either has adequate legal defenses to such
claims or that any liability that might be incurred due to
such claims will not, in the aggregate exceed the limits of
the Company's operations or financial position. Insofar as
known to management, there is no pending or threatened
litigation involving the Company or it's assets.
During the quarter ended March 31, 1997, the City of
Albuquerque notified the Company that it intended to began
condemnation procedures related to a parcel of land upon
which the Company had a joint venture financing arrangement
for development. Subsequently, on April 11, 1997, the City
instituted the condemnation procedure and, because of its
interest in the property, the Company was named as one of
the defendant's in the action. The condemnation action is
filed in the District Court for Bernalillo County, New
Mexico captioned City of Alb. vs. Vineyards Joint Venture
and numbered CV 97-02912. Subsequent to the filing of the
action, the City deposited $7,905,000 as payment for the
land and that money was distributed to the parties having a
monetary interest in the property. This payment was based
upon a purported appraisal of the property obtained by the
City. As a result of the payment the Company received the
payment of all of the money that it had advanced to the
Joint Venture. The parties other than the City have also
acquired a fair market appraisal of the property, which came
to $9,650,000. The Court will eventually determine the
actual value of the property for purposes of the
condemnation should the parties not reach a compromise. As a
50% joint venture partner, the Company will receive its
share of any future payments that might result from the
Court determining that the value of the property is greater
than the City's offer or if the parties compromise for a
higher dollar amount.
The joint venture was left with sufficient balances
after satisfying all its obligations with which to meet the
expected legal expense to challenge the adequacy the fair
market claim of vale by the City of Albuquerque verses the
fair market value claim by the joint venture. The joint
venture had provided the City with an MAI Fair Market Value
Appraisal which suggested a value of $9,650,000. It is the
position of the joint venture that a Condemnation Appraisal
which the joint venture assumes the Courts would take into
consideration may be substantially greater than the
previously supplied Fair Market appraisal.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS IN SENIOR SECURITIES.
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
On March 21, 1997, the Company held its annual meeting
of shareholders. Proxies were solicited for the meeting
pursuant to Regulation 14A under the Exchange Act. The
shareholders voted on the following matters in the way
indicated:
a. Election of Directors. There was no solicitation in
opposition to management's nominees listed in the proxy
statement and all of those nominees were elected.
b. Amendment of Article IV of Articles of
Incorporation. The shareholders approved amending Article V
of the Articles of Incorporation to make certain adjustments
in the Company's Preferred Stock as stated in the proxy
statement. The shareholders voted on the amendment as
follows:
(1) To delete Part III of Article IV.
For: 2,256,675
Against: 42,625
Withheld: 3,600
Abstained: 842,528
(2) To increase the number of shares authorized by Part
IV of Article IV (the "Series `C' Preferred Shares")
to 187,000 shares.
For: 2,258,175
Against: 14,125
Withheld: 1,300
Abstained: 871,828
(3) To amend Parts To delete Parts I, II, and IV of
Article IV to provide that any shares of Class "A" or
Class "B" Preferred Stock reacquired by the Company through
conversion to common stock, by purchase or otherwise
reacquired shall become and addition to the Preferred
Shares authorized by Part IV of Article IV..
For: 2,257,175
Against: 12,825
Withheld: 3,600
Abstained: 871,828
c. Adoption of Key Employee Incentive Stock Option
Plan: The shareholders approved the adoption of a key
employee stock option plan as described in the proxy
statement. The shareholders voted on the Plan as
follows:
For: 2,254,972
Against: 42,625
Withheld: 300
Abstained: 871,828
No other matters came before the shareholders at the
meeting.
Item 5. OTHER INFORMATION.,
On February 27, 1997, the Board of Directors authorized
the repurchase of up to 150,000 shares of the Company's
common stock. During the quarter ended March 31, 1997, the
Company purchased 14,500 shares at a cost of $36,218
bringing the total shares acquired under this program to
approximately 14,500 shares. The company is expected to
continue its buy-back program during the ensuing quarters,
subject to market conditions.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed with this report:
1. Articles of Amendment to the Articles of
Incorporation.
2. Key Employee Incentive Stock Option Plan.
(b) During the Quarter the Registrant filed the
following Form 8-K and amendments thereto:
1. Form 8-K filed January 28, 1997, reporting
the acquisition of Mull Realty Company,
Inc.
2. Form 8-KA filed February 11, 1997, reporting
the financial statements of Mull Realty
Company, Inc.
3. Form 8-KA filed April 2, 1997, reporting the
amended financial statements of Mull Realty
Company, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REALCO, INC.
Date: May 15, 1997 S/ James A.Arias_________________________
James A. Arias, President
Date: May 15, 1997 S/ Melvin A.Hardison_____________________
Melvin A. Hardison Secretary\Treasurer
and Chief Financial Officer
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<LEGEND>
This schedule contains summary financial information extracted from SEC
form (type) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 3912176
<SECURITIES> 267790
<RECEIVABLES> 4914813
<ALLOWANCES> 0
<INVENTORY> 9244197
<CURRENT-ASSETS> 0
<PP&E> 822282
<DEPRECIATION> 0
<TOTAL-ASSETS> 22746573
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
3247250
<COMMON> 2178590
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22746573
<SALES> 15600529
<TOTAL-REVENUES> 16563083
<CGS> 13359263
<TOTAL-COSTS> 13359263
<OTHER-EXPENSES> 2763844
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 319697
<INCOME-PRETAX> 120279
<INCOME-TAX> 52500
<INCOME-CONTINUING> 67779
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67779
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
ARTICLES OF AMENDMENT
OF ARTICLES OF INCORPORATION
OF
REALCO, INC.
Pursuant to the provisions of the New Mexico Business
Corporation Act, the undersigned corporation, Realco, Inc.,
adopts the following amendments to its Articles of Incorporation:
FIRST: The name of the corporation is REALCO, INC.
SECOND: The following amendments to Article IV of the Articles of
Incorporation of Realco, Inc. were adopted by its shareholders on
March 21, 1997, as prescribed by the New Mexico Business
Corporation Act, by a vote of its shareholders sufficient for
approval of the Amendments:
ARTICLE IV is amended as follows:
1. Part I of Article IV:
is amended to add thereto paragraph E as follows:
E. Cancellation of Previously Issued Shares.
Any shares of this "A" Series of Preferred Shares that
after having first been validly issued are reacquired by the
corporation through conversion, redemption or otherwise shall,
immediately upon such reacquisition cease to be authorized shares
of Series "A", but shall become an addition to the Preferred
Shares authorized by Part IV, as amended by these Articles of
Amendment, of Article IV;
2. Part II of Article IV:
is amended to add thereto paragraph E as follows:
E. Cancellation of Previously Issued Shares.
Any shares of this "B" Series of Preferred Shares that,
after having first been validly issued, are reacquired by the
corporation through conversion, redemption or otherwise
immediately upon such acquisition cease to be authorized shares
of Series "B", but shall become an addition to the Preferred
Shares authorized by Part IV, as amended by these Articles of
Amendment, of Article IV;
3. Part III of Article IV:
is eliminated in its entirety;
4. Part IV of Article IV:
A. is amended to provide that the number authorized
preferred shares, unclassified as to rights and
preferences, is One Hundred Eighty Seven Thousand (187,000)
shares; and
B. is amended to provide that the number of authorized
shares this Series of Preferred Shares,
unclassified as to rights and preferences shall automatically be
increased by the number of Series "A" or "B" or other
Series of Preferred Shares which may have been authorized
and issued by the Board of Directors from time to
time, upon reacquisition by the Company, shall be canceled as
provided by these Amended Articles of Incorporation.
THIRD: On March 21, 1997, the following series of shares were
issued and outstanding and entitled to receive notice
of and to vote at the Meeting of Shareholders:
<TABLE>
<CAPTION>
Number of Issued
Title of Stock and Outstanding Shares
<S> <C>
Common Stock, no par value 2,845,000
Series "A" Preferred Stock 82,569
Series "B" Preferred Stock 217,859
Series "D" Preferred Stock 24,297
No Series "C" Shares were issued or outstanding on March 21,
1997.
</TABLE>
FOURTH: The shares of outstanding stock voted for and against the
Amendments as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For Against
Title of Stock the Amendments the Amendments
_________________ _______________ _______________
Common Stock, no par value 2,280,000 46,625
Series "A" Preferred Stock 82,569 0
Series "B" Preferred Stock 217,859 0
Series "D" Preferred Stock 23,297 0
</TABLE>
No Series "C" Shares were issued or outstanding on March 21,
1997.
FIFTH: These Amendments did not increase the corporation's
authorized capital.
Dated: April 22, 1997
REALCO, INC.
s/James A. Arias
By: _____________________
James A. Arias, President
s/Melvin A. Hardison
By:_____________________
Melvin A. Hardison, Secretary
Under penalty of perjury, the undersigned declares that the
foregoing document was executed by Realco, Inc.
And that the statements contained therein are true and correct to
the best of his knowledge.
s/James A. Arias
By: ____________________
James A. Arias, President
s/Melvin A. Hardison
By:_____________________
Melvin A. Hardison, Secretary
COUNTY OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
Subscribed and sworn to before me this 22nd day of April,
1997, by James A. Arias and Melvin A. Hardison,known by me to be
the President and Secretary of Realco, Inc.
s/Eugenia Lynn Johnson
__________________________
(Notary Public)
My Commission Expires:05-11-2002
REALCO, INC.
1997 EMPLOYEE INCENTIVE STOCK PLAN
SECTION 1. Purpose; Definitions.
The purpose of the Realco, Inc. 1997 Employee Incentive
Stock Plan (the "Plan") shall be formed in order to better
enable the Company and its subsidiaries to attract, retain and
reward key employees and strengthen the existing mutuality of
interests between key employees and the Company's stockholders,
by offering such key employees stock options and/or restricted
stock. The Plan also enables the Company to offer incentives to
executives of companies which are acquired by the Company from
time to time as incentives and inducements for employment. The
Plan shall be effective as of the date of approval by the
stockholders of the Company.
For purposes of the Plan, the following terms shall be
defined as set forth below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a participant or
the failure of a participant to contest prosecution for a felony,
or a participant's willful misconduct pr dishonesty, any of which
is directly and materially harmful to the business or reputation
of the Company or any Subsidiary.
c. "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
d. "Committee" means the Committee referred to in Section
2 of the Plan. If at any time no Committee shall be in office,
or if the grant of Stock Option or Restricted Stock may, in the
discretion of the Committee or the Board, constitute a conflict
of interest, then the functions of the Committee specified in the
Plan shall be exercised by the Board.
e. "Company" means Realco, Inc., a corporation organized
under the laws of the State of New Mexico or any successor
corporation.
f. "Disability" means disability as determined under
procedures established by the Committee for purposes of this
Plan.
g. "Disinterested Persons" shall have the meaning set
forth in Rule 16b-3 (d ) ( 3 ) as promulgated by the Securities
and Exchange Commission under the Exchange act, or any successor
definition adopted by the Commission.
h. "Effective Date" of the Plan shall be the date of
approval by the Stockholders of the Company.
i. `Eligible Participant" or "Eligible Employee" means
any director, executive or key employee of the Company or a
Subsidiary, including any executive of a company which is
acquired by the Company or a Subsidiary, who is responsible for
and contributes to the management growth and/or profitability for
the business of the Company or its Subsidiaries.
j. "Exchange Act" means the securities Exchange Act of
1934, as amended from time to time.
k. "Fair Market Value" means, as of any given date,
unless otherwise determined by the Committee in good faith, the
mean between the highest and lowest quoted selling price, regular
way, of the stock on NASDAQ ( or the principal exchange upon
which the Stock is listed ) or, if no such sale of Stock occurs
on such date, the fair market value of the Stock as determined by
the Committee in good faith.
l. "Incentive Stock Option" means any Stock Option
intended to be and designated as an "Incentive Stock Option"
within the meaning of Section 422A of the Code.
m. "Non-Qualified Stock Option" means any Stock Option
that is not an Incentive Stock Option.
n. "Plan" means this Realco, Inc. 1997 Employee Incentive
Stock Plan, as hereinafter amended from time to time.
o. `Previously Granted Stock Options" means Stock
Options granted prior to the Effective Date of the Plan pursuant
to any previous Plan or granted independently of any then
existing stock option plan of the Company.
p. "Restricted Stock" means an award of shares of Stock
that is subject to restrictions under Section 5 below.
q. "Retirement" means normal or early retirement in
accordance with the Company's policies as in effect from time to
time.
r. "Stock" means Common Stock, $0.00 par value per share,
of the Company.
s. "Stock Option" or "Option" means any option to
purchase shares of Stock ( including Incentive Stock Options and
Non-Qualified Stock Options ).
t. "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company if each of the corporations (other than the last
corporation in the unbroken chain) owns stock possessing 50% or
more of the total combined voting power of all classes of stock
in one of the other corporations in the chain.
In addition, the terms `Change of Control", `Potential
Change of Control" and "Change in Control Price" shall have
meanings set forth, respectively, in Sections 6(b), (c) and (d)
below.
SECTION 2. Administration.
The Plan shall be administered by a Committee of not less
than three members of the Board who qualify as Disinterested
Persons and who shall be appointed by the Board.
The Committee shall have full authority to grant, pursuant
to the terms of the Plan, to Eligible Participants Stock Options
and Restricted Stock.
The Committee shall have the authority:
(i) to select the Eligible Participants to whom Stock
Options and Restricted Stock may from time to time be granted
hereunder;
(ii) to determine whether and to what extent Incentive
Stock Options, Non-Qualified Stock Options or Restricted Stock
are to be granted hereunder to one or more Eligible Participant;
(iii) to determine the number of shares to be covered by
each such award granted hereunder;
(iv) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted
hereunder (including but not limited to, the share price and any
restriction or limitation, or any vesting acceleration or waiver
of forfeiture restrictions regarding any Stock Option or
Restricted Stock and/or the shares of Stock relating thereto,
based in each case on such factors as the Committee shall
determine, in its sole discretion);
(v) to determine whether and under what circumstances a
Stock Option may be settled in cash and/or Restricted Stock under
Section 4 (k) instead of Stock; and
(vi) to determine whether, to what extent and under
what circumstances Option grants and/or Restricted Stock are to
be made.
The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable; to interpret the
terms and provisions of the Plan and any award issued under the
Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All the decisions made by the Committee pursuant to the
provisions of the Plan shall be made in the Committee's sole
discretion and shall be final and binding on all persons,
including the Company and Plan Participants; provided, however,
that no decision or action taken by the Committee shall impair
the rights of any holder of a Stock Option or other award granted
pursuant to the Plan without the holder's consent.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available
for distribution under the Plan shall be 262,500 shares.
Such shares may consist, in whole or in part, of authorized
and unissued shares or treasury shares.
If any shares of Stock that have been reserved and available
for issuance in accordance with the Plan as aforesaid, cease to
be subject to a Stock Option (as a result of forfeiture or
otherwise), or if ant Restricted Stock award granted hereunder is
forfeited, such shares shall again be available for distribution
in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, Stock split or other change in
corporate structure affecting the Stock, such substitution or
adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, and in the number and
option price of shares subject to outstanding Options granted
under the Plan, as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of
shares subject to any award shall always be a whole number. In
the event of an extraordinary dividend or any other material
change in the Company's capital structure, similar adjustments
shall be made if, and to the extent, deemed appropriate by the
Board.
SECTION 4. Stock Options.
Any Stock Option granted under the Plan shall be in such
form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types:
(i) Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant to any
optionee Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options.
Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable:
(a) Option Price. The Option price per share of Stock
purchasable under a Stock Option shall be determined by the
Committee at the time of grant but shall not be less then the
Fair Market Value at grant.
(b) Option Term. The term of each Stock Option shall be
fixed by the Committee, but no Stock Option shall be exercisable
more than ten years after the date the Option is granted.
(c) Exercisability. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as
shall be determined by the Committee at or after grant, provided,
however, that except as provided in Section 4 (f) and (g) and
Section 7, unless otherwise determined by the Committee at or
after grant, no Incentive Stock Option shall be exercisable prior
to the first anniversary date of the granting of the Option. If
the Committee provides, in its sole discretion, that any Stock
Option is exercisable only in installments, the Committee may
wave such installment exercise provisions at any time at or after
grant in whole or in part, based on such factors as the Committee
shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise provisions apply under Section 4 (c), Stock Options may
be exercised in whole or in part at any time during the option
period, by giving written notice of exercise to the Company
specifying the number of shares to be purchased.
Such notice shall be accompanied by payment in full of the
purchase price, either by check, note or such other instrument as
the Committee may accept. As determined by the Committee, in its
sole discretion, payment in full or in part may also be made in
the form of unrestricted Stock already owned by the Optionee.
If payment of the Option exercise price of a Non-Qualified
Stock Option is made in whole or in part in the form of
Restricted Stock, such Restricted Stock (and any replacement
shares related thereto) shall remain (or be) restricted in
accordance with the original terms of the Restricted Stock award
in question, and any additional Stock received upon the exercise
shall be subject to the same forfeiture restrictions, unless
otherwise determined by the Committee, in its sole discretion, at
or after grant.
No shares of Stock shall be issued upon the exercise of a
Stock Option until full payment therefor has been made. An
optionee shall generally have the rights to dividends or other
rights of a stockholder with respect to shares subject to the
Option when the option has given written notice of exercise, has
paid in full for such shares, and, if requested, has given the
representation described in Section 9 (a).
(e) Non Transferability of Options. No Stock Option shall
be transferable by the option otherwise than by will or by the
laws of descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the
optionee.
(f) Termination by Death. Subject to the provisions of the
Plan, if an optionee's employment by the Company and/or any
Subsidiary terminates by reason of death, any Stock Option held
by such optionee may thereafter be exercised, to the extent such
option was exercisable at the time of death or in such
accelerated basis as the Committee may determine at or after
grant (or as may be determined in accordance with procedures
established by the Committee), by the legal representative of the
estate or by the legatee of the option under the will of the
option, for a period of twelve months (or such other period as
the Committee may specify at grant) from the date of such death
or the date of appointment of the legal representative of such
estate, if any, or until the expiration of the stated term of
such Stock Option, whichever period is shorter.
(g) Termination by Reason of Disability or retirement.
Subject to the provisions of the Plan, if an optionee's
employment by the Company and any Subsidiary terminates by reason
of Disability or retirement, any Stock Option held by the option
may thereafter be exercised by the option, to the extent that it
was exercisable at the time of termination or on such accelerated
basis as the Committee may determine at or after grant (or as may
be determined in accordance with procedures established by the
Committee), for a period of one year (or for such other period as
the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter;
provided, however, that, if the option dies within such one-year
period (or such other period as the Committee shall specify at
grant), any unexercised Stock Option held by such optionee shall
thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve months
from the date of such death or six months from the appointment of
the legal representative of the estate of the deceased employee,
if any, or until the end of the one-year period specified above,
whichever expires later but in no event beyond the expiration of
the stated term of such Stock Option. In the event of
termination of employment by reason of Disability or Retirement,
if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422A of
the Code, such Stock Option will thereafter be treated as a Non-
Qualified Stock Option.
(h) Other Termination. Unless otherwise determined by the
Committee (or pursuant to procedures established by the
Committee) at or after grant, if an optionee's employment by the
Company and/or any Subsidiary terminates for any reason other
than death, Disability or Retirement, the Stock Option shall
thereupon terminate, except that such Stock Option may be
exercised, to the extent otherwise then exercisable, for the
lesser of three months or the balance of such Stock Option's term
if the Option is involuntarily terminated by the Company or any
Subsidiary without Cause.
(i) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to
Incentive Stock Option shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be
so exercised, so as to disqualify the Plan under Section 422A of
the Code as may be in effect from time to time, or, without the
consent of the optionee(s) affected, to disqualify any Incentive
Stock Option under such Section 422A. The Committee shall have
the authority to amend the Plan so that it conforms with Section
422A of the Code as in effect from time to time.
(J) Buyout Provisions. The Committee may at any time offer
to purchase (or exchange) for Cash Stock or Restricted Stock, a
Previously Granted Stock Option or an option previously granted
under the Plan based on such terms and conditions as the
Committee shall establish and communicate to the option at the
time that such offer is made.
(k) Settlement Provisions. If the option agreement so
provides at grant or is amended after grant and prior to exercise
to so provide (with the optionee's consent), the Committee may
require that all or part of the shares to be issued with respect
to the spread value of an exercised Option take the form of
Restricted Stock, which shall be valued on the date of exercise
on the basis of the Fair Market Value (as determined by the
Committee) of such Restricted Stock determined without regard to
the deferral limitations and/or forfeiture restrictions involved.
(l) Financing. If the Committee so determines, the Company
shall make or arrange for a loan to an employee with respect of
Stock Options. The Committee shall have full authority to decide
whether such a loan should be made and to determine the amount,
term and other provisions of any such loan, including the
interest rate to be charged, if any, whether the loan is to be
with or without recourse against the borrower, the security, if
any, therefor, the terms on which the loan is to be repaid and
the conditions, if any, under which it may be forgiven. However,
no loan hereunder shall have a term (including extensions)
exceeding 10 years in duration or be in an amount exceeding 90%
of the total purchase price paid by the borrower.
SECTION 5. Restricted Stock.
(a) Administration. The Committee shall determine the
eligible persons to whom, and the time or times at which, grants
or Restricted Stock will be made, the number of shares to be
awarded, the price (if any) to be paid by the recipient of
Restricted Stock (subject to Section 5(b)), the time or times
within which such awards may be subject to forfeiture, and all
other terms and conditions of the awards.
The Committee may condition the grant of Restricted Stock
upon the attainment of specified performance or longevity goals
or such other factors as the Committee may determine, in its sole
discretion.
The provisions of Restricted Stock awards need not be the
same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of
a Restricted Stock award shall not have any rights with respect
to such award, unless and until such recipient has executed an
agreement evidencing the award and has delivered a fully executed
copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such award.
(i) The purchase price for shares of Restricted
Stock, if any, shall be at least the fair market price of the
shares on date of grant, plus a minimum premium of twenty (20%)
percent of such fair market value.
(ii) Awards of Restricted Stock must be accepted
within a period of 60 days (or such shorter period as the
Committee may specify at rant) after the award date, by executing
a Restricted Stock Award Agreement and paying whatever price (if
any) is required and currently due under Section 5(b) (i).
(iii) Each participant receiving a Restricted Stock
award shall be issued a stock certificate in respect of such
shares of Restricted Stock. Such certificate shall be registered
in the name of such participant, and shall bear an appropriate
legend referring to the terms, conditions, and restrictions
applicable to such awards.
(iv) The Committee may require that the stock
certificate evidencing such shares be held in custody by the
Company or the Company's designee, until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted
Stock award, the participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to this Section 5 shall be subject to the
following restrictions and conditions:
(i) Subject to the provisions of this Plan and the
award agreement, during a period set by the Committee commencing
with the date of such award (the "Restriction Period"), the
participant shall not be permitted to sell, transfer, pledge or
assign shares of Restricted Stock awarded under the Plan. Within
these limits, the Committee, in its sole discretion, may provide
for the lapse of such restrictions in installments and may
accelerated or waive such restrictions in whole or in part, based
on a service, performance and/or such other factors or criteria
as the Committee may determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and
Section 5(c) (i), the participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a
shareholder of the Company, including the right to vote the
shares, and the right to receive any cash dividends. However,
the Committee, in its sole discretion, as determined at the time
of the award, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines, reinvested,
subject to Section 9 (e), in additional shares of Restricted
Stock (subject to the same restrictions and other terms and
conditions that apply to the shares with respect to which such
dividends are issued) to the extent that shares are available
under Section 3, or otherwise reinvested. Pursuant to Section 3
above, Stock dividends issued with respect to Restricted Stock
shall be treated as additional shares of Restricted Stock that
are subject to the same restrictions and other terms and
conditions that apply to the shares with respect to which such
dividends are issued.
(iii) Subject to the applicable provisions of the
award agreement and this Section 5, upon termination of a
participant's employment with the Company and/or any Subsidiary
for any reason during the Restriction Period, all shares still
subject to restriction will vest, or be forfeited, in accordance
with the terms and conditions established by the Committee.
(iv) If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to
such Restriction Period, certificates for an appropriate number
of unrestricted shares shall be delivered to the Participant
promptly.
SECTION 6. Change in Control Provisions.
(a) In the event of:
(1) a "Change of Control" as defined in Section
6(b), or
(2) a "potential Change of Control" as defined in
Section 6(c), but only if and to the extent so determined by the
Committee or the Board at or after grant (subject to any right of
approval expressly reserved by the Committee or the Board at the
time of such determination), the following acceleration and
valuation provisions shall apply:
(i) The restrictions and limitations applicable to any
Restricted Stock, in each case to the extent not already vested
under the Plan, shall lapse and such shares and awards shall be
deemed fully vested.
(ii) The value of all outstanding Stock Options to the
extent then exercisable, shall, unless otherwise determined by
the Committee in its sole discretion at or after grant but prior
to any Change of Control, be "cashed out" on the basis of the
"Change in Control Price" as defined in Section 6(d) as of the
date such Change of Control or such Potential Change in Control
is determined to have occurred or such other date as the
Committee may determine prior to the Change of Control. As used
in Section 6(a) (ii), the term "cashed out" shall mean the amount
equal to the difference in the Change in Control Price and the
exercise price of an outstanding Stock Option.
(b) Definition of "Change in Control". For purposes of
Section 6(a), a "Change in Control" means the happening of any of
the following:
(i) When any "person" as defined in Section 3(a) (9)
of the Exchange Act but excluding a "group" as defined in Section
13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and
any Subsidiary and any employee benefit plan sponsored or
maintained by the Company or any Subsidiary (including any
trustee of such plan acting as trustee), or any person, entity or
group specifically excluded by the Board, directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time) of securities of
the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
(ii) When, during any period of 24 consecutive months
during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to constitute
at least a majority thereof, provided, however, that a director
who was not a director at the beginning of such 24-month period
shall be deemed to have satisfied such 24-month requirement (and
be an Incumbent Director) if such director was elected by, or on
the recommendation of or with the approval of, at least two-
thirds of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of
such 24-month period) or by prior operation of this Section 6(b)
(ii); or
(iii) The occurrence of a transaction requiring
stockholder approval for the acquisition of the Company by an
entity other than the Company or Subsidiary or an Affiliated
Company (or any person, entity or group, as such terms are
defined in Section 6(b) (i) above, specifically excluded by the
Board) through purchase of assets, or by merger, or otherwise.
(c) Definition of "potential Change in Control". For
purposes of Section 6(a) a "Potential Change in Control" means
the happening of any one of the following:
(i) The approval by stockholders of an agreement by
the Company, the consummation of which would result in a Change
in Control of the Company as defined in Section 6(b); or
(ii) The acquisition of beneficial ownership, directly
or indirectly, by any entity, person or group, as such terms are
defined in Section 6(b) (i) above (other than the Company or a
Subsidiary or any Company employee benefit plan (including any
trustee of such plan acting as such trustee) or any person,
entity or group, as such terms are defined in Section 6(b) (i)
above, specifically excluded by the Board) of securities of the
Company representing five percent or more of the combined voting
power of the Company's outstanding securities and the adoption by
the Board of Directors of a resolution to the effect that a
Potential Change in Control of the Company has occurred for
purposes of this Plan; or
(iii) The commencement by any person, entity or group
(as such terms are defined in Section 6(b) (i) above) of a
tender offer and the adoption by the Board of a resolution to the
effect that a Potential Change in Control has occurred for
purposes of this Plan.
(d) Definition of "Change in Control price". For purposes
of this Section 6, "Change in Control Price" means the highest
price per share paid in any transaction reported on NASDAQ
Quotation System (or the principal exchange upon which the Stock
is listed), paid in any bona fide transaction, or offered
pursuant to a bona fide offer, including a tender offer, related
to potential or actual Change in Control of the Company at any
time during the sixty-day period immediately preceding the
occurrence of the Change in Control (or, where applicable, the
occurrence of a Potential Change in Control event), in each case
as determined by the Committee.
SECTION 7. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made which
would impair the rights of an optionee or participant under a
Stock Option and/or Restricted Stock Award thereto fore granted,
without the iptionee's or participant's consent, or which,
without the approval of the Company's stockholders, would:
(a) except as expressly provided in this Plan, increase the
total number of shares reservrd for purpose of the Plan;
(b) except as expressly provided in this Plan. decrease the
option price of any Stock Option to less then 100% of the Fair
Market Value on the date of grant;
(c) change the employees, participants, classes of
ewmployees or classes or participants eligable to participate in
the Plan; or
(d) extend the maximum option period undeer Section 4(b) of
the Plan.
The Committee may amend the terms of any Stock Option or
other award theretofore granted, prospectively or retroactively,
but, subject to this Section 7, no such amendment shall impair
the rights of any holder without the holder's consent. The
Committee may also substitute new Stock Options for previously
granted Stock Options (on a one for one or other basis),
including previously granted stock options having higher option
exercise prices.
Subject to the above provisions, the Board shall have broad
authority to amend the Plan to take into account changes in
applicable securities and tax laws and accounting rules, as well
as other developments.
SECTION 8. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any
payments not yet made to a participant or optionee by the
Company, nothing contained herein shall give any such participant
or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to
meet the obligations created under the Plan to deliver Stock or
payments in lieu of or with respect towards hereunder, provided,
however, that, unless the Committee otherwise determines with the
consent of the effected participant, the existence of such trusts
or other arrangements is consistent with the "unfunded" status of
the Plan.
SECTION 9. General provisions.
(a) The Committee may require each person purchasing
shares pursuant to a Stock Option or other award under the Plan
to represent to and agree with the Company in writing that the
optionee or participant is acquiring the shares without a view to
distribution thereof. The certificate for such shares may
include any legend which the Committee deems appropriate to
reflect any restriction on transfer.
All certificates for shares of stock or other securities
delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which
the Stock is listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate reference
to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and
such arrangements may be either generally applicable or
applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any
employee of the Company or any Subsidiary any right to continued
employment with the Company or a Subsidiary, as the case may be,
nor shall it interfere in any way with the right of the Company
or a Subsidiary to terminate the employment of any of its
employees at any time.
(d) No later than the date as of which an amount first
becomes includable in the gross income of the participant foe
federal income tax purposes with respect to any award under the
Plan, the participant shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment
of, any Federal, state or local taxes of any kind required by law
to be withheld with respect to such amount. Unless otherwise
determined by the Committee, withholding obligations may be
settled with Stock, including Stock that is part of the award
that gives ride to the withholding requirement. The obligations
of the Company under the Plan shall be conditional on such
payment or arrangements and the Company and its Subsidiaries and
its Affiliated Companies shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any
kind otherwise due to the participant.
(e) The actual or deemed reinvestment of dividends or
dividend equivalents in additional Restricted Stock at the time
of any dividend payment shall only be permissible if sufficient
shares of Stock are available under Section 3 for such
reinvestments (taking into account then outstanding Stock
Options, Stock Purchase Rights and other Plan awards).
(f) The Plan and all awards made and actions taken
thereunder shall be governed in accordance with the laws of the
State of New Mexico.
SECTION 10. Term of Plan.
No Stock Option or Restricted stock award shall be granted
pursuant to the Plan on or after the tenth anniversary of the
Effective date, but awards granted prior to such tenth
anniversary may extend beyond that date.
