<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
------------------------------------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
----------------------- ----------------------
Commission file number 33-1933 3-D
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SMARTSOURCES.COM, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Colorado 84-1073083
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2030 Marine Drive, Suite 100 North Vancouver, British Columbia V7P 1V7, CANADA
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(Address of Principal Executive Offices)
(604) 986-0889
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(Issuer's Telephone Number, Including Area Code)
Innovest Capital Sources Corporation, Telco Communications, Inc. and
Cody Capital Corporation; 4 Normandy Drive, Kenner, LA 70065; December 31
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Check whether the issuer: (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 10,918,309 shares of
Common Stock
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
An index to the financial statements of the Company filed as a part of
this report appears at Page F-1. The financial statements of the Company appear
at Pages F-2 through F-5 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS AND COMPARATIVE INFORMATION
During the quarter ended June 30,1999, the Company's consolidated revenues were
$145,500, a 23% decrease as compared to revenues of $188,500 for the second
quarter ended March 31,1999. Revenues for the nine month period ended June
30,1999 were $495,700 which is significantly lower than annual revenues of
$1,571,000 and $1,054,800 in 1998 and 1997 respectively . The lower revenues are
primarily the result of the Company's intensive efforts on developing new
software products during the current year combined with the fact that management
was focused on integration issues following the merger between Nifco Investments
Ltd. and Smartsouces.com in December 1998.
With the merger of Nifco Investments finalized and a shift in focus away from
research and development, the Company was able to begin concentrating efforts
on increasing revenue through new sales and marketing initiatives. New staff
were hired including a new Vice- President of Sales and Marketing and
Vice-President of Business Development. Furthermore, the Company hired
additional sales and marketing staff along with support staff in order to
enhance the Company's profile and increase revenues.
During the quarter ended June 30,1999, the Company's operating expenses were
$530,800, a 22% increase as compared to operating expenses of $433,900 for the
second quarter ended March 31,1999. Total operating expenses for the nine month
period ended June 30,1999 were $1,216,900. The increase in operating expenses
were due to higher professional fees combined with an increase in employee
salaries. The Company incurred higher professional fees primarily due to legal
and accounting costs associated with the negotiation and subsequent agreement to
re-acquire the rights to ORIGIN, a trade compliance software program. Employee
salaries increased during the quarter due to the hiring of additional sales,
marketing and support staff.
The net loss for the quarter ended June 30,1999 was $418,000 as compared to a
net loss of $369,200 for the quarter ended March 31,1999. The net loss for the
nine month period ended June 30,1999 was $877,100. The losses were funded
primarily from proceeds resulting from the issuance of additional share capital.
Comparative revenues for the nine-month period ended June 30, 1998 are not
available. The lack of comparative information is due to the fact that prior to
the merger with SmartSources.com, Nifco Investments Ltd. and subsidiaries had no
requirement to report consolidated financial position or consolidated results of
operations on a quarterly basis in accordance with U.S. generally accepted
accounting principles. Furthermore, the accounting systems and records for these
companies cannot generate an accurate quarterly cutoff for fiscal 1998, and it
is not practicable for the Company to go back and recreate such financial
information.
REPURCHASE OF ORIGIN SOFTWARE RIGHTS AND ISSUANCE OF PREFERRED SHARES
In 1995 and 1996, the Company's subsidiary, SmartSources.com Technologies, Inc.
(formerly Nifco Synergy Ltd. and hereafter referred to as "Technologies") sold
the rights to its primary software product, ORIGIN, to Columbia Diversified
Software Fund Limited Partnership ("Columbia") for Can$ 3.7 million and Can$
11,670,400 of notes receivable. For accounting purposes, the substance of the
ORIGIN sale was characterized as a sale of a tax benefit. Under Canadian tax
law, Columbia was immediately able to write off the entire cost of the software
and pass the benefit on to its limited partners. Following the sale, the risks
and rewards of ownership remained with Technologies. Any future cash inflows to
Technologies, either from collection of principal and interest on the notes
receivable or from profit sharing arrangements, were wholly dependent on
Technologies' continued efforts to develop and market the software.
Due to uncertainties surrounding collection, Technologies did not recognize the
Can$ 11,670,400 notes receivable. Further, because of contingent issues related
to Revenue Canada's reviewing the value of the software and the related tax
deductions claimed by Columbia and its investors, recognition of revenue for the
Can$ 3.7 million of cash received by Technologies was deferred.
Effective January 1, 1999, under an agreement signed May 19, 1999, the
Company's subsidiary, Origin Software Corporation (Origin), reacquired the
rights to ORIGIN from Columbia. The terms of the agreement are summarized as
follows:
At closing, Columbia transferred the software rights to Origin in exchange for:
11,670,400 no par class A nonvoting preferred shares
5,000,000 no par class B nonvoting preferred shares
On October 1, 1999, Origin redeemed the 11,670,400 class A shares in exchange
for a Can$ 11,670,400 note payable to Columbia.
On October 1, 1999, Columbia exchanged the Can$ 11,670,400 note from Origin for
the Can$ 11,670,400 of notes receivable from Columbia that are held by
Technologies.
At any time after October 1, 1999, Columbia may exercise an option to exchange
the 5 million class B shares of Origin for common shares of SmartSources with
market value of Can$ 5 million (limited to 5 million shares reserved for the
exchange), based on average trading price during the 14 days prior to exercise.
Common shares issued will be freely tradable, but 80% of the shares will be held
in trust by a mutually agreed-upon trustee and released ratably to Columbia over
the following four years.
The repurchase agreement also includes a mutual release of SmartSources and
Columbia against claims arising against either party.
The reacquisition of the software rights was accounted for using the Can$ 5
million value of the SmartSources shares that will ultimately be issued to
Columbia upon conversion of the Class B shares. This amount was reduced by the
Can$ 3.7 million of deferred gain (net of Can$ 1.1 million of associated
deferred tax assets), since the contingent liability to Columbia or its
investors has been removed. No value was assigned to the Class A shares.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended June 30,1999, the Company's cash position increased
from $25,200 to $129,400. As at June 30,1999 the Company had a working capital
deficit of $14,400 and a working capital ratio of .95. This is a significant
improvement as compared to March 31,1999 when the Company had a working capital
deficit of $208,000 and a working capital ratio of .5. The improvement in the
Company's working capital is due to the issuance of additional share capital
during the quarter.
The net loss for the quarter ended June 30,1999 was $418,000. The Company relied
on the issuance of share capital to fund the net loss for the quarter ended June
30,1999. During the third quarter, the Company completed an equity financing
that resulted in gross proceeds of $700,000. The financing was completed under
Regulation D, Rule 504. As a result of the financing, the number of common
shares issued and subscribed during the quarter increased from 10,918,309 to
11,418,305.
The Company's ability to fund future operations is dependent upon the generation
of new sales and the raising of additional financing. The Company is currently
transitioning focus from research and development to sales and marketing. New
sales and marketing staff have been hired and the Company anticipates future
revenue growth as a result. Furthermore, the Company anticipates additional
equity will be issued over the next 12 months to ensure the Company has adequate
working capital required for the Company to carry out its business plan.
The Company has not undertaken any material commitments for expenditures as of
June 30,1999.
There are no legal or practical restrictions on the ability of the subsidiaries
to transfer funds to the parent company (Smartsouces.com).
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual general meeting of the shareholders of the Company (the "Meeting")
was held on May 21, 1999. At the Meeting, the shareholders voted upon a number
of proposals, each of which is summarized below, along with the votes cast for
and against each such proposal, votes withheld or abstaining therefrom and
broker non-votes.
ELECTION OF DIRECTORS. At the Meeting, the shareholders elected the
following persons to the Board of Directors of the Company until the date of
the annual shareholders meeting in the calender year set forth opposite the
name of each such person:
<TABLE>
<CAPTION>
Votes Broker
Name Term Votes For Against Abstaining Non-Votes
---- ---- --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Nathan Nifco 2000 6,000,400 0 159 0
Joel S. Dumaresq 2000 6,000,400 0 159 0
Gerald J. Wittenberg 2000 6,000,400 0 159 0
Charles K. Kelly 2000 6,000,400 0 159 0
</TABLE>
APPROVAL OF THE COMPANY'S 1999 STOCK INCENTIVE COMPENSATION PLAN. At
the Meeting, the shareholders of the Company voted on and approved the 1999
Stock Incentive Compensation Plan, as approved by the Board of Directors on
April 27, 1999, a copy of which is attached hereto as Exhibit 10.2 and
incorporated herein by reference (the "Plan"). The Plan authorizes the
Compensation Committee of the Board of Directors to grant options to purchase
up to an aggregate 10% of the issued shares of Common Stock of the Company to
officers, directors and employees of the Company
2
<PAGE> 3
and its Subsidiaries as the Compensation Committee from time to time selects.
Awards may also be made to consultants, agents, advisors and independent
contractors who provide services to the Company and its Subsidiaries. 6,000,559
votes were cast for such proposal, 159 votes were cast against with no votes
abstaining and no broker non-votes.
RATIFICATION OF MOSS ADAMS LLP, TO SERVE AS AUDITORS OF THE COMPANY.
At the Meeting, the shareholders of the Company voted on and approved the
selection of Moss Adams, LLP, Independent Certified Public Accountants to serve
as auditors of the Company for its fiscal year ending September 30, 1999.
6,000,559 votes were cast for such proposal with no votes cast against or
abstaining and no broker non-votes.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
- ------- -----------
10.2 1999 Stock Incentive Compensation Plan
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on May 28, 1999 to report the
acquisition of assets by Registrant.
3
<PAGE> 4
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SMARTSOURCES.COM, INC.
Date: August 16, 1999 By: /s/ Sokhie Puar
------------------ -----------------------------------------
Vice President, Corporate Development and
Duly Authorized Officer and Principal
Financial and Accounting Officer
4
<PAGE> 5
Index to Financial Statements
<TABLE>
<CAPTION>
Description Page(s)
- ----------- -------
<S> <C>
SmartSources.com, Inc. and Subsidiaries Balance Sheet (Unaudited)
as of June 30, 1999 F-2
SmartSources.com, Inc. and Subsidiaries Statement of Operations (Unaudited)
for the Three and Nine Months Periods Ended June 30, 1999 F-3
SmartSources.com, Inc. and Subsidiaries Statement of Cash Flows (Unaudited)
for the Three and Nine Months Periods Ended June 30, 1999 F-4
Notes to Financial Statements F-5
</TABLE>
F-1
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SMARTSOURCES.COM, INC. AND SUBSIDIARIES
BALANCE SHEET (UNAUDITED)
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................. $ 129,400
Trade accounts receivable, net ............................ 143,500
-----------
Total current assets ............................ 272,900
CAPITALIZED SOFTWARE COSTS, net ................................ 1,666,600
PROPERTY AND EQUIPMENT ......................................... 760,600
OTHER ASSETS ................................................... 45,600
-----------
TOTAL ASSETS .................................... $ 2,745,700
===========
LIABILITIES
CURRENT LIABILITIES
Trade accounts payable .................................... $ 215,500
Income taxes payable ...................................... 5,900
Current portion of long-term debt ......................... 65,900
-----------
Total current liabilities ....................... 287,300
LONG-TERM LIABILITIES
Long-term debt, net of current portion ......................... 422,500
Due to stockholder ............................................. 68,500
Deferred income taxes .......................................... 871,800
-----------
TOTAL LIABILITIES ............................... 1,650,100
-----------
STOCKHOLDERS' EQUITY
Class A Preferred shares .................................. --
Class B Preferred shares .................................. 3,407,000
Common stock .............................................. 1,000,100
Accumulated other comprehensive income .................... 103,700
Accumulated Deficit ....................................... (3,415,200)
-----------
Total Stockholders' Equity ........................... 1,095,600
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........... $ 2,745,700
===========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE> 7
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
<S> <C> <C>
REVENUES EARNED .................................... $ 145,500 $ 495,700
OPERATING EXPENSES ................................. 530,800 1,216,900
----------- -----------
OPERATING LOSS ..................................... (385,300) (721,200)
----------- -----------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE .......................... (12,700) (36,500)
ADMINISTRATIVE FEES ....................... (13,400) (52,500)
LOSS ON DISPOSAL OF ASSETS ................ (400) (49,200)
OTHER ..................................... 2,700 11,400
----------- -----------
(23,800) (126,800)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES ............. (409,100) (848,000)
PROVISION FOR INCOME TAXES ......................... (8,900) (29,100)
----------- -----------
NET LOSS ........................................... $ (418,000) $ (877,100)
=========== ===========
Basic earnings (loss) per share .................... $ (.05) $ (.11)
Diluted earnings (loss) per share .................. $ (.04) $ (.10)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE> 8
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .............................................................. $ (418,000) $ (877,100)
Adjustments
Depreciation & amortization ........................................... 56,000 128,800
Realized (gains) losses on investments ................................ (100) (7,300)
(Gain) Loss on disposal of assets ..................................... 400 49,200
Changes in assets and liabilities
Trade accounts receivable ............................................. 42,200 269,200
Other assets .......................................................... (24,300) (38,400)
Accounts payable and other current liabilities ........................ 46,300 111,800
Administrative fees payable ........................................... (157,100) (118,000)
Sale deposit .......................................................... -- (99,500)
Income taxes payable/refundable ....................................... 2,100 (4,900)
------------- -------------
(452,500) (586,200)
------------- -------------
FINANCING
Purchase of property & equipment ...................................... (82,600) (123,600)
Proceeds from sale of Family ware ..................................... -- 165,800
Proceeds from sale of investments ..................................... -- 17,600
------------- -------------
(82,600) 59,800
------------- -------------
INVESTING
Borrowing (repayment) on line of credit ............................... (39,900) (53,700)
Proceeds from issuance of shares ...................................... 700,000 1,000,000
Payment of long-term debt ............................................. (16,600) (48,600)
Repayment of stockholder advances ..................................... (5,400) (102,200)
Dividends ............................................................. -- (142,700)
------------- -------------
638,100 652,800
------------- -------------
EFFECT OF CHANGES IN EXCHANGE RATES ............................................ 1,200 1,300
------------- -------------
NET CHANGE ..................................................................... 104,200 127,700
CASH, BEGINNING OF PERIOD ...................................................... 25,200 1,700
------------- -------------
CASH, END OF PERIOD ............................................................ $ 129,400 $ 129,400
============= =============
INTEREST PAID .................................................................. $ 12,700 $ 36,300
============= =============
TAXES PAID ..................................................................... $ 6,800 $ 34,000
============= =============
NON-CASH TRANSACTIONS
Preferred shares issued in exchange for software rights ............... $ 3,407,000 $ 3,407,000
============= =============
Deferred gain, net of tax, offset against software rights acquired .... $ 1,792,400 $ 1,792,400
============= =============
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 9
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements and notes thereto at June 30,
1999 and for the three and nine months then ended reflect the reverse merger of
SmartSources.com, Inc. ("SmartSources" or the "Company") with Nifco Investments
Ltd. and Subsidiaries (collectively, "Nifco") on December 11, 1998. The merger
was effected through issuance of 6 million shares of SmartSources' stock for
all outstanding common shares of Nifco Investments Ltd. Because SmartSources
had no assets or liabilities at the date of merger, the transaction was
accounted for as a recapitalization of Nifco Investments Ltd. rather than a
business combination.
Comparative results of operations and cash flows for the three and
nine months ended June 30, 1998 are not available due to the following factors.
Prior to the merger, Nifco had no requirement to report consolidated financial
position, results of operations and cash flows on a quarterly basis in
accordance with U.S. generally accepted accounting principles. The accounting
systems and records of the consolidated group comprising Nifco cannot generate
an accurate quarterly cutoff during the fiscal 1998 period, and it is not
practicable for the Company to go back and recreate such financial information.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instruction for Form 10-QSB and
Section 228.310.3(b) of Regulation S-B. Accordingly, they do not include all of
the information and disclosures normally required by generally accepted
accounting principles for complete financial statements.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
period. The results of operations and cash flows for the three and nine months
ended June 30, 1999 are not necessarily indicative of the results to be
expected for the full year. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statement for the years ended September 30, 1998 and 1997 and the
notes thereto included in the Company's 1999 Proxy Statement.
NOTE 2 - COMMON STOCK
The Company has a single class of no par value common stock.
Authorized shares total 50 million. The capital structure presented in the
accompanying financial statements reflects the capital structure of the Company
subsequent to a one for 75 stock split authorized on October 15, 1998 and the
issuance of 6 million shares in connection with the merger with Nifco. On
October 15, 1998, stockholders also approved issuance of additional shares of
common stock to be placed with investors in the following amounts pursuant to
Regulation D, Rule 504 and 505:
<TABLE>
<S> <C>
4,230,000 shares at $ 0.01
500,000 shares at 1.90
600,000 shares at 5.00
</TABLE>
As of June 30, 1999, a total of $1,000,000 has been received from
investors in advance of issuance of shares.
NOTE 3 - REPURCHASE OF ORIGIN SOFTWARE RIGHTS AND PREFERRED STOCK
In 1995 and 1996, the Company's subsidiary, SmartSources.com
Technologies, Inc. (formerly Nifco Synergy Ltd. and hereafter referred to as
"Technologies") sold the rights to its primary software product, ORIGIN, to
Columbia Diversified Software Fund Limited Partnership ("Columbia") for Can$
3.7 million and Can$ 11,670,400 of notes receivable. For accounting purposes,
the substance of the ORIGIN sale was characterized as a sale of a tax benefit.
Under Canadian tax law, Columbia was immediately able to write off the entire
cost of the software and pass the benefit on to its limited partners. Following
the sale, the risks and rewards of ownership remained with Technologies. Any
future cash inflows to Technologies, either from collection of principal and
interest on the notes receivable or from profit sharing arrangements, were
wholly dependent on Technologies' continued efforts to develop and market the
software.
Due to uncertainties surrounding collection, Technologies did not
recognize the Can$ 11,670,400 notes receivable. Further, because of contingent
issues related to Revenue Canada's reviewing the value of
F-5
<PAGE> 10
the software and the related tax deductions claimed by Columbia and its
investors, recognition of revenue for the Can$ 3.7 million of cash received by
Technologies was deferred.
Effective January 1, 1999, under an agreement signed May 19, 1999, the
Company's subsidiary, Origin Software Corporation (Origin), reacquired the
rights to ORIGIN from Columbia. The terms of the agreement are summarized as
follows:
1) At closing, Columbia transferred the software rights to Origin in
exchange for:
11,670,400 no par class A nonvoting preferred shares
5,000,000 no par class B nonvoting preferred shares
2) On October 1, 1999, Origin redeemed the 11,670,400 class A shares in
exchange for a Can$ 11,670,400 note payable to Columbia.
3) On October 1, 1999, Columbia exchanged the Can$ 11,670,400 note from
Origin for the Can$ 11,670,400 of notes receivable from Columbia that
are held by Technologies.
4) At any time after October 1, 1999, Columbia may exercise an option to
exchange the 5 million class B shares of Origin for common shares of
SmartSources with market value of Can$ 5 million (limited to 5 million
shares reserved for the exchange), based on average trading price
during the 14 days prior to exercise. Common shares issued will be
freely tradable, but 80% of the shares will be held in trust by a
mutually agreed-upon trustee and released ratably to Columbia over the
following four years.
The repurchase agreement also includes a mutual release of
SmartSources and Columbia against claims arising against either party.
The reacquisition of the software rights was accounted for using the
Can$ 5 million value of the SmartSources shares that will ultimately be issued
to Columbia upon conversion of the Class B shares. This amount was reduced by
the Can$ 3.7 million of deferred gain (net of Can$ 1.1 million of associated
deferred tax assets), since the contingent liability to Columbia or its
investors has been removed. No value was assigned to the Class A shares.
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.2 1999 Stock Incentive Compensation Plan
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.2
SMARTSOURCES.COM, INC.
1999 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the SmartSources.com, Inc. 1999 Stock Incentive Compensation
Plan (the "Plan") is to enhance the long-term shareholder value of
SmartSources.com, Inc., a Colorado corporation (the "Company"), by offering
opportunities to employees, directors, officers and consultants of the Company
and its Subsidiaries (as defined in Section 2) to participate in the Company's
growth and success, and to encourage them to remain in the service of the
Company and its Subsidiaries and to acquire and maintain stock ownership in the
Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 AWARD
"Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Options and Stock Awards, or any
combination of the foregoing.
2.2 BOARD
"Board" means the Board of Directors of the Company.
2.3 CAUSE
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Compensation Committee, and its determination shall be conclusive and
binding.
2.4 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 COMMON STOCK
"Common Stock" means the common stock, no par value, of the Company.
2.6 COMPENSATION COMMITTEE
"Compensation Committee" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.7 CORPORATE TRANSACTION
"Corporate Transaction" means any of the following events:
(a) Consummation of any merger or consolidation of the Company in
which the Company is not the continuing or surviving corporation, or
pursuant to which shares of the Common Stock are converted into cash,
securities or other property, if following such merger or consolidation the
holders of the Company's outstanding voting securities immediately prior to
such merger or consolidation own less than a majority of the outstanding
voting securities of the surviving corporation;
15
<PAGE> 2
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all
of the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as the term "subsidiary corporation"
is defined in Section 8.3) of the Company;
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on the
date of adoption of the Plan) under the Exchange Act.
2.8 DISABILITY
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.9 EARLY RETIREMENT
"Early Retirement" means early retirement as that term is defined by the
Compensation Committee from time to time for purposes of the Plan.
2.10 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.11 FAIR MARKET VALUE
"Fair Market Value" shall be as established in good faith by the
Compensation Committee or (a) if the Common Stock is listed on the American
Stock Exchange or the New York Stock Exchange, the average of the high and low
per share sales prices for the Common Stock as such price is officially quoted
in the composite tape of transactions on such exchange for a single trading day
or (b) if the Common Stock is listed on the Nasdaq National Market, the Nasdaq
Small Cap Market or the Electronic Bulletin Board, the average of the high and
low per share sales prices for the Common Stock as reported for a single trading
day. If there is no such reported price for the Common Stock for the date in
question, then such price on the last preceding date for which such price exists
shall be determinative of Fair Market Value.
2.12 GOOD REASON
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice by the Holder:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the
Holder's reasonable judgment, represents a substantial reduction in the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Holder of any duties or responsibilities
that, in the Holder's reasonable judgment, are materially inconsistent with
such status, title, position or responsibilities; or any removal of the
Holder from or failure to reappoint or reelect the Holder to any of such
positions, except in connection with the termination of the Holder's
employment for Cause, for Disability or as a result of his or her death, or
by the Holder other than for Good Reason as defined in this Section 2.12;
(b) a reduction in the Holder's annual base salary;
(c) the Successor Corporation's requiring the Holder (without the
Holder's consent) to be based at any place outside a 35-mile radius of his
or her place of employment prior to a Corporate Transaction, except for
reasonably required travel on the Successor Corporation's business that is
not materially greater than such travel requirements prior to the Corporate
Transaction;
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<PAGE> 3
(d) the Successor Corporation's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent
thereof) in which the Holder was participating at the time of a Corporate
Transaction, including, but not limited to, the Plan, or (ii) provide the
Holder with compensation and benefits substantially equivalent (in terms of
benefit levels and/or reward opportunities) to those provided for under
each material employee benefit plan, program and practice as in effect
immediately prior to the Corporate Transaction;
(e) any material breach by the Successor Corporation of its
obligations to the Holder under the Plan or any substantially equivalent
plan of the Successor Corporation; or
(f) any purported termination of the Holder's employment or services
for Cause by the Successor Corporation that does not comply with the terms
of the Plan or any substantially equivalent plan of the Successor
Corporation.
2.13 GRANT DATE
"Grant Date" means the date the Compensation Committee adopted the granting
resolution or a later date designated in a resolution of the Compensation
Committee as the date an Award is to be granted.
2.14 HOLDER
"Holder" means (a) the person to whom an Award is granted; (b) for a Holder
who has died, the personal representative of the Holder's estate, the person(s)
to whom the Holder's rights under the Award have passed by will or by the
applicable laws of descent and distribution, or the beneficiary designated in
accordance with Section 10; or (c) person(s) to whom an Award has been
transferred in accordance with Section 10.
2.15 INCENTIVE STOCK OPTION
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.16 NONQUALIFIED STOCK OPTION
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.17 OPTION
"Option" means the right to purchase Common Stock granted under Section 7.
2.18 RESTRICTED STOCK
"Restricted Stock" means shares of Common Stock granted under Section 9,
the rights of ownership of which are subject to restrictions prescribed by the
Compensation Committee.
2.19 RETIREMENT
"Retirement" means retirement as of the individual's normal retirement date
as that term is defined by the Compensation Committee from time to time for
purposes of the Plan.
2.20 SECURITIES ACT
"Securities Act" means the Securities Act of 1933, as amended.
2.21 STOCK AWARD
"Stock Award" means an Award granted under Section 9.
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<PAGE> 4
2.22 SUBSIDIARY
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Compensation Committee, and any entity that may
become a direct or indirect parent of the Company.
2.23 SUCCESSOR CORPORATION
"Successor Corporation" has the meaning set forth in Section 11.2.
SECTION 3. ADMINISTRATION
3.1 COMPENSATION COMMITTEE
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Compensation Committee and the membership of any committee acting
as Compensation Committee, with respect to any persons subject or likely to
become subject to Section 16 of the Exchange Act, the provisions regarding (a)
"outside directors" as contemplated by Section 162(m) of the Code and (b)
"nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act.
The Board may delegate the responsibility for administering the Plan with
respect to designated classes of eligible persons to different committees
consisting of two or more members of the Board, subject to such limitations as
the Board deems appropriate. Committee members shall serve for such term as the
Board may determine, subject to removal by the Board at any time. To the extent
consistent with applicable law, the Board may authorize a senior executive
officer of the Company to grant Awards, within limits specifically prescribed by
the Board.
3.2 ADMINISTRATION AND INTERPRETATION BY THE COMPENSATION COMMITTEE
Except for the terms and conditions explicitly set forth in the Plan, the
Compensation Committee shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Compensation Committee shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The
Compensation Committee's interpretation of the Plan and its rules and
regulations, and all actions taken and determinations made by the Compensation
Committee pursuant to the Plan, shall be conclusive and binding on all parties
involved or affected. The Compensation Committee may delegate administrative
duties to such of the Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 11.1, the
maximum number of shares of Common Stock which shall be available for issuance
under the Plan shall not exceed in the aggregate 10% of the issued shares of
Common Stock as of the Plan's effective date; provided that, if the number of
issued shares of Common Stock is increased after the Plan's effective date, the
maximum number of shares of Common Stock which shall be available for issuance
under the Plan shall be increased by 10% of such increase. The Plan's effective
date shall be as provided in Section 15. Subject to adjustment from time to time
as provided in Section 11.1, in no event, however, shall more than 550,000
shares of Common Stock be cumulatively available for issuance pursuant to the
exercise of Incentive Stock Options under the Plan.
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<PAGE> 5
4.2 LIMITATIONS
Subject to adjustment from time to time as provided in Section 11.1, any
grant made under the Plan shall be applied in a manner consistent with the
requirements of, and only to the extent required for compliance with, the
exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code.
4.3 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan; provided, however, that for purposes of Section 4.2, any such shares shall
be counted in accordance with the requirements of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Compensation Committee from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
SECTION 6. AWARDS
6.1 FORM AND GRANT OF OPTIONS
The Compensation Committee shall have the authority, in its sole
discretion, to determine the type or types of Awards to be made under the Plan.
Such Awards may consist of Incentive Stock Options, Nonqualified Stock Options
and Stock Awards. Options may be granted singly or in combination.
6.2 ACQUIRED COMPANY AWARDS
Notwithstanding anything in the Plan to the contrary, the Compensation
Committee may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Compensation Committee
without any further action by the Compensation Committee, except as may be
required for compliance with Rule 16b-3 under the Exchange Act, and the persons
holding such Awards shall be deemed to be Holders.
SECTION 7. AWARDS OF OPTIONS
7.1 GRANT OF OPTIONS
The Compensation Committee is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Compensation Committee, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant
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<PAGE> 6
Date with respect to Incentive Stock Options and not less than 100% of the Fair
Market Value of the Common Stock on the Grant Date with respect to Nonqualified
Stock Options.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Compensation
Committee or, if not so established, shall be 10 years from the Grant Date.
7.4 EXERCISE OF OPTIONS
The Compensation Committee shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Compensation Committee at any time. If not so established in the
instrument evidencing the Option, the Option will vest and become exercisable
according to the following schedule, which may be waived or modified by the
Compensation Committee at any time:
<TABLE>
<CAPTION>
PERIOD OF HOLDER'S CONTINUOUS EMPLOYMENT OR SERVICE
WITH THE COMPANY OR ITS SUBSIDIARIES PERCENT OF TOTAL OPTION
FROM THE OPTION GRANT DATE THAT IS VESTED AND EXERCISABLE
- ----------------------------------------------------------- ------------------------------
<S> <C>
After 1 year........................................ 25%
After 2 years....................................... 50%
After 3 years....................................... 75%
After 4 years....................................... 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Compensation Committee, setting
forth the number of shares with respect to which the Option is being exercised
and accompanied by payment in full as described in Section 7.5. The Compensation
Committee may determine at any time that an Option may not be exercised as to
less than 100 shares at any one time (or the lesser number of remaining shares
covered by the Option).
7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Compensation Committee in its
sole discretion determines otherwise, either at the time the Option is granted
or at any time before it is exercised, a combination of cash and/or check (if
any) and/or one or both of the following alternative forms: (a) tendering
(either actually or, if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, by attestation) Common Stock already
owned by the Holder for at least six months (or any shorter period necessary to
avoid a charge to the Company's earnings for financial reporting purposes)
having a Fair Market Value on the day prior to the exercise date equal to the
aggregate Option exercise price or (b) if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, delivery of a
properly executed exercise notice, together with irrevocable instructions, to
(i) a brokerage firm designated by the Company to deliver promptly to the
Company the aggregate amount of sale or loan proceeds to pay the Option exercise
price and any withholding tax obligations that may arise in connection with the
exercise and (ii) the Company to deliver the certificates for such purchased
shares directly to such brokerage firm, all in accordance with the regulations
of the Federal Reserve Board. In addition, the exercise price for shares
purchased under an Option may be paid, either singly or in combination with one
or more of the alternative forms of payment authorized by this Section 7.5, by
such other consideration as the Compensation Committee may permit.
7.6 POST-TERMINATION EXERCISES
The Compensation Committee shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder
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<PAGE> 7
ceases to be employed by, or to provide services to, the Company or its
Subsidiaries, which provisions may be waived or modified by the Compensation
Committee at any time. If not so established in the instrument evidencing the
Option, the Option will be exercisable according to the following terms and
conditions, which may be waived or modified by the Compensation Committee at any
time.
In case of termination of the Holder's employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of the
number of shares purchasable by the Holder at the date of such termination, only
(a) within one year if the termination of the Holder's employment or services is
coincident with Retirement, Early Retirement at the Company's request or
Disability or (b) within three months after the date the Holder ceases to be an
employee, director, officer, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary if termination of the Holder's
employment or services is for any reason other than Retirement, Early Retirement
at the Company's request or Disability, but in no event later than the remaining
term of the Option. Any Option exercisable at the time of the Holder's death may
be exercised, to the extent of the number of shares purchasable by the Holder at
the date of the Holder's death, by the personal representative of the Holder's
estate, the person(s) to whom the Holder's rights under the Option have passed
by will or the applicable laws of descent and distribution or the beneficiary
designated pursuant to Section 10 at any time or from time to time within one
year after the date of death, but in no event later than the remaining term of
the Option. Any portion of an Option that is not exercisable on the date of
termination of the Holder's employment or services shall terminate on such date,
unless the Compensation Committee determines otherwise. In case of termination
of the Holder's employment or services for Cause, the Option shall automatically
terminate upon first notification to the Holder of such termination, unless the
Compensation Committee determines otherwise. If a Holder's employment or
services with the Company are suspended pending an investigation of whether the
Holder shall be terminated for Cause, all the Holder's rights under any Option
likewise shall be suspended during the period of investigation.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence on the terms and conditions of
an Option shall be determined by the Compensation Committee, in its sole
discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Holder holds two or more such Options that become exercisable for the first
time in the same calendar year, such limitation shall be applied on the basis of
the order in which such Options are granted.
8.2 10% SHAREHOLDERS
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent
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<PAGE> 8
corporation" and "subsidiary corporation" shall have the meanings attributed to
those terms for purposes of Section 422 of the Code.
8.4 TERM
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 EXERCISABILITY
To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such Option must be
exercised within one year after such termination. Employment shall not be deemed
to continue beyond the first 90 days of a leave of absence unless the Holder's
reemployment rights are guaranteed by statute or contract. For purposes of this
Section 8.5, "total disability" shall mean a mental or physical impairment of
the Holder that is expected to result in death or that has lasted or is expected
to last for a continuous period of 12 months or more and that causes the Holder
to be unable, in the opinion of the Company and two independent physicians, to
perform his or her duties for the Company and to be engaged in any substantial
gainful activity. Total disability shall be deemed to have occurred on the first
day after the Company and the two independent physicians have furnished their
opinion of total disability to the Compensation Committee.
8.6 TAXATION OF INCENTIVE STOCK OPTIONS
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Holder must hold the shares issued upon the
exercise of an Incentive Stock Option for two years after the Grant Date of the
Incentive Stock Option and one year from the date of exercise. A Holder may be
subject to the alternative minimum tax at the time of exercise of an Incentive
Stock Option. The Compensation Committee may require a Holder to give the
Company prompt notice of any disposition of shares acquired by the exercise of
an Incentive Stock Option prior to the expiration of such holding periods.
SECTION 9. STOCK AWARDS
9.1 GRANT OF STOCK AWARDS
The Compensation Committee is authorized to make Awards of Common Stock on
such terms and conditions and subject to such restrictions, if any (which may be
based on continuous service with the Company or the achievement of performance
goals related to profits, profit growth, profit-related return ratios, cash flow
or total shareholder return, where such goals may be stated in absolute terms or
relative to comparison companies), as the Compensation Committee shall
determine, in its sole discretion, which terms, conditions and restrictions
shall be set forth in the instrument evidencing the Award. The terms, conditions
and restrictions that the Compensation Committee shall have the power to
determine shall include, without limitation, the manner in which shares subject
to Stock Awards are held during the periods they are subject to restrictions and
the circumstances under which forfeiture of Restricted Stock shall occur by
reason of termination of the Holder's services.
9.2 ISSUANCE OF SHARES
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Compensation
Committee, the Company shall release, as soon as practicable, to the Holder or,
in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, the appropriate number of
shares of Common Stock.
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<PAGE> 9
9.3 WAIVER OF RESTRICTIONS
Notwithstanding any other provisions of the Plan, the Compensation
Committee may, in its sole discretion, waive the forfeiture period and any other
terms, conditions or restrictions on any Restricted Stock under such
circumstances and subject to such terms and conditions as the Compensation
Committee shall deem appropriate.
SECTION 10. ASSIGNABILITY
No Option or Stock Award granted under the Plan may be assigned, pledged or
transferred by the Holder other than by will or by the applicable laws of
descent and distribution, and, during the Holder's lifetime, such Awards may be
exercised only by the Holder or a permitted assignee or transferee of the Holder
(as provided below). Notwithstanding the foregoing, and to the extent permitted
by Section 422 of the Code, the Compensation Committee, in its sole discretion,
may permit such assignment, transfer and exercisability and may permit an Holder
to designate a beneficiary who may exercise the Award after the Holder's death;
provided, however, that any Award so assigned or transferred shall be subject to
all the same terms and conditions contained in the instrument evidencing the
Award.
SECTION 11. ADJUSTMENTS
11.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Compensation
Committee shall make proportional adjustments in (i) the maximum number and kind
of securities subject to the Plan as set forth in Section 4.1, (ii) the maximum
number and kind of securities that may be made subject to Awards to any
individual as set forth in Section 4.2, and (iii) the number and kind of
securities that are subject to any outstanding Award and the per share price of
such securities, without any change in the aggregate price to be paid therefor.
The determination by the Compensation Committee as to the terms of any of the
foregoing adjustments shall be conclusive and binding. Notwithstanding the
foregoing, a Corporate Transaction shall not be governed by this Section 11.1
but shall be governed by Section 11.2.
11.2 CORPORATE TRANSACTION
(a) Except as otherwise provided in the instrument that evidences the
Award, in the event of any Corporate Transaction, each Award that is at the time
outstanding shall automatically accelerate so that each such Award shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested and exercisable.
(b) Such Award shall not so accelerate, however, if and to the extent that
such Award is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof (the "Successor
Corporation") or to be replaced with a comparable award for the purchase of
shares of the capital stock of the Successor Corporation. The determination of
Award comparability shall be made by the Compensation Committee, and its
determination shall be conclusive and binding. Any such Awards that are assumed
or replaced in the Corporate Transaction and do not otherwise accelerate at that
time shall be accelerated in the event that the Holder's employment or services
should subsequently terminate within two years following such Corporate
Transaction, unless such employment or services are terminated by the Successor
Corporation for Cause or by the Holder's voluntarily without Good Reason.
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<PAGE> 10
(c) All such Awards shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction, except to
the extent assumed by the Successor Corporation.
(d) The acceleration will not occur if, in the opinion of the Company's
outside accountants, it would render unavailable "pooling of interest"
accounting for a Corporate Transaction that would otherwise qualify for such
accounting treatment.
11.3 FURTHER ADJUSTMENT OF OPTIONS
Subject to Section 11.2, the Compensation Committee shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the Compensation Committee, to take such further action as it determines to be
necessary or advisable, and fair and equitable to Holders, with respect to
Awards. Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise and other modifications, and the Compensation
Committee may take such actions with respect to all Holders, to certain
categories of Holders or only to individual Holders. The Compensation Committee
may take such action before or after granting
Awards to which the action relates and before or after any public
announcement with respect to such sale, merger, consolidation, reorganization,
liquidation or change in control that is the reason for such action.
11.4 LIMITATIONS
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 12. WITHHOLDING
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, vesting or exercise of any Award. Subject to the Plan and applicable law,
the Compensation Committee may, in its sole discretion, permit the Holder to
satisfy withholding obligations, in whole or in part, by paying cash, by
electing to have the Company withhold shares of Common Stock or by transferring
shares of Common Stock to the Company, in such amounts as are equivalent to the
Fair Market Value of the withholding obligation. The Company shall have the
right to withhold from any Award or any shares of Common Stock issuable pursuant
to an Award or from any cash amounts otherwise due or to become due from the
Company to the Holder an amount equal to such taxes. The Company may also deduct
from any Award any other amounts due from the Holder to the Company or a
Subsidiary.
SECTION 13. AMENDMENT AND TERMINATION OF PLAN
13.1 AMENDMENT OF PLAN
The Plan may be amended only by the Board in such respects as it shall deem
advisable; however, to the extent required for compliance with Section 422 of
the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted under the Plan or that may be issued as Stock
Awards, (b) modify the class of persons eligible to receive Options, or (c)
otherwise require shareholder approval under any applicable law or regulation.
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<PAGE> 11
13.2 TERMINATION OF PLAN
The Board may suspend or terminate the Plan at any time. The Plan will have
no fixed expiration date; provided, however, that no Incentive Stock Options may
be granted more than 10 years after the earlier of the Plan's adoption by the
Board and approval by the shareholders.
13.3 CONSENT OF HOLDER
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, impair or diminish any rights or
obligations under any Award theretofore granted under the Plan.
Any change or adjustment to an outstanding Incentive Stock Option shall
not, without the consent of the Holder, be made in a manner so as to constitute
a "modification" that would cause such Incentive Stock Option to fail to
continue to qualify as an Incentive Stock Option.
SECTION 14. GENERAL
14.1 AWARD AGREEMENTS
Awards granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Compensation Committee shall deem advisable and that are not inconsistent with
the Plan.
14.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN AWARDS
None of the Plan, participation in the Plan or any action of the
Compensation Committee taken under the Plan shall be construed as giving any
person any right to be retained in the employ of the Company or limit the
Company's right to terminate the employment or services of any person.
14.3 REGISTRATION
The Company shall be under no obligation to any Holder to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
14.4 NO RIGHTS AS A SHAREHOLDER
No Option shall entitle the Holder to any dividend, voting or other right
of a shareholder unless and until the date of issuance under the Plan of the
shares that are the subject of such Option, free of all applicable restrictions.
14.5 COMPLIANCE WITH LAWS AND REGULATIONS
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Holders who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Holders. Additionally, in
interpreting and applying the provisions of the Plan, any Option
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<PAGE> 12
granted as an Incentive Stock Option pursuant to the Plan shall, to the extent
permitted by law, be construed as an "incentive stock option" within the meaning
of Section 422 of the Code.
14.6 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Holder, and no Holder shall
have any rights that are greater than those of a general unsecured creditor of
the Company.
14.7 SEVERABILITY
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the
Compensation Committee, such provision shall be construed or deemed amended to
conform to applicable laws, or, if it cannot be so construed or deemed amended
without, in the Compensation Committee's determination, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, person or Award, and the remainder of the Plan and any such Award
shall remain in full force and effect.
SECTION 15. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
Adopted by the Board on April 27, 1999 and approved by the Company's
shareholders on , 199 .
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
<TABLE>
<CAPTION>
Date of
Adoption/
Amendment/ Effect of Date of Shareholder
Adjustment Section Amendment Approval
<S> <C> <C> <C>
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SMARTSOURCES.COM, INC. FOR THE NINE MONTH
PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998<F1>
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 129,400 0
<SECURITIES> 0 0
<RECEIVABLES> 143,500 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 272,900 0
<PP&E> 1,037,900 0
<DEPRECIATION> (277,300) 0
<TOTAL-ASSETS> 2,745,700 0
<CURRENT-LIABILITIES> 287,300 0
<BONDS> 0 0
0 0
3,407,000 0
<COMMON> 1,000,100 0
<OTHER-SE> (3,311,500) 0
<TOTAL-LIABILITY-AND-EQUITY> 2,745,700 0
<SALES> 495,700 0
<TOTAL-REVENUES> 495,700 0
<CGS> 0 0
<TOTAL-COSTS> 1,216,900 0
<OTHER-EXPENSES> 90,300 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 36,500 0
<INCOME-PRETAX> (848,000) 0
<INCOME-TAX> 29,100 0
<INCOME-CONTINUING> (877,100) 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (877,100) 0
<EPS-BASIC> (.11) 0
<EPS-DILUTED> (.10) 0
<FN>
<F1> COMPARATIVE RESULTS OF OPERATIONS AND CASH FLOWS FOR THE NINE MONTHS ENDED
JUNE 30, 1998 ARE NOT AVAILABLE DUE TO THE FOLLOWING FACTORS. PRIOR TO THE
MERGER WITH NIFCO INVESTMENTS LTD AND SUBSIDIARIES (COLLECTIVELY, NIFCO), NIFCO
HAD NO REQUIREMENT TO REPORT CONSOLIDATED FINANCIAL POSITION, RESULTS OF
OPERATIONS AND CASH FLOWS ON A QUARTERLY BASIS IN ACCORDANCE WITH U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES. THE ACCOUNTING SYSTEMS AND RECORDS OF THE
CONSOLIDATED GROUP COMPRISING NIFCO CANNOT GENERATE AN ACCURATE QUARTERLY CUTOFF
AS OF JUNE 30, 1998, AND IT IS NOT PRACTICABLE FOR THE COMPANY TO GO BACK AND
RECREATE SUCH FINANCIAL INFORMATION.
</FN>
</TABLE>
