SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
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Commission file number 0-6215
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Republic Automotive Parts, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-1455545
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
500 Wilson Pike Circle, Suite 115, Brentwood, Tennessee 37027
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(615) 373-2050
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(Registrant's telephone number, including area code)
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such short 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
----- -----
Number of shares (common) outstanding at June 30, 1997: 3,395,818
<PAGE> 1
REPUBLIC AUTOMOTIVE PARTS, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended June 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited):
<S> <C>
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 3
Consolidated Statements of Income and Retained
Earnings for the three months and six months
ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 5
Condensed Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURE PAGE 9
EXHIBIT INDEX 10
</TABLE>
<PAGE> 2
PART I Item 1. Financial Statements
Republic Automotive Parts, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
(in thousands, except per share data) June 30, December 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................ $ 2,660 $ 2,898
Accounts and notes receivable, less allowance
for doubtful accounts of $738 and $658........... 16,472 14,897
Inventories...................................... 58,918 57,087
Deferred income taxes............................ 4,029 3,324
Prepaid expenses and other current assets........ 3,762 2,779
------ ------
Total current assets............................ 85,841 80,985
PROPERTY, PLANT AND EQUIPMENT, NET................. 8,604 9,286
LONG TERM NOTES RECEIVABLE......................... 403 499
DEFERRED PENSION ASSET............................. 3,047 3,137
GOODWILL AND OTHER INTANGIBLES, less accumulated
amortization of $2,895 and $2,530................ 11,159 11,810
------- ------
$109,054 $105,717
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and long-term debt due
within one year................................. $ 3,889 $ 1,997
Accounts payable................................. 13,750 11,210
Accrued compensation and employee benefits....... 2,801 3,480
Accrued taxes and other liabilities.............. 3,629 3,020
------ ------
Total current liabilities....................... 24,069 19,707
LONG-TERM DEBT..................................... 31,343 34,884
DEFERRED INCOME TAXES.............................. 2,090 1,704
OTHER LONG-TERM LIABILITIES........................ 1,228 1,329
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock of $1.00 par value:
Authorized - 150,000, Issued - none
Junior Participating Cumulative Preferred
Stock at $1.00 par value:
Authorized - 50,000 shares, Issued - none
Common stock of $0.50 par value:
Authorized - 5,000,000 shares
Issued - 3,468,983 and 3,460,983 shares......... 1,734 1,730
Additional paid-in capital...................... 25,024 24,913
Retained earnings................................ 24,371 22,255
Treasury stock, at cost: 73,165 shares........... (805) (805)
------ ------
50,324 48,093
------ ------
$109,054 $105,717
======= =======
</TABLE>
See condensed notes to consolidated financial statements.
<PAGE> 3
Republic Automotive Parts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
(in thousands, except June 30, June 30,
per share data) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES.............................. $50,191 $48,322 $95,976 $92,618
COSTS AND EXPENSES
Cost of products sold.................. 30,233 29,672 57,359 57,059
Selling, general and administrative
expenses.............................. 17,279 15,633 34,063 30,683
------ ------ ------ ------
47,512 45,305 91,422 87,742
------ ------ ------ ------
OPERATING INCOME....................... 2,679 3,017 4,554 4,876
Interest income........................ 135 137 251 236
Interest expense....................... (615) (514) (1,200) (1,101)
Other income and expense............... (2) 29 5 60
----- ----- ----- -----
INCOME BEFORE INCOME TAXES............. 2,197 2,669 3,610 4,071
Provision for income taxes............. 901 1,086 1,494 1,674
----- ----- ----- -----
NET INCOME............................. 1,296 1,583 2,116 2,397
RETAINED EARNINGS at beginning
of period............................. 23,075 17,974 22,255 17,160
------ ------ ------ ------
RETAINED EARNINGS at end of period..... $24,371 $19,557 $24,371 $19,557
====== ====== ====== ======
EARNINGS PER COMMON SHARE - BASIC...... $ 0.38 $ 0.47 $ 0.62 $ 0.71
==== ==== ==== ====
EARNINGS PER COMMON SHARE - DILUTED.... $ 0.36 $ 0.44 $ 0.59 $ 0.67
==== ==== ==== ====
Weighted Average Common Shares
Outstanding........................... 3,396 3,388 3,396 3,338
Common Equivalent Shares Outstanding... 182 181 182 181
----- ----- ----- -----
3,578 3,569 3,578 3,569
===== ===== ===== =====
</TABLE>
See condensed notes to consolidated financial statements.
<PAGE> 4
Republic Automotive Parts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For the six
(in thousands) months ended June 30,
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income.............................................. $ 2,116 $ 2,397
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation........................................... 1,367 1,315
Amortization of intangibles............................ 651 639
Provision for losses on accounts receivable............ 184 224
Provision for deferred pension expense (income)........ 90 (72)
Loss on disposal of property, plant and equipment...... 14 14
Deferred income taxes.................................. (319) (479)
Change in assets and liabilities:
Accounts and notes receivable.......................... (1,759) (2,167)
Income taxes recoverable............................... 1,452
Inventories............................................ (1,831) (125)
Prepaid expenses and other current assets.............. (983) (1,563)
Accounts payable....................................... 2,540 (643)
Accrued compensation and employee benefits............. (679) 308
Accrued taxes and other liabilities.................... 609 538
Other long-term liabilities............................ (101) (245)
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Net cash provided by operating activities.............. 1,899 1,593
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property, plant and equipment 35 83
Capital expenditures................................... (734) (1,643)
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Net cash used in investing activities.................. (699) (1,560)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from revolving credit agreement............. 3,950 4,300
Repayments of revolving credit agreement............... (7,450) (2,200)
Increase in short-term debt and notes payable.......... 3,000
Repayments of long-term debt and notes payable......... (1,149) (1,193)
Proceed from exercise of stock options................. 115
Decrease in long-term notes receivable................. 96 30
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Net cash provided by financing activities.............. (1,438) 937
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (238) 970
Cash and cash equivalents at beginning of year......... 2,898 2,798
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Cash and cash equivalents at end of period............. $ 2,660 $ 3,768
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense...................................... $ 1,200 $ 1,099
===== =====
Income taxes.......................................... $ 1,494 $ 626
===== =====
</TABLE>
See condensed notes to consolidated financial statements.
<PAGE> 5
Republic Automotive Parts, Inc. and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared according to the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles.
However, management believes all adjustments necessary to a fair statement of
operations of the interim period have been made. These adjustments are of a
normal recurring nature.
The results of operations for the six months ended June 30, 1997 and 1996 are
not necessarily indicative of the results expected for the full year.
Note 2 - Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share."
SFAS 128 requires companies with complex capital structures that have publicly
held common stock or common stock equivalents to present both basic and
diluted earnings per share ("EPS") on the face of the income statement. The
presentation of basic EPS replaces the presentation of primary EPS previously
required by Accounting Principles Board Opinion No. 15 ("APB No. 15"),
"Earnings Per Share." Basic EPS is calculated as income available to common
stockholders divided by the weighted average number of shares outstanding
during the period. Diluted EPS (previously referred to as fully diluted EPS)
is calculated using the "if-converted" method for convertible securities and
the treasury stock method for options and warrants as prescribed by APB No. 15.
This statement is effective for financial statements issued for interim and
annual periods ending after December 15, 1997. The adoption of SFAS 128 in
the first quarter of 1997 did not have a significant impact on the Company's
reported EPS.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
This report contains certain forward-looking statements. Specifically, the
forward-looking statements relate to anticipated future growth through
acquisitions and openings of new distribution centers by the Company's
subsidiary, Fenders & More, Inc. The ability of the Company to achieve the
expectations expressed in these forward-looking statements will be subject to
several factors that could cause actual results to differ materially from
those expressed in the forward-looking statements, such as the cost of
acquired businesses and new distribution centers, difficulties in integrating
newly-acquired businesses and the availability of capital to finance both
acquisitions and openings of new distribution centers. Actual results
achieved may differ from expected results included in such statements.
<PAGE> 6
Results of Operations
Net sales increased 3.6% for the first six months of 1997 compared to the
same period in 1996. Net sales increased 3.9% for the second quarter of 1997
compared to the same period in 1996. Sales for units owned continuously
during 1997 and 1996 decreased 1.0% due to generally soft industry-wide
demand by consumers for replacement automotive parts. Gross profit margin
(net sales less cost of goods sold) increased 8.6% during the first six months
of 1997 compared to the same period in 1996 primarily a result of the shift
in the Company's mix of sales between wholesale and end user. Selling,
general and administrative expenses increased by 11.0% for the first six
months in 1997 compared to the same period in 1996 due principally to new
operating costs associated with the distribution centers and jobbers stores
opened or acquired in 1997 and 1996. Operating income decreased 6.6% for
the first six months in 1997 compared with the same period in 1996.
As a result of the trends noted above, income before income taxes decreased
by $461,000 for the first six months of 1997 compared with the same period
last year. The Company reported earnings of $0.59 cents per share for the
first six months of 1997 compared to $0.67 per share for the same period in
1996.
Financial Condition and Liquidity
The Company's ratio of current assets to current liabilities was 3.6 at the
end of the second quarter of 1997 compared to 4.1 at December 31, 1996.
Working capital at June 30, 1997 was $61,772,000 compared with $61,278,000 at
December 31, 1996. Cash decreased by $238,000 from $2,898,000 at December 31,
1996 to $2,660,000 at June 30, 1997.
Operating activities provided $1,899,000 of the Company's cash flows during
the first six months of 1997 compared with $1,593,000 of cash flows for the
same period in 1996. Investing activities used $699,000 of the Company's cash
flows during the first six months of 1997 compared with $1,560,000 for the
same period in 1996. Normal replacement of equipment accounted for the cash
flows used by investing activities.
The Company anticipates future growth through possible acquisitions and
openings of new distribution centers and jobber locations. Fenders & More,
Inc., the Company's distributor of automotive crash parts, anticipates
opening four new distribution centers during the third and fourth quarters of
1997. Although the Company has not entered into any other definitive
agreements, cash provided by operations, changes in working capital and
existing credit facilities will be sufficient to support cash outlays for
anticipated acquisitions and openings, if any.
Financing activities used $1,438,000 of the Company's cash flows during the
first six months of 1997 compared with providing $937,000 for the same period
in 1996.
Current financial resources (cash provided by operations, working capital
and short-term debt) available to the Company are expected to be adequate to
meet future cash requirements for capital expenditures and anticipated debt
reductions that are payable over the next several years for various notes made
in connection with acquisitions. As of June 30, 1997, the Company had
available cash resources of $50,000,000 under a revolving credit agreement of
which $30,100,000 was utilized.
<PAGE> 7
PART II. OTHER INFORMATION
Item 4.
Submission of Matters to a Vote of Security Holders
On June 5, 1997 the Company held its annual meeting of stockholders.
Each of the following person's listed below, all of whom were incumbent
directors, were re-elected to the Board of Directors for a term ending at
the Company's next annual meeting in 1998. Of the 3,387,818 shares entitled
to vote at such meeting, 2,840,849 shares were present at the meeting in
person or by proxy. The number of votes cast with respect to the election
of each such person is set forth opposite such person's name:
<TABLE>
<CAPTION>
Number of Shares Voted
----------------------
Name of Director For Against
- ---------------- --- -------
<S> <C> <C>
William F. Ballhaus 2,464,469 376,380
Edgar R. Berner 2,161,949 678,900
Richard O. Berner 2,161,649 679,200
Nicholas A. Fedoruk 2,174,949 665,900
Oliver R. Grace 2,451,949 388,900
Donald B. Hauk 2,485,149 355,700
Leroy M. Parker, M.D. 2,161,949 678,900
Douglas R. Stern 2,469,669 371,180
Keith M. Thompson 2,485,149 355,700
</TABLE>
The stockholders approved an amendment to the Republic Automotive Parts, Inc.
Stock Compensation Plan increasing the maximum number of shares of Common Stock
available for awards under the Plan to 750,000 from 450,000. Shares voted for
this amendment were cast as follows: 1,667,562 for; 591,762 against; 6,091
abstain; and, 575,434 non-votes. The stockholders also approved the adoption
of the Republic Automotive Parts, Inc. 1997 Stock Option Plan for Non-Employee
Directors. Shares voted for the adoption of the Plan were cast as follows:
1,303,024 for; 993,867 against; 7,395 abstain; and, 536,563 non-votes.
Item 6.
Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit 10.12 Republic Automotive Parts, Inc. 1997 Stock Option
Plan for Non-Employee Directors
Exhibit 27 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed by the Registrant during the
quarter ended June 30, 1997.
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC AUTOMOTIVE PARTS, INC.
(Registrant)
By /S/ KEITH M. THOMPSON August 11, 1997
-------------------------------------------
President, Chief Executive Date
Officer and Director
By /S/ DONALD B. HAUK August 11, 1997
-------------------------------------------
Executive Vice President, Chief Date
Financial Officer and Director
<PAGE> 9
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.12 Republic Automotive Parts, Inc. 1997 Stock Option Plan
for Non-Employee Directors
27 Financial Data Schedule, filed herewith
<PAGE> 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,660
<SECURITIES> 0
<RECEIVABLES> 17,210
<ALLOWANCES> 738
<INVENTORY> 58,918
<CURRENT-ASSETS> 85,841
<PP&E> 21,980
<DEPRECIATION> 13,376
<TOTAL-ASSETS> 109,054
<CURRENT-LIABILITIES> 24,069
<BONDS> 0
0
0
<COMMON> 1,734
<OTHER-SE> 48,590
<TOTAL-LIABILITY-AND-EQUITY> 109,054
<SALES> 95,976
<TOTAL-REVENUES> 95,976
<CGS> 57,359
<TOTAL-COSTS> 57,359
<OTHER-EXPENSES> 34,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200
<INCOME-PRETAX> 3,610
<INCOME-TAX> 1,494
<INCOME-CONTINUING> 2,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,116
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.59
</TABLE>
Exhibit 10.12
REPUBLIC AUTOMOTIVE PARTS, INC.
1997 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
SECTION 1: PURPOSE
The Republic Automotive Parts, Inc. 1997 Stock Option Plan for Non-Employee
Directors (the "Plan") has been adopted to promote the longer-term growth and
financial success of the Company by (1) enhancing its ability to attract and
retain nonaffiliated individuals of outstanding ability as members of the Board
and (2) promoting a greater identity of interest between non-employee members of
the Board and shareholders.
SECTION 2: DEFINITIONS
As used in the Plan, the following terms have these respective meanings:
(a) "Board" means the Company's Board of Directors.
(b) "Common Stock" means the Company's Common Stock, par value $.50 per share,
or any successor stock issued by the Company in replacement or conversion
thereof.
(c) "Company" means Republic Automotive Parts, Inc., a corporation established
under the laws of the State of Delaware.
(d) "Fair Market Value" means for any given day the closing sales price on such
date of a share of Common Stock as reported on the principal securities
exchange on which such shares of Common Stock are then listed or admitted
to trading or as reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") National Market System, if not so listed or
admitted. If no sales of Common Stock were made on such exchange or
reported on the NASDAQ system on that date, the closing price of a share of
Common Stock for the preceding day of such exchange or as reported by
NASDAQ shall be substituted.
(e) "Grant Date" means the third business day following the Company's Annual
Meeting of Shareholders.
(f) "Participant" means for each Grant Date any director of the Company who is
not an employee of the Company or any subsidiary or affiliate of the
Company on the applicable Grant Date.
(g) "Plan" means the Republic Automotive Parts, Inc. 1997 Stock Option Plan
for Non-Employee Directors.
(h) "Shareholders" means the holders of record from time to time of the
outstanding shares of the Common Stock.
(i) "Stock Option" means a right to purchase shares of Common Stock at the
applicable Fair Market Value.
(j) "1934 Act" means the Securities Exchange Act of 1934.
SECTION 3: EFFECTIVE DATE
The Plan shall be effective beginning on the date it is approved by the
Company's Shareholders in accordance with the provisions of the Company's
Bylaws and applicable law and shall remain in effect for each applicable Grant
Date until terminated by the Board. If the Plan is terminated, the terms of the
Plan shall continue to apply to all outstanding Stock Options granted prior to
such Termination.
<PAGE> 1
SECTION 4: OPERATION
The Plan is intended to meet the requirements for a formula plan within the
meaning of Rule 16b-3 adopted under the 1934 Act. To this end, the Plan is
intended to fix the terms and conditions of each transaction under the Plan in
advance and to require no discretionary action by any administrative body with
regard to any such transaction under the Plan.
SECTION 5: COMMON STOCK AVAILABLE FOR STOCK OPTIONS
(a) Number of Shares. A maximum of 60,000 shares of Common Stock may be issued
upon the exercise of Stock Options granted under the Plan. Shares of Common
Stock shall not be deemed issued until the applicable Stock Option has been
exercised and, accordingly, any shares of Common Stock represented by Stock
Options which expire unexercised or which are canceled shall remain
available for issuance under the Plan.
(b) Adjustments. The Board, as it deems appropriate to meet the intent of the
Plan, shall make such adjustments to the number of shares available under
the Plan and to any outstanding Stock Options in connection with any stock
dividend, stock split, combination or exchange of shares, merger,
consolidation, recapitalization, spin-off or other distribution (other than
normal cash dividends) of the Company assets to Shareholders, or any other
change affecting the Common Stock, provided such adjustments are consistent
with the effect on the other Shareholders of the Company of any such
transaction. The Board may also, when similarly appropriate, make such
adjustment in the exercise price of outstanding Stock Options as it deems
necessary to preserve the rights of Participants under the Plan.
SECTION 6: STOCK OPTION TERMS
(a) Granting of Stock Options. Each Participant shall be initially granted a
Stock Option to purchase 5,000 shares on the first Grant Date that the
Plan is in effect. After such initial award, each Participant who
continues as a Participant on the relevant Grant Date shall be granted a
Stock Option to purchase 1,250 shares on each of the next four successive
Grant Dates.
(b) Duration and Exercisability. Each Stock Option shall have a term of five
years and, subject to Section 7, shall become exercisable to the extent of
33 1/3% of the aggregate number of shares covered thereby on and after the
first anniversary of the Grant Date, to the extent of 66 2/3% of the
aggregate number of shares covered thereby on and after the second
anniversary of the Grant Date and to the extent of 100% of the aggregate
number of shares covered thereby on and after the third anniversary of the
Grant Date; provided, however, that it shall be a condition to the
exercisability of each such portion of a Stock Option that the Participant
is a member of the Board on the relevant anniversary date.
(c) Termination of Directorship. When a Participant ceases to be a member of
the Board, each Stock Option, or portion thereof which has become
exercisable as of the date such Participant ceases to be a member of the
Board, held by such Participant shall continue to be exercisable for the
lesser of one year or until the end of the original term. Notwithstanding
the foregoing, if a Participant is terminated as a member of the Board for
cause, any exercisable Stock Option or portion thereof shall cease to be
exercisable on the date of termination.
(d) Exercise of Stock Options. Stock Options may be exercised by giving
written notice to the Secretary of the Company stating the number of
shares of Common Stock with respect to which the Stock Option is being
exercised and tendering payment thereof. Payment for shares of Common
Stock shall be made in full in cash at the time that a Stock Option, or
any part thereof, is exercised. The Participant agrees that, in the event
the exercise of any Stock Options granted in this Plan or the disposition
of shares following exercise of such options results in the Participant's
realization of income which for federal, state or local income tax
purposes is, in the opinion of counsel for the Company, subject to
withholding of tax at source by the Company, the Participant will pay to
the Company an amount equal to such withholding tax in cash.
<PAGE> 2
SECTION 7: ACCELERATING EVENTS
(a) In the event of the earliest of (i) the occurrence of an Accelerating
Event, or (ii) the dissemination of a proxy statement soliciting proxies
from shareholders of the Company, by someone other than the Company,
seeking shareholder approval of an Accelerating Event of the type described
in (b)(i) below, or (iii) the publication or dissemination of an
announcement of action intended to result in an Accelerating Event of the
type described in (b)(ii) or (b)(iii) below, all outstanding Stock Options
awarded under the Plan shall immediately become fully exercisable and
vested.
(b) As used herein an "Accelerating Event" shall mean:
(i) a merger of equivalent combination involving the Company after which
forty-nine percent (49%) or more of the voting stock of the surviving
corporation is held by persons other than former shareholders of the
Company;
(ii) the acquisition of thirty percent (30%) or more of the outstanding
shares of Common Stock by any person (as defined by Section 3(a)(9)
of the 1934 Act) other than directly from the Company; or
(iii) the occurrence of any circumstance having the effect that thirty
percent (30%) or more of the directors elected by shareholders to the
Board are persons who were not nominated by management in the then
most recent proxy statement of the Company.
SECTION 8: GENERAL PROVISIONS
(a) Transferability of Stock Options. A Stock Option granted under the Plan may
be transferred by a Participant to members of the Participant's
family, family-controlled partnerships or other family-controlled
entities or trusts for the benefit of such Participant and/or one or more
of such family members.
(b) Documentation of Grants. Stock Options shall be evidenced by written
agreements.
(c) Plan Amendment. The Board may amend or terminate the Plan provided that no
amendment may impair any Participant's rights with respect to an
outstanding Stock Option without the consent of the Participant.
(d) Future Rights. Neither the Plan nor the granting of Stock Options nor any
such action taken pursuant to the Plan, shall constitute or be evidence of
any agreement or understanding, express or implied, that the Company shall
retain a Participant for any period of time, or at any particular rate of
compensation as a member of the Board. Nothing in this Plan shall in any
way limit or affect the right of the Board or the Shareholders to remove
any Participant from the Board or otherwise terminate his or her service
as a member of the Board.
(e) Governing Law. The validity, construction and effect of the Plan and any
such action taken under or relating to the Plan shall be determined in
accordance with the laws of the State of Delaware, without reference to
the principles of conflicts of law thereof, and applicable Federal law.
<PAGE> 3
