SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-17231
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AUTOMOBILE PROTECTION CORPORATION - APCO
(Exact name of registrant as specified in its charter)
Georgia 58-1582432
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15 Dunwoody Park Drive, Suite 100
Atlanta, Georgia 30338
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 394-7070
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 12, 1997
- --------------------------------------- ------------------------------
Common stock, $.001 par value per share 10,750,920
Exhibits - Page 15.
Total number of pages, including cover page - 32.
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AUTOMOBILE PROTECTION CORPORATION - APCO
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheet at June 30, 1997 and
December 31, 1996......................................................... 3
Consolidated Statement of Income for the Three
Month Period Ended June 30, 1997 and 1996................................. 4
Consolidated Statement of Income for the Six
Month Period Ended June 30, 1997 and 1996................................. 5
Consolidated Statement of Cash Flows for the Six
Month Period Ended June 30, 1997 and 1996 ................................ 6
Notes to Consolidated Financial Statements ............................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
2
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AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, * December 31,
1997 1996
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,203,809 $ 6,967,904
Trading securities, at fair value 6,862,265 5,721,730
Investment securities held to maturity 2,209,814 1,654,209
Accounts receivable, net of provision for doubtful
accounts of $30,000 and $30,000 3,212,726 2,160,236
Notes receivable 951,976 547,446
Officer and employee receivables 216,472 205,771
Income tax refund receivable -- 452,546
Prepaid expenses 596,315 658,074
Deferred tax asset 555,565 472,805
Restricted cash 8,649,543 8,330,106
----------- -----------
Total current assets 31,458,485 27,170,827
Property and equipment, net of accumulated
depreciation of $1,895,394 and $1,716,894 1,127,523 1,117,530
Investment securities held to maturity, non current 1,549,882 2,098,089
Deposits to secure licenses 736,930 730,276
Deferred tax asset 60,016 39,797
Other assets 46,455 104,304
----------- -----------
$34,979,291 $31,260,823
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Premiums, fees and taxes payable $ 8,649,543 $ 8,330,106
Accounts payable 1,278,950 1,156,118
Accrued liabilities 3,608,235 2,461,091
Current income taxes payable 257,305 --
----------- -----------
Total current liabilities 13,794,033 11,947,315
Deferred income taxes 151,424 103,160
Redeemable preferred stock 300 300
----------- -----------
13,945,757 12,050,775
----------- -----------
Shareholders' equity:
Common stock; $.001 par value, 40,000,000 authorized,
10,723,302 and 10,564,323 issued and outstanding 10,723 10,564
Additional paid-in capital 15,362,280 15,053,345
Retained earnings 5,660,531 4,146,139
----------- -----------
Total shareholders' equity 21,033,534 19,210,048
----------- -----------
$34,979,291 $31,260,823
=========== ===========
* From audited financial statements contained in Registrant's Annual Report on
Form 10-K for the twelve months ended 12/31/96.
The accompanying notes are an integral part of
these consolidated financial statements.
3
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AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
Revenues $ 23,797,029 $ 17,726,638
Cost of sales:
Premiums and taxes 16,710,796 12,460,360
Commissions and other costs 2,236,584 1,447,322
------------ ------------
Total cost of sales 18,947,380 13,907,682
------------ ------------
4,849,649 3,818,956
Expenses:
Compensation, selling and administrative 3,568,624 2,708,803
Depreciation and amortization 110,000 107,000
Interest, dividend and other income (259,064) (167,715)
------------ ------------
3,419,560 2,648,088
------------ ------------
Income before provision for income taxes 1,430,089 1,170,868
Provision for income taxes 545,000 445,000
------------ ------------
Net income $ 885,089 $ 725,868
============ ============
Net income per share $ 0.08 $ 0.07
============ ============
Number of shares used in computing
net income per share 11,457,000 10,983,000
The accompanying notes are an integral part of
these consolidated financial statements.
4
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AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
Revenues $ 43,892,343 $ 32,078,926
Cost of sales:
Premiums and taxes 30,887,412 22,699,760
Commissions and other costs 3,883,925 2,488,451
------------ ------------
Total cost of sales 34,771,337 25,188,211
------------ ------------
9,121,006 6,890,715
Expenses:
Compensation, selling and administrative 6,955,320 5,448,354
Depreciation and amortization 214,500 206,294
Interest, dividend and other income (493,206) (332,777)
------------ ------------
6,676,614 5,321,871
------------ ------------
Income before provision for income taxes 2,444,392 1,568,844
Provision for income taxes 930,000 603,000
------------ ------------
Net income $ 1,514,392 $ 965,844
============ ============
Net income per share $ 0.13 $ 0.09
============ ============
Number of shares used in computing
net income per share 11,432,000 10,884,000
The accompanying notes are an integral part of
these consolidated financial statements.
5
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AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,514,392 $ 965,844
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 214,500 206,294
Deferred income taxes (54,715) 186,499
Provision for doubtful accounts 8,650
Stock compensation expense 49,200
Change in operating assets and liabilities:
Restricted cash (319,437) (7,104,256)
Accounts receivable (1,052,490) (709,857)
Officer and employee receivables (10,701) 6,850
Notes receivable (404,530) (169,440)
Income tax refund receivable 452,546
Prepaid expenses and other assets 83,608 (224,334)
Premiums, fees and taxes payable 319,437 7,104,256
Accounts payable 122,832 390,811
Accrued liabilities 1,147,144 489,025
Income taxes payable 257,305 (40,837)
Purchases of trading securities (2,649,800) (4,393,143)
Sales of trading securities 1,509,265 3,147,193
----------- -----------
Total adjustments (385,036) (1,053,089)
----------- -----------
Net cash provided by (used in) operating activities 1,129,356 (87,245)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (188,493) (403,351)
Proceeds from sales of property and equipment 10,999
Purchases of investment securities (375,628) (1,444,581)
Redemptions and maturities of investment securities 368,230 545,000
Increase in deposits to secure licenses (6,654) (6,312)
----------- -----------
Net cash used in investing activities (202,545) (1,298,245)
----------- -----------
Cash flows from financing activities:
Issuance of common stock 309,094 1,073,436
----------- -----------
Net cash provided by financing activities 309,094 1,073,436
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,235,905 (312,054)
Cash and cash equivalents at beginning of period 6,967,904 6,746,886
----------- ----------
Cash and cash equivalents at end of period $ 8,203,809 $ 6,434,832
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 250,000 $ 375,000
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
6
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AUTOMOBILE PROTECTION CORPORATION - APCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments, consisting solely of normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the periods indicated. The accompanying consolidated financial
statements include the accounts of Automobile Protection Corporation - APCO and
its wholly-owned subsidiaries (the "Company"). Certain information and footnote
disclosures normally included in financial statements prepared in conformity
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
These condensed financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the Company's
Annual Report on Form 10-K for the twelve months ended December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Revenues
- --------
Revenues from the sale of extended vehicle service contracts and extended
warranty programs are recognized when the service contract or extended warranty
sold by the dealer is received and accepted by the Company. Revenues are
comprised of the Company's administration fee, underlying insurance premium and
tax.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include all funds with an original maturity of ninety
days or less.
Investment Securities
- ---------------------
The Company's investments consist of trading securities and of held-to-maturity
securities. Trading securities are stated at their fair value, which is based on
quoted market prices, and all unrealized gains and losses are recognized in
earnings as incurred. Gains and losses during the periods encompassed by these
financial statements were insignificant. Held to maturity securities are stated
at their amortized cost. The market value of the Company's held-to-maturity
securities at June 30, 1997 is $3,761,176.
7
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Property and Equipment
- ----------------------
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are calculated using the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes over the estimated useful lives of the assets ranging
from three to seven years. Maintenance and repair costs are charged to expense
as incurred, and major renewals and betterments are capitalized. When property
and equipment is retired or sold, the related carrying value and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in income.
Premiums and Taxes Payable
- --------------------------
Premiums and taxes payable includes premiums due to the insurers or their
agents, taxes payable to various states and amounts advanced to the Company by
the insurers for payment of claims.
Advertising costs
- -----------------
The Company sponsors motorsport activities to advertise its products. The
Company has entered into an annual associate sponsorship agreement with Joe
Gibbs Racing, Inc. and separate agreements with race track owners to sponsor
race events. Direct costs associated with the Joe Gibbs Racing, Inc. associate
sponsorship are expensed evenly during the year, while costs associated with
race events are expensed in the month the event takes place.
Income Taxes
- ------------
The Company provides income taxes on income reported for financial statement
purposes. Deferred income taxes are recorded for differences in the recognition
of various items for financial reporting and income tax purposes. The Company
files a consolidated income tax return with its subsidiaries.
Net Income per Common Share
- ---------------------------
Net income per share has been calculated based on the weighted average number of
common shares and common share equivalents outstanding during each period
presented.
Reclassifications
- -----------------
Certain comparative amounts have been reclassified to conform with current year
presentation.
3. OTHER ITEM
The Company filed a complaint against Everest Reinsurance Company (formerly
Prudential Reinsurance Company, hereinafter "Everest") in September 1996 in the
United States District Court, Northern District of Georgia, Atlanta division.
The complaint arises from the improper denial of valid claims under various
assumption of liability endorsements issued by Everest to participating dealers
in 1991. In October 1996, Everest filed a motion to dismiss, asserting that the
liquidation order in the insolvency of National Colonial Insurance Company
("NCIC") enjoins Everest from making a payment under the reinsurance agreement
to anyone, other than the liquidator of NCIC. At a recent hearing in the NCIC
liquidation matter, the state judge did not enjoin the Company from making a
claim directly against Everest. The Company is in the process of reviewing its
request to the District Court to rule on the Company's pending motions. The
8
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Company is funding the claims submitted by dealers and has paid $390,000 through
June 30, 1997. The Company is vigorously pursuing this action against Everest;
however, in view of the length of time that it may take to resolve the
litigation and the uncertain outcome, the Company recorded the total amount it
has paid and expects to pay, equal to $875,000, in the consolidated statement
of income for the year ended December 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
The following discussion and analysis of financial condition and results of
operations presents the more significant factors affecting the Company during
the three and six months ended June 30, 1997. The discussion and analysis should
be read in conjunction with the unaudited consolidated financial statements and
related notes appearing elsewhere herein and the Company's Annual Report on Form
10-K for the twelve months ended December 31, 1996.
FORWARD-LOOKING STATEMENTS
When used herein and in future filings by the Company with the Securities and
Exchange Commission, the words or phrases "will likely result", "management
expects" or "the Company expects", "will continue", "is expected", "is
anticipated", "estimated" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance
on any such forward-looking statements, each of which speak only as of the date
made. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company has no obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements.
Certain of these risks and uncertainties are discussed herein. The industry in
which the Company operates is highly competitive, with some competitors having
significantly greater financial resources and name recognition than the Company.
The Company depends on independent sales representatives, automobile
dealers/retailers and a major automobile manufacturer to market its products.
The distribution of automobiles has been subject to cyclical economic conditions
in the past and could be subject to such conditions in the future, which could
adversely impact the Company. A trend towards consolidation in the distribution
of automobiles has commenced, which could reduce the number of franchised and
independent dealers and consequently the Company's distribution. Additional
risks related to insurance carriers are discussed in the "Overview" section.
9
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OVERVIEW
The Company's primary business is the marketing and administration of extended
vehicle service contracts (hereinafter referred to as "VSCs") for automobile
dealers. Dealers often engage a third party administrator, such as the Company,
to design a VSC program, arrange for insurance to limit their financial risk,
and to perform all of the related administrative functions associated therewith.
A function of the Company is to arrange for insurance to cover obligations to
pay all future claims. The Company has arranged for insurance coverage to be
provided by certain Underwriters at Lloyd's of London ("Lloyd's"), Greenwich
Insurance Company ("Greenwich"), Indian Harbor Insurance Company ("Indian
Harbor") and Illinois Union Insurance Company, a subsidiary of CIGNA Property
and Casualty Company (collectively "CIGNA"). Greenwich and Indian Harbor are
wholly-owned subsidiaries of NAC Re Corporation. Greenwich, Indian Harbor and
CIGNA may choose to purchase reinsurance from Lloyd's and other reinsurers,
including NAC Re Corporation. Most of the VSC's accepted by the Company for
administration between 1991 and 1996 are insured by Lloyd's. The availability of
insurance coverage at competitive rates and of insurance funds to make claims
payments, including the financial condition of the insurance carriers, is
critical to the Company and any disruption could have a material adverse effect
on the Company.
The Company's reported revenues represent the amount it bills to automobile
dealers, which is based on rate schedules developed by the Company. The amounts
billed consider insurance, taxes, commissions and other costs and profit. The
Company's reported cost of sales represents the amounts it pays to the insurers
for insurance, state insurance taxes and commissions to its sales
representatives.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its current working capital and anticipated levels of
internally generated funds will be sufficient to fund its operating and capital
expenditure requirements for the next twenty four months. This estimate is based
on the Company's current level of operations and certain assumptions relating to
the Company's business and planned growth. At June 30, 1997, the Company had
working capital of $17,664,452 (compared to $15,223,512 at December 31, 1996)
and investment securities with maturities greater than twelve months of
$1,549,882 (compared to $2,098,089 at December 31, 1996). The net increase in
working capital and investment securities of $1,892,733 is attributable to
operations ($1,583,639) and the exercise of stock options ($309,094). The
Company invests its funds in treasury securities, municipal bonds and financial
instruments with maturities of less than five years and money market accounts.
There is no plan to distribute funds to shareholders through a dividend or to
repurchase shares.
10
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RESULTS OF OPERATIONS
Three months ended June 30, 1997 ("1997") compared to the three months ended
- --------------------------------------------------------------------------------
June 30, 1996 ("1996").
- -----------------------
Revenues for 1997 increased by 34% or $6,070,391 to $23,797,029 over 1996. The
Company's largest revenue source is from the marketing and administration of
extended vehicle service contracts ("VSCs") under the EasyCare(R) name, which
provided 99% of revenues. EasyCare(R) revenues increased due to production under
the EasyCare(R) Certified Pre-Owned Vehicle Program, the signing of additional
automobile dealers to EasyCare(R) by the Company's independent sales
representatives and from 68% unit growth under the contract with American Honda
Finance Corporation.
The Company's gross margin was 20.3% of revenues in 1997 compared to 21.5% of
revenues in 1996. Gross margin is impacted by the mix of new and used, makes and
models of vehicles and the types of coverage sold. The overall gross margin for
1997 reflects production from the EasyCare(R) Certified Pre-Owned Vehicle
program, which has a different margin structure to the standard EasyCare(R)
service contract and offers additional benefits to the dealer and consumer, such
as service recapture. Additionally, the volume of business under the contract
with American Honda Finance Corporation, which has a lower margin than the core
business, increased at a faster rate than the core business.
Compensation, selling and administrative expenses for 1997 increased by 32% or
$859,821 to $3,568,624 over 1996. The increase for 1997 is primarily
attributable to compensation and marketing costs. Compensation cost increased
by $383,000 in 1997 to support the growth of the business. Marketing costs
increased by $163,000 due to additional promotional events (including
motorsports) and the EasyCare(R) Certified Pre-Owned Vehicle program in the
current quarter.
Interest, dividend and other income for 1997 increased by 54% or $91,349 to
$259,064 over 1996. The increase is due to the larger cash and investment
securities balances on hand.
The Company recorded a provision for income taxes in 1997 of $545,000 compared
to $445,000 for 1996. The increase is primarily due to higher pretax income.
Six months ended June 30, 1997 ("1997") compared to the six months ended June
- --------------------------------------------------------------------------------
30, 1996 ("1996").
- ------------------
Revenues for 1997 increased by 37% or $11,813,417 to $43,892,343 over 1996. The
Company's largest revenue source is from the marketing and administration of
extended vehicle service contracts ("VSCs") under the EasyCare(R) name, which
provided 99% of revenues for 1996. EasyCare(R) revenues increased due to
production under the EasyCare(R) Certified Pre-Owned Vehicle Program, the
signing of additional automobile dealers to EasyCare(R) by the Company's
independent sales representatives and from 71% unit growth under the contract
with American Honda Finance Corporation.
11
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The Company's gross margin was 20.8% of revenues in 1997 compared to 21.5% of
revenues in 1996. Gross margin is impacted by the mix of new and used, makes and
models of vehicles and the types of coverage sold. The overall gross margin for
1997 reflects production from the EasyCare(R) Certified Pre-Owned Vehicle
program, which has a different margin structure to the standard EasyCare(R)
service contract and offers additional benefits to the dealer and consumer, such
as service recapture. Additionally, the volume of business under the contract
with American Honda Finance Corporation, which has a lower margin than the core
business, increased at a faster rate than the core business.
Compensation, selling and administrative expenses for 1997 increased by 28% or
$1,506,966 to $6,955,320 over 1996. The increase for 1997 is primarily
attributable to compensation, printing/fulfillment and marketing costs.
Compensation cost increased by $876,000 in 1997 to support the growth of the
business. The Company's printing/fulfillment costs increased by $95,000 due to
costs incurred in connection with higher sales volumes and the introduction of
the EasyCare(R) Certified Pre-Owned Vehicle program. Marketing costs increased
by $226,000 due to additional promotional events (including motorsports) and the
EasyCare(R) Certified Pre-Owned Vehicle program in the current year.
Interest, dividend and other income for 1997 increased by 48% or $160,429 to
$493,206 over 1996. The increase is due to the larger cash and investment
securities balances on hand.
The Company recorded a provision for income taxes in 1997 of $930,000 compared
to $603,000 for 1996. The increase is primarily due to higher pretax income.
II. OTHER INFORMATION
Item 2. Changes in Securities
- -----------------------------
At the Annual Meeting of Shareholders held on June 12, 1997, the shareholders of
the Company approved amendments to the Articles of Incorporation (i) to provide
for a board of directors divided into four classes, each class having staggered
terms, (ii) to require that all shareholder action by written consent be by all
the shareholders entitled to vote thereon, (iii) to provide that only certain
persons, not including shareholders, may call special meetings of shareholders,
(iv) to provide that notice of shareholder proposals at an annual meeting be
given to the Secretary of the Company in advance of the meeting, (v) to provide
that nominations of directors by shareholders be given to the Secretary of the
Company in advance of an annual meeting, and (vi) to provide for a 66 2/3% vote
to amend or repeal the above provisions and to change the creation of the
staggered board of directors.
The amendments will enhance the continuity and stability of the Company's
management by making it more difficult and time-consuming for a third party to
gain control of the Company's board of directors. The amendments will provide
the Company's management with the means and opportunity to defend shareholder
interests. The amendments may make it more difficult or may discourage an
unsolicited tender offer, proxy contest or assumption of control by a holder of
a large block of the Common Stock of the Company and the removal of incumbent
management.
12
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Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Company held its annual meeting of stockholders on June 12, 1997. The
matters presented to the stockholders were (i) the proposal to amend the Amended
and Restated articles of Incorporation of the Company ("Articles of
Incorporation") to provide for the classification of the board of directors of
the company into four classes, serving staggered terms, (ii) the election of
four directors, (iii) the proposal to approve other changes to the Articles of
Incorporation to require that all shareholder action by written consent be by
all the shareholders entitled to vote thereon, (a) to provide that only certain
persons, not including shareholders, may call special meetings of shareholders,
(b) to provide that notice of shareholder proposals at an annual meeting be
given to the Secretary of the Company in advance of the meeting, (c) to provide
that nominations of directors by shareholders be given to the Secretary of the
Company in advance of an annual meeting, and (d) to provide for a 66 2/3 vote to
amend or repeal the above provisions and the amendment to create the staggered
board of directors, and (iv) the approval of the 1997 Performance Equity Plan.
The votes cast on the issues are as follows:
(i) The amendment to classify the board of directors:
For: 6,013,700; Against: 549,750; Abstain: 60,813
(ii) The election of directors:
For Withhold
--- --------
Martin J. Blank 10,311,776 49,225
Larry I. Dorfman 10,311,476 49,525
Howard C. Miller 10,298,386 62,615
Mechlin D. Moore 10,298,386 62,615
(iii) The amendments to change the manner in which meetings are conducted:
For: 5,812,017; Against: 597,213; Abstain: 193,033
(iv) The 1997 Performance Equity Plan:
For: 9,254,923; Against: 864,448; Abstain: 148,370
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits:
3.1 Amendment dated June 30, 1997 to the Amended and Restated
Certificate of Incorporation.
10.1 Form of 1997 Performance Equity Plan
(b) Reports on Form 8-K: None
13
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOMOBILE PROTECTION CORPORATION - APCO
/s/ Martin J. Blank August 12, 1997
- ----------------------------------- ------------------
Martin J. Blank Date
Secretary (Duly Authorized Officer)
/s/ Anthony R. Levinson August 12, 1997
- ----------------------------------- ------------------
Anthony R. Levinson Date
Chief Financial Officer (Principal
Financial and Accounting Officer,
Duly Authorized Officer)
14
ARTICLES OF AMENDMENT
OF
AUTOMOBILE PROTECTION CORPORATION - APCO
To the Secretary of State
of the State of Georgia
Pursuant to the provisions of the Georgia Business Corporation Code,
Automobile Protection Corporation - APCO ("corporation") does hereby adopt the
following Articles of Amendment.
1. The name of the corporation is "Automobile Protection Corporation -
APCO."
2. The following are amendments to the Amended and Restated Articles of
Incorporation ("Articles of Incorporation"):
(a) Article VIII of the Articles of Incorporation is hereby
deleted and in its place is added a new Article VIII as follows:
VIII.
Any action required by law or by the Articles of Incorporation or
Bylaws of the corporation to be taken at a meeting of the shareholders of
the corporation or any other action which may be taken at a meeting of the
shareholders, may be taken without a meeting if a written consent setting
forth the action so taken, shall be signed by all the shareholders
entitled to vote on the action to be taken.
(b) Article IX is hereby added to the Articles of Incorporation
and shall be as follows:
IX.
The board of directors shall be and is divided into four classes:
Class I, Class II, Class III and Class IV. The number of directors in each
class shall be the whole number contained in the quotient arrived at by
dividing the authorized number of directors by four. If a fraction is also
contained in such quotient and if such fraction is one-fourth (1/4), the
extra director shall be a member of Class IV. If the fraction is
two-fourths (2/4), one of the extra directors shall be a member of Class
IV and the other shall be a member of Class III. If the fraction is
three-fourths (3/4), one of the directors shall be a member of Class IV,
one shall be a member of Class III and one shall be a member of Class II.
Each director shall serve for a term ending on the date of the fourth
annual meeting following the annual meeting at which such director was
elected: provided however, those directors elected to be the initial
directors of Class I shall serve for a term ending on the date of the
annual meeting in 1998, those directors elected to be the initial
directors of Class II shall serve for a term ending on the date of the
annual meeting in 1999, and those directors elected to be the initial
directors of Class III shall serve for a term ending on the date of the
annual meeting in 2000.
In the event of any increase or decrease in the authorized number of
directors, (i) each director then serving as such shall nevertheless
continue as a director in the class of which he or she is a member until
the expiration of his or her current term, or his or her prior death,
retirement, resignation or removal, and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors to such class or classes as shall,
so far as possible bring the number of directors in the respective classes
into conformity with the formula in this Article IX, as applied to the new
authorized number of directors.
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Notwithstanding any of the foregoing provisions of this Article IX,
each director shall serve until his or her successor is elected and has
qualified or until his or her death, retirement, resignation or removal.
No director may be removed during his or her term except for cause at a
special meeting of the shareholders. Should a vacancy occur or be created,
the majority of the remaining directors (even though less than a quorum)
may fill the vacancy for the full term of the class in which the vacancy
occurs or is created.
(c) Article X is hereby added to the Articles of Incorporation and
shall be as follows:
X.
Special meetings of the shareholders of the corporation for any
purpose or purposes may be called at any time by the board of directors,
the Chairman of the Board of Directors or the President of the
corporation. Special meetings of the shareholders of the corporation may
not be called by any other person or persons.
(d) Article XI is hereby added to the Articles of Incorporation
and shall be as follows:
XI.
At an annual meeting of shareholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
brought before the annual meeting (a) by, or at the direction of, a
majority of the directors, or (b) by any shareholder of the corporation
who complies with the notice procedures set forth in this Article XI. For
a proposal to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a shareholder's
notice must be delivered to, or mailed and received at, the principal
executive offices of the corporation not less than 60 days prior to the
scheduled annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if
less than 70 days' notice or prior public disclosure of the date of the
scheduled annual meeting is given or made, notice by the shareholder to be
timely, must be so delivered or received not later than the close of
business on the tenth day following the earlier of the day on which such
notice of the date of the scheduled annual meeting was mailed or the day
on which such public disclosure was made. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (a ) a brief description of the proposal
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address,
as they appear on the corporation's books, or the shareholder proposing
such business and any other shareholders known by such shareholder to be
supporting such proposal, (c) the class and number of shares of the
corporation's stock which are beneficially owned by the shareholder on the
date of such shareholder notice and by any other shareholders known by
such shareholder to be supporting such proposal on the date of such
shareholder notice, and (d) any financial interest of the shareholder in
such proposal and by any other shareholders known by such shareholder to
be supporting such proposal.
The presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the shareholder proposal was made in
accordance with the terms of this Article XI. If the presiding officer
determines that a shareholder proposal was not made in accordance with the
terms of this Article XI, he or she shall so declare at the annual meeting
and any such proposal shall not be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the board of directors, but, in connection with such
reports, no new business shall be acted upon at such annual meeting unless
stated, filed and received as herein provided.
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(e) Article XII is hereby added to the Articles of Incorporation
and shall be as follows:
XII.
Subject to the rights, if any, of the holders of shares of Preferred
Stock then outstanding, only persons who are nominated in accordance with
the following procedures shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the
corporation may be made at a meeting of shareholders by or at the
direction of the board of directors by a nominating committee or person
appointed by the board of directors or by any shareholder of the
corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Article XII.
Such nominations, other than those made by or at the direction of the
board of directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation. To be timely, a shareholder's notice
must be delivered to, or mailed and received at, the principal executive
offices of the corporation not less than 60 days prior to the scheduled
annual meeting, regardless of any postponements, deferrals or adjournments
of that meeting to a later date; provided however, that if less than 70
days' notice or prior public disclosure of the date of the scheduled
annual meeting is given or made, notice by the shareholder, to be timely,
must be so delivered or received not later than the close of business on
the tenth day following the earlier of the day on which such notice of the
date of the scheduled annual meeting was mailed or the day on which such
public disclosure was made. A shareholder's notice to the Secretary shall
set forth (a) as to each person whom the shareholder proposes to nominate
for election or reelection as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation
or employment of the person, (iii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the
person, and (iv) any other information relating to the person that is
required to be disclosed in solicitations for proxies for election of
directors pursuant to any rules or regulations under the Securities
Exchange Act of 1934, as amended; and (b) as to the shareholder giving the
notice (i) the name and address, as they appear on the corporation's
books, of the shareholder, and (ii) the class and number of shares of the
corporation's stock which are beneficially owned by the shareholder on the
date of such shareholder notice. The corporation may require any proposed
nominee to furnish such other information as may reasonably be required by
the corporation to determine the eligibility of such proposed nominee to
serve as a director of the corporation.
The presiding officer of the annual meting shall determine and
declare at the annual meeting whether the nomination was made in
accordance with the terms of this Article XII. If the presiding officer
determines that a nomination was not made in accordance with the terms of
this Article XII, he or she shall so declare at the annual meeting and any
such defective nomination shall be disregarded.
(f) Article XIII is hereby added to the Articles of Incorporation
and shall be as follows:
XIII.
Notwithstanding anything contained in these Articles of
Incorporation to the contrary, the affirmative vote of at least 66-2/3% of
the outstanding shares of Common Stock of the corporation shall be
required to amend or repeal Articles VIII, IX, X, XI, XII and XIII of
these Articles of Incorporation or to adopt any provision inconsistent
therewith.
3. The amendments herein provided were duly approved by the board of
directors and recommended to the shareholders of the corporation on April 4,
1997.
4. The amendments herein provided were duly adopted by the shareholders
of the corporation on June 12, 1997 in accordance with the provisions of Section
14-2-1003 of the Georgia Business Corporation Code.
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5. The effective time and date of these amendments to these Articles of
Incorporation shall be immediately upon its filing with the Secretary of State
of the State of Georgia.
Executed this 30th
day of June, 1997.
/S/ Martin J. Blank
---------------------------------
Martin J. Blank, Secretary of the
Corporation
18
EXHIBIT 10.1
Approved by Board of Directors on April 4, 1997
Approved by Stockholders on June 12, 1997
AUTOMOBILE PROTECTION CORPORATION - APCO
1997 PERFORMANCE EQUITY PLAN
SECTION 1. PURPOSE; DEFINITIONS.
1.1 PURPOSE. The purpose of the Automobile Protection Corporation - APCO
(the "Company") 1997 Performance Equity Plan (the "Plan") is to enable the
Company to offer to its key employees, officers, directors and consultants whose
past, present and/or potential contributions to the Company and its Subsidiaries
have been, are or will be important to the success of the Company, an
opportunity to acquire a proprietary interest in the Company. The various types
of long-term incentive awards which may be provided under the Plan will enable
the Company to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its businesses.
1.2 DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Agreement" means the agreement between the Company and the
Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations promulgated
thereunder.
(d) "Committee" means the Stock Option Committee of the Board or
any other committee of the Board, which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company, par
value $.001 per share.
(f) "Company" means Automobile Protection Corporation - APCO, a
corporation organized under the laws of the State of Georgia.
(g) "Deferred Stock" means Stock to be received, under an award
made pursuant to Section 9, below, at the end of a specified deferral period.
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(h) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.
(i) "Effective Date" means the date set forth in Section 13.1,
below.
(j) "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
last sale price of the Common Stock in the principal trading market for the
Common Stock on the last trading day preceding the date of grant of an award
hereunder, as reported by the exchange or Nasdaq, as the case may be; (ii) if
the Common Stock is not listed on a national securities exchange or quoted on
the Nasdaq National Market or Nasdaq SmallCap Market, but is traded in the
over-the-counter market, the closing bid price for the Common Stock on the last
trading day preceding the date of grant of an award hereunder for which such
quotations are reported by the OTC Bulletin Board or the National Quotation
Bureau, Incorporated or similar publisher of such quotations; and (iii) if the
fair market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) above, such price as the Committee shall determine, in good faith.
(k) "Holder" means a person who has received an award under the
Plan.
(l) "Incentive Stock Option" means any Stock Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active employment
with the Company or any Subsidiary on or after age 65.
(o) "Other Stock-Based Award" means an award under Section 10,
below, that is valued in whole or in part by reference to, or is otherwise based
upon, Stock.
(p) "Parent" means any present or future parent corporation of the
Company, as such term is defined in Section 424(e) of the Code.
(q) "Plan" means the Automobile Protection Corporation - APCO 1997
Performance Equity Plan, as hereinafter amended from time to time.
(r) "Restricted Stock" means Stock, received under an award made
pursuant to Section 8, below, that is subject to restrictions under said Section
8.
(s) "SAR Value" means the excess of the Fair Market Value (on the
exercise date) of the number of shares for which the Stock Appreciation Right is
exercised over the exercise price that the participant would have otherwise had
to pay to exercise the related Stock Option and purchase the relevant shares.
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(t) "Stock" means the Common Stock of the Company, par value $.001
per share.
(u) "Stock Appreciation Right" means the right to receive from the
Company, on surrender of all or part of the related Stock Option, without a cash
payment to the Company, a number of shares of Common Stock equal to the SAR
Value divided by the exercise price of the Stock Option.
(v) "Stock Option" or "Option" means any option to purchase shares
of Stock which is granted pursuant to the Plan.
(w) "Stock Reload Option" means any option granted under Section
6.3, below, as a result of the payment of the exercise price of a Stock Option
and/or the withholding tax related thereto in the form of Stock owned by the
Holder or the withholding of Stock by the Company.
(x) "Subsidiary" means any present or future subsidiary
corporation of the Company, as such term is defined in Section 424(f) of the
Code.
SECTION 2. ADMINISTRATION.
2.1 COMMITTEE MEMBERSHIP. The Plan shall be administered by the Board or
a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
The Committee members, to the extent possible, shall be "non-employee" as
defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended.
2.2 POWERS OF COMMITTEE. The Committee shall have full authority to
award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of this Plan):
(a) to select the officers, key employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder.
(b) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price or other consideration, such as other
securities of the Company or other property, any restrictions or limitations,
and any vesting, exchange, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
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(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the Plan
under such rules and procedures as the Committee may establish, including the
crediting of interest on deferred amounts denominated in cash and of dividend
equivalents on deferred amounts denominated in Stock;
(f) to determine the extent and circumstances under which Stock
and other amounts payable with respect to an award hereunder shall be deferred
which may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
2.3 INTERPRETATION OF PLAN.
(a) COMMITTEE AUTHORITY. Subject to Section 12, below, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the
administration of the Plan. Subject to Section 12, below, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
(b) INCENTIVE STOCK OPTIONS. Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive Stock
Options (including but limited to Stock Reload Options or Stock Appreciation
rights granted in conjunction with an Incentive Stock Option) or any Agreement
providing for Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify the Plan under Section 422 of the Code, or, without the consent
of the Holder(s) affected, to disqualify any Incentive Stock Option under such
Section 422.
SECTION 3. STOCK SUBJECT TO PLAN.
3.1 NUMBER OF SHARES. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be 500,000 shares.
Shares of Stock under the Plan may consist, in whole or in part, of authorized
and unissued shares or treasury shares. If any shares of Stock that have been
granted pursuant to a Stock Option cease to be subject to a Stock Option, or if
any shares of Stock that are subject to any Stock Appreciation Right, Restricted
Stock, Deferred Stock award, Reload Stock Option or Other Stock-Based Award
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granted hereunder are forfeited or any such award otherwise terminates without a
payment being made to the Holder in the form of Stock, such shares shall again
be available for distribution in connection with future grants and awards under
the Plan. Only net shares issued upon a stock-for-stock exercise (including
stock used for withholding taxes) shall be counted against the number of shares
available under the Plan.
3.2 ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event of any
change in the number of outstanding shares of Common Stock of the Company
occurring as the result of a stock split, reverse stock split or stock dividend
on the Common Stock, after the grant of an Award, the Company shall
proportionately adjust the number of shares of Stock subject to the Award and
the price to be paid on exercise of an Award as well as the aggregate number of
shares reserved for issuance under the Plan. Any right to acquire a fractional
share of Stock resulting from any adjustments will be rounded to the nearest
whole share of Stock. If the Company shall be the surviving corporation in any
merger, combination or consolidation, any outstanding Award shall pertain and
apply to the shares of Stock to which the Holder is entitled, without adjustment
for issuance by the Company of any securities in the merger, combination or
consolidation. In the event of a change in the par value of the Common Stock of
the Company which is subject to any outstanding Award, such Award will be deemed
to pertain to the shares of Stock resulting from any such change. To the extent
that the foregoing adjustments relate to the Common Stock of the Company, the
adjustments will be made by the Committee whose determination will be final,
binding and conclusive.
SECTION 4. ELIGIBILITY.
Awards may be made or granted to key employees, officers, directors
and consultants who are deemed to have rendered or to be able to render
significant services to the Company or its Subsidiaries and who are deemed to
have contributed or to have the potential to contribute to the success of the
Company. No Incentive Stock Option shall be granted to any person who is not an
employee of the Company or a Subsidiary at the time of grant.
SECTION 5. REQUIRED SIX-MONTH HOLDING PERIOD.
A period of not less than six months must elapse from the date of grant of
an award under the Plan, (i) before any disposition by a Holder of a derivative
security (as defined in Rule 16a-1 promulgated under the Securities Exchange Act
of 1934, as amended) issued under this Plan or (ii) before any disposition by a
Holder of any Stock purchased or granted pursuant to an award under this Plan.
SECTION 6. STOCK OPTIONS.
6.1 GRANT AND EXERCISE. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms, not inconsistent
with this Plan, or with respect to Incentive Stock Options, not inconsistent
with the Plan and the Code, as the Committee may from time to time approve. The
Committee shall have the authority to grant Incentive Stock Options,
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Non-Qualified Stock Options, or both types of Stock Options and which may be
granted alone or in addition to other awards granted under the Plan. To the
extent that any Stock Option intended to qualify as an Incentive Stock Option
does not so qualify, it shall constitute a separate Nonqualified Stock Option.
An Incentive Stock Option may be granted only within the ten-year period
commencing from the Effective Date and may only be exercised within ten years of
the date of grant (or five years in the case of an Incentive Stock Option
granted to an optionee ("10% Stockholder") who, at the time of grant, owns Stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company.
6.2 TERMS AND CONDITIONS. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may not be less than 100% of the Fair Market Value of the
Stock as defined above; provided, however, that the exercise price of an
Incentive Stock Option granted to a 10% Stockholder shall not be less than 110%
of the Fair Market Value of the Stock.
(b) OPTION TERM. Subject to the limitations in Section 6.1, above,
the term of each Stock Option shall be fixed by the Committee.
(c) EXERCISABILITY. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee and as set forth in Section 11, below. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in installments,
i.e., that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in part, based
upon such factors as the Committee shall determine.
(d) METHOD OF EXERCISE. Subject to whatever installment, exercise
and waiting period provisions are applicable in a particular case, Stock Options
may be exercised in whole or in part at any time during the term of the Option,
by giving written notice of exercise to the Company specifying the number of
shares of Stock to be purchased. Such notice shall be accompanied by payment in
full of the purchase price, which shall be in cash or, unless otherwise provided
in the Agreement, in shares of Stock (including Restricted Stock and other
contingent awards under this Plan) or, partly in cash and partly in such Stock,
or such other means which the Committee determines are consistent with the
Plan's purpose and applicable law. Cash payments shall be made by wire transfer,
certified or bank check or personal check, in each case payable to the order of
the Company; provided, however, that the Company shall not be required to
deliver certificates for shares of Stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of Stock
shall be valued at the Fair Market Value of a share of Stock on the date prior
to the date of exercise. Such payments shall be made by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. Subject to the
terms of the Agreement, the Committee may, in its sole discretion, at the
request of the Holder, deliver upon the exercise of a Nonqualified Stock Option
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a combination of shares of Deferred Stock and Common Stock; provided that,
notwithstanding the provisions of Section 9 of the Plan, such Deferred Stock
shall be fully vested and not subject to forfeiture. A Holder shall have none of
the rights of a stockholder with respect to the shares subject to the Option
until such shares shall be transferred to the Holder upon the exercise of the
Option.
(e) TRANSFERABILITY. Except as may be set forth in the Agreement,
no Stock Option shall be transferable by the Holder other than by will or by the
laws of descent and distribution, and all Stock Options shall be exercisable,
during the Holder's lifetime, only by the Holder.
(f) TERMINATION BY REASON OF DEATH. If a Holder's employment by
the Company or a Subsidiary terminates by reason of death, any Stock Option held
by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall be fully vested and may thereafter
be exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) TERMINATION BY REASON OF DISABILITY. If a Holder's employment
by the Company or any Subsidiary terminates by reason of Disability, any Stock
Option held by such Holder, unless otherwise determined by the Committee at the
time of grant and set forth in the Agreement, shall be fully vested and may
thereafter be exercised by the Holder for a period of one year (or such other
greater or lesser period as the Committee may specify at the time of grant) from
the date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter.
(h) OTHER TERMINATION. Subject to the provisions of Section 14.3,
below, and unless otherwise determined by the Committee at the time of grant and
set forth in the Agreement, if a Holder is an employee of the Company or a
Subsidiary at the time of grant and if such Holder's employment by the Company
or any Subsidiary terminates for any reason other than death or Disability, the
Stock Option shall thereupon automatically terminate, except that if the
Holder's employment is terminated by the Company or a Subsidiary without cause
or due to Normal Retirement, then the portion of such Stock Option which has
vested on the date of termination of employment may be exercised for the lesser
of three months after termination of employment or the balance of such Stock
Option's term.
(i) ADDITIONAL INCENTIVE STOCK OPTION LIMITATION. In the case of
an Incentive Stock Option, the aggregate Fair Market Value of Stock (determined
at the time of grant of the Option) with respect to which Incentive Stock
Options become exercisable by a Holder during any calendar year (under all such
plans of the Company and its Parent and Subsidiary) shall not exceed $100,000.
(j) BUYOUT AND SETTLEMENT PROVISIONS. The Committee may at any
time, in its sole discretion, offer to buy out a Stock Option previously
granted, based upon such terms and conditions as the Committee shall establish
and communicate to the Holder at the time that such offer is made.
(k) STOCK OPTION AGREEMENT. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, the Agreement executed by
the Company and the Holder.
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6.3 STOCK RELOAD OPTION. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Nonqualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price equal to the Fair Market Value as of the
date of the Stock Reload Option grant. Unless the Committee determines
otherwise, a Stock Reload Option may be exercised commencing one year after it
is granted and shall expire on the date of expiration of the Option to which the
Reload Option is related.
SECTION 7. STOCK APPRECIATION RIGHTS.
7.1 GRANT AND EXERCISE. The Committee may grant Stock Appreciation
Rights to participants who have been, or are being granted, Options under the
Plan as a means of allowing such participants to exercise their Options without
the need to pay the exercise price in cash. In the case of a Nonqualified Stock
Option, a Stock Appreciation Right may be granted either at or after the time of
the grant of such Nonqualified Stock Option. In the case of an Incentive Stock
Option, a Stock Appreciation Right may be granted only at the time of the grant
of such Incentive Stock Option.
7.2 TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
the following terms and conditions:
(a) EXERCISABILITY. Stock Appreciation Rights shall be exercisable
as shall be determined by the Committee and set forth in the Agreement, subject
to the limitations, if any, imposed by the Code, with respect to related
Incentive Stock Options.
(b) TERMINATION. A Stock Appreciation Right shall terminate and
shall no longer be exercisable upon the termination or exercise of the related
Stock Option.
(c) METHOD OF EXERCISE. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of Option Shares equal to the SAR
Value divided by the exercise price of the Option.
(d) SHARES AFFECTED UPON PLAN. The granting of a Stock
Appreciation Right shall not affect the number of shares of Stock available
under for awards under the Plan. The number of shares available for awards under
the Plan will, however, be reduced by the number of shares of Stock acquirable
upon exercise of the Stock Option to which such Stock Appreciation Right
relates.
SECTION 8. RESTRICTED STOCK.
8.1 GRANT. Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
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the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture (the "Restriction Period"), the vesting schedule
and rights to acceleration thereof, and all other terms and conditions of the
awards.
8.2 TERMS AND CONDITIONS. Each Restricted Stock award shall be subject
to the following terms and conditions:
(a) CERTIFICATES. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of the
Holder to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear a
legend to the effect that ownership of the Restricted Stock (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the restrictions, terms and conditions provided in the Plan and the
Agreement. Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the Plan
and the Agreement.
(b) RIGHTS OF HOLDER. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. The Holder will
have the right to vote such Restricted Stock, to receive and retain all regular
cash dividends and other cash equivalent distributions as the Board may in its
sole discretion designate, pay or distribute on such Restricted Stock and to
exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such Restricted Stock, with the exceptions that (i) the Holder
will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) VESTING; FORFEITURE. Upon the expiration of the Restriction
Period with respect to each award of Restricted Stock and the satisfaction of
any other applicable restrictions, terms and conditions (i) all or part of such
27
<PAGE>
Restricted Stock shall become vested in accordance with the terms of the
Agreement, subject to Section 11, below, and (ii) any Retained Distributions
with respect to such Restricted Stock shall become vested to the extent that the
Restricted Stock related thereto shall have become vested, subject to Section
11, below. Any such Restricted Stock and Retained Distributions that do not vest
shall be forfeited to the Company and the Holder shall not thereafter have any
rights with respect to such Restricted Stock and Retained Distributions that
shall have been so forfeited.
SECTION 9. DEFERRED STOCK.
9.1 GRANT. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock will be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period (the "Deferral Period") during which, and
the conditions under which, receipt of the shares will be deferred, and all the
other terms and conditions of the awards.
9.2 TERMS AND CONDITIONS. Each Deferred Stock award shall be subject to
the following terms and conditions:
(a) CERTIFICATES. At the expiration of the Deferral Period (or the
Additional Deferral Period referred to in Section 9.2 (d) below, where
applicable), share certificates shall be issued and delivered to the Holder, or
his legal representative, representing the number equal to the shares covered by
the Deferred Stock award.
(b) RIGHTS OF HOLDER. A person entitled to receive Deferred Stock
shall not have any rights of a stockholder by virtue of such award until the
expiration of the applicable Deferral Period and the issuance and delivery of
the certificates representing such Stock. The shares of Stock issuable upon
expiration of the Deferral Period shall not be deemed outstanding by the Company
until the expiration of such Deferral Period and the issuance and delivery of
such Stock to the Holder.
(c) VESTING; FORFEITURE. Upon the expiration of the Deferral
Period with respect to each award of Deferred Stock and the satisfaction of any
other applicable restrictions, terms and conditions all or part of such Deferred
Stock shall become vested in accordance with the terms of the Agreement, subject
to Section 11, below. Any such Deferred Stock that does not vest shall be
forfeited to the Company and the Holder shall not thereafter have any rights
with respect to such Deferred Stock.
(d) ADDITIONAL DEFERRAL PERIOD. A Holder may request to, and the
Committee may at any time, defer the receipt of an award (or an installment of
an award) for an additional specified period or until a specified event (the
"Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
SECTION 10. OTHER STOCK-BASED AWARDS.
10.1 GRANT AND EXERCISE. Other Stock-Based Awards may be awarded, subject
to limitations under applicable law, that are denominated or payable in, valued
28
<PAGE>
in whole or in part by reference to, or otherwise based on, or related to,
shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.
10.2 ELIGIBILITY FOR OTHER STOCK-BASED AWARDS. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such other stock-based awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such awards, and all other terms and conditions
of the awards.
10.3 TERMS AND CONDITIONS. Each Other Stock-Based Award shall be subject
to such terms and conditions as may be determined by the Committee and to
Section 11, below.
SECTION 11. ACCELERATED VESTING AND EXERCISABILITY.
If (i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"), is or becomes the
"beneficial owner" (as referred in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding securities in one or
more transactions, or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the board of
directors cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the periods, then, the vesting periods of any and all Options and other
awards granted and outstanding under the Plan shall be accelerated and all such
Options and awards will immediately and entirely vest, and the respective
holders thereof will have the immediate right to purchase and/or receive any and
all Stock subject to such Options and awards on the terms set forth in this Plan
and the respective agreements respecting such Options and awards.
SECTION 12. AMENDMENT AND TERMINATION.
The Board may at any time, and from time to time, amend alter, suspend or
discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent.
SECTION 13. TERM OF PLAN.
13.1 EFFECTIVE DATE. The Plan shall be effective as of April 4, 1997
("Effective Date"), subject to the approval of the Plan by the Company's
29
<PAGE>
stockholders within one year after the Effective Date. Any awards granted under
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned upon,
and subject to, such approval of the Plan by the Company's stockholders and no
awards shall vest or otherwise become free of restrictions prior to such
approval.
13.2 TERMINATION DATE. Unless terminated by the Board, this Plan shall
continue to remain effective until such time no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the ten
year period following the Effective Date.
SECTION 14. GENERAL PROVISIONS.
14.1 WRITTEN AGREEMENTS. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within 10 days after the Agreement has been delivered to the Holder for
his or her execution.
14.2 UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
14.3 EMPLOYEES.
(a) ENGAGING IN COMPETITION WITH THE COMPANY. In the event a
Holder's employment with the Company or a Subsidiary is terminated for any
reason whatsoever, and within eighteen months after the date thereof such Holder
accepts employment with any competitor of, or otherwise engages in competition
with, the Company, the Committee, in its sole discretion, may require such
Holder to return to the Company the economic value of any award which was
realized or obtained by such Holder at any time during the period beginning on
that date which is six months prior to the date of such Holder's termination of
employment with the Company.
(b) TERMINATION FOR CAUSE. The Committee may, in the event a
Holder's employment with the Company or a Subsidiary is terminated for cause,
annul any award granted under this Plan to such employee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any award which was realized or obtained by such
Holder at any time during the period beginning on that date which is six months
prior to the date of such Holder's termination of employment with the Company.
(c) NO RIGHT OF EMPLOYMENT. Nothing contained in the Plan or in
any award hereunder shall be deemed to confer upon any Holder who is an employee
of the Company or any Subsidiary any right to continued employment with the
Company or any Subsidiary, nor shall it interfere in any way with the right of
the Company or any Subsidiary to terminate the employment of any Holder who is
an employee at any time.
30
<PAGE>
14.4 INVESTMENT REPRESENTATIONS. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent to and agree with the Company in writing that the Holder is
acquiring the shares for investment without a view to distribution thereof.
14.5 ADDITIONAL INCENTIVE ARRANGEMENTS. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
14.6 WITHHOLDING TAXES. Not later than the date as of which an amount
must first be included in the gross income of the Holder for Federal income tax
purposes with respect to any option or other award under the Plan, the Holder
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state and local taxes of any kind
required by law to be withheld or paid with respect to such amount. If permitted
by the Committee, tax withholding or payment obligations may be settled with
Common Stock, including Common Stock that is part of the award that gives rise
to the withholding requirement. The obligations of the Company under the Plan
shall be conditioned upon such payment or arrangements and the Company or the
Holder's employer (if not the Company) shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the Holder from the Company or any Subsidiary.
14.7 GOVERNING LAW. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).
14.8 OTHER BENEFIT PLANS. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
14.9 NON-TRANSFERABILITY. Except as otherwise expressly provided in the
Plan or the Agreement, no right or benefit under the Plan may be alienated,
sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void.
14.10 APPLICABLE LAWS. The obligations of the Company with respect to all
Stock Options and awards under the Plan shall be subject to (i) all applicable
laws, rules and regulations and such approvals by any governmental agencies as
may be required, including, without limitation, the Securities Act of 1933, as
amended, and (ii) the rules and regulations of any securities exchange on which
the Stock may be listed.
31
<PAGE>
14.11 CONFLICTS. If any of the terms or provisions of the Plan or an
Agreement (with respect to Incentive Stock Options) conflict with the
requirements of Section 422 of the Code, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of said
Section 422 of the Code. Additionally, if this Plan or any Agreement does not
contain any provision required to be included herein under Section 422 of the
Code, such provision shall be deemed to be incorporated herein and therein with
the same force and effect as if such provision had been set out at length herein
and therein. If any of the terms or provisions of any Agreement conflict with
any terms or provision of the Plan, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of the
Plan. Additionally, if any Agreement does not contain any provision required to
be included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.
14.12 NON-REGISTERED STOCK. The shares of Stock to be distributed under
this Plan have not been, as of the Effective Date, registered under the
Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Stock or to assist the Holder in obtaining an exemption from the various
registration requirements, or to list the Stock on a national securities
exchange.
32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AUTOMOBILE PROTECTION CORPORATION - APCO FOR THE SIX
MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,203,809
<SECURITIES> 10,621,961
<RECEIVABLES> 3,242,726
<ALLOWANCES> 30,000
<INVENTORY> 0
<CURRENT-ASSETS> 31,458,485
<PP&E> 3,022,917
<DEPRECIATION> 1,895,394
<TOTAL-ASSETS> 34,979,291
<CURRENT-LIABILITIES> 13,794,033
<BONDS> 0
0
300
<COMMON> 10,723
<OTHER-SE> 21,022,811
<TOTAL-LIABILITY-AND-EQUITY> 34,979,291
<SALES> 43,892,343
<TOTAL-REVENUES> 43,892,343
<CGS> 34,771,337
<TOTAL-COSTS> 34,771,337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,444,392
<INCOME-TAX> 930,000
<INCOME-CONTINUING> 1,514,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,514,392
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
