FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1993
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10281
Smith Corona Corporation
(Exact name of registrant as specified in its charter)
Delaware 51-0286862
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 Locust Avenue, New Canaan, Connecticut 06840
(Address of principal executive offices) (Zip Code)
(203) 972-1471
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 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.
Outstanding at
Class February 7, 1994
Common Stock, par value $.01 30,250,000
per share<PAGE>
SMITH CORONA CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1993
and June 30, 1993 1
Consolidated Income Statements - For the three
and six months ended December 31, 1993 and 1992 2
Consolidated Statements of Cash Flows - For the
six months ended December 31, 1993 and 1992 3
Consolidated Statement of Changes in Stockholders'
Equity - For the six months ended December 31, 1993 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8-9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
SMITH CORONA CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1993 1993
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,430 $ 13,800
Accounts receivable (net of allowance
for doubtful accounts of $1,962 and
$1,661, respectively) 59,988 38,902
Inventories 64,521 84,051
Prepaid expenses and other current assets 3,128 2,223
Deferred income taxes 11,803 12,688
------- -------
Total current assets 146,870 151,664
Property, plant and equipment, net 40,768 38,885
Deferred income taxes 3,739 4,714
Other assets 3,035 2,642
-------- --------
TOTAL $194,412 $197,905
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 26,624 $ 29,048
Accrued liabilities 29,729 31,278
Income taxes payable 4,481 4,541
Dividends payable 1,512 1,512
------- -------
Total current liabilities 62,346 66,379
Bank loans 16,000 18,669
Postretirement benefits 13,005 12,703
Pension liability 21,289 21,039
Other long-term liabilities 2,581 2,470
------- -------
Total liabilities 115,221 121,260
------- -------
Stockholders' Equity:
Common stock-30,250,000 shares issued
and outstanding 303 303
Additional paid-in capital 44,697 44,697
Retained earnings 34,191 31,645
-------- --------
Total stockholders' equity 79,191 76,645
-------- --------
TOTAL $194,412 $197,905
</TABLE> ======== ========
See accompanying notes to consolidated financial statements.<PAGE>
SMITH CORONA CORPORATION
CONSOLIDATED INCOME STATEMENTS
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
(unaudited) (unaudited)
1993 1992 1993 1992
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 93,599 $ 86,718 $187,361 $167,951
Cost of goods sold 75,846 63,673 148,686 126,186
------- ------- ------- -------
Gross margin 17,753 23,045 38,675 41,765
Selling, administrative
and research expenses 15,245 17,328 29,868 34,020
Restructuring costs - 460 - 9,460
------- ------- ------- -------
Operating income (loss) 2,508 5,257 8,807 (1,715)
Interest expense 173 118 366 212
------- ------- ------- -------
Income (loss) before income
taxes and cumulative effects
of accounting changes 2,335 5,139 8,441 (1,927)
Income taxes (benefit) 791 1,092 2,870 (866)
------- ------- ------- -------
Income (loss) before
cumulative effects of
accounting changes 1,544 4,047 5,571 (1,061)
Cumulative effects of
accounting changes - - - 10
------- ------- ------- -------
Net income (loss) $ 1,544 $ 4,047 $ 5,571 $(1,051)
======= ======= ======= =======
Earnings per share-
Income (loss) before
cumulative effects
of accounting changes $.05 $.13 $.18 $(.04)
Cumulative effects of
accounting changes - - - -
---- ---- ---- ----
Net income (loss) per share $.05 $.13 $.18 $(.04)
==== ==== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
SMITH CORONA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------
(unaudited)
1993 1992
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,571 $(1,051)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,224 3,755
Other noncash items 5 143
Changes in assets and liabilities:
Accounts receivable (21,086) 656
Inventories 19,530 (1,946)
Prepaid expenses and
other current assets (905) (2,423)
Other assets (511) 1,846
Deferred income taxes 1,860 (1,971)
Trade payables (2,424) (7,017)
Accrued liabilities (1,609) 6,351
Postretirement and pension 552 (4,063)
Other long-term liabilities 111 4,457
------ ------
Net cash provided by (used in) operating
activities 4,318 (1,263)
------ ------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (4,994) (3,542)
------ ------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Bank loans (repayments) (2,669) 601
Dividends paid (3,025) (3,025)
------ ------
Net cash used in financing activities (5,694) (2,424)
------ ------
Decrease in cash and cash equivalents (6,370) (7,229)
Cash and cash equivalents
at beginning of period 13,800 12,341
------ ------
Cash and cash equivalents
at end of period $7,430 $5,112
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
SMITH CORONA CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended December 31, 1993
($ in thousands)
<TABLE>
<CAPTION>
Common Paid-In Retained
Stock Capital Earnings Total
------ ------- -------- -------
<S> <C> <C> <C> <C>
Balance June 30, 1993 $303 $44,697 $31,645 $76,645
Net income - - 5,571 5,571
Dividends declared - - (3,025) (3,025)
---- ------- -------- -------
Balance December 31, 1993 $303 $44,697 $34,191 $79,191
==== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
SMITH CORONA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial
statements, although not necessarily indicative of results of
operations for the entire fiscal year, include all adjustments
which are, in the opinion of management, necessary for a fair
presentation of the results for the periods covered. They have
been prepared in accordance with the instructions to Form 10-Q
and should be read in conjunction with the consolidated financial
statements and the notes thereto for the fiscal year ended
June 30, 1993, as contained in the Smith Corona Corporation (the
"Company") Annual Report to Stockholders and Form 10-K.
NOTE 2 - CONTINGENCIES
Certain past practices of the Company regarding hazardous
substances and/or hazardous wastes are the subject of
investigation by federal and state regulatory authorities, or are
the subject of lawsuits filed by such authorities. Management
does not believe that these investigations or lawsuits, if
resolved adversely to the Company, would individually or in the
aggregate have a material adverse impact on the Company. The
Company is involved in proceedings with the New York Department
of Environmental Conservation and the United States Environmental
Protection Agency regarding the clean-up of a now-closed
manufacturing facility and certain waste disposal sites in
upstate New York. The remedial investigation of the now-closed
manufacturing facility site has been completed. The feasibility
study report has been approved by the New York Department of
Environmental Conservation and the Record of Decision has been
finalized. On March 31, 1993, the Company executed a final
signed consent order from the Department of Environmental
Conservation and remedial actions have commenced. Adequate
provision for such remedial costs has been made by the Company.
In June 1992, the Company was served with a summons and
complaint in a private contribution action. The action, which
lists the Company as a defendant with fourteen other defendants,
seeks contribution for response costs incurred to date, and to be
incurred in the future, for the remediation of a site in
Cortland, New York. Management does not believe it disposed of
any hazardous substances at this site and is vigorously
contesting this matter.
On April 18, 1991, an antidumping proceeding was commenced
against the Company at the Department of Commerce (Commerce) and
before the International Trade Commission, concerning portable
electric typewriters imported from Singapore. Subsequently, on
June 22, 1993, the Company and Commerce signed a suspension
agreement, suspending the antidumping investigation and calling
for the Company to monitor its international prices. On
February 4, 1994, all of the parties signed a settlement
agreement covering the antidumping investigation and related
litigation. Under the terms of the agreement, the petitioner
will withdraw its petition against the Company's Singapore
imports and the Company will seek revocation of various
antidumping duty orders against typewriters and word processors
from Japan. Pursuant to the agreement, the antidumping
proceedings will be terminated shortly.
The Company is also defendant or plaintiff in various other
legal actions which have arisen in the ordinary course of its
business. It is the opinion of management, based on advice of
counsel with respect to legal matters, that the ultimate
resolution of these matters and the environmental matters
discussed above will not have a material adverse effect on the
Company's financial position.
NOTE 3 - INVENTORIES
A summary of inventories, by major classification, is as
follows:
<TABLE>
<CAPTION>
December 31, June 30,
1993 1993
------- -------
($ in thousands)
<S> <C> <C>
Raw materials and supplies $ 5,424 $ 5,668
Work-in-process 22,058 21,215
Finished goods 38,033 58,312
------- -------
Total 65,515 85,195
Lifo reserve (994) (1,144)
------- -------
Total $64,521 $84,051
======= =======
</TABLE>
NOTE 4 - DIVIDENDS
On November 16, 1993 the Board of Directors declared a
quarterly cash dividend of $.05 per share of common stock payable
on January 6, 1994 to stockholders of record as of December 20,
1993. The dividend for the second quarter of fiscal 1993 was $.05
per share of common stock.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net sales for the second quarter, which ended December 31,
1993, were $93.6 million, an increase of 8.0% over $86.7 million
for the same quarter last year. Net sales for the six months
ended December 31, 1993 were $187.4 million, an 11.6% increase
over net sales of $168.0 million for the same period last year.
Unit shipments of typewriters and personal word processors
increased over last year in both the domestic and international
markets. Internationally, unit shipments during fiscal 1993 were
slowed by the change to direct distribution. Net sales of the
office supplies businesses increased for the quarter and six
month periods as a result of improved volume and price.
Gross margin, as a percentage of net sales, was 19.0% and
20.6% for the three and six months ended December 31, 1993,
respectively, as compared to 26.6% and 24.9% for the comparable
periods last year. These decreases in gross margin were
primarily the result of lower selling prices and product mix for
personal word processors and typewriters as well as unfavorable
foreign currency exchange comparisons. Included in the six
months ended December 31, 1993 gross margin is a benefit of $1.8
million pre-tax, representing the final payment from Pelikan,
Inc. in a patent infringement case.
In July 1992, Smith Corona Corporation (the "Company")
announced a plan to phase out the Company's manufacturing
operations in Cortland, New York and move them to a new facility
in Mexico. The Company provided $9.0 million in restructuring
costs in the first quarter of fiscal 1993 and $.5 million in the
second quarter of fiscal 1993. The Company is on schedule to
complete the move by the end of March 1994. This action should
result in substantially lower manufacturing costs in future
years.
Selling, general and administrative expenses for the three
and six months ended December 31, 1993 decreased $2.1 million and
$4.2 million, respectively, over the comparable prior periods.
These decreases were primarily the result of reduced expenses for
certain advertising programs.
The Company's effective tax rate was 34.0% for the three and
six months ended December 31, 1993 as compared to 21.2% and 44.9%
for the comparable periods a year ago. The change in the
effective tax rate relates principally to the projected mix in
domestic and foreign source income combined with the expiring tax
holiday in Singapore.<PAGE>
Financial Condition
During the six months ended December 31, 1993, the Company's
operating activities provided $4.3 million of cash compared with
$1.3 million cash used in the same period a year ago. Accounts
receivable increased $21.1 million from June 30, 1993 which was
primarily related to increased sales levels. Inventories
decreased $19.5 million from June 30, 1993 as a result of the
Company's focus on reduction of inventory levels.
Capital expenditures for the six months ended December 31,
1993 were $5.0 million compared with $3.5 million for the
comparable period last year.
The Company's borrowing resources at December 31, 1993 were
comprised of a revolving credit facility with two banks, which
provides availability of $32 million expiring in three years.
The Company also has an uncommitted line of credit arrangement
for $20 million. The December 31, 1993 bank loans represent the
outstanding amounts under the revolving credit facility.
PART II - Other Information
Item 1. Legal Proceedings.
Information required by this item is incorporated by
reference from "Note 2 - Contingencies" in the Notes to
Consolidated Financial Statements appearing on page 5
of this Form 10-Q Quarterly Report.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders of the Company
held on November 16, 1993, the following individuals
were elected directors of the Company:
<TABLE>
<CAPTION>
Total Votes Total Votes
Directors For Withheld
--------- ----------- -----------
<S> <C> <C>
G.L. Thompson 28,804,122 474,336
W.D. Henderson 28,785,122 493,336
D.H. Clarke 28,843,749 434,709
T.C. DeFazio 28,814,839 463,619
G.H. Hempstead 28,569,970 708,488
J.G. Raos 28,848,104 430,354
C.C. Sergeant 28,829,711 448,747
R. Van Buren 28,854,442 424,016
R.R. West 28,856,647 421,784
R.J. Kammerer 28,846,279 432,179
</TABLE>
At the same meeting, the appointment of Deloitte &
Touche as independent certified public accountants
for the Company for the fiscal year ending June 30,
1994 was ratified by a vote of 29,083,701 for, 89,834
against, and 104,923 abstaining.
The Amendment to the Smith Corona Corporation 1990
Stock Option Plan was also approved by a vote of
26,086,369 for, 2,479,246 against, and 712,843
abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.12 Smith Corona Corporation 1990 Stock
Option Plan, adopted effective as of
December 1, 1989, amended through
November 16, 1993.
(b) Reports on Form 8-K
None.<PAGE>
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.
SMITH CORONA CORPORATION
February 11, 1994 By: /s/ Thomas C. DeFazio
----------------------
Thomas C. DeFazio
Executive Vice President and
Chief Financial Officer
By: /s/ John A. Piontkowski
------------------------
John A. Piontkowski
Vice President & Controller
(Principal Accounting Officer)<PAGE>
EXHIBIT INDEX
Exhibit
10.12 Smith Corona Corporation 1990 Stock
Option Plan, adopted effective as of
December 1, 1989, amended through
November 16, 1993.
<PAGE>
EXHIBIT 10.12
SMITH CORONA CORPORATION
1990 STOCK OPTION PLAN
ADOPTED EFFECTIVE AS OF
DECEMBER 1, 1989
AMENDED THROUGH NOVEMBER 16, 1993<PAGE>
SMITH CORONA CORPORATION
1990 STOCK OPTION PLAN
TABLE OF CONTENTS
Page
ARTICLE I
PURPOSE OF PLAN................................................1
1.1 Establishment of Plan...............................1
1.2 Plan Purpose........................................1
ARTICLE II
DEFINITIONS....................................................1
2.1 "Board".............................................1
2.2 "Change of Control".................................1
2.3 "Committee".........................................1
2.4 "Company"...........................................1
2.5 "Date of Grant".....................................1
2.6 "Disability"........................................1
2.7 "Expiration Date"...................................1
2.8 "Option"............................................2
2.9 "Optionee"..........................................2
2.10 "Retirement"........................................2
2.11 "Share" or "Shares".................................2
2.12 "Special Employment Termination"....................2
2.13 "Terminated" or "Termination for Cause".............3
ARTICLE III
RIGHTS TO BE GRANTED...........................................3
3.1 Non-qualified Options...............................3
ARTICLE IV
STOCK SUBJECT TO PLAN..........................................3
4.1 Shares Available....................................3
4.2 Stock Subject to Expired Options....................3
ARTICLE V
ADMINISTRATION OF PLAN.........................................3
5.1 Administration......................................3
ARTICLE VI
GRANT OF RIGHTS................................................4
6.1 Option Grants.......................................4
ARTICLE VII
ELIGIBILITY....................................................4
7.1 Eligibility.........................................4
ARTICLE VIII
OPTION AGREEMENTS AND TERMS....................................4
8.1 Time of Grant.......................................4
8.2 Option Price........................................4
8.3 Restrictions on Transferability.....................4
8.4 Payment Upon Exercise of Options....................5
8.5 Issuance of Certificate Upon Exercise of Options....5
8.6 Fractional Shares...................................5
8.7 Vesting of Options..................................5
8.8 Expiration of Options...............................6
8.9 Date of Exercise....................................6
8.10 Multiple Grants of Options..........................6
ARTICLE IX
RIGHTS AS SHAREHOLDERS.........................................6
9.1 Shareholder Rights..................................6
ARTICLE X
CHANGES IN CAPITALIZATION, MERGERS,
DISPOSITIONS AND CERTAIN OTHER TRANSACTIONS....................6
10.1 Changes in Capitalization...........................6
10.2 Other Transactions..................................7
ARTICLE XI
PLAN NOT TO AFFECT EMPLOYMENT..................................7
11.1 Employment..........................................7
ARTICLE XII
INTERPRETATION.................................................7
12.1 In General..........................................7
12.2 Securities Laws.....................................7
ARTICLE XIII
AMENDMENTS.....................................................7
13.1 Amendments..........................................7
ARTICLE XIV
EFFECTIVE DATE AND TERM OF PLAN................................8
14.1 Effective Date and Term.............................8
ARTICLE XV
GENERAL........................................................8
15.1 Applicable Law......................................8
<PAGE>
SMITH CORONA CORPORATION
1990 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
1.1 Establishment of Plan. The Company (as herein
defined) hereby establishes a stock option plan, as set forth
herein, which shall be known as the Smith Corona Corporation 1990
Stock Option Plan (hereinafter the "Plan").
1.2 Plan Purpose. The purpose of the Plan is to assist
the Company in retaining valued employees by offering them a
stake in the Company's success and to promote decision-making at
the executive level that leads to the enhancement of shareholder
value.
ARTICLE II
DEFINITIONS
Whenever used in the Plan, the following terms shall have
the meanings set forth below unless otherwise expressly provided.
Any masculine terminology shall be deemed to refer either to a
male or a female, and the definition of any terms in the singular
shall also include the plural, whichever is appropriate in the
context.
2.1 "Board" means the Board of Directors of the Company.
2.2 "Change of Control" means (1) a reorganization,
consolidation or merger of the Company with or into another
entity, (2) a sale, transfer or lease of substantially all of the
Company's property or (3) the acquisition by an entity or group
not affiliated with Hanson Plc or the Company, of 20% or more of
the outstanding Shares unless Hanson Plc also owns 20% or more of
the outstanding Shares on and after such acquisition.
2.3 "Committee" means the committee described in Article
V.
2.4 "Company" means the Smith Corona Corporation.
2.5 "Date of Grant" means the date on which an Option is
granted.
2.6 "Disability" means disability as defined in the
Company's Long-Term Disability Plan.
2.7 "Expiration Date" means the earliest of the following:
(i) if Optionee shall cease to be employed by the Employer<PAGE>
for any reason other than death, Disability, Retirement or
Termination for Cause, thirty (30) days after the date of
termination of employment; or
(ii) if Optionee shall cease to be employed by the Company
because of Disability, death or as a result of a Special
Employment Termination, the date twelve (12) months after the
date Optionee terminates employment because of Disability, death
or a Special Employment Termination; or
(iii) if Optionee shall cease to be employed by the Company
because of Retirement, the later of twelve (12) months from the
date of Retirement, or three (3) years and six (6) months from
the Date of Grant; or
(iv) if the Optionee is Terminated for Cause, the date of
termination of employment; or
(v) the day before the tenth anniversary of the Date of
Grant.
2.8 "Option" means any stock option granted under the Plan
and described in Article III.
2.9 "Optionee" means a person to whom an Option has been
granted under the Plan, which Option has not been exercised and
has not expired or terminated.
2.10 "Retirement" means retirement on or after the earliest
date permitted under the terms of the Company's pension plans as
amended from time to time.
2.11 "Share" or "Shares" means a share or shares of Common
Stock, $.01 par value, of the Company.
2.12 "Special Employment Termination" means termination of
employment within eighteen (18) months after a Change of Control
either (i) by action of the Company other than a Termination for
Cause or (ii) voluntarily by the Optionee on account of (a)
reduction in the Optionee's base salary in effect immediately
prior to the Change of Control, (b) discontinuance of any bonus
or other compensation plan (including, without limitation, the
Company's Supplemental Executive Retirement Plan), any stock-
related plan (including, without limitation, the Plan), life
insurance plan, health plan, disability plan, vacation plan,
severance plan or similar benefit plan (as the same existed
immediately prior to the Change of Control) in which the Optionee
participated or was eligible to participate immediately prior to
the Change of Control unless the Optionee is simultaneously
accorded an equivalent benefit or opportunity or any amendment to
any such plan which adversely affects the Optionee's
participation in, eligibility for, or materially reduces benefits
-2-<PAGE>
under, any such plan unless the Optionee is simultaneously
accorded an equivalent benefit or opportunity, (c) the Optionee's
demotion or a material reduction in the Optionee's duties or
responsibilities from those which existed immediately prior to
the Change of Control other than as a natural consequence, after
the Change of Control, of the Company no longer being subject to
the requirements of the Securities Act of 1933 or the Securities
Exchange Act of 1934, or the Company being a subsidiary or
division of the acquirer or (d) the assignment of new duties
requiring a relocation of the Optionee's domicile.
2.13 "Terminated" or "Termination for Cause" means a
termination on account of (i) a material breach by Optionee of
his or her obligations to the Company, (ii) employment by another
firm while in the Company's employ, (iii) theft, embezzlement,
bribery or act of comparable dishonesty or disloyalty or breach
of trust against the Company, (iv) the conviction of the Optionee
for a felony (or a plea of nolo contendere thereto), or (v) the
willful engaging by the Optionee in conduct materially injurious
to the Company.
ARTICLE III
RIGHTS TO BE GRANTED
3.1 Non-qualified Options. Rights that may be granted
under the Plan are non-qualified stock options, which give the
Optionee the right to purchase a specified number of Shares for a
price established by the Committee for a specified period of time
all as set forth in the Option Agreement.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Shares Available. A total of 3,900,000 Shares in the
aggregate will be reserved for and may be issued pursuant to the
Plan upon exercise of Options. The Shares so delivered may, at
the option of the Company, be either treasury Shares or Shares
originally issued for such purposes.
4.2 Stock Subject to Expired Options. If an Option
covering Shares terminates or expires without having been
exercised in whole or in part, other Options may be granted
covering the Shares as to which the unexercised Option relates.
ARTICLE V
ADMINISTRATION OF PLAN
5.1 Administration. The Plan shall be administered by the
Compensation and Benefits Committee of the Board ("Committee"),
-3-<PAGE>
which shall be composed of not less than three (3) directors of
the Company appointed by the Board, none of whom shall be
eligible (or shall have been eligible within one (1) year prior
to the date of his appointment) to be granted Options under the
Plan or to be selected as a participant under any other
discretionary plan of the Company or any of its affiliates
entitling him or her to acquire stock, stock options or stock
appreciation rights of the Company.
ARTICLE VI
GRANT OF RIGHTS
6.1 Option Grants. The Committee may grant Options to
eligible employees of the Company in such number and with such
frequency as the Committee determines in its sole discretion.
ARTICLE VII
ELIGIBILITY
7.1 Eligibility. Eligible employees to whom Options may
be granted shall be officers and other key employees of the
Company, including persons who are also officers and other key
employees of a subsidiary of the Company.
ARTICLE VIII
OPTION AGREEMENTS AND TERMS
All Options shall be evidenced by Option Agreements that
shall be executed on behalf of the Company and by the Optionee to
whom such Options are granted. The terms of each Option
Agreement shall be determined from time to time by the Committee,
consistent, however, with the following:
8.1 Time of Grant. All Options shall be granted within
ten (10) years from the earlier of (a) the effective date of
adoption of the Plan by the Board or (b) approval of the Plan by
the shareholders of the Company.
8.2 Option Price. The option price per Share shall be
determined by the Committee but shall be equal to or greater than
the fair market value of a Share. For the purposes of this Plan,
the fair market value on any date shall be the average of the
high and low sale prices of a Share as quoted on the New York
Stock Exchange.
8.3 Restrictions on Transferability. No Option shall be
transferable or assignable otherwise than by will or the laws of
descent and distribution and, during the lifetime of the
Optionee, an Option shall be exercisable only by such Optionee.
Upon the death of an Optionee, the person to whom the rights
-4-<PAGE>
shall have passed by will or by the laws of descent and
distribution may exercise any Options only in accordance with the
provisions of Section 8.7(a).
8.4 Payment Upon Exercise of Options. Full payment for
Shares purchased upon the exercise of an Option shall be made in
cash or in Shares already owned by the Optionee having a total
fair market value upon such exercise, as determined by the
Committee, equal to the option price or a combination of cash and
Shares having a total fair market value, as so determined, equal
to the option price.
8.5 Issuance of Certificate Upon Exercise of Options.
Upon payment of the option price and satisfaction of the
requirements of the Option Agreement, a certificate for the
number of whole Shares and a check for the fair market value on
the date of exercise of any fractional Share to which the
Optionee is entitled shall be delivered to such Optionee by the
Company; provided, however, that the Optionee has remitted to the
Company an amount determined by the Company, necessary to satisfy
applicable federal, state or local tax withholding requirements.
The Company shall not be obligated to deliver any certificates
for Shares until there has been such compliance with such laws or
regulations as the Company may deem applicable including tax
withholding requirements under federal, state, or local laws.
The Company shall use its best efforts to effect such compliance.
8.6 Fractional Shares. Only whole Shares shall be
issuable upon exercise of Options. Any right to a fractional
Share shall be satisfied in cash.
8.7 Vesting of Options. An Option shall not be
exercisable, in whole or in part, until the completion of three
(3) years of service with the Company (including any approved
leave of absence) following the Date of Grant, except, however,
(a) In the event an Optionee ceases to be
employed by the Company by reason of his death, any Option held
by such Optionee shall be exercisable for a period of up to
twelve (12) months from the date of death by the person to whom
the rights of the Optionee shall have passed by will or by the
laws of descent and distribution.
(b) In the event an Optionee ceases to be
employed by the Company by reason of his Disability, an Option
held by such Optionee shall be exercisable for a period of up to
twelve (12) months from the date of such termination.
(c) In the event an Optionee ceases to be
employed by the Company by reason of his Retirement, an Option
held by such Optionee shall be exercisable for a period not to
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exceed the later of,
(1) twelve (12) months from the date
of retirement, or
(2) three (3) years and six (6) months
from the Date of Grant.
(d) In the event an Optionee ceases to be
employed by the Company as a result of a Special Employment
Termination, any Option held by such Optionee shall be
exercisable for a period of up to twelve (12) months from the
date of such termination.
8.8 Expiration of Options. No Option granted hereunder
shall be exercisable after the Expiration Date.
8.9 Date of Exercise. The date of exercise of an Option
shall be the date on which written notice of exercise, addressed
to the Company at its main office, is hand delivered, telecopied,
or mailed first class postage prepaid; provided, however, that
the Company shall not be obligated to deliver any certificates
for Shares pursuant to the exercise of an Option until the
Optionee shall have made payment in full of the option price for
such Shares in accordance with Section 8.5 and applicable income
withholding taxes.
8.10 Multiple Grants of Options. The grant, exercise,
termination or expiration of any Option shall have no effect upon
any other Option held by the same Optionee.
ARTICLE IX
RIGHTS AS SHAREHOLDERS
9.1 Shareholder Rights. An Optionee shall not have any
right as a shareholder with respect to any Shares subject to his
Options until the date of the issuance to him of a stock
certificate for such Shares.
ARTICLE X
CHANGES IN CAPITALIZATION, MERGERS,
DISPOSITIONS AND CERTAIN OTHER TRANSACTIONS
10.1 Changes in Capitalization. In the event of a stock
dividend, stock split, recapitalization, subdivision, issuance of
rights, or other similar corporate change, the Board or Committee
shall make full anti-dilution adjustments in the aggregate number
of Shares that may be covered by Options issued pursuant to the
Plan and the number of Shares subject to, and the option price
of, each then outstanding Option.
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10.2 Other Transactions. If during the term of any Option,
the Company shall be merged into or consolidated with or
otherwise combined with or acquired by another person or entity,
or there is a divisive reorganization or a liquidation or partial
liquidation of the Company, the Company may take such action as
the Board shall determine to be reasonable under the
circumstances in order to permit Optionees to realize the value
of rights granted to them under the Plan.
ARTICLE XI
PLAN NOT TO AFFECT EMPLOYMENT
11.1 Employment. Neither the Plan nor any Option shall
confer upon any employee of the Company any right to continue in
the employment of the Company.
ARTICLE XII
INTERPRETATION
12.1 In General. The Committee shall have the power to
interpret the Plan and to make and amend rules for putting it
into effect and administering it. All interpretations and
determinations of the Committee shall be final, conclusive and
binding on all interested parties. Options granted under the
Plan shall be non-qualified options, which shall constitute
property subject to federal income tax pursuant to the provisions
of Section 83 of the Internal Revenue Code of 1986, as amended,
and the Plan shall qualify for the exemption available under Rule
16b-3 (or any similar rule) of the Securities and Exchange
Commission. The provisions of the Plan shall be interpreted and
applied insofar as possible to carry out such intent.
12.2 Securities Laws. The Committee shall have the power
to make each grant under the Plan subject to such conditions as
it deems necessary or appropriate to comply with the then
existing requirements of the Securities Act of 1933 or the
Securities Exchange Act of 1934, and any applicable state
securities laws.
ARTICLE XIII
AMENDMENTS
13.1 Amendments. The Plan may be amended by the Board, but
any amendment that requires the approval of the shareholders of
the Company in order to maintain the exemption available under
Rule 16b-3 (or any similar rule) of the Securities and Exchange
Commission, shall require the approval of the holders of such
portion of the shares of the capital stock of the Company present
and entitled to vote on such amendment as is required by
applicable state law and the terms of the Company's By-laws, as
then in effect, to make the amendment effective. No outstanding
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Option shall be adversely affected by any amendment without the
written consent of the Optionee or other person then entitled to
exercise such Option.
ARTICLE XIV
EFFECTIVE DATE AND TERM OF PLAN
14.1 Effective Date and Term. The Plan shall become
effective on the date determined when the Plan is adopted by the
Board, and shall expire no later than ten (10) years from such
date, unless sooner terminated by the Board. The Board shall
submit the Plan to the shareholders of the Company for their
approval following the adoption of the Plan by the Board. Any
Option granted before the approval of the Plan by the Company's
shareholders shall be expressly conditioned upon, and shall not
be exercisable until, such approval. If such shareholder
approval is not received before one (1) year from the effective
date of adoption, the Board shall have the right to terminate the
Plan, in which case all Options granted under the Plan shall
expire.
ARTICLE XV
GENERAL
15.1 Applicable Law. The issuance of Shares on the
exercise of an Option shall be subject to all of the applicable
requirements of the Delaware General Corporation Law and other
applicable laws, including federal or state securities laws, and
all Shares issued under the Plan shall be subject to the terms
and restrictions contained in the By-laws of the Company, as
amended from time to time. The interpretation or construction of
the Plan shall be governed by the laws of the State of New York,
without bringing into effect the principles of conflicts of law.
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