<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 30, 1997
----------------------------------------------------------
or
[ ] 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: 0-19912
------------------------------------------------------
Signature Brands USA, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3635286
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146-1399
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 464-4000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Health o meter Products, Inc.
- --------------------------------------------------------------------------------
(Former Name)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 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
----- -----
As of April 30, 1997, the issuer had 9,080,534 shares of common stock
outstanding.
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 30, 1997
----------------------------------------------------------
or
[ ] 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: 33-80000
------------------------------------------------------
Signature Brands, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 36-3330781
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146-1399
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 464-4000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Health o meter, Inc.
- --------------------------------------------------------------------------------
(Former Name)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 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
----- -----
The Registrant is a wholly-owned subsidiary of Signature
Brands USA, Inc. Accordingly, none of its equity securities are owned by
non-affiliates.
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNATURE BRANDS USA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 30 September 29
1997 1996
------------ -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash $ 2,017 736
Trade accounts receivable, net 46,814 57,960
Inventories 40,479 43,626
Deferred income taxes 5,206 5,206
Other current assets 795 1,479
-------- --------
Total current assets 95,311 109,007
Property, plant and equipment, net 16,308 18,522
Other assets
Excess of cost over fair value
of net assets acquired, net 137,862 139,830
Deferred financing costs, net 4,151 4,579
Other 1,620 1,552
-------- --------
Total other assets 143,633 145,961
-------- --------
Total assets $255,252 273,490
======== ========
</TABLE>
(Continued)
2
<PAGE> 4
SIGNATURE BRANDS USA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 30 September 29
1997 1996
------------- ------------
(Unaudited)
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Current portion of long-term debt $ 6,250 6,000
Accounts payable 16,306 22,851
Accrued liabilities 18,065 19,542
--------- ---------
Total current liabilities 40,621 48,393
Long-term debt
Revolving Credit Facility 34,600 41,600
Term Note 56,507 60,250
Senior Subordinated Notes 68,793 68,681
--------- ---------
Total long-term debt 159,900 170,531
Product liability 3,432 3,516
Other 2,068 2,043
--------- ---------
Total liabilities 206,021 224,483
Stockholders' equity
Common stock, par value $.01 per share;
authorized 20,000 shares; issued
and outstanding 9,080 shares 91 91
Paid-in capital 51,772 51,772
Warrants 1,773 1,773
Accumulated deficit (4,405) (4,629)
--------- ---------
Total stockholders' equity 49,231 49,007
--------- ---------
Total liabilities and stockholders' equity $ 255,252 273,490
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
SIGNATURE BRANDS USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
-------------------------- ----------------------------
March 30 March 31 March 30 March 31
1997 1996 1997 1996
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 61,925 56,275 149,061 153,682
Operating costs and expenses
Cost of goods sold 42,312 38,538 103,389 105,401
Selling, general and
administrative expenses 14,790 12,086 33,845 30,888
Amortization of intangible assets 984 1,000 1,968 2,000
-------- -------- -------- --------
Total operating costs and expenses 58,086 51,624 139,202 138,289
-------- -------- -------- --------
Operating income 3,839 4,651 9,859 15,393
Interest expense 4,575 4,717 9,557 9,814
Other income (59) (96) (248) (166)
-------- -------- -------- --------
Income (loss) before income taxes (677) 30 550 5,745
Income tax (benefit) expense (410) 20 326 3,758
-------- -------- -------- --------
Net income (loss) $ (267) 10 224 1,987
======== ======== ======== ========
Net income (loss) per share $ (0.03) - 0.02 0.22
======== ======== ======== ========
Weighted average shares outstanding 9,080 9,071 9,080 9,071
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
SIGNATURE BRANDS USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Twenty-six weeks ended
----------------------------
March 30 March 31
1997 1996
------------ ----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 224 1,987
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization
of plant and equipment 3,460 2,945
Loss on asset write-offs and disposals - 103
Amortization of intangible assets 1,968 2,000
Amortization of deferred financing costs 428 429
Accretion of debt discount 112 112
Changes in
Accounts receivable 11,146 6,684
Inventories 3,147 5,538
Other assets 616 1,135
Accounts payable (6,545) (14,266)
Accrued liabilities (1,477) 3,082
Noncurrent liabilities (59) (126)
-------- --------
Net cash provided by operating activities 13,020 9,623
-------- --------
Cash flows from investing activities
Capital expenditures (1,246) (1,449)
-------- --------
Net cash used in investing activities (1,246) (1,449)
-------- --------
Cash flows from financing activities
Proceeds from revolving credit facility 36,100 44,500
Repayments of revolving credit facility (43,100) (49,900)
Repayment of long-term debt (3,493) (2,500)
-------- --------
Net cash used in financing activities (10,493) (7,900)
-------- --------
Increase in cash 1,281 274
Cash at beginning of the period 736 835
-------- --------
Cash at end of the period $ 2,017 1,109
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 8,953 9,360
Income taxes 1,450 1,177
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
SIGNATURE BRANDS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(1) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions are eliminated in consolidation.
In the opinion of management, the information furnished herein includes
all adjustments of a normal recurring nature that are necessary for a
fair presentation of results for the interim periods shown in
accordance with generally accepted accounting principles. The unaudited
interim consolidated financial statements have been prepared using the
same accounting principles that were used in preparation of the
Company's annual report on Form 10-K for the year ended September 29,
1996, and should be read in conjunction with the consolidated financial
statements and notes thereto. Because of the seasonal nature of the
small appliance and consumer scale industries, the results of
operations for the interim period are not necessarily indicative of
results for the full fiscal year.
(2) Inventories
-----------
The components of inventories are as follows:
<TABLE>
<CAPTION>
March 30 September 29
1997 1996
---------- -------------
<S> <C> <C>
Inventories at FIFO cost
Raw materials and purchased parts $13,629 13,446
Finished goods 26,261 29,591
------- -------
39,890 43,037
Excess of LIFO cost over FIFO 589 589
------- -------
Inventories $40,479 43,626
======= =======
</TABLE>
Work-in-process inventories are not significant and are included with
raw materials. Inventories accounted for under the last-in, first-out
(LIFO) method represent 59 percent and 62 percent of inventories at
March 30, 1997 and September 29, 1996, respectively.
6
<PAGE> 8
SIGNATURE BRANDS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(3) Condensed Consolidated Financial Information
--------------------------------------------
Condensed consolidated financial information for Signature Brands,
Inc. at March 30, 1997 and September 29, 1996, and for the
thirteen-week and twenty-six-week periods ended March 30, 1997 and
March 31, 1996 is as follows
<TABLE>
<CAPTION>
March 30 September 29
1997 1996
----------- -----------
<S> <C> <C>
Current assets $ 95,311 109,007
Noncurrent assets 159,941 164,483
--------- ---------
Total assets $ 255,252 273,490
========= =========
Current liabilities $ 40,621 48,393
Noncurrent liabilities 165,400 176,090
Intercompany payables 47,658 47,658
--------- ---------
Total liabilities 253,679 272,141
Stockholder's equity
Common stock - $.01 par value;
1,000 shares authorized and outstanding 10 10
Paid-in capital 2,811 2,811
Accumulated deficit (1,248) (1,472)
--------- ---------
Total stockholder's equity 1,573 1,349
--------- ---------
Total liabilities and stockholder's equity $ 255,252 273,490
========= =========
</TABLE>
<TABLE>
<CAPTION>
Thirteen-week period ended Twenty-six-week period ended
---------------------------- ----------------------------
March 30 March 31 March 30 March 31
1997 1996 1997 1996
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales $ 61,925 56,275 $149,061 153,682
Gross profit $ 19,613 17,737 $ 45,672 48,281
Net income (loss) $ (267) 10 $ 224 1,987
</TABLE>
7
<PAGE> 9
SIGNATURE BRANDS USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(4) Subsequent Event
----------------
On March 6, 1997, the stockholders of the Company approved an amendment
to the Company's Certificate of Incorporation to change the name of the
Company to "Signature Brands USA, Inc." In view of the Company's name
change, on April 30, 1997, Health o meter, Inc. the Company's operating
subsidiary, was merged with and into a wholly-owned subsidiary of the
Company, Signature Brands, Inc., an Ohio corporation, formed by the
Company solely for the purpose of changing the name of Health o meter,
Inc. to "Signature Brands, Inc."
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPANY OVERVIEW
- ----------------
Signature Brands USA, Inc. (the "Company") is a holding
company which, through its wholly owned subsidiary, Signature Brands, Inc.
("Signature Brands"), designs, manufactures, markets, and distributes a
comprehensive line of consumer and professional products. The Company's consumer
products, marketed under the Mr. Coffee(R) and Health o meter(R) brand names
include automatic drip coffeemakers, teamakers, filters, water filtration
products, accessories, and other kitchen counter top appliances as well as bath,
kitchen, and diet scales and therapeutic devices. Professional products include
the Pelouze(R) and Health o meter(R) brands of office, food service and medical
scales.
RESULTS OF OPERATIONS
- ---------------------
THIRTEEN-WEEKS ENDED MARCH 30, 1997 AND MARCH 31, 1996
Overview. Net sales in the second quarter of fiscal 1997
increased approximately 10.0 percent to $61.9 million, compared with $56.3
million for the same period in fiscal 1996. The Company's gross profit in the
second quarter of fiscal 1997 was $19.6 million, or approximately 31.7 percent
of net sales, compared with $17.7 million, or approximately 31.5 percent of net
sales in the same period in fiscal 1996.
Net Sales and Gross Profit
Consumer Products Division. In the second quarter of 1997, the
Consumer Products Division's net sales were $51.9 million compared with $47.6
million in 1996, an increase of 9.0 percent. The increase in net sales was
primarily attributable to increased sales of coffeemakers, consumer scales and
water filtration products somewhat offset by reduced sales of teamakers and
espresso/cappuccino makers. The Consumer Products Division's gross profit in the
second quarter of 1997 increased 8.7 percent to $15.5 million from $14.3 million
in 1996. The gross profit margin was 29.9 percent of net sales in 1997, compared
with 30.0 percent in 1996. The Consumer Products Division experienced improved
margins for filters, therapeutic devices and water filtration products while
margins declined for teamakers and certain other kitchen countertop appliances.
Historically, gross margins on individual product lines have been greatest near
the point of introduction, gradually decreasing as the product matures and
becomes subject to pricing pressure. There continues to be intense pressure on
retail prices and there can be no assurance as to the Company's ability to
achieve price increases or maintain current price levels in the future. For
these reasons, the Company continues its efforts to introduce new products and
to reduce the cost of existing products as a means of protecting margins.
9
<PAGE> 11
Professional Products Division. In the second quarter of 1997,
the Professional Products Division's net sales increased 15.5 percent to $10.0
million compared with $8.7 million in 1996. The Company experienced increased
sales in the second quarter of 1997 in its commercial, office and medical
distribution channels when compared with the same period in 1996. The
Professional Products Division's gross profit was $3.7 million, or 36.4 percent
of net sales, in the second quarter of 1997, compared with $3.5 million, or 39.9
percent of net sales, in 1996. The margin reduction resulted from lower margins
in the office and international distribution channels somewhat offset by
improved margins in the medical channel.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses ("SG&A") for the second quarter of fiscal 1997
totalled $14.8 million, or approximately 23.9 percent of net sales, compared
with $12.1 million, or approximately 21.4 percent of net sales, for the first
quarter of fiscal 1996. The increase in SG&A as a percentage of net sales is
mainly attributable to a $1.2 million increase in national advertising
expenditures primarily to support the marketing of teamakers and water
filtration products.
Amortization of Intangible Assets. The amortization of
intangible assets relates primarily to intangible assets associated with the
acquisition by the Company of Mr. Coffee, inc. on August 17, 1994 ("the
Acquisition").
Interest Expense. Net interest expense for the second quarter
of fiscal 1997 was approximately $4.6 million, compared with $4.7 million for
the same period in the prior year.
Income Taxes. The effective tax rate was a benefit of 60.6
percent for the second quarter of fiscal 1997, compared with an effective tax
rate of 69.0 percent in 1996. Expenses not deductible for tax purposes,
primarily the amortization of intangible assets associated with the Acquisition,
resulted in an effective tax rate significantly higher than the statutory tax
rate in both periods.
Net Income. Based on the foregoing, the Company experienced a
net loss of $0.3 million in the second quarter of fiscal 1997 compared with
minimal net income in fiscal 1996.
TWENTY-SIX WEEKS ENDED MARCH 30, 1997 AND MARCH 31, 1996
Overview. Net sales in the first six months of fiscal 1997
decreased approximately 3.0 percent to $149.1 million, compared with $153.7
million for the same period in fiscal 1996. The Company's gross profit in the
first six months of fiscal 1997 was $45.7 million, or approximately 30.6 percent
of net sales, compared with $48.3 million, or approximately 31.4 percent of net
sales in the same period in fiscal 1996.
Net Sales and Gross Profit
Consumer Products Division. In the first six months of 1997,
the Consumer Products Division's net sales were $129.0 million compared with
$135.9 million in 1996, a decrease of 5.0 percent. The decrease in net sales was
primarily attributable to reduced sales of teamakers and espresso/cappuccino
makers somewhat offset by increased sales of coffeemakers,
10
<PAGE> 12
water filtration products and therapeutic devices. The Consumer Products
Division's gross profit in the first six months of 1997 declined 7.7 percent to
$38.5 million from $41.7 million in 1996. The gross profit margin was 29.8
percent of net sales in 1997, compared with 30.7 percent in 1996. Reduced
margins for teamakers and accessories, somewhat offset by improved margins for
water filtration products, espresso/cappuccino makers and therapeutic devices
caused the decline in gross margin as a percent of net sales.
Professional Products Division. In the first six months of
1997, the Professional Products Division's net sales increased 12.4 percent to
$20.0 million compared with $17.8 million in 1996. The Company experienced
increased sales in the first six months of 1997 in its commercial,
international, office and medical distribution channels compared with the same
period in 1996. The Professional Products Division's gross profit was $6.8
million, or 33.8 percent of net sales, in the first six months of 1997, compared
with $6.6 million, or 37.2 percent of net sales, in 1996. The decline in gross
margin as a percent of sales was primarily attributable to office products.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses ("SG&A") for the first six months of fiscal 1997
totalled $33.8 million, or approximately 22.7 percent of net sales, compared
with $30.9 million, or approximately 20.1 percent of net sales, for the first
six months of fiscal 1996. The increase in SG&A as a percentage of net sales is
mainly attributable to a $3.0 million increase in national advertising
expenditures relating primarily to teamaker and water filtration products.
Amortization of Intangible Assets. The amortization of
intangible assets relates primarily to intangible assets associated with the
Acquisition.
Interest Expense. During the first six months of fiscal 1997
net interest expense was approximately $9.6 million, compared with $9.8 million
in the same period of fiscal 1996.
Income Taxes. In the first six months of fiscal 1997 and 1996
the effective tax rate was 59.3 percent and 65.4 percent, respectively. Expenses
not deductible for tax purposes, primarily the amortization of intangible assets
associated with the Acquisition, resulted in an effective tax rate significantly
higher than the statutory tax rate in both periods.
Net Income. Based on the foregoing, the Company experienced
net income of approximately $0.2 million and $2.0 million in the first six
months of fiscal 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of liquidity are internally
generated cash and borrowings under a Credit Agreement among Signature Brands
and a group of Banks represented by Banque Nationale de Paris, New York Branch
("BNP") as agent and as issuer of letters of credit, ("the Bank Credit
Agreement") entered into in connection with the Acquisition.
11
<PAGE> 13
Cash flow activity for the first six months of fiscal 1997 and
1996 is presented in the Consolidated Statements of Cash Flows. During the first
six months of fiscal 1997, the Company generated approximately $13.0 million in
cash flow from operating activities. Net income plus non-cash charges generated
approximately $6.2 million, while changes in working capital components
generated approximately $6.8 million. The decrease in accounts receivable, which
generated approximately $11.1 million, is attributable to the seasonally lower
sales activity compared with the fourth quarter of the prior fiscal year and the
first quarter of this fiscal year. The decrease in inventories generated $3.1
million. The decrease in accounts receivable and inventories were partially
offset by reductions in accounts payable and accrued liabilities of $6.5 million
and $1.5 million, respectively. The decrease in these liabilities is due to
seasonal factors.
The Company's business is seasonal, with a large portion of
its sales and earnings generated in the fourth calendar quarter of the year.
During fiscal 1996, the Company generated approximately 34 percent of its annual
net sales in this quarter.
The Company's aggregate capital expenditures during the first
six months of fiscal 1997 were approximately $1.2 million. The Company
anticipates making $6.8 million of capital expenditures for the remainder of
fiscal 1997. These capital expenditures relate primarily to new product tooling,
information systems and production equipment. Management plans to fund these
capital expenditures with available cash, cash flow from operations and, if
necessary, borrowings under the revolving credit facility provided under the
Bank Credit Agreement.
Indebtedness incurred in connection with the Acquisition has
significantly increased the Company's cash requirements and imposes various
restrictions on its operations. The Acquisition and related transactions were
financed with approximately $98 million in borrowings under the Bank Credit
Agreement, approximately $70 million in proceeds from a unit offering of 13%
senior subordinated notes due 2002, (the "Notes") and warrants to purchase
shares of Common Stock at a price of $6.25 per share, and approximately $17.2
million in net proceeds received from the exercise of certain transferable
rights to purchase 3,543,433 shares of Common Stock issued to the stockholders
of the Company. The Notes are generally not redeemable at the option of the
Company until August 15, 1999. Subject to certain conditions, at any time
through August 17, 1997, up to 35 percent of the initial principal amount of the
Notes originally issued may be redeemed with the net proceeds of one or more
public offerings of equity securities of the Company or Signature Brands at a
redemption price of 110% of the principal amount thereof, together with accrued
and unpaid interest. For more detailed information, see the Company's Annual
Report on Form 10-K for the year ended September 29, 1996.
The Bank Credit Agreement includes a $75.0 million term loan
facility, which is subject to amortization on a quarterly basis in aggregate
annual amounts of $6.0 million, $8.75 million, $17.5 million, $15.0 million and
$19.0 million during fiscal 1997 through fiscal 2001, respectively, and a $60.0
million revolving credit facility. Signature Brands is required to make
prepayments on the term loan and revolving credit facility with a percentage of
Excess Cash Flow (as defined) and 100% of the proceeds from certain asset sales,
issuances of debt and equity securities and extraordinary items outside the
ordinary course of business. The required
12
<PAGE> 14
term loan repayment of $1.0 million for fiscal 1997 was paid in the second
quarter. Signature Brands may also make optional prepayments, in full or in
part, on the term loan.
The Bank Credit Agreement and the indenture governing the
Notes contain various customary covenants which the Company was in compliance
with at March 30, 1997. Borrowing availability under the revolving credit
facility at March 30, 1997 was $9.9 million after considering outstanding
letters of credit of $0.6 million, actual borrowings of $34.6 million, and
sufficiency of collateral. Signature Brands' obligations under the Bank Credit
Agreement are secured by substantially all of Signature Brands' assets and a
pledge of all of its issued and outstanding common stock. Signature Brands'
obligations under the Bank Credit Agreement and the Notes are guaranteed by the
Company.
Based upon current levels of operations, anticipated sales
growth and plans for expansion, management believes that the Company's cash flow
from operations (including favorable cost savings estimated to be achieved in
the future), combined with borrowings available under the Bank Credit Agreement,
will be sufficient to enable the Company to meet all of its cash operating
requirements over both the short term and the longer term, including scheduled
interest and principal payments, capital expenditures and working capital needs.
This expectation is predicated upon continued growth in revenues in the
Company's core businesses consistent with historical experience, achievement of
operating cash flow margins consistent with historical experience, and the
absence of significant increases in interest rates.
INFLATION
Increases in interest rates, the costs of materials and labor,
and Federal, state and local tax rates can significantly affect the Company's
operations. Management believes that the current practices of maintaining
adequate operating margins through a combination of new product introductions,
product differentiation, cost reduction, outsourcing, manufacturing and overhead
expense control and careful management of working capital are its most effective
tools for coping with inflation.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued
two pronouncements which are effective for financial statements for years
beginning after December 15, 1995. The Company has considered the requirements
of Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of and has determined that it will not require
recognition of any impairment losses. The Company has also determined to remain
within the accounting prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees, and accordingly the implementation of Statement No. 123,
Accounting for Stock-Based Compensation will result in additional disclosures
without any impact on the statements of operations or financial condition.
During 1997, the Financial Accounting Standards Board issued
two pronouncements which are effective for financial statements for years
beginning after December 15, 1997. Statement No. 128, Earnings per Share changes
the way that earnings per share
13
<PAGE> 15
information is computed and presented and, will be adopted, as required, in the
Company's fiscal year beginning in October 1998. This new standard will not
materially impact the Company's financial statement disclosures. Statement No.
129, Disclosure of Information about Capital Structure will not materially
impact the Company's financial statement disclosures.
14
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on March 6,
1997. The following matters were voted on at the meeting.
1. Election of S. Donald McCullough, Thomas R. Shepherd
and Frank E. Vaughn as Directors of the Company. The
nominees were elected as Directors with the following
votes:
S. Donald McCullough
--------------------
For 7,895,653
Withheld 246,414
Broker non-votes -0-
Thomas R. Shepherd
------------------
For 7,895,653
Withheld 246,414
Broker non-votes -0-
Frank E. Vaughn
---------------
For 7,895,653
Withheld 246,414
Broker non-votes -0-
2. Approval and adoption of an Amendment to the
Company's Amended and Restated Certificate of
Incorporation to change the Company's name to
"Signature Brands USA, Inc."
For 7,561,552
Against 350,015
Abstain 230,500
Broker non-votes -0-
3. Approval and adoption of the Health o meter Products,
Inc. 1997 Stock Option and Incentive Plan:
For 7,574,174
Against 236,551
Abstain 271,676
Broker non-votes 59,666
15
<PAGE> 17
4. Ratification of the Board of Directors' Appointment
of KPMG Peat Marwick LLP to serve as Auditors of the
Company:
For 7,886,396
Against 22,753
Abstain 232,918
Broker non-votes -0-
For information on how the votes for the above matters have been
tabulated, see the Company's definitive Proxy Statement used in connection with
the Annual Meeting of Stockholders on March 6, 1997.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------
(a) See the Exhibit Index at page 18 of this Form 10-Q.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
16
<PAGE> 18
SIGNATURE
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.
SIGNATURE BRANDS USA, INC.
SIGNATURE BRANDS, INC.
Date: May 14, 1997 /s/ Steven M. Billick
----------------------
Steven M. Billick
Senior Vice President, Treasurer
and Chief Financial Officer
17
<PAGE> 19
Exhibit Index
-------------
Exhibit Number Description of Document
- -------------- -----------------------
3.1 Amended and Restated Certificate of Incorporation of Signature
Brands USA, Inc., as amended.
10.21 Health o meter Products, Inc. 1997 Stock Option and Incentive
Plan*
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
18
<PAGE> 1
Exhibit 3.1
-----------
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/10/1992
920705090 - 2I58107
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LEE-CONTINENTAL CORP.
The original Certificate of Incorporation of Lee-Continental
Corp. was filed with the Secretary of State of Delaware on April 19, 1988. This
Amended and Restated Certificate of Incorporation not only restates and
integrates the original Certificate of Incorporation and all amendments thereto,
but also includes amendments adopted by the stockholders of Lee-Continental
Corp. on the date hereof. This Amended and Restated Certificate of Incorporation
was duly adopted in accordance with the applicable provisions of Sections 242
and 245 of the General Corporation Law of Delaware and shall become effective
upon filing with the Secretary of State of the State of Delaware.
FIRST: The name of the corporation is HEALTH O METER PRODUCTS,
INC.
SECOND: Its registered office in the State of Delaware is located
at 1013 Centre Road, City of Wilmington, County of New Castle and Corporation
Service Company is the registered agent at such address.
THIRD: The nature of the business and the objects and purposes to
be transacted, promoted and carried on are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes of capital
stock which the corporation shall have authority to issue is ten million
(10,000,000) shares of common stock (the "Common Stock") with a par value of
$0.01 per share.
Shares of stock of the corporation of any class hereby or
hereafter authorized or created may be issued by the corporation from time to
time for such consideration, but no less than the par value thereof, permitted
by law as may be fixed from time to time by the Board of Directors. Said Board
shall have authority as provided by statute to determine that only a part of the
consideration which shall be received by the corporation for any of the shares
of its stock which it shall issue from time to time shall be capital.
<PAGE> 2
SECTION A
COMMON STOCK
1. VOTING RIGHTS. Each share of Common Stock shall have one (1)
vote and the holders thereof shall have the right to vote (except to the extent
otherwise provided by law or this Amended and Restated Certificate of
Incorporation) on all matters subject to vote at any meeting of the stockholders
of the corporation.
2. DIVIDENDS AND DISTRIBUTIONS. The holders of Common Stock shall
be entitled to receive such dividends as may from time to time be declared by
the Board of Directors out of assets legally available therefor.
3. PURCHASES. Subject to any applicable provisions of this
Article Fourth, the corporation may at any time or from time to time purchase or
otherwise acquire shares of its Common Stock in any manner now or hereafter
permitted by law, publicly or privately, or pursuant to any agreement.
SECTION B
MISCELLANEOUS
1. PREEMPTIVE RIGHTS. No holder of any share of any class of
stock of the corporation shall have any preemptive right to subscribe for or
acquire additional shares of stock of any class of the corporation or warrants
or options to purchase, or securities convertible into, shares of any class of
stock of the corporation.
SECTION C
STOCK SPLIT
1. STOCK SPLIT. Notwithstanding anything in this Amended and
Restated Certificate of Incorporation to the contrary, as of the effective date
of this Amended and Restated Certificate of Incorporation, each share of issued
and outstanding Common Stock of the corporation shall be automatically
converted, without further action, into three (3) shares of the within
authorized Common Stock. On such effective date, outstanding certificates
representing shares of Common Stock shall thereafter automatically be deemed to
represent certificates for the number of shares of Common Stock determined as
set forth in the preceding sentence; provided, however, that the holders thereof
shall be entitled to present such certificates to the corporation for
replacement with certificates reflecting such number of shares of Common Stock.
FIFTH: The corporation expressly elects not to be governed by
Section 203 of the General Corporation Law of the State of Delaware.
<PAGE> 3
SIXTH: A. NUMBER, ELECTION AND TERMS OF DIRECTORS. The number of
Directors shall be fixed from time to time exclusively by the Board of Directors
pursuant to a resolution adopted by the Board of Directors. The Directors of the
corporation shall be divided into three classes: Class I, Class II and Class
III. Each class shall consist, as nearly as may be possible, of one-third of the
whole number of the Board of Directors. If the Board of Directors is not evenly
divisible by three, the Board of Directors shall determine the number of
Directors to be elected to each class. The initial member of Class I shall be
Robert W. Miller and he shall hold office for a term to expire at the annual
meeting of the stockholders to be held in 1993; the initial members of Class II
shall be Lawrence Zalusky and Thomas R. Shepherd and they shall hold office for
a term to expire at the annual meeting of the stockholders to be held in 1994;
and the initial member of Class III shall be John W. Childs and he shall hold
office for a term to expire at the annual meeting of the stockholders to be held
in 1995, and in the case of each class, until their respective successors are
duly elected and qualified. At each annual election held commencing with the
annual election in 1993, the Directors elected to succeed those whose terms
expire shall be identified as being of the same class as the Directors they
succeed and shall be elected to hold office for a term to expire at the third
annual meeting of the stockholders after their election and until their
respective successors are duly elected and qualified. If the number of Directors
changes, any increase or decrease in Directors shall be apportioned among the
classes so as to maintain all classes as equal in number as possible, and any
additional Director elected to any class shall hold office for a term which
shall coincide with the terms of the other Directors in such class and until his
successor is duly elected and qualified.
B. STOCKHOLDER NOMINATION OF A DIRECTOR CANDIDATE AND
INTRODUCTION OF NEW BUSINESS. Advance notice of stockholder nominations for the
election of Directors and of new business to be brought by stockholders before
any meeting of the stockholders of the corporation shall be given in a manner
provided by the By-laws of the corporation.
C. REMOVAL. Any Director may be removed from office as a Director
at any time, but only for cause, and only by the affirmative vote of
stockholders of record holding not less than fifty-one percent (51%) of the
outstanding Common Stock of the corporation given at a meeting of the
stockholders called for that purpose.
SEVENTH: A. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of
the stockholders, for any purpose or purposes (except to the extent otherwise
provided by law or this Amended and Restated Certificate of Incorporation), may
only be called by the Chairman of the Board, the President or a majority of the
Board of Directors then in office.
B. WRITTEN CONSENT BY STOCKHOLDERS WITHOUT A MEETING. Except as
otherwise specified in this Amended and Restated Certificate of Incorporation,
any corporate action upon which a vote of stockholders is required or permitted
under the General Corporation Law of Delaware, this Amended and Restated
Certificate of Incorporation or the By-laws of the corporation may be taken
without a meeting, without prior notice and without a vote of stockholders, if
all stockholders who would have been entitled to vote upon the action, if such
meeting were held, shall consent in writing to such corporate action being
taken.
EIGHTH: A. The Board of Directors of the corporation is
authorized to adopt, amend or repeal the By-laws of the corporation, subject to
applicable law and any applicable provisions in any resolution of the Board of
Directors, except that any By-law provision adopted by the stockholders amending
the By-laws after their initial adoption may be amended or repealed only by the
holders of not less than a majority of the
<PAGE> 4
outstanding Common Stock of the corporation; provided, however, that Sections
2.3, 2.9, 2.10, 2.11, 3.2 and 8.1(b) of the By-laws of the corporation may be
amended only by the holders of not less than seventy-five percent (75%) of the
outstanding Common Stock of the corporation.
B. Elections of Directors need not be by written ballot unless
the By-laws of the corporation shall so provide.
C. The books of the corporation may be kept at such place within
or without the State of Delaware as the By-laws of the corporation may provide
or as may be designated from time to time by the Board of Directors of the
corporation.
NINTH: Whenever a compromise or arrangement is proposed between
the corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or the stockholders or class of stockholders of the corporation, as the case
may be, agree to any compromise or arrangement and to any reorganization of the
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.
TENTH: No Director of the corporation shall be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, provided that this Article TENTH shall not
eliminate or limit the liability of a Director: (i) for any breach of the
Director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the General Corporation Law
of the State of Delaware (or the corresponding provision of any successor act or
law); or (iv) for any transaction from which the Director derived an improper
personal benefit. This Article TENTH shall not eliminate or limit the liability
of a Director for any act or omission occurring prior to the date this Article
TENTH becomes effective. Neither the amendment nor repeal of this Article TENTH,
nor the adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article TENTH, shall eliminate or reduce
the effect of this Article TENTH in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article TENTH, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ELEVENTH: AMENDMENT, REPEAL OF ALTERATION. Notwithstanding any
other provisions of this Amended and Restated Certificate of Incorporation or
the By-laws of the corporation or the fact that a lesser percentage may be
specified by law, this Amended and Restated Certificate of Incorporation or the
By-laws of the corporation, the affirmative vote of the holders of not less than
seventy-five percent (75%) of the combined voting power of the outstanding stock
of the corporation entitled to vote generally in the election of Directors,
voting together as a single class, shall be required to amend, alter, adopt any
provision inconsistent with or to repeal Article SIXTH or Article SEVENTH of
this Amended and Restated Certificate of Incorporation.
<PAGE> 5
Furthermore, the corporation reserves the right to amend or repeal any provision
contained in this Amended and Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon a
stockholder herein are granted subject to this reservation.
IN WITNESS WHEREOF, the corporation has caused this Amended and
Restated Certificate to be signed by its duly authorized officers this 5th day
of March, 1992.
Attest:
LEE-CONTINENTAL CORP.
/s/ Francis S. Piotrowski
----------------------------------
Francis S. Piotrowski, Secretary
/s/ Lawrence Zalusky
---------------------------------------
Lawrence Zalusky, Chairman of the Board
<PAGE> 6
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/27/1995
950093320 - 2l58107
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
HEALTH O METER PRODUCTS, INC.
Pursuant to Section 242 of the
Delaware General Corporation Law
The undersigned, Peter C. McC. Howell, being the Chairman of the
Board of Directors, and Kathryn K. Vanderwist, being the Assistant Secretary of
Health o meter Products, Inc., a Delaware corporation (the "Corporation"),
hereby certify as follows:
1. The name of the Corporation is Health o meter Products, Inc.
2. The amendment of the Certificate of Incorporation as
hereinafter set forth has been duly adopted in accordance with Section 242 of
the Delaware General Corporation Law.
3. The Certificate of Incorporation of the Corporation is hereby
amended by deleting in its entirety the first full sentence of the current
Article Fourth and replacing it with the following:
"The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is twenty million (20,000,000) shares
of Common Stock (the "Common Stock") with a par value of $0.01 per share."
IN WITNESS WHEREOF, the undersigned, being the duly elected and
acting Chairman of the Board of Directors and Assistant Secretary, respectively,
have hereunto subscribed their names to this Certificate of Amendment and affirm
that the facts stated herein are true under penalties of perjury, this 27th day
of April, 1995.
/s/ Peter C. McC. Howell
------------------------------------------
Peter C. McC. Howell
Chairman
/s/ Kathryn K. Vanderwist
------------------------------------------
Kathryn K. Vanderwist
Assistant Secretary
<PAGE> 7
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HEALTH O METER PRODUCTS, INC.
Pursuant to Section 242 of the
Delaware General Corporation Law
The undersigned, Thomas F. McKee, being the Secretary of
Health o meter Products, Inc., a Delaware corporation, does hereby certify that
a meeting of the stockholders of Health o meter Products, Inc. was duly called
and held on March 6, 1997, at which meeting an amendment to the Amended and
Restated Certificate of Incorporation was duly adopted in accordance with
Section 242 of the Delaware General Corporation Law through the adoption of the
following resolution:
RESOLVED, that Article FIRST of the Amended and Restated
Certificate of Incorporation is amended to read in its entirety as follows:
"FIRST: The name of the corporation is Signature Brands USA,
Inc."
IN WITNESS WHEREOF, the undersigned hereunto subscribes this
Certificate of Amendment and affirms that the facts stated herein are true under
penalties of perjury, this 6th day of March, 1997.
/s/ Thomas F. McKee
-------------------
Thomas F. McKee
Secretary
<PAGE> 1
Exhibit 10.21
-------------
HEALTH O METER PRODUCTS, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. PURPOSE
The Health o meter Products, Inc. 1997 Stock Option and Incentive Plan, as
the same may be amended (the "Plan"), is designed to foster the long-term growth
and performance of the Company by: (a) enhancing the Company's ability to
attract and retain highly qualified Directors and employees; (b) motivating
Directors and employees to serve and promote the long-term interests of the
Company and its stockholders through stock ownership and performance-based
incentives; and (c) providing the Company with flexibility to provide
stock-based incentives to consultants whose services are anticipated to promote
the Company's long-term business objectives. To achieve this purpose, the Plan
provides authority for the grant of Stock Options and Stock Appreciation Rights.
SECTION 2. DEFINITIONS
(a) "Acquisition Consideration" shall be as defined in Section 12 hereof.
(b) "Affiliate" shall have the meaning ascribed to that term in Rule 12b-2
promulgated under the Exchange Act.
(c) "Award" shall mean the grant of Stock Options and Stock Appreciation
Rights under this Plan.
(d) "Award Agreement" shall mean any agreement between the Company and a
Participant that sets forth terms, conditions, and restrictions applicable to an
Award.
(e) "Board of Directors" shall mean the Board of Directors of the Company.
(f) "Change in Control" shall include, but not be limited to: (i) the first
purchase of shares by a Third Party pursuant to a tender offer or exchange
(other than a tender offer or exchange by the Company) for all or part of the
Company's Common Stock of any class or any securities convertible into such
Common Stock; (ii) the receipt by the Company of a Schedule 13D or other advice
indicating that a Third Party is the "beneficial owner" (as that term is defined
in Rule 13d-3 promulgated under the Exchange Act) of 50 percent (50%) or more of
the Company's Common Stock calculated as provided in paragraph (d) of said Rule
13d-3; (iii) the date of approval by stockholders of the Company of an agreement
providing for any consolidation or merger of the Company in which the Company
will not be the continuing or surviving corporation or pursuant to which shares
of capital stock of any class, or any securities convertible into such capital
stock, of the Company would be converted into cash, securities, or other
property, other than a merger of the Company in which the holders of common
stock of all classes of the Company immediately prior to the merger would have
the same proportion of ownership of common stock of the surviving corporation
immediately after the merger; (iv) the date of the approval by stockholders of
the Company of any sale, lease, exchange, or other transfer (in one transaction
or a series of related transactions) of all or substantially all the assets of
the Company; (v) the adoption of any plan or proposal for the liquidation (but
not a partial liquidation) or dissolution of the Company; or (vi) such other
event as the Committee shall in its sole and absolute discretion, deem to be a
"Change in Control" for purposes of this Plan or any Notice of Award or Award
Agreement entered into pursuant hereto. The manner of application and
interpretation of the foregoing provisions shall be determined by the Committee
in its sole and absolute discretion.
(g) "Code" shall mean the Internal Revenue Code of 1986, or any law that
supersedes or replaces it, as amended from time to time.
<PAGE> 2
(h) "Committee" shall mean the Compensation Committee of the Board of
Directors, or any other committee of the Board of Directors that the Board of
Directors authorizes to administer this Plan. The Committee will be constituted
in a manner that satisfies the "non-employee director" standard set forth in
Rule 16b-3 and the "outside director" requirements of Section 162(m) of the
Code.
(i) "Common Stock" shall mean shares of Common Stock, $.01 par value, of
Health o meter Products, Inc., including authorized and unissued shares and
treasury shares.
(j) "Company" shall mean Health o meter Products, Inc., a Delaware
corporation, and its direct and indirect subsidiaries.
(k) "Director" shall mean a director of Health o meter Products, Inc.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, and any
law that supersedes or replaces it, as amended from time to time.
(m) "Fair Market Value" of Common Stock shall mean the value of the Common
Stock determined by the Committee, or pursuant to rules established by the
Committee on a basis consistent with regulations under the Code.
(n) "Incentive Stock Option" shall mean a Stock Option that meets the
requirements of Section 422 of the Code.
(o) "Notice of Award" shall mean any notice by the Committee to a
Participant that advises the participant of the grant of an Award or sets forth
terms, conditions, and restrictions applicable to an Award.
(p) "Participant" shall mean any person to whom an Award has been granted
under this Plan.
(q) "Person" shall mean an individual, partnership, corporation (including
a business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a governmental authority.
(r) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act,
or any rule that supersedes or replaces it, as amended from time to time.
(s) "Stock Appreciation Right" shall mean an Award granted pursuant to
Section 6(b)(i) hereof.
(t) "Stock Equivalent Unit" shall mean an Award that is valued by reference
to the value of shares of Common Stock.
(u) "Stock Option" shall mean an Award granted pursuant to Section 6(b)(ii)
hereof.
(v) "Third Party" shall mean any person, group or entity other than the Lee
Group Investors or the Fund, each as defined in the Stock Subscription and
Stockholder's Agreement dated as of April 28, 1988, as amended and restated.
SECTION 3. ELIGIBILITY
All Directors and employees of, and consultants to, the Company and its
Affiliates, are eligible for the grant of Awards. The selection of any such
persons to receive Awards will be within the discretion of the Committee. More
than one Award may be granted to the same person.
Notwithstanding the foregoing, (i) no member of the Committee shall be
eligible to receive Awards under the Plan during the period of his or her
service thereon and (ii) any individual that renounces in writing any right that
he or she may have to receive Awards under the Plan shall not be eligible to
receive any Awards hereunder.
<PAGE> 3
SECTION 4. SHARES OF COMMON STOCK AVAILABLE FOR AWARDS; ADJUSTMENT
(a) Number of Shares of Common Stock. The aggregate number of shares of
Common stock that may be subject to Awards granted under this Plan during the
term of this Plan will be equal to 270,000 shares of Common Stock, subject to
any adjustments made in accordance with the terms of this Section 4.
The assumption of obligations in respect of awards granted by an
organization acquired by the Company, or the grant of Awards under this Plan in
substitution for any such awards, will not reduce the number of shares of Common
Stock available in any fiscal year for the grant of Awards under this Plan.
Shares of Common Stock subject to an Award that is forfeited, terminated,
or canceled without having been exercised (other than shares of Common Stock
subject to a Stock Option that is canceled upon the exercise of a related Stock
Appreciation Right) will again be available for grant under this Plan, without
reducing the number of shares of Common Stock available in any fiscal year for
grant of Awards under this Plan, except to the extent that the availability of
those shares of Common Stock would cause this Plan or any Awards granted under
this Plan to fail to qualify for the exemption provided by Rule 16b-3. In
addition, any shares of Common Stock which are retained to satisfy a
participant's withholding tax obligations or which are transferred to the
Company by a participant to satisfy such obligations or to pay all or any
portion of the exercise price of the Award in accordance with the terms of the
Plan, the Award Agreement or the Notice of Award, may be made available for
reoffering under the Plan to any Participant, except to the extent that the
availability of those shares of Common Stock would cause this Plan or any Awards
granted under this Plan to fail to qualify for the exemption provided by Rule
16b-3.
(b) No Fractional Shares. No fractional shares of Common Stock will be
issued, and the Committee will determine the manner in which the value of
fractional shares of Common Stock will be treated.
(c) Adjustment. In the event of any change in the Common Stock by reason
of a merger, consolidation, reorganization, recapitalization, or similar
transaction, including any transaction described under Section 424(a) of the
Code, or in the event of a stock dividend, stock split, or distribution to
stockholders (other than normal cash dividends), the Committee will have
authority to adjust, in any manner that it deems equitable, the number and class
of shares of Common Stock subject to outstanding Awards, the exercise price
applicable to outstanding Awards, and the Fair Market Value of the shares of
Common Stock and other value determinations applicable to outstanding Awards,
including as may be allowed or required under Section 424(a) of the Code.
SECTION 5. ADMINISTRATION
(a) Committee. This Plan will be administered by the Committee. The
Committee will, subject to the terms of this Plan, have the authority to: (i)
select the eligible Directors, employees and consultants who will receive
Awards; (ii) grant Awards; (iii) determine the number and types of Awards to be
granted to eligible Directors, employees and consultants; (iv) determine the
terms, conditions, vesting periods, and restrictions applicable to Awards,
including timing and price; (v) adopt, alter, and repeal administrative rules
and practices governing this Plan; (vi) interpret the terms and provisions of
this Plan and any Awards granted under this Plan, including, where applicable,
determining the method of valuing any Award and certifying as to the
satisfaction of such Awards; (vii) prescribe the forms of any Notices of Award,
Award Agreements, or other instruments relating to Awards; and (viii) otherwise
supervise the administration of this Plan.
<PAGE> 4
(b) Delegation. The Committee may delegate any of its authority to any
other person or persons that it deems appropriate, provided the delegation does
not cause this Plan or any Awards granted under this Plan to fail to qualify for
the exemption provided by Rule 16b-3.
(c) Decisions Final. All decisions by the Committee, and by any other
Person or Persons to whom the Committee has delegated authority, to the extent
permitted by law, will be final and binding on all Persons.
(d) No Liability. Neither the Committee nor any of its members shall be
liable for any act taken by the Committee pursuant to the Plan. No member of the
Committee shall be liable for the act of any other member.
SECTION 6. AWARDS
(a) Grant of Awards. The Committee will determine the type or types of
Awards to be granted to each Participant and will set forth in the related
Notice of Award or Award Agreement the terms, conditions, vesting periods, and
restrictions applicable to each Award. Awards may be granted singly or in
combination or tandem with other Awards. Awards may also be granted in
replacement of, or in substitution for, other awards granted by the Company,
whether or not granted under this Plan; without limiting the foregoing, if a
Participant pays all or part of the exercise price or taxes associated with an
Award by the transfer of shares of Common Stock or the surrender of all or part
of an Award (including the Award being exercised), the Committee may, in its
discretion, grant a new Award to replace the shares of Common Stock that were
transferred or the Award that was surrendered. The Company may assume
obligations in respect of awards granted by any Person acquired by the Company
or may grant Awards in replacement of, or in substitution for, any such awards.
(b) Types of Awards. Awards may include, but are not limited to, the
following:
(i) Stock Appreciation Rights. A Participant who is granted an Award
which is a Stock Appreciation Right shall have the right to receive a
payment in cash or shares of Common Stock, equal to the excess of (A) the
Fair Market Value, or other specified valuation, of a specified number of
shares of Common Stock on the date the right is exercised over (B) the Fair
Market Value, or other specified valuation, of such shares of Common Stock
on the date the right is granted, all as determined by the Committee. The
right may be conditioned upon the occurrence of certain events, such as a
Change in Control of the Company, or may be unconditional, as determined by
the Committee.
(ii) Stock Options. A Participant who is granted an Award which is a
Stock Option shall have the right to purchase a specified number of shares
of Common Stock, during a specified period, and at a specified exercise
price, all as determined by the Committee. A Stock Option may be an
Incentive Stock Option or a Stock Option that does not qualify as an
Incentive Stock Option. In addition to the terms, conditions, vesting
periods, and restrictions established by the Committee, Incentive Stock
Options must comply with the requirements of Section 422 of the Code. The
exercise price of a Stock Option that does not qualify as an Incentive
Stock Option may be more or less than the Fair Market Value of the shares
of Common Stock on the date the Stock Option is granted.
(c) Limits on Awards. The maximum aggregate number of shares of Common
Stock (i) for which Stock Options may be granted, and (ii) with respect to which
Stock Appreciation Rights may be granted, to any particular employee during any
calendar year during the term of this Plan is 75,000, subject to adjustment in
accordance with Section 4(c).
(d) Termination of Awards. Any Award granted under this Plan shall expire,
and the Participant to whom such Award was granted shall have no further rights
with respect thereto, on the tenth anniversary of the date of grant of such
Award, or on such earlier date as may be established by the Committee and
provided in the Notice of Award or Award Agreement with respect to such Award.
<PAGE> 5
SECTION 7. DEFERRAL OF PAYMENT
With the approval of the Committee, the delivery of the shares of Common
Stock cash, or any combination thereof subject to an Award may be deferred,
either in the form of installments or a single future delivery. The Committee
may also permit selected Participants to defer the receipt of some or all of
their Awards, as well as other compensation, in accordance with procedures
established by the Committee to assure that the recognition of taxable income is
deferred under the Code. Deferred amounts may, to the extent permitted by the
Committee, be credited as cash or Stock Equivalent Units. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents on Stock Equivalent Units.
SECTION 8. PAYMENT OF EXERCISE PRICE
The exercise price of a Stock Option (other than an Incentive Stock Option)
and any other Award for which the Committee has established an exercise price
may be paid in cash, by the transfer of shares of Common Stock, by the surrender
of all or part of an Award (including the Award being exercised), or by a
combination of these methods, as and to the extent permitted by the Committee.
The exercise price of an Incentive Stock Option may be paid in cash, by the
transfer of shares of Common Stock, or by a combination of these methods, as and
to the extent permitted by the Committee but may not be paid by the surrender of
all or part of an Award. The Committee may prescribe any other method of paying
the exercise price that it determines to be consistent with applicable law and
the purpose of this Plan.
SECTION 9. TAXES ASSOCIATED WITH AWARDS
Prior to the payment of an Award or upon the exercise or release thereof,
the Company may withhold, or require a Participant to remit to the Company, an
amount sufficient to pay any federal, state, and local taxes associated with the
Award. The Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit a Participant to pay any or all taxes associated
with the Award (other than an Incentive Stock Option) in cash, by the transfer
of shares of Common Stock, by the surrender of all or part of an Award
(including the Award being exercised), or by a combination of these methods. The
Committee may permit a Participant to pay any or all taxes associated with an
Incentive Stock Option in cash, by the transfer of shares of Common Stock, or by
a combination of these methods or by any other method which does not disqualify
the option as an Incentive Stock Option under applicable provisions of the Code.
SECTION 10. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates for any reason, all
unexercised, deferred, and unpaid Awards may be exercisable or paid only in
accordance with rules established by the Committee or as specified in the
particular Award Agreement or Notice of Award. Such rules may provide, as the
Committee deems appropriate, for the expiration, continuation, or acceleration
of the vesting of all or part of the Awards.
SECTION 11. TERMINATION OF AWARDS UNDER CERTAIN CONDITIONS
The Committee may cancel any unexpired, unpaid, or deferred Awards at any
time if the Participant is not in compliance with all applicable provisions of
this Plan or with any Notice of Award or Award Agreement or if the Participant,
without the prior written consent of the Company, engages in any of the
following activities:
(i) Renders services for an organization, or engages in a business,
that is, in the judgment of the Committee, in competition with the Company.
<PAGE> 6
(ii) Discloses to anyone outside of the Company, or uses for any
purpose other than the Company's business any confidential information or
material relating to the Company, whether acquired by the Participant
during or after employment with the Company, in a fashion or with a result
that the Committee, in its judgment, deems is or may be injurious to the
best interests of the Company.
The Committee may, in its discretion and as a condition to the exercise of
an Award, require a Participant to acknowledge in writing that he or she is in
compliance with all applicable provisions of this Plan and of any Notice of
Award or Award Agreement and has not engaged in any activities referred to in
clauses (i) and (ii) above.
SECTION 12. CHANGE IN CONTROL
In the event of a Change in Control of the Company, the Committee shall
have the right, in its sole discretion, to (i) accelerate the exercisability of
any Stock Options and Stock Appreciation Rights, notwithstanding any limitations
set forth in the Plan; (ii) cancel all outstanding Stock Options and Stock
Appreciation Rights in exchange for the kind and amount of shares of the
surviving or new corporation, cash, securities, evidences of indebtedness, other
property or any combination thereof receivable in respect of one share of Common
Stock upon consummation of the transaction in question (the "Acquisition
Consideration") that (a) with respect to Awards of Stock Options, the
Participant would have received had the Stock Option been exercised prior to
such transaction, less the applicable exercise price therefor, and (b) with
respect to a Stock Appreciation Right, the Participant would have received had
payment therefor been made by the Company prior to such transaction in shares of
Common Stock; (iii) cause the Participant to have the right thereafter and
during the term of the Stock Option or Stock Appreciation Right, to receive upon
exercise thereof the Acquisition Consideration receivable upon the consummation
of such transaction by a holder of the number of shares of Common Stock which
might have been obtained upon exercise of all or any portion thereof; or (iv)
take such other action as it deems appropriate to preserve the value of the
Award to the Participant. Alternatively, the Committee shall also have the right
to require any purchaser of the Company's assets or stock, as the case may be,
to take any of the actions set forth in the preceding sentence as such purchaser
may determine to be appropriate or desirable.
SECTION 13. AMENDMENT, SUSPENSION, OR TERMINATION OF THIS PLAN;
AMENDMENT OF OUTSTANDING AWARDS
(a) Amendment, Suspension, or Termination of this Plan. The Board of
Directors may amend, suspend, or terminate this Plan at any time; provided,
however, that in no event, without the approval of the Company's shareholders,
shall any action of the Committee or the Board of Directors result in:
(i) increasing, except as provided in Section 4(c) hereof, the maximum
number of shares of Common Stock that may be subject to Awards granted
under the Plan;
(ii) making any changes which would cause any option granted under the
Plan as an Incentive Stock Option not to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code; or
(iii) making any change which would eliminate the exemption provided
by Rule 16b-3 for this Plan and for Awards granted under this Plan.
(b) Amendment of Outstanding Awards. The Committee may, in its discretion,
amend the terms of any Award, prospectively or retroactively, but no such
amendment may impair the rights of any Participant without his or her consent.
The Committee may, in whole or in part, waive any restrictions or conditions
applicable to, or accelerate the vesting of, any Award.
<PAGE> 7
SECTION 14. AWARDS TO FOREIGN NATIONALS AND EMPLOYEES OUTSIDE THE UNITED STATES
To the extent that the Committee deems appropriate to comply with foreign
law or practice and to further the purpose of this Plan, the Committee may,
without amending this Plan, (i) establish special rules applicable to Awards
granted to Participants who are foreign nationals, are employed outside the
United States, or both, including rules that differ from those established under
this Plan, and (ii) grant Awards to such Participants in accordance with those
rules.
SECTION 15. NONASSIGNABILITY
Unless otherwise determined by the Committee, (i) no Award granted under
the Plan may be transferred or assigned by the Participant to whom it is granted
other than by will, pursuant to the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined in the Code, and (ii) an
Award granted under this Plan may be exercised, during the Participant's
lifetime, only by the Participant or by the Participant's guardian or legal
representative. Notwithstanding the foregoing, no Incentive Stock Option may be
transferred or assigned pursuant to a qualified domestic relations order or
exercised, during the Participant's lifetime, by the Participant's guardian or
legal representative.
SECTION 16. TERMS OF AWARDS AND RELATED AGREEMENTS NEED NOT BE IDENTICAL
The form and substance of Awards, Award Agreements and Notices of Awards,
whether granted at the same or different times, need not be identical. Subject
only to the terms of the Plan, the Committee shall have the authority to
prescribe the terms of any Awards and the provisions of any Award Agreements,
Notices of Award or other instruments entered into with respect to the same; it
being expressly understood that the Committee shall have the authority to
include in any such Award Agreements, Notices of Award or other instruments
relating to Awards, such representations, warranties, covenants and agreements
on behalf of the Company or the participant as it deems necessary or
appropriate, including, without limitation, covenants relating to
non-competition, non-solicitation and non-disclosure of confidential
information.
SECTION 17. GOVERNING LAW
The interpretation, validity, and enforcement of this Plan will, to the
extent not otherwise governed by the Code or the securities laws of the United
States, be governed by the laws of the State of Delaware.
SECTION 18. NO RIGHTS AS EMPLOYEES/STOCKHOLDERS
Nothing in the Plan or in any Award Agreement or Notice of Award shall
confer upon any Participant any right to continue in the employ of the Company
or an Affiliate, or to serve as a member of the Board or to be entitled to
receive any remuneration or benefits not set forth in the Plan or such Award
Agreement or Notice of Award, or to interfere with or limit either the right of
the Company or an Affiliate to terminate the employment of such Participant at
any time or the right of the stockholders of the Company to remove him or her as
a member of the Board with or without cause. Nothing contained in the Plan or in
any Award Agreement or Notice of Award shall be construed as entitling any
Participant to any rights of a stockholder as a result of the grant of an Award
until such time as shares of Common Stock are actually issued to such
Participant pursuant to the exercise of a Stock Option or Stock Appreciation
Right.
SECTION 19. EFFECTIVE AND TERMINATION DATES
(a) Effective Date. This Plan was approved by the Board of Directors on
January 21, 1997 and becomes effective upon adoption by the affirmative vote of
the holders of a majority of the voting power of the Company represented by the
shares of Common Stock represented in
<PAGE> 8
person or by proxy, at any annual or special meeting of stockholders at which a
quorum is present. The Plan shall be deemed to be adopted on the date of such
stockholder meeting.
(b) Termination Date. This Plan will continue in effect until midnight on
March 5, 2007; provided, however, that Awards granted on or before that date may
extend beyond that date and restrictions and other terms and conditions imposed
on Restricted Stock or any other Award granted on or before that date may extend
beyond such date.
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