SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant
to Rule 14a-11(c) or Rule 14a-12
Motorcar Parts & Accessories, Inc.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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<PAGE>
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
2727 Maricopa Street
Torrance, California 90503
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 3, 1997
To the Shareholders of Motorcar Parts & Accessories, Inc.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders
(the "Meeting") of Motorcar Parts & Accessories, Inc. (the "Company") will be
held at The Penn Club, 30 West 44th Street, New York, New York, on Wednesday,
September 3, 1997 at 10:30 A.M., New York City time, to consider and act upon
the following matters:
(1) The election of seven directors;
(2) The approval of the Company's 1996 Stock Option Plan;
(3) The approval of an amendment to the Company's 1994 Stock Option Plan;
(4) The ratification and approval of the appointment of Richard A. Eisner
& Company, LLP as the Company's independent certified public
accountant for the fiscal year ending March 31, 1998; and
(5) The transaction of such other business as may properly come before
the Meeting or any adjournment or postponement thereof.
Information regarding the matters to be acted upon at the Meeting is
contained in the accompanying Proxy Statement.
The close of business on August 7, 1997 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meeting or any adjournment or postponement thereof.
By Order of the Board of Directors,
GARY J. SIMON
Secretary
Torrance, California
August 8, 1997
- - --------------------------------------------------------------------------------
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. EACH SHAREHOLDER
IS URGED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WHICH IS BEING
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. AN ENVELOPE ADDRESSED TO THE
COMPANY'S TRANSFER AGENT IS ENCLOSED FOR THAT PURPOSE AND NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES.
- - --------------------------------------------------------------------------------
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
2727 Maricopa Street
Torrance, California 90503
---------------
PROXY STATEMENT
---------------
This Proxy Statement is furnished to the holders of Common Stock, par
value $.01 per share ("Common Stock"), of Motorcar Parts & Accessories, Inc.
(the "Company") in connection with the solicitation by and on behalf of its
Board of Directors of proxies ("Proxy" or "Proxies") for use at the 1997 Annual
Meeting of Shareholders (the "Meeting") to be held on Wednesday, September 3,
1997, at 10:30 A.M., New York City time, at The Penn Club, 30 West 44th Street,
New York, New York and at any adjournment or postponement thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
The cost of preparing, assembling and mailing the Notice of Annual Meeting of
Shareholders, this Proxy Statement and Proxies is to be borne by the Company.
The Company will also reimburse brokers who are holders of record of Common
Stock for their expenses in forwarding Proxies and Proxy soliciting material to
the beneficial owners of such shares. In addition to the use of the mails,
Proxies may be solicited without extra compensation by directors, officers and
employees of the Company by telephone, telecopy, telegraph or personal
interview. The approximate mailing date of this Proxy Statement is August 8,
1997.
Unless otherwise specified, all Proxies, in proper form, received by
the time of the Meeting will be voted for the election of all nominees named
herein to serve as directors and in favor of each of the proposals set forth in
the accompanying Notice of Annual Meeting of Shareholders and described below.
A Proxy may be revoked by a shareholder at any time before its
exercise by filing with Gary J. Simon, the Secretary of the Company, at the
address set forth above, an instrument of revocation or a duly executed proxy
bearing a later date, or by attendance at the Meeting and electing to vote in
person. Attendance at the Meeting will not, in and of itself, constitute
revocation of a Proxy.
The close of business on August 7, 1997 has been fixed by the Board
of Directors as the record date ("Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Meeting and any
adjournment thereof. As of the Record Date, there were 5,067,455 shares of
Common Stock outstanding. Each share of Common Stock outstanding on the Record
Date will be entitled to one vote on all matters to come before the Meeting.
A majority of the shares entitled to vote, represented in person or
by proxy, is required to constitute a quorum for the transaction of business.
Proxies submitted which contain abstentions or broker nonvotes will be deemed
present at the Meeting for determining the presence of a quorum.
<PAGE>
Proposal 1
ELECTION OF DIRECTORS
At the Meeting, shareholders will elect seven directors to serve
until the next Annual Meeting of Shareholders and until his or her respective
successor is elected and qualified. Unless otherwise directed, the persons named
in the Proxy intend to cast all Proxies received for the election of Mel Marks,
Richard Marks, Karen Brenner, Selwyn Joffe, Mel Moskowitz, Murray Rosenzweig and
Gary J. Simon to serve as directors upon their nomination at the Meeting. Each
of the aforementioned individuals has advised the Company of his or her
willingness to serve as a director of the Company. Shares represented by valid
proxies in the accompanying form will be voted for the election of all of the
directors and nominees named below, unless a contrary direction is indicated.
Should any director or nominee named below become unavailable for election to
the Board of Directors for any reason, the persons named in the Proxies have
discretionary authority to vote the Proxies for one or more alternative nominees
who will be designated by the Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS
The directors, nominees and executive officers of the Company, their
ages and present positions with the Company, are as follows:
Name Age Position with the Company
- - ---- --- -------------------------
Mel Marks 69 Chairman of the Board of Directors
and Chief Executive Officer
Richard Marks 45 President, Chief Operating Officer
and Director
Karen Brenner 41 Nominee
Selwyn Joffe* 39 Director
Mel Moskowitz* 64 Director
Murray Rosenzweig* 73 Director
Gary J. Simon 40 Nominee and Secretary
Steven Kratz 42 Vice President - Operations
Peter Bromberg 32 Chief Financial Officer and
Assistant Secretary
- - -----------
* Member of Audit and Compensation Committees
-2-
<PAGE>
INFORMATION ABOUT DIRECTORS AND NOMINEES
The following is a brief summary of the background of each director
and nominee:
Mel Marks founded the Company in 1968. Mr. Marks has served as the
Company's Chairman of the Board of Directors and Chief Executive Officer since
that time. Prior to founding the Company, Mr. Marks was employed for over twenty
years by Beck/Arnley-Worldparts, a division of Echlin, Inc. (one of the largest
importers and distributors of parts for imported cars), where he served as Vice
President. Mr. Marks is based in the Company's New York office.
Richard Marks joined the Company in 1979. Mr. Marks has served as the
Company's Vice President of Sales and, since 1987, its President and Chief
Operating Officer. He has served as a director of the Company since 1979. Mr.
Marks is based in the Company's Torrance office. Mr. Marks is the son of Mel
Marks.
Karen Brenner is a nominee for director of the Company. Since
November 1991, Ms. Brenner has been a Managing Director of Noel Group, Inc.
("Noel"), a company holding diversified interests in various businesses,
including Lincoln Snacks Company and Carlyle Industries, Inc., as discussed
below. Previously, Ms. Brenner served as a director of Noel from October 1989
until November 1991, and as a Vice President of Noel from April 1989 until
November 1991. Prior to joining Noel, Ms. Brenner was a principal in a
management and financial consulting business, specializing in managing
turnaround situations for venture capital and leveraged buyout companies. Since
June 1994, Ms. Brenner has served as Chairman and Chief Executive Officer of
Lincoln Snacks, one of the leading manufacturers and marketers in the United
States and Canada of caramelized pre-popped popcorn, and has also served as a
director of Lincoln Snacks since its inception. Ms. Brenner was formerly
Chairman of the Board of Swiss Army Brands. Since May 1996, Ms. Brenner has
served as Chairman of Carlyle which, along with its subsidiaries, distributes a
line of home sewing and craft products, principally buttons. She has also served
as President and Chief Executive Officer of Carlyle since October 1996, and as
Vice-Chairman and a director since February 1996. Ms. Brenner is currently a
director of On Assignment, Inc., a leading nationwide provider of science
professionals on temporary assignments to laboratories in the biotechnology,
environmental, chemical, pharmaceutical, food and beverage and petrochemical
industries; a member of the Board of Trustees of Prep for Prep, a charitable
organization dedicated to providing preparatory education to disadvantaged
children; and a trustee of the City Parks Foundation of New York.
Selwyn Joffe has served as a director of the Company since June 1994.
Since September 1995, Mr. Joffe also has served as a consultant to the Company.
From 1989 until June 1996, Mr. Joffe served as President and Chief Executive
Officer of Wolfgang Puck Food Company, LP, which owns and operates restaurants.
Since June 1996, Mr. Joffe has been the Chief Executive Officer of Eatertainment
LLC, which is in the food and restaurant business.
Mel Moskowitz has served as a director of the Company since February
1994. In 1957, he founded and, until 1989, served as the President and Chief
Executive Officer of Rodi Automotive, Inc., a company engaged in the automotive
parts distribution business. Since that time, Mr. Moskowitz has acted as a
private investor.
-3-
<PAGE>
Murray Rosenzweig has served as a director of the Company since
February 1994. Since 1973, Mr. Rosenzweig has been the President and Chief
Executive Officer of Linden Maintenance Corp., which operates one of the largest
fleets of taxicabs in New York City.
Gary J. Simon is a nominee for director of the Company and has been
the Secretary of the Company since August 1995. Mr. Simon has been a partner in
the law firm of Parker Chapin Flattau & Klimpl, LLP, since January 1, 1993 and
has been an attorney with that firm since 1987.
INFORMATION ABOUT NON-DIRECTOR EXECUTIVE OFFICERS
The following is a brief summary of the background of each executive
officer of the Company who is not also a director of the Company:
Steven Kratz has been employed by the Company since 1988. Before
joining the Company, he was General Manager of GKN Products Company, a division
of Beck/Arnley-Worldparts. As Vice President - Operations, Mr. Kratz heads the
Company's research and development efforts and manages production, inventory
planning and engineering.
Peter Bromberg, a certified public accountant, has been the Company's
Chief Financial Officer since March 1994. Prior thereto, he was an accountant in
the New York City firm of Kraft Haiken & Bell, certified public accountants.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. To the
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company during the fiscal year ended March 31, 1997, there were
no late or delinquent filings except that Selwyn Joffe inadvertently did not
timely file one report concerning two stock option grants.
COMMITTEES
During the fiscal year ended March 31, 1997, the Company's Board of
Directors held four meetings and took action by written consent on one occasion.
Each incumbent director attended each meeting of the Board of Directors that
occurred during his directorship in fiscal 1997.
The Company has an Audit Committee of the Board of Directors. The
function of the Audit Committee is to oversee the auditing procedures of the
Company, receive and accept the
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<PAGE>
reports of the Company's independent certified public accountants, oversee the
Company's internal systems of accounting and management controls and make
recommendations to the Board of Directors as to the selection and appointment of
the auditors for the Company. The Audit Committee met once during fiscal 1997.
The Company also has a Compensation Committee of the Board of Directors. The
function of the Compensation Committee is to administer, upon delegation of the
Board of Directors of the power to administer, the Company's stock option plans,
make other relevant compensation decisions of the Company and such other matters
relating to compensation as may be prescribed by the Board of Directors. The
Compensation Committee held three meetings and took action by unanimous written
consent on three occasions during fiscal 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 1997 were,
until August 4, 1996, Messrs. Rosenzweig, Moskowitz, M. Marks (an officer of the
Company) and R. Marks (also an officer of the Company) and, thereafter, Messrs.
Rosenzweig, Moskowitz and Joffe. No member of the Compensation Committee has a
relationship that would constitute an interlocking relationship with executive
officers or directors of another entity. In October 1996, pursuant to a
three-year consulting agreement entered into by the Company and Mr. Joffe (as
described below), Mr. Joffe was granted options to purchase 15,000 shares of
Common Stock at an exercise price of $13.44 per share as compensation for
financial advisory and consulting services thereunder. The grant of these
options is subject to approval by the Company's shareholders at the Meeting. See
"Compensation of Directors".
-5-
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative return to holders of
Common Stock from the date of the Company's initial public offering on March 23,
1994 to March 31, 1994 and for the three fiscal years ended March 31, 1997 with
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
Market Index and a peer group index of five competing companies for the same
period. The comparison assumes $100 was invested at the close of business on
March 23, 1994 in the Common Stock and in each of the comparison groups, and
assumes reinvestment of dividends. The Company paid no dividends during the
periods.
[GRAPHIC OMITTED]
THE TABULAR CHART BELOW DEPICTS THE PERFORMANCE CHART OMITTED
Base Period Year Ended March 31,
----------- --------------------
Company\Index March 23, 1994 1994 1995 1996 1997
- - ------------- -------------- ---- ---- ---- ----
MOTORCAR PARTS & ACCESSORIES, INC . 100 141.67 162.50 262.50 235.42
NASDAQ ............................ 100 93.16 103.66 140.71 156.08
PEER GROUP ........................ 100 93.07 90.89 104.61 103.07
-6-
<PAGE>
TOTAL SHAREHOLDER RETURNS - DIVIDENDS REINVESTED
------------------------------------------------
ANNUAL RETURN PERCENTAGE
Year Ended March 31,
Company\Index 1994(1) 1995 1996 1997
- - -------------- ------- ---- ---- ----
Motorcar Parts & Accessories, Inc..........41.67 14.71 61.54 -10.32
NASDAQ.....................................-6.84 11.27 35.74 10.92
Peer Group.................................-6.93 -2.35 15.10 -1.47
INDEXED RETURNS
Base Period Year Ended March 31,
----------- --------------------
Company\Index March 23, 1994 1994 1995 1996 1997
- - ------------- -------------- ---- ---- ---- ----
MOTORCAR PARTS & ACCESSORIES, INC . 100 141.67 162.50 262.50 235.42
NASDAQ ............................ 100 93.16 103.66 140.71 156.08
PEER GROUP ........................ 100 93.07 90.89 104.61 103.07
Peer Group Population:
Arrow Automotive Industries, Inc.
Dana Corporation
Echlin Inc.
The Standard Products Company
Superior Industries International, Inc.
- - ------------------
(1) From the date of the Company's initial public offering, at a price
per share of $6.00, on March 23, 1994.
COMPENSATION COMMITTEE REPORT
Overview and Philosophy
-----------------------
The Compensation Committee of the Board of Directors is composed of
three directors, none of whom is an employee of the Company. The Compensation
Committee is responsible for developing and making recommendations to the Board
of Directors with respect to the Company's executive compensation policies. In
addition, the Compensation Committee, pursuant to authority delegated by the
Board of Directors, determines the compensation to be paid to the Chief
Executive Officer and each of the other executive officers of the Company.
-7-
<PAGE>
The objectives of the Company's executive compensation program are
to:
* Support the achievement of desired Company performance.
* Provide compensation that will attract and retain superior
talent and reward performance.
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the automotive
remanufacturing industry, as well as with a broader group of companies of
comparable size and complexity.
Executive Officer Compensation Program
--------------------------------------
The Company's executive officer compensation program is comprised of
base salary, bonus and long-term incentive compensation in the form of stock
options and various benefits, including medical plans and deferred compensation
arrangements.
Base Salary. Base salary levels for the Company's executive officers
are competitively set relative to companies in comparable manufacturing
industries. In addition, the Committee has reviewed an independent report in
assessing comparable executive compensation arrangements. In determining
salaries, the Committee also takes into account individual experience and
performance and specific issues particular to the Company. The Committee
considered each of these factors in approving the salary increases for Mel Marks
as well as for certain other of the Company's executive officers.
Bonus. Executive officers, including Mel Marks, and certain key
employees participate in the Executive and Key Employee Incentive Bonus Plan
under which bonuses may be awarded, provided earnings before interest and taxes,
exclusive of extraordinary items, of a fiscal year exceeds such earnings for the
prior fiscal year by at least 20%. Under the bonus plan, participants are
grouped into four classes, with each class having a different range of bonus
payments for achieving specified targets of such earnings. The maximum bonus
payments, payable in the event that such earnings for a fiscal year exceed such
earnings for the prior fiscal year by 40%, range among the groups from 27% to
50% of base salary.
Stock Option Program. The stock option program is the Company's
long-term incentive plan for providing an incentive to key employees (including
directors and officers who are key employees), consultants and to directors.
Deferred Compensation. The Company contributes on behalf of each
executive officer, $.50 on each dollar, up to six percent of such executive
officer's annual salary and bonus, to the Company's non-qualified deferred
compensation plan.
-8-
<PAGE>
Benefits. The Company provides to executive officers medical benefits
that generally are available to Company employees. The amount of perquisites, as
determined in accordance with the rules of the SEC relating to executive
compensation, did not exceed ten percent of salary for fiscal 1997.
Selwyn Joffe
Mel Moskowitz
Murray Rosenzweig
Members of the Compensation Committee
COMPENSATION OF DIRECTORS
Each of the Company's non-employee directors receives annual
compensation of $10,000, is paid a fee of $2,000 for each meeting of the Board
of Directors attended and $500 for each meeting of a Committee of the Board of
Directors attended and is reimbursed for reasonable out-of-pocket expenses in
connection therewith.
The Company's 1994 Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan") provides that each non-employee director of the
Company will be granted thereunder ten-year options to purchase 1,500 shares of
Common Stock upon his or her initial election as a director, which options are
fully exercisable on the first anniversary of the date of grant. The exercise
price of the option will be equal to the fair market value of the Common Stock
on the date of grant. The Non-Employee Director Plan was adopted by the Board of
Directors on October 1, 1994, and by the shareholders in August 1995, in order
to attract, retain and provide incentive to directors who are not employees of
the Company. The Board of Directors does not have authority, discretion or power
to select participants who will receive options pursuant to the Non-Employee
Director Plan, to set the number of shares of Common Stock to be covered by each
option, to set the exercise price or period within which the options may be
exercised or to alter other terms and conditions specified in such plan. To
date, options to purchase 4,500 shares of Common Stock, at an exercise price of
$8.125 per share, have been granted under the Non-Employee Director Plan, none
of which has been exercised.
In addition, the Company's 1994 Stock Option Plan (the "1994 Stock
Option Plan") provides that each non-employee director of the Company receive
formula grants of stock options as described below. Each person who served as a
non-employee director of the Company during all or part of a fiscal year (the
"Fiscal Year") of the Company, including March 31 of that Fiscal Year, will
receive on the immediately following April 30 (the "Award Date"), as
compensation for services rendered in that Fiscal Year, an award under the Stock
Option Plan of immediately exercisable ten-year options to purchase 1,500 shares
of Common Stock (a "Full Award") at an exercise price equal to the fair market
value of the Common Stock on the Award Date. Each non-employee director who
served during less than all of the Fiscal Year is awarded one-twelfth of a Full
Award for each month or portion thereof that he or she served as a non-employee
director of the Company. As formula grants under the Stock Option Plan, the
foregoing grants of options to directors are not subject to the determinations
of the Board of Directors or the Compensation Committee.
-9-
<PAGE>
In September 1995, the Company entered into a three-year consulting
agreement with Selwyn Joffe, a director of the Company, pursuant to which Mr.
Joffe is to provide certain financial advisory and consulting services to the
Company. The agreement provides that Mr. Joffe receive, on that date and on each
of the next two anniversaries of that date, subject to his continuing
performance under the consulting agreement as compensation for his services
thereunder, a one-time grant of immediately exercisable options to purchase
15,000 shares of Common Stock at an exercise price equal to the fair market
value of the Common Stock. Accordingly, in September 1995, Mr. Joffe was granted
ten-year options to purchase 15,000 shares of Common Stock at an exercise price
of $13.125 per share. The grant of these options is subject to approval by the
Company's shareholders at the Meeting. See "Proposal 3: Approval of an Amendment
to the Company's 1994 Stock Option Plan". Further in accordance with the
consulting agreement, in October 1996, subject to the approval of the Company's
shareholders at the Meeting, Mr. Joffe was granted ten-year options to purchase
15,000 shares of Common Stock at an exercise price of $13.44 per share. See
"Proposal 2: Approval of the Company's 1996 Stock Option Plan".
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 21, 1997, certain
information as to the Common Stock ownership of each of the Company's directors
and nominees for director, each of the officers included in the Summary
Compensation Table below, all executive officers and directors as a group and
all persons known by the Company to be the beneficial owners of more than five
percent of the Company's Common Stock.
Amount and Nature
Name and Address of Beneficial Percent
of Beneficial Shareholder Ownership(1) of Class
- - ------------------------- ------------ --------
Mel Marks 764,411 15.1%
c/o Motorcar Parts & Accessories, Inc.
2727 Maricopa Street
Torrance, CA 90503
Richard Marks 563,122(2) 11.1%
c/o Motorcar Parts & Accessories, Inc.
2727 Maricopa Street
Torrance, CA 90503
Gary J. Simon (3) 253,714 5.0%
c/o Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Steven Kratz 50,000(4) (9)
c/o Motorcar Parts & Accessories, Inc.
2727 Maricopa Street
Torrance, CA 90503
Peter Bromberg 30,900(5) (9)
c/o Motorcar Parts & Accessories, Inc.
2727 Maricopa Street
Torrance, CA 90503
Mel Moskowitz 6,500(6) (9)
6963 Queen Ferry Circle
Boca Raton, FL 33496
Murray Rosenzweig 17,500(6) (9)
24 Northwood Lane
Boynton Beach, FL 33436
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<PAGE>
Amount and Nature
Name and Address of Beneficial Percent
of Beneficial Shareholder Ownership(1) of Class
- - ------------------------- ------------ --------
Selwyn Joffe 35,150(7) (9)
c/o Eatertainment LLC
8619 Sunset Boulevard
Los Angeles, CA 90069
Karen Brenner --- ---
c/o Noel Group, Inc.
667 Madison Avenue
New York, NY 10021
Directors and executive 1,467,583(8) 28.1%
officers as a group
(7 persons)
- - ------------------
(1) The listed shareholders, unless otherwise indicated in the footnotes below,
have direct ownership over the amount of shares indicated in the table.
(2) Includes 25,000 shares issuable upon exercise of currently exercisable
options, 142,857 shares held by The Richard Marks Trust, of which Richard
Marks is a Trustee and a beneficiary, 4,750 shares held by Mr. Marks' wife
and 8,996 shares held by his son.
(3) Gary J. Simon, by virtue of his shared voting and dispositive power as a
Trustee over the shares held by both The Richard Marks Trust and The Debra
Schwartz Trust, may be deemed the beneficial owner of a total of 250,714
shares, representing the aggregate share holdings of the trusts.
(4) Represents 35,000 shares issuable upon exercise of currently exercisable
options and 15,000 shares issuable upon exercise of options exercisable
commencing September 1, 1997 granted under the 1994 Stock Option Plan.
(5) Includes 30,000 shares issuable upon exercise of currently exercisable
options granted under the 1994 Stock Option Plan.
(6) Includes 3,000 shares issuable upon exercise of currently exercisable
options granted under the 1994 Stock Option Plan and 1,500 shares issuable
upon exercise of currently exercisable options granted under the
Non-Employee Director Plan.
(7) Includes 17,750 shares issuable upon exercise of currently exercisable
options granted under the 1994 Stock Option Plan, 15,000 shares issuable
upon exercise of currently exercisable options granted under the 1996 Stock
Option Plan and 1,500 shares issuable upon exercise of currently
exercisable options granted under the Non-Employee Director Plan.
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<PAGE>
(8) Includes 128,750 shares issuable upon exercise of currently exercisable
options granted under the 1994 Stock Option Plan, 15,000 shares issuable
upon exercise of currently exercisable options granted under the 1996 Stock
Option Plan and 4,500 shares issuable upon exercise of currently
exercisable options granted under the Non-Employee Director Plan.
(9) Less than 1%.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual
compensation of the Company's chief executive officer and other most highly
compensated executive officers, whose salary and bonus exceeded $100,000 for the
1997 fiscal year, for services in all capacities to the Company during the
Company's 1997, 1996 and 1995 fiscal years.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- -------------
Shares
Name and Principal .... Other Annual Underlying All Other
Position .............. Year Salary Bonus Compensation Options Compensation(2)
- - ----------------------- ---- ------ ----- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C>
Mel Marks ............. 1997 $300,231 $150,000 -- -- $ 16,292
Chairman of the ... 1996 $252,000 $175,000 -- -- --
Board and Chief ... 1995 $252,969 $ 50,000 -- -- --
Executive Officer
Richard Marks ......... 1997 $300,231 $150,000 $ 12,695 50,000 $ 135
President and Chief 1996 $252,145 $175,000 $ 9,060 -- --
Operating Officer . 1995 $252,969 $ 50,000 -- -- --
Steven Kratz .......... 1997 $175,214 $ 87,500 $ 6,501 20,000(3)
Vice President - .. 1996 $152,395 $ 75,000 $ 4,569 35,000(3)
Operations ........ 1995 $128,442 $ 10,000 -- --
Peter Bromberg ........ 1997 $119,711 $ 48,000 $ 4,597 12,500(3)
Chief Financial ... 1996 $100,057 $ 40,000 $ 3,180 5,000(3)
Officer and ....... 1995 $ 85,000 -- -- --
Assistant Secretary
</TABLE>
- - --------
(1) Represents amounts subject to the Company's non-qualified deferred
compensation plan contributed on the executive employee's behalf by the
Company. (2) Consists of the dollar value of split-dollar life insurance
benefits. (3) These shares were repriced during fiscal 1997.
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<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Granted Price Appreciation for
Underlying to Employees Exercise or Expiration Option Terms
Name Options Granted in Fiscal 1997(4) Base Price Date 5%($) 10%($)
- - ---- --------------- -------------------- -------------- ---------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
November 28,
Richard Marks 50,000(1) 28.1% $14.69/share 2006 $461,923 $1,170,604
Steven Kratz 20,000(2) 11.3% $10.63/share(5) April 17, 2006 $133,703 $338,830
Peter Bromberg 12,500(3) 7.0% $10.63/share(5) April 17, 2006 $83,564 $211,769
</TABLE>
- - ---------------
(1) The options are currently exercisable as to 25,000 shares and exercisable
as to 25,000 shares commencing December 2, 1997.
(2) The options are fully exercisable commencing April 18, 1999.
(3) The options are currently exercisable as to 10,000 shares and exercisable
as to 2,500 shares commencing April 18, 1998.
(4) Does not include options repriced during fiscal 1997.
(5) The options were repriced during fiscal 1997 from $16.00 per share to
$10.63 per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Shares Acquired Value Options at Fiscal Year End at Fiscal Year End
Name on Exercise (#) Realized ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable(2)
- - ---- ---------------- --------------- -------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Richard Marks 0 $0 25,000/25,000 $0/$0
Steven Kratz 10,000 $115,750 60,000/40,000 $406,950/$132,400
Peter Bromberg 5,000 $57,250 15,000/17,500 $119,100/$57,925
</TABLE>
- - ---------------
(1) Represents the fair market value of the underlying shares of Common Stock
on the date of exercise less the option exercise price.
(2) Based on the fair market value per share of $13.94 on the last day of
fiscal 1997.
-15-
<PAGE>
OPTION REPRICING
The following table sets forth information with respect to the
participation by the Company's current and former executive officers in all
repricing programs implemented by the Company during the last completed fiscal
year.
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
Length of
Original
Number of Option Term
Securities Remaining at
Underlying Market Price of Exercise Price at Date of
Options Stock at Time of Time of New Repricing or
Repriced or Repricing or Repricing or Exercise Amendment
Name and Position Date Amended (#) Amendment ($) Amendment ($) Price ($) (Years)
- - -------------------- ------- ------------ --------------- ------------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven Kratz
VP - Operations 8/15/96 35,000 $10.63 $13.125 $10.63 9.0
Steven Kratz
VP - Operations 8/15/96 20,000 $10.63 $16.00 $10.63 9.66
Peter Bromberg
CFO and Assistant
Secretary 8/15/96 5,000 $10.63 $13.125 $10.63 9.0
Peter Bromberg
CFO and Assistant
Secretary 8/15/96 12,500 $10.63 $16.00 $10.63 9.66
Eli Markowitz
Vice President 8/15/96 50,000 $10.63 $13.125 $10.63 9.0
Eli Markowitz
Vice President 8/15/96 10,000 $10.63 $16.00 $10.63 9.66
</TABLE>
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
The 1994 Stock Option Plan was established as an employment incentive
to retain the persons necessary for the development and financial success of the
Company. As a result of the decrease in the market price during the preceding
months and recognizing that previously granted stock options had lost much of
their value in motivating employees, including the named executive officers, to
remain with the Company and share in its overall financial goals, the
Compensation Committee of the Board of Directors in August 1996, pursuant to the
authority granted under the 1994 Stock Option Plan, voted to approve the
repricing of 180,250 options, including 132,500 options granted to the executive
officers named above. Such repricing was effected by offering to exchange new
options with an exercise price of $10.63 per share, which was the fair market
value of the Common Stock on the date of repricing, for the options then held by
such optionees.
-16-
<PAGE>
The new options otherwise would have identical terms and conditions as the
current options. By repricing the existing options granted under the 1994 Stock
Option Plan, the Company intends to reward key employees, including the named
executive officers, holding such options for their contributions to the Company.
Selwyn Joffe
Mel Moskowitz
Murray Rosenzweig
Members of the Compensation Committee
The Company has obtained individual term life insurance policies
covering each of Mel Marks, Richard Marks and Steven Kratz in the amount of
$1,400,000, $1,650,000 and $1,000,000, respectively. The Company is the sole
beneficiary under these policies. The Company has obtained directors and
officers liability insurance in the amount of $10,000,000. The annual premium
for this insurance is $108,900.
The Company has agreed to fund on a split dollar basis approximately
$6,000,000 of survivorship life insurance on the joint lives of Mel Marks and
his wife. The aggregate annual premiums are approximately $69,300. The Company
also has agreed to fund on a split dollar basis approximately $4,500,000 of
survivorship life insurance on the joint lives of Richard Marks and his wife.
The aggregate annual premiums are approximately $24,200. Under the agreements,
the Company will be reimbursed for its premium costs either by insurance
proceeds upon the death of the insureds or out of the cash surrender value or
otherwise upon termination of the arrangement.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, as amended to
date, with Mel Marks pursuant to which he is employed full-time as the Company's
Chairman of the Board and Chief Executive Officer. The agreement expires in
September 1999 and provides for an annual base salary of $300,000. The Company's
Board of Directors also may grant bonuses or increase the base salary payable to
Mr. Marks. In addition to his cash compensation, Mr. Marks receives an
automobile allowance and other benefits, including those generally provided to
other employees of the Company. The agreement further provides for a severance
payment of one year's salary upon termination of employment under certain
circumstances. In addition, in the event of the termination of employment
(including termination by Mr. Marks for "good reason") within two years after a
"change in control" of the Company, Mr. Marks will (except if termination is for
cause) be entitled to receive a lump sum payment equal in amount to the sum of
(i) Mr. Marks' base salary and average three-year bonus through the termination
date and (ii) three times the sum of such salary and bonus. In addition, the
Company must in such circumstances continue Mr. Marks' then current employee
benefits for the remainder of the term of the employment agreement. In no case,
however, may Mr. Marks receive any payment or benefit in connection with a
change in control in excess of 2.99 times his "base amount"
-17-
<PAGE>
(as that term is defined in Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code")).
The Company has entered into an employment agreement, as amended to
date, with Mr. Richard Marks pursuant to which he is employed full-time as the
Company's President and Chief Operating Officer. The agreement expires in
September 2000 and provides for an annual base salary of $400,000. The Company's
Board of Directors also may grant bonuses or increase the base salary payable to
Mr. Marks. In addition to his cash compensation, Mr. Marks receives an
automobile allowance and other benefits, including those generally provided to
other employees of the Company. The agreement further provides for a severance
payment of one year's salary upon termination of employment under certain
circumstances. In addition, in the event of the termination of employment
(including termination by Mr. Marks for "good reason") within two years after a
"change in control" of the Company, Mr. Marks will (except if termination is for
cause) be entitled to receive a lump-sum payment equal in amount to the sum of
(i) Mr. Marks' base salary and average three-year bonus through the termination
date and (ii) three times the sum of such salary and bonus. In addition, the
Company must in such circumstances continue Mr. Marks' then current employee
benefits for the remainder of the term of the employment agreement. In no case,
however, may Mr. Marks receive any payment or benefit in connection with a
change in control in excess of 2.99 times his "base amount" (as that term is
defined in Section 280G of the Code).
The Company has entered into an employment agreement, as amended to
date, with Mr. Steven Kratz pursuant to which he is employed full-time as the
Company's Vice President - Operations. The agreement expires in September 1999
and provides for an annual base salary of $225,000. The Company's Board of
Directors also may grant bonuses or increase the base salary payable to Mr.
Kratz. In addition to his cash compensation, Mr. Kratz has exclusive use of a
Company-owned automobile and he receives additional benefits, including those
that are generally provided to other employees of the Company. Pursuant to the
agreement, Mr. Kratz also has been granted options under the 1994 Stock Option
Plan to purchase (i) 65,000 shares of Common Stock at an exercise price of $6.00
per share, 30,000 of which have been exercised and the remainder of which are
fully vested, and (ii) 35,000 shares of Common Stock at an exercise price of
$10.63 per share, of which 15,000 are exercisable commencing September 1, 1997
and 20,000 are exercisable commencing September 1, 1998.
The Company has entered into an employment agreement, as amended to
date, with Mr. Peter Bromberg pursuant to which he is employed full-time as the
Company's Chief Financial Officer. The agreement expires in September 1998 and
provides for an annual base salary of $145,000. In addition to his cash
compensation, Mr. Bromberg receives an automobile allowance and additional
benefits, including those that are generally provided to other employees of the
Company. Pursuant to the agreement, Mr. Bromberg also has been granted options
under the 1994 Stock Option Plan to purchase (i) 20,000 shares of Common Stock
at an exercise price of $6.00 per share, 5,000 of which have been exercised and
the remainder of which are fully vested, and (ii) 5,000 shares of Common Stock
at an exercise price of $10.63, all of which are fully vested.
In conformity with the Company's policy, all of its directors and
officers execute confidentiality and nondisclosure agreements upon the
commencement of employment with the
-18-
<PAGE>
Company. The agreements generally provide that all inventions or discoveries by
the employee related to the Company's business and all confidential information
developed or made known to the employee during the term of employment shall be
the exclusive property of the Company and shall not be disclosed to third
parties without prior approval of the Company. The Company's employment
agreements with Messrs. Marks and Bromberg also contain non-competition
provisions that preclude each employee from competing with the Company for a
period of two years from the date of termination of his employment. The
Company's employment agreement with Mr. Kratz contains a non-competition
provision which precludes him from competing with the Company for a period of
one year from the date of termination of his employment. Public policy
limitations and the difficulty of obtaining injunctive relief may impair the
Company's ability to enforce the non-competition and nondisclosure covenants
made by its employees.
EXECUTIVE AND KEY EMPLOYEE INCENTIVE BONUS PLAN
In August 1995, the Board of Directors approved the adoption of the
Company's Executive and Key Employee Incentive Bonus Plan (the "Bonus Plan").
The purpose of the Bonus Plan is to provide an incentive for (i) each officer of
the Company elected by the Board of Directors and not excluded by the
Compensation Committee, including the executive officers named in the Summary
Compensation Table, and (ii) each key employee expressly included by the
Compensation Committee (collectively, the "Participants") to achieve substantial
increases in the profitability of the Company in comparison to the Company's
performance in the previous fiscal year by providing bonus compensation tied to
such increases in profitability.
The Bonus Plan is administered by the Compensation Committee, which
has the power and authority to take all actions and make all determinations
which it deems necessary or desirable to effectuate, administer or interpret the
Bonus Plan, including the power and authority to extend, amend, modify or
terminate the Bonus Plan at any time and to change award periods and determine
the time or times for payment of bonuses. The Compensation Committee establishes
the bonus targets and performance goals and establishes any other measures as
may be necessary to meet the objectives of the Bonus Plan.
No bonuses will be awarded under the Bonus Plan unless the earnings
before interest and taxes, exclusive of extraordinary items, of a fiscal year
exceeds such earnings for the prior fiscal year by at least 20%. Under the Bonus
Plan, Participants are grouped into four classes, with each class having a
different range of bonus payments for achieving specified targets of such
earnings. The maximum bonus payments, payable in the event that such earnings
for a fiscal year exceed such earnings for the prior fiscal year by 40%, range
among the groups from 27% to 50% of base salary.
-19-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1997, the Company acquired all of the outstanding capital
stock of MVR Products Pte Limited ("MVR") and Unijoh Sdn, Bhd ("Unijoh") from
its shareholders, Mel Marks, Richard Marks and Vincent Quek (each of whom owned
one-third of each acquired entity). Each of Messrs. Marks is a director,
executive officer and more than five percent shareholder of the Company. Prior
to the acquisition, substantially all of the business of MVR and Unijoh had been
conducted in connection with the business of the Company. MVR operates a
shipping warehouse and testing facility and maintains office space and
remanufacturing capability in Singapore. Unijoh conducts in Malaysia
remanufacturing operations similar to those conducted by the Company at its
remanufacturing facilities in Torrance. The aggregate purchase price for both
acquired entities was 145,455 shares of Common Stock of the Company. The shares
of Common Stock were not registered for sale pursuant to the Securities Act of
1933, nor were any registration rights granted by the Company to the selling
shareholders. In addition, the shares of Common Stock are subject to a lock-up
arrangement with the Company releasing for public resale one-fourth of such
shares on each of the first four anniversaries of the acquisition. The purchase
price and other terms of the acquisitions were determined by the Special
Committee of the Board of Directors of the Company following negotiations with
the selling shareholders. In connection with, and as a condition to, the
acquisitions, the Special Committee received a fairness opinion from Houlihan
Lokey Howard & Zukin, a specialty investment banking firm. The Special Committee
approved the acquisitions on March 21, 1997, on which date the closing price per
share of the Common Stock of the Company on NASDAQ was $13.75.
In September 1995, Selwyn Joffe, a director of the Company, entered
into a three-year consulting agreement with the Company pursuant to which he
provides certain financial advisory and consulting services to the Company. The
agreement provides that Mr. Joffe receive, as sole compensation for his services
thereunder, a grant on the first day of each year during the term of the
agreement of immediately exercisable options to purchase 15,000 shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock on
that date. Accordingly, in each of September 1995 and October 1996, Mr. Joffe
was granted options to purchase 15,000 shares of Common Stock at a per share
exercise price of $13.125 and $13.44, respectively.
Gary J. Simon, a director nominee and Secretary of the Company, is a
partner in the law firm of Parker Chapin Flattau & Klimpl, LLP, which is counsel
to the Company.
-20-
<PAGE>
Proposal 2
APPROVAL OF THE COMPANY'S 1996 STOCK OPTION PLAN
On October 4, 1996, the Company's Board of Directors approved the
Company's 1996 Stock Option Plan (the "1996 Stock Option Plan") and directed
that the 1996 Stock Option Plan be submitted to the Company's shareholders for
approval at the Meeting. The Board of Directors adopted the 1996 Plan, which
covers 30,000 shares of Common Stock, upon evaluating the Company's existing
compensation programs and the Company's long-range goals and expansion plans.
The Board concluded that the addition of a stock option plan was
necessary for the Company to continue to attract, motivate and retain qualified
employees and directors and would be used, in whole or in part, to satisfy its
obligation to grant options to Selwyn Joffe, a director of the Company, pursuant
to the terms of his consulting agreement with the Company.
THE 1996 STOCK OPTION PLAN
The following is a discussion of certain terms of the 1996 Stock
Option Plan, as amended:
Types of Grants and Eligibility
-------------------------------
The 1996 Stock Option Plan is designed to provide an incentive to key
employees (including officers and directors who are key employees), non-employee
directors and consultants of the Company and its present and future subsidiaries
and to offer an additional inducement in obtaining the services of such
individuals. The 1996 Stock Option Plan provides for the grant of "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options
("NQSOs").
Shares Subject to the 1996 Stock Option Plan
--------------------------------------------
The aggregate number of shares of Common Stock for which options may
be granted under the 1996 Stock Option Plan may not exceed 30,000; provided,
however, that the maximum number of shares of Common Stock with respect to which
options may be granted to any individual in any fiscal year may not exceed
30,000. Such shares of Common Stock may consist either in whole or in part of
authorized but unissued shares of Common Stock or shares of Common Stock held in
the treasury of the Company. Shares of Common Stock subject to an option which
for any reason expires, is canceled or is terminated unexercised or which ceases
for any reason to be exercisable may again become available for the granting of
options under the 1996 Stock Option Plan.
Administration of the 1996 Stock Option Plan
--------------------------------------------
The 1996 Stock Option Plan is administered by the Board of Directors
which, to the extent it shall determine, may delegate its powers with respect to
the administration of the 1996 Stock Option Plan to a committee of the Board of
Directors (the "Committee") consisting of not less than two directors, each of
whom shall be a "non-employee director" within the meaning of rules and
regulations
-21-
<PAGE>
promulgated by the Securities and Exchange Commission. References in the 1996
Stock Option Plan to determinations or actions by the Committee shall be deemed
to include determinations and actions by the Board of Directors.
Subject to the express provisions of the 1996 Stock Option Plan, the
Committee has the authority, in its sole discretion, with respect to options to
determine, among other things: the key employees and consultants who are to
receive options; the times when they may receive options; whether an option
granted to an employee is to be an ISO or a NQSO; the number of shares of Common
Stock to be subject to each option; the term of each option; the date each
option is to become exercisable; whether an option is to be exercisable in
whole, in part or in installments, and, if in installments, the number of shares
of Common Stock to be subject to each installment; whether the installments are
to be cumulative; the date each installment is to become exercisable and the
term of each installment; whether to accelerate the date of exercise of any
installment; whether shares of Common Stock may be issued on exercise of an
option as partly paid, and, if so, the dates when future installments of the
exercise price are to become due and the amounts of such installments; the
exercise price of each option; the form of payment of the exercise price;
whether to restrict the sale or other disposition of the shares of Common Stock
acquired upon the exercise of an option and to waive any such restriction; and
whether to subject the exercise of all or any portion of an option to the
fulfillment of contingencies as specified in an applicable stock option
contract. With respect to all options, the Committee has such discretion to
determine the amount, if any, necessary to satisfy the Company's obligation to
withhold taxes; with the consent of the optionee, to cancel or modify an option,
provided such option as modified would be permitted to be granted on such date
under the terms of the 1996 Stock Option Plan; to prescribe, amend and rescind
rules and regulations relating to the 1996 Stock Option Plan; and to make all
other determinations necessary or advisable for administering the 1996 Stock
Option Plan.
Exercise Price
--------------
The exercise price of the shares of Common Stock under each option is
to be determined by the Committee; provided, however, that the exercise price is
not to be less than 100% of the fair market value of the Common Stock subject to
such option on the date of grant; and further provided, that if, at the time an
ISO is granted, the optionee owns shares possessing more than 10% of the total
combined voting power of all classes of stock of the Company, of any of its
subsidiaries or of a parent, the exercise price of such ISO may not be less than
110% of the fair market value of the Common Stock subject to such ISO on the
date of grant. The exercise price of the shares of Common Stock under each
Director Option (as defined below) shall be equal to the fair market value of
the Common Stock subject to the option on the date of grant.
Term
----
The term of each option granted pursuant to the 1996 Stock Option
Plan is established by the Committee, in its sole discretion, at or before the
time such option is granted; provided, however, that the term of each ISO
granted pursuant to the 1996 Stock Option Plan is to be for a period not
exceeding ten years from the date of grant thereof, and further provided, that
if, at the time an ISO is granted, the optionee owns shares possessing more than
ten percent of the total combined voting power
-22-
<PAGE>
of all classes of stock of the Company, of any of its subsidiaries or of a
parent, the term of the ISO is to be for a period not exceeding five years from
the date of grant. Each NQSO granted pursuant to the 1996 Stock Option Plan to a
director of the Company who, on the date of grant, is not an employee of the
Company or a Subsidiary of the Company (a "Director Option") is to be
exercisable for a term of ten years commencing on the date of grant.
Exercise
--------
An option (or any part or installment thereof), to the extent then
exercisable, is to be exercised by giving written notice to the Company at its
principal office. Payment in full of the aggregate exercise price may be made
(a) in cash or by certified check, or (b) if the applicable stock option
contract at the time of grant so permits, with the authorization of the
Committee, with previously acquired shares of Common Stock having an aggregate
fair market value, on the date of exercise, equal to the aggregate exercise
price of all options being exercised, or (c) with any combination of cash,
certified check or shares of Common Stock.
The Committee may, in its discretion, permit payment of the exercise
price of an option by delivery by the optionee of a properly executed exercise
notice, together with a copy of his irrevocable instructions to a broker
acceptable to the Committee to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price.
Termination of Relationship
---------------------------
Any employee holder of an option whose employment with the Company
(and its parent and subsidiaries) has terminated for any reason other than his
death or disability may exercise such option, to the extent exercisable on the
date of such termination, at any time within three months after the date of
termination, but not thereafter and in no event after the date the option would
otherwise have expired; provided, however, that if his employment is terminated
either (a) for cause, or (b) without the consent of the Company, said option
terminates immediately. Options granted to employees under the 1996 Stock Option
Plan are not affected by any change in the status of the holder so long as he or
she continues to be a full-time employee of the Company, its parent or any of
its subsidiaries (regardless of having been transferred from one corporation to
another).
The termination of an optionee's relationship as a consultant of the
Company or of a subsidiary of the Company will not affect the option except as
may otherwise be provided in the applicable stock option contract. A Director
Option may be exercised at any time during its ten year term. The Director
Option will not be affected by the holder ceasing to be a director of the
Company or becoming an employee or consultant of the Company or any of its
subsidiaries.
Death or Disability
-------------------
If an optionee dies (a) while he is employed by the Company, its
parent or any of its subsidiaries, (b) within three months after the termination
of his employment (unless such termination was for cause or without the consent
of the Company), or (c) within one year following the termination
-23-
<PAGE>
of his employment by reason of disability, an employee's option may be
exercised, to the extent exercisable on the date of his death, by his executor,
administrator or other person at the time entitled by law to his rights under
such option, at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Any optionee whose employment has terminated by reason of disability
may exercise his option, to the extent exercisable upon the effective date of
such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
The death or disability of a consultant optionee to whom an option
has been granted under the 1996 Stock Option Plan will not effect the option,
except as may otherwise be provided in the applicable stock option contract. The
term of a Director Option will not be affected by the death or disability of the
optionee. In such case, the option may be exercised at any time during its term
by his executor, administrator or other person at the time entitled by law to
the optionee's rights under such option.
Adjustments Upon Changes in Common Stock
----------------------------------------
Notwithstanding any other provisions of the 1996 Stock Option Plan,
in the event of any change in the outstanding Common Stock by reason of a share
dividend, recapitalization, merger or consolidation in which the Company is the
surviving corporation, split-up, combination or exchange of shares or the like,
the aggregate number and kind of shares subject to the 1996 Stock Option Plan,
the aggregate number and kind of shares subject to each outstanding option and
the exercise price thereof will be appropriately adjusted by the Board of
Directors, whose determination will be conclusive.
In the event of (a) the liquidation or dissolution of the Company,
(b) a merger or consolidation in which the Company is not the surviving
corporation, or (c) any other capital reorganization (other than a
recapitalization) in which more than 50% of the shares of Common Stock of the
Company entitled to vote are exchanged, any outstanding options will terminate,
unless other provision is made therefor in the transaction.
Amendments and Termination of the 1996 Stock Option Plan
--------------------------------------------------------
No option may be granted under the 1996 Stock Option Plan after
October 3, 2006. The Board of Directors, without further approval of the
Company's shareholders, may at any time suspend or terminate the 1996 Stock
Option Plan, in whole or in part, or amend it from time to time in such respects
as it may deem advisable, including, without limitation, in order that ISOs
granted thereunder meet the requirements for "incentive stock options" under the
Code and to comply with the provisions of certain rules and regulations
promulgated by the Securities and Exchange Commission, among other things;
provided, however, that no amendment may be effective without the requisite
prior or subsequent shareholder approval which would (a) except as required for
anti-dilution adjustments, increase the maximum number of shares of Common Stock
for which options may be granted under the 1996 Stock Option Plan, (b)
materially increase the benefits to participants under the 1996 Stock Option
Plan, or
-24-
<PAGE>
(c) change the eligibility requirements for individuals entitled to receive
options under the 1996 Stock Option Plan.
Non-Transferability of Options
------------------------------
No option granted under the 1996 Stock Option Plan may be
transferable otherwise than by will or the laws of descent and distribution, and
options may be exercised, during the lifetime of the holder thereof, only by
such holder or such holder's legal representatives. Except to the extent
provided above, options may not be assigned, transferred, pledged, hypothecated
or disposed of in any way (whether by operation of law or otherwise) and may not
be subject to execution, attachment or similar process.
Withholding Taxes
-----------------
The Company may withhold cash and/or, with the authorization of the
Committee, shares of Common Stock to be issued having an aggregate fair market
value equal to the amount which it determines is necessary to satisfy its
obligation to withhold federal, state and local income taxes or other taxes
incurred by reason of the grant or exercise of an option, its disposition, or
the disposition of the underlying shares of Common Stock. Alternatively, the
Company may require the holder to pay to the Company such amount, in cash,
promptly upon demand. The Company may not be required to issue any shares of
Common Stock pursuant to any such option until all required payments have been
made.
Federal Income Tax Treatment
----------------------------
The following is a general summary of the federal income tax
consequences under current tax law of ISOs and NQSOs. It does not purport to
cover special rules relating to, among other things, the exercise of an option
with previously acquired shares nor state or local income or other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the underlying shares.
Generally, a holder does not recognize taxable income for federal
income tax purposes upon the grant of an ISO or NQSO.
In the case of an ISO, no taxable income is recognized upon exercise
of the option. If the optionee disposes of the shares acquired pursuant to the
exercise of an ISO more than two years after the date of grant and more than one
year after the transfer of the shares to him, the optionee will recognize
long-term capital gain or loss and the Company will not be entitled to a
deduction. However, if the optionee disposes of such shares within the required
holding period (a "disqualifying disposition"), a portion of his gain equal to
the excess of the fair market value of the shares on the date of exercise over
the exercise price (but not more than the gain realized on the disposition) will
be treated as ordinary income and the Company will generally be entitled to a
deduction for such amount. Any additional gain or loss will be treated as a
long-term or short-term capital gain or loss. Long-term capital gain is
generally taxed at a more favorable rate than ordinary income. Proposed
legislation would make such
-25-
<PAGE>
treatment even more favorable. There can be no assurance, however, that such
proposed legislation will be enacted.
Upon the exercise of a NQSO, the holder recognizes ordinary income in
an amount equal to the excess, if any, of the fair market value of the shares on
the date of exercise over the exercise price of the NQSO; the holder's basis in
the shares acquired is equal to the amount, if any, paid upon exercise,
increased by the amount of ordinary income required to be recognized; and the
Company is generally entitled to a deduction for the amount of ordinary income
recognized by the holder. If the optionee later sells the shares acquired
pursuant to the NQSO, he or she will recognize long-term or short-term capital
gain or loss depending upon the optionee's holding period for the stock.
Pursuant to currently applicable rules under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the grant of
an option (and not its exercise) to a person who is subject to the reporting and
short-swing profit provisions under Section 16 of the Exchange Act (a "Section
16 Person") begins the six-month period of potential short-swing liability. The
taxable event for the exercise of a NQSO that has been outstanding at least six
months ordinarily will be the date of exercise. If a NQSO is exercised by a
Section 16 Person within six months after the date of grant, however, taxation
ordinarily will be deferred until the date which is six months after the date of
grant, unless the person has filed a timely election pursuant to Section 83(b)
of the Code to be taxed on the date of exercise. Pursuant to a recent amendment
to the rules under Section 16(b) of the Exchange Act, the six month period of
potential short-swing liability may be eliminated if the option grant (i) is
approved in advance by the Company's board of directors (or a committee composed
solely of two or more non-employee directors) or (ii) approved in advance, or
subsequently ratified by the Company's shareholders no later than the next
annual meeting of shareholders. Consequently, while there can be no assurance
that either of the conditions described in clauses (i) or (ii) above will be
satisfied with respect to awards made under the 1996 Stock Option Plan, the
taxable event for the exercise of a NQSO that satisfies either of the conditions
described in clauses (i) or (ii) above will be the date of exercise.
In addition to the federal income tax consequences described above,
an optionee who exercises an ISO may be subject to the alternative minimum tax,
which is payable to the extent it exceeds the optionee's regular tax. For this
purpose, upon the exercise of an ISO, the excess of the fair market value of the
shares on the date of exercise over the exercise price therefor is an increase
to his alternative minimum taxable income. In addition, the optionee's basis in
such shares is increased by such amount for purposes of computing the gain or
loss on the disposition of the shares for alternative minimum tax purposes. If
an optionee is required to pay an alternative minimum tax, the amount of such
tax which is attributable to deferral preferences (including the ISO adjustment)
is allowed as a credit against the optionee's regular tax liability in
subsequent years. To the extent the credit is not used, it is carried forward.
NEW PLAN BENEFITS
Subject to shareholder approval of the 1996 Stock Option Plan, set
forth below is the number of shares of Common Stock underlying options currently
determined to be granted under the 1996 Stock Option Plan to each of the persons
indicated:
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<PAGE>
Dollar Value Number of Options
------------ -----------------
Non-Executive Directors as a Group $209,100(1) 15,000
- - ---------------
(1) Based on the fair market value per share of $13.94 on the last day of
fiscal 1997.
The Board of Directors recommends that shareholders vote FOR this proposal.
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<PAGE>
Proposal 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1994 STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "1994 Stock Option Plan")
was adopted by the Company's Board of Directors and approved by the Company's
shareholders in January 1994 and amended by the shareholders in September 1994
to increase the number of shares available under the 1994 Stock Option Plan to
450,000 and to award annually to non-employee directors options to purchase up
to 1,500 shares of Common Stock. In August 1996, the Company's shareholders
approved an amendment to the 1994 Stock Option Plan to increase the number of
shares available under the 1994 Stock Option Plan to 720,000. On October 4,
1996, the Company's Board of Directors approved an amendment to the 1994 Stock
Option Plan and directed that the amendment be submitted to the Company's
shareholders for approval at the Meeting. The amendment brought the 1994 Stock
Option Plan into compliance with certain new rules and regulations, including
Rule 16b-3, promulgated under the Securities Act of 1933, which took effect in
1996 and affected stock option plans such as the 1994 Stock Option Plan, further
permits non-employee directors to be eligible to be granted options under the
1994 Stock Option Plan other than the annual award referred to above and gives
effect to other changes. In particular, it is contemplated that the 1994 Stock
Option Plan as amended would be used, in part, to satisfy the Company's
obligation to grant options to Selwyn Joffe, a non-employee director of the
Company, pursuant to the terms of his consulting agreement with the Company.
THE 1994 STOCK OPTION PLAN
The following is a discussion of certain terms of the 1994 Stock
Option Plan, as amended:
Types of Grants and Eligibility
-------------------------------
The 1994 Stock Option Plan is designed to provide an incentive to key
employees (including officers and directors who are key employees), non-employee
directors and consultants of the Company and its present and future subsidiaries
and to offer an additional inducement in obtaining the services of such
individuals. The 1994 Stock Option Plan provides for the grant of "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options
("NQSOs").
Shares Subject to the 1994 Stock Option Plan
--------------------------------------------
The aggregate number of shares of Common Stock for which options may
be granted under the 1994 Stock Option Plan may not exceed 720,000; provided,
however, that the maximum number of shares of Common Stock with respect to which
options may be granted to any individual in any fiscal year may not exceed
100,000. Such shares of Common Stock may consist either in whole or in part of
authorized but unissued shares of Common Stock or shares of Common Stock held in
the treasury of the Company. Shares of Common Stock subject to an option which
for any reason expires,
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<PAGE>
is canceled or is terminated unexercised or which ceases for any reason to be
exercisable may again become available for the granting of options under the
1994 Stock Option Plan.
Administration of the 1994 Stock Option Plan
--------------------------------------------
The 1994 Stock Option Plan is administered by the Board of Directors
which, to the extent it shall determine, may delegate its powers with respect to
the administration of the 1994 Stock Option Plan to a committee of the Board of
Directors (the "Committee") consisting of not less than two directors, each of
whom shall be a "non-employee director" within the meaning of rules and
regulations promulgated by the Securities and Exchange Commission. References in
the 1994 Stock Option Plan to determinations or actions by the Committee shall
be deemed to include determinations and actions by the Board of Directors.
Subject to the express provisions of the 1994 Stock Option Plan, the
Committee has the authority, in its sole discretion, with respect to options
other than Director Options (as defined below) to determine, among other things:
the key employees and consultants who are to receive options; the times when
they may receive options; whether an option granted to an employee is to be an
ISO or a NQSO; the number of shares of Common Stock to be subject to each
option; the term of each option; the date each option is to become exercisable;
whether an option is to be exercisable in whole, in part or in installments,
and, if in installments, the number of shares of Common Stock to be subject to
each installment; whether the installments are to be cumulative; the date each
installment is to become exercisable and the term of each installment; whether
to accelerate the date of exercise of any installment; whether shares of Common
Stock may be issued on exercise of an option as partly paid, and, if so, the
dates when future installments of the exercise price are to become due and the
amounts of such installments; the exercise price of each option; the form of
payment of the exercise price; whether to restrict the sale or other disposition
of the shares of Common Stock acquired upon the exercise of an option and to
waive any such restriction; and whether to subject the exercise of all or any
portion of an option to the fulfillment of contingencies as specified in an
applicable stock option contract. With respect to all options, the Committee has
such discretion to determine the amount, if any, necessary to satisfy the
Company's obligation to withhold taxes; with the consent of the optionee, to
cancel or modify an option, provided such option as modified would be permitted
to be granted on such date under the terms of the 1994 Stock Option Plan; to
prescribe, amend and rescind rules and regulations relating to the 1994 Stock
Option Plan; and to make all other determinations necessary or advisable for
administering the 1994 Stock Option Plan.
Director Options
----------------
On each April 30 during the term of the 1994 Stock Option Plan, each
person who is a non-employee director of the Company ("Outside Director") on the
immediately preceding March 31 will be granted an option ("Director Options") to
purchase 125 shares of Common Stock for each month or portion thereof during the
12-month period ended on such March 31 that such person served as an Outside
Director. In the event the remaining shares available for grant under the 1994
Stock Option Plan are not sufficient to grant the Director Options to each such
Outside Director in any year, the number of shares subject to the Director
Options for such year is to be reduced proportionately.
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<PAGE>
The Committee does not have any discretion with respect to the selection of
Directors to receive Director Options or the amount, the price or the timing
with respect thereto.
Exercise Price
--------------
The exercise price of the shares of Common Stock under each option
other than Director Options is to be determined by the Committee; provided,
however, that the exercise price is not to be less than 100% of the fair market
value of the Common Stock subject to such option on the date of grant; and
further provided, that if, at the time an ISO is granted, the optionee owns
shares possessing more than 10% of the total combined voting power of all
classes of stock of the Company, of any of its subsidiaries or of a parent, the
exercise price of such ISO may not be less than 110% of the fair market value of
the Common Stock subject to such ISO on the date of grant. The exercise price of
the shares of Common Stock under each Director Option is equal to the fair
market value of the Common Stock subject to the option on the date of grant.
Term
----
The term of each employee or consultant option granted pursuant to
the 1994 Stock Option Plan is established by the Committee, in its sole
discretion, at or before the time such option is granted; provided, however,
that the term of each ISO granted pursuant to the 1994 Stock Option Plan is to
be for a period not exceeding ten years from the date of grant thereof, and
further provided, that if, at the time an ISO is granted, the optionee owns
shares possessing more than 10% of the total combined voting power of all
classes of stock of the Company, of any of its subsidiaries or of a parent, the
term of the ISO is to be for a period not exceeding five years from the date of
grant. Each Director Option is to be exercisable for a term of ten years
commencing on the date of grant.
Exercise
--------
An option (or any part or installment thereof), to the extent then
exercisable, is to be exercised by giving written notice to the Company at its
principal office. Payment in full of the aggregate exercise price may be made
(a) in cash or by certified check, or (b) in the case of an option other than a
Director Option, if the applicable stock option contract at the time of grant so
permits, with the authorization of the Committee, with previously acquired
shares of Common Stock having an aggregate fair market value, on the date of
exercise, equal to the aggregate exercise price of all options being exercised,
or (c) with any combination of cash, certified check or shares of Common Stock.
The Committee may, in its discretion, permit payment of the exercise
price of an option by delivery by the optionee of a properly executed exercise
notice, together with a copy of his irrevocable instructions to a broker
acceptable to the Committee to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price.
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<PAGE>
Termination of Relationship
---------------------------
Any employee holder of an option whose employment with the Company
(and its parent and subsidiaries) has terminated for any reason other than his
death or disability may exercise such option, to the extent exercisable on the
date of such termination, at any time within three months after the date of
termination, but not thereafter and in no event after the date the option would
otherwise have expired; provided, however, that if his employment is terminated
either (a) for cause, or (b) without the consent of the Company, said option
terminates immediately. Options granted to employees under the 1994 Stock Option
Plan are not affected by any change in the status of the holder so long as he or
she continues to be a full-time employee of the Company, its parent or any of
its subsidiaries (regardless of having been transferred from one corporation to
another).
The termination of an optionee's relationship as a consultant of the
Company or of a subsidiary of the Company will not affect the option except as
may otherwise be provided in the applicable stock option contract. A Director
Option may be exercised at any time during its ten year term. The Director
Option will not be affected by the holder ceasing to be a director of the
Company or becoming an employee or consultant of the Company or any of its
subsidiaries.
Death or Disability
-------------------
If an optionee dies (a) while he is employed by the Company, its
parent or any of its subsidiaries, (b) within three months after the termination
of his employment (unless such termination was for cause or without the consent
of the Company), or (c) within one year following the termination of his
employment by reason of disability, an employee's option may be exercised, to
the extent exercisable on the date of his death, by his executor, administrator
or other person at the time entitled by law to his rights under such option, at
any time within one year after death, but not thereafter and in no event after
the date the option would otherwise have expired.
Any optionee whose employment has terminated by reason of disability
may exercise his option, to the extent exercisable upon the effective date of
such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
The death or disability of a consultant optionee to whom an option
has been granted under the 1994 Stock Option Plan will not effect the option,
except as may otherwise be provided in the applicable stock option contract. The
term of a Director Option will not be affected by the death or disability of the
optionee. In such case, the option may be exercised at any time during its term
by his executor, administrator or other person at the time entitled by law to
the optionee's rights under such option.
Adjustments Upon Changes in Common Stock
----------------------------------------
Notwithstanding any other provisions of the 1994 Stock Option Plan,
in the event of any change in the outstanding Common Stock by reason of a share
dividend, recapitalization, merger
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<PAGE>
or consolidation in which the Company is the surviving corporation, split-up,
combination or exchange of shares or the like, the aggregate number and kind of
shares subject to the 1994 Stock Option Plan, the aggregate number and kind of
shares subject to each outstanding option and the exercise price thereof will be
appropriately adjusted by the Board of Directors, whose determination will be
conclusive.
In the event of (a) the liquidation or dissolution of the Company,
(b) a merger or consolidation in which the Company is not the surviving
corporation, or (c) any other capital reorganization (other than a
recapitalization) in which more than 50% of the shares of Common Stock of the
Company entitled to vote are exchanged, any outstanding options will terminate,
unless other provision is made therefor in the transaction.
Amendments and Termination of the 1994 Stock Option Plan
--------------------------------------------------------
No option may be granted under the 1994 Stock Option Plan after
January 27, 2004. The Board of Directors, without further approval of the
Company's shareholders, may at any time suspend or terminate the 1994 Stock
Option Plan, in whole or in part, or amend it from time to time in such respects
as it may deem advisable, including, without limitation, in order that ISOs
granted thereunder meet the requirements for "incentive stock options" under the
Code and to comply with the provisions of certain rules and regulations
promulgated by the Securities and Exchange Commission, among other things;
provided, however, that no amendment may be effective without the requisite
prior or subsequent shareholder approval which would (a) except as required for
anti-dilution adjustments, increase the maximum number of shares of Common Stock
for which options may be granted under the 1994 Stock Option Plan, (b)
materially increase the benefits to participants under the 1994 Stock Option
Plan, or (c) change the eligibility requirements for individuals entitled to
receive options under the 1994 Stock Option Plan.
Non-Transferability of Options
------------------------------
No option granted under the 1994 Stock Option Plan may be
transferable otherwise than by will or the laws of descent and distribution, and
options may be exercised, during the lifetime of the holder thereof, only by
such holder or such holder's legal representatives. Except to the extent
provided above, options may not be assigned, transferred, pledged, hypothecated
or disposed of in any way (whether by operation of law or otherwise) and may not
be subject to execution, attachment or similar process.
Withholding Taxes
-----------------
The Company may withhold cash and/or, with the authorization of the
Committee, shares of Common Stock to be issued having an aggregate fair market
value equal to the amount which it determines is necessary to satisfy its
obligation to withhold federal, state and local income taxes or other taxes
incurred by reason of the grant or exercise of an option, its disposition, or
the disposition of the underlying shares of Common Stock. Alternatively, the
Company may require the holder to pay to the Company such amount, in cash,
promptly upon demand. The Company may not be required to
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<PAGE>
issue any shares of Common Stock pursuant to any such option until all required
payments have been made.
Federal Income Tax Treatment
----------------------------
The following is a general summary of the federal income tax
consequences under current tax law of ISOs and NQSOs. It does not purport to
cover special rules relating to, among other things, the exercise of an option
with previously acquired shares nor state or local income or other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the underlying shares.
Generally, a holder does not recognize taxable income for federal
income tax purposes upon the grant of an ISO or NQSO.
In the case of an ISO, no taxable income is recognized upon exercise
of the option. If the optionee disposes of the shares acquired pursuant to the
exercise of an ISO more than two years after the date of grant and more than one
year after the transfer of the shares to him, the optionee will recognize
long-term capital gain or loss and the Company will not be entitled to a
deduction. However, if the optionee disposes of such shares within the required
holding period (a "disqualifying disposition"), a portion of his equal to the
excess of the fair market value of the shares on the date of exercise over the
exercise price (but not more than the gain realized on the disposition) will be
treated as ordinary income and the Company will generally be entitled to a
deduction for such amount. Any additional gain or loss will be treated as a
long-term or short-term capital gain or loss. Long-term capital gain is
generally taxed at a more favorable rate than ordinary income. Proposed
legislation would make such treatment even more favorable. There can be no
assurance, however, that such proposed legislation will be enacted.
Upon the exercise of a NQSO, the holder recognizes ordinary income in
an amount equal to the excess, if any, of the fair market value of the shares on
the date of exercise over the exercise price of the NQSO; the holder's basis in
the shares acquired is equal to the amount, if any, paid upon exercise,
increased by the amount of ordinary income required to be recognized; and the
Company is generally entitled to a deduction for the amount of ordinary income
recognized by the holder. If the optionee later sells the shares acquired
pursuant to the NQSO, he or she will recognize long-term or short-term capital
gain or loss depending upon the optionee's holding period for the stock.
Pursuant to currently applicable rules under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the grant of
an option (and not its exercise) to a person who is subject to the reporting and
short-swing profit provisions under Section 16 of the Exchange Act (a "Section
16 Person") begins the six-month period of potential short-swing liability. The
taxable event for the exercise of a NQSO that has been outstanding at least six
months ordinarily will be the date of exercise. If a NQSO is exercised by a
Section 16 Person within six months after the date of grant, however, taxation
ordinarily will be deferred until the date which is six months after the date of
grant, unless the person has filed a timely election pursuant to Section 83(b)
of the Code to be taxed on the date of exercise. Pursuant to a recent amendment
to the rules under Section 16(b) of the
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<PAGE>
Exchange Act, the six month period of potential short-swing liability may be
eliminated if the option grant (i) is approved in advance by the Company's board
of directors (or a committee composed solely of two or more non-employee
directors) or (ii) approved in advance, or subsequently ratified by the
Company's shareholders no later than the next annual meeting of shareholders.
Consequently, while there can be no assurance that either of the conditions
described in clauses (i) or (ii) above will be satisfied with respect to awards
made under the 1994 Stock Option Plan, the taxable event for the exercise of a
NQSO that satisfies either of the conditions described in clauses (i) or (ii)
above will be the date of exercise.
In addition to the federal income tax consequences described above,
an optionee who exercises an ISO may be subject to the alternative minimum tax,
which is payable to the extent it exceeds the optionee's regular tax. For this
purpose, upon the exercise of an ISO, the excess of the fair market value of the
shares on the date of exercise over the exercise price therefor is an increase
to his alternative minimum taxable income. In addition, the optionee's basis in
such shares is increased by such amount for purposes of computing the gain or
loss on the disposition of the shares for alternative minimum tax purposes. If
an optionee is required to pay an alternative minimum tax, the amount of such
tax which is attributable to deferral preferences (including the ISO adjustment)
is allowed as a credit against the optionee's regular tax liability in
subsequent years. To the extent the credit is not used, it is carried forward.
NEW PLAN BENEFITS
Subject to shareholder approval of the amendment to the 1994 Stock
Option Plan, set forth below is the number of shares of Common Stock underlying
options currently determined to be granted under the 1994 Stock Option Plan to
each of the persons indicated:
Dollar Value Number of Options
------------ -----------------
Non-Executive Directors as a Group $418,200(1) 30,000
- - ---------------
(1) Based on the fair market value per share of $13.94 on the last day of
fiscal 1997.
The Board of Directors recommends that shareholders vote FOR this proposal.
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<PAGE>
Proposal 4
RATIFICATION OF APPOINTMENT
OF
INDEPENDENT CERTIFIED ACCOUNTANTS
The Board of Directors believes it is appropriate to submit for
approval by its shareholders its appointment of Richard A. Eisner & Company, LLP
as the Company's independent certified public accountant for the fiscal year
ending March 31, 1998.
Representatives of Richard A. Eisner & Company, LLP are expected to
be present at the Meeting with the opportunity to make a statement and to be
available to respond to questions regarding these and any other appropriate
matters.
The Board of Directors recommends that shareholders vote FOR this proposal.
VOTING REQUIREMENTS
Directors are elected by a plurality of the votes cast at the Meeting
(Proposal 1). The affirmative vote of a majority of all outstanding shares
entitled to vote at the Meeting will be required to approve the Company's 1996
Stock Option Plan (Proposal 2) and to approve the amendment to the Company's
1994 Stock Option Plan (Proposal 3). The affirmative vote of a majority of votes
cast at the Meeting will be required to ratify the appointment of Richard A.
Eisner & Company, LLP as independent certified accountants and auditors of the
Company for the fiscal year ending March 31, 1998 (Proposal 4). Abstentions and
broker nonvotes with respect to any matter are not considered as votes cast with
respect to that matter.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY RECOMMENDED A VOTE IN FAVOR OF
EACH NOMINEE NAMED IN THE PROXY AND FOR PROPOSALS 2, 3 AND 4.
MISCELLANEOUS
SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be presented at the 1998 Annual
Meeting of Shareholders must be received by the Company not later than April 13,
1998 for inclusion in the Company's proxy statement and form of proxy for that
meeting.
OTHER MATTERS
Management does not intend to bring before the Meeting for action any
matters other than those specifically referred to above and is not aware of any
other matters which are proposed to be presented by others. If any other matters
or motions should properly come before the Meeting, the
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<PAGE>
persons named in the Proxy intend to vote thereon in accordance with their
judgment on such matters or motions, including any matters or motions dealing
with the conduct of the Meeting.
PROXIES
All shareholders are urged to fill in their choices with respect to
the matters to be voted on, sign and promptly return the enclosed form of Proxy.
By Order of the Board of Directors,
GARY J. SIMON
Secretary
August 8, 1997
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<PAGE>
PROXY CARD
PROXY PROXY
MOTORCAR PARTS & ACCESSORIES, INC.
(Solicited on behalf of the Board of Directors)
The undersigned holder of Common Stock of MOTORCAR PARTS &
ACCESSORIES, INC., revoking all proxies heretofore given, hereby constitutes and
appoints Mel Marks and Richard Marks and each of them, Proxies, with full power
of substitution, for the undersigned and in the name, place and stead of the
undersigned, to vote all of the undersigned's shares of said stock, according to
the number of votes and with all the powers the undersigned would possess if
personally present, at the 1997 Annual Meeting of Shareholders of MOTORCAR PARTS
& ACCESSORIES, INC., to be held at The Penn Club, 30 West 44th Street, New York,
New York, on Wednesday, September 3, 1997 at 10:30 A.M., New York City time, and
at any adjournments or postponements thereof.
The undersigned hereby acknowledges receipt of the Notice of Meeting
and Proxy Statement relating to the meeting and hereby revokes any proxy or
proxies heretofore given.
Each properly executed Proxy will be voted in accordance with the
specifications made below and in the discretion of the Proxies on any other
matter that may come before the meeting. Where no choice is specified, this
Proxy will be voted FOR all listed nominees to serve as directors and FOR each
of the proposals set forth below.
The Board of Directors recommends a vote FOR all listed nominees and FOR each of
Proposals 2, 3 and 4
1. Election of seven Directors. |_| FOR all nominees listed
(except as marked to the contrary)
|_| WITHHOLD AUTHORITY
to vote for all listed nominees
Nominees: Mel Marks, Richard Marks, Karen Brenner, Selwyn Joffe, Mel
Moskowitz, Murray Rosenzweig and Gary J. Simon (INSTRUCTION: TO
WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, CIRCLE THAT
NOMINEE'S NAME IN THE LIST PROVIDED ABOVE.)
PLEASE MARK, DATE AND SIGN THIS PROXY ON THIS AND THE REVERSE SIDE
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<PAGE>
2. Proposal to approve the Company's 1996 Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to approve an amendment to the Company's 1994 Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Proposal to ratify the Board of Director's selection of Richard A. Eisner
& Company, LLP as the Company's independent certified public accountant
for the fiscal year ending March 31, 1998.
|_| FOR |_| AGAINST |_| ABSTAIN
5. The proxies are authorized to vote in their discretion upon such
other matters as may properly come before the meeting.
|_| FOR |_| AGAINST |_| ABSTAIN
The shares represented by this proxy
will be voted in the manner directed. In the
absence of any direction, the shares will be
voted FOR each nominee named in Proposal 1 and
FOR each of Proposals 2, 3 and 4 and in
accordance with their discretion on such other
matters as may properly come before the
meeting.
Dated_____________________________________,1997
-----------------------------------------------
-----------------------------------------------
Signature(s)
(Signature(s) should conform to names as
registered. For jointly owned shares, each
owner should sign. When signing as attorney,
executor, administrator, trustee, guardian or
officer of a corporation, please give full
title).
PLEASE MARK AND SIGN ABOVE AND RETURN PROMPTLY
1994 STOCK OPTION PLAN
OF
MOTORCAR PARTS & ACCESSORIES, INC.
(AS AMENDED ON OCTOBER 4, 1996)
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to key employees (including officers and
directors who are key employees), Outside Directors (as defined in Paragraph 19)
and consultants of Motorcar Parts & Accessories, Inc., a New York corporation
(the "Company"), and its present and future subsidiary corporations, as defined
in Paragraph 19 ("Subsidiaries"), and to offer an additional inducement in
obtaining the services of such individuals. The Plan provides for the grant of
"incentive stock options" ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options ("NQSOs"), but the Company makes no warranty as to the qualification of
any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12, the aggregate number of shares of Common Stock, $.01 par value per share, of
the Company ("Common Stock") for which options may be granted under the Plan
shall not exceed 720,000. Such shares of Common Stock may, in the discretion of
the Board of Directors of the Company (the "Board of Directors"), consist either
in whole or in part of authorized but unissued shares of Common Stock or shares
of Common Stock held in the treasury of the Company. The Company shall at all
times during the term of the Plan reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of the
Plan. Subject to the provisions of Paragraph 13, any shares of Common Stock
subject to an option which for any reason expires, is cancelled or is terminated
unexercised or which ceases for any reason to be exercisable shall again become
available for the granting of options under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board of Directors which, to the extent it shall determine, may delegate its
powers with respect to the administration of the Plan to a committee of the
Board of Directors (the "Com mittee") consisting of not less than two Directors
(or such greater number as required by law), each of whom shall be a
"non-employee director" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). References in the Plan to determinations or actions by the
Committee shall be deemed to include determinations and actions by the Board of
Directors. A majority of the members of the Committee shall constitute a quorum,
and the acts of a majority of the members present at any meeting at which a
quorum is present, and any acts approved in writing by all members without a
meeting, shall be the acts of the Committee.
<PAGE>
Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion, with respect to Employee Options (as
defined in Paragraph 19) and Consultant Options (as defined in Paragraph 19): to
determine the key employees and consultants who shall receive options; the times
when they shall receive options; whether an Employee Option shall be an ISO or a
NQSO; the number of shares of Common Stock to be subject to each option; the
term of each option; the date each option shall become exercisable; whether an
option shall be exercisable in whole, in part or in installments, and, if in
installments, the number of shares of Common Stock to be subject to each
installment; whether the installments shall be cumulative; the date each
installment shall become exercisable and the term of each installment; whether
to accelerate the date of exercise of any installment; whether shares of Common
Stock may be issued on exercise of an option as partly paid, and, if so, the
dates when future installments of the exercise price shall become due and the
amounts of such installments; the exercise price of each option; the form of
payment of the exercise price; whether to restrict the sale or other disposition
of the shares of Common Stock acquired upon the exercise of an option and to
waive any such restriction; whether to subject the exercise of all or any
portion of an option to the fulfillment of contingencies as specified in the
Contract (as described in Paragraph 11), including without limitations,
contingencies relating to entering into a covenant not to compete with the
Company and its Parent and Subsidiaries, to financial objectives for the
Company, a Subsidiary, a division, a product line or other category, and/or the
period of continued employment of the optionee with the Company or its
Subsidiaries, and to determine whether such contingencies have been met; and,
with respect to Employee Options, Consultant Options and Director Options (as
defined in Paragraph 19): to construe the respective Contracts and the Plan; to
determine the amount, if any, necessary to satisfy the Company's obligation to
withhold taxes; with the consent of the optionee, to cancel or modify an option,
provided such option as modified would be permitted to be granted on such date
under the terms of the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; and to make all other determinations necessary
or advisable for administering the Plan. The determinations of the Committee on
the matters referred to in this Paragraph 3 shall be conclusive. No member or
former member of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted hereunder.
4. ELIGIBILITY; GRANTS. The Committee may, consistent with the
purposes of the Plan, grant Employee Options from time to time, to key employees
(including officers and directors who are key employees) and Consultant Options
to consultants of the Company or any of its Subsidiaries. Options granted shall
cover such number of shares of Common Stock as the Committee may determine;
provided, however, that the maximum number of shares subject to options that may
be granted to any employee in any fiscal year of the Company under the Plan (the
"162(m) Maximum") may not exceed 100,000; and FURTHER, PROVIDED, that the
aggregate market value (determined at the time the option is granted) of the
shares of Common Stock for which any eligible employee may be granted ISOs under
the Plan or any other plan of the Company, or of a Parent or a Subsidiary of the
Company, which are exercisable for the first time by such optionee during any
calendar year shall not exceed $100,000. The $100,000 ISO limitation shall be
applied by taking ISOs into account in the order in which
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<PAGE>
they were granted. Any option (or the portion thereof) granted in excess of such
amount shall be treated as a NQSO.
Beginning on April 30, 1995 and on each April 30 thereafter during
the term of the Plan, each person who is an Outside Director on the immediately
preceding March 31 shall be granted an option to purchase 125 shares of Common
Stock for each month or portion thereof during the 12-month period ended on such
March 31 that such person served as an Outside Director. In the event the
remaining shares available for grant under the Plan are not sufficient to grant
the Director Options to each such Outside Director in any year, the number of
shares subject to the Director Options for such year shall be reduced
proportionately. The Committee shall not have any discretion with respect to the
selection of Directors to receive Director Options or the amount, the price or
the timing with respect thereto.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each Employee Option and Consultant Option shall be determined by the
Committee; provided, however, that the exercise price shall not be less than
100% of the fair market value of the Common Stock subject to such option on the
date of grant; and further provided, that if, at the time an ISO is granted, the
optionee owns (or is deemed to own under Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, of any of its Subsidiaries or of a Parent, the exercise
price of such ISO shall not be less than 110% of the fair market value of the
Common Stock subject to such ISO on the date of grant. The exercise price of the
shares of Common Stock under each Director Option shall be equal to the fair
market value of the Common Stock subject to the option on the date of grant.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average between the high and low sales prices per share of the
Common Stock on such day as reported by such exchange or on a consolidated tape
reflecting transactions on such exchange, (b) if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is
quoted on the National Association of Securities Dealers Automated Quotations
System ("NASDAQ"), and (i) if actual sales price information is available with
respect to the Common Stock, the average between the high and low sales prices
per share of the Common Stock on such day on NASDAQ, or (ii) if such information
is not available, the average between the highest bid and the lowest asked
prices for the Common Stock on such day on NASDAQ, or (c) if the principal
market for the Common Stock is not a national securities exchange and the Common
Stock is not quoted on NASDAQ, the average between the highest bid and lowest
asked prices per share for the Common Stock on such day as reported on the
NASDAQ OTC Bulletin Board Service, National Quotation Bureau, Incorporated or a
comparable service; provided that if clauses (a), (b) and (c) of this Paragraph
are all inapplicable, or if no trades have been made or no quotes are available
for such day, the fair market value of a share of Common Stock shall be
determined by the Committee by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options. The determination
of the Committee shall be conclusive in determining the fair market value of the
stock.
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<PAGE>
6. TERM. The term of each Employee Option and Consultant Option
granted pursuant to the Plan shall be such term as is established by the
Committee, in its sole discretion, at or before the time such option is granted;
provided, however, that the term of each ISO granted pursuant to the Plan shall
be for a period not exceeding 10 years from the date of grant thereof, and
further, provided, that if, at the time an ISO is granted, the optionee owns (or
is deemed to own under Section 424(d) of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
of any of its Subsidiaries or of a Parent, the term of the ISO shall be for a
period not exceeding five years from the date of grant. Employee Options and
Consultant Options shall be subject to earlier termination as hereinafter
provided. Each Director Option shall be exercisable for a term of 10 years
commencing on the date of grant.
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office (at present 2727 Maricopa Street, Torrence,
California, Attn: Chairman of the Board), stating which ISO or NQSO is being
exercised, specifying the number of shares of Common Stock as to which such
option is being exercised and accompanied by payment in full of the aggregate
exercise price therefor (or the amount due on exercise if the Contract permits
installment payments) (a) in cash or by certified check or (b) in the case of an
Employee Option or a Consultant Option, if the Contract at the time of grant so
permits, with the authorization of the Committee, with previously acquired
shares of Common Stock having an aggregate fair market value, on the date of
exercise, equal to the aggregate exercise price of all options being exercised,
or with any combination of cash, certified check or shares of Common Stock.
The Committee may, in its discretion, permit payment of the exercise
price of an option by delivery by the optionee of a properly executed exercise
notice, together with a copy of his irrevocable instructions to a broker
acceptable to the Committee to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a shareholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for such
shares; provided, however, that until such stock certificate is issued, any
option holder using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a shareholder with
respect to such previously acquired shares.
8. TERMINATION OF RELATIONSHIP. Any holder of an Employee Option
whose employment with the Company (and its Parent and Subsidiaries) has
terminated for any reason other than his death or Disability (as defined in
Paragraph 19) may exercise such option, to the extent exercisable on the date of
such termination, at any time within three months after the date of termination,
but not thereafter and in no event after the date the option would
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<PAGE>
otherwise have expired; provided, however, that if his employment shall be
terminated either (a) for cause, or (b) without the consent of the Company, said
option shall terminate immediately. Employee Options granted under the Plan
shall not be affected by any change in the status of the holder so long as he
continues to be a full-time employee of the Company, its Parent or any of the
Subsidiaries (regardless of having been transferred from one corporation to
another).
For purposes of the Plan, an employment relationship shall be deemed
to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave. In addition, for purposes of the Plan, an optionee's employment
with a Subsidiary or Parent of the Company shall be deemed to have terminated on
the date such corporation ceases to be a Subsidiary or Parent of the Company.
The termination of an optionee's relationship as a consultant of the
Company or of a Subsidiary of the Company shall not affect the option except as
may otherwise be provided in the Contract. A Director Option may be exercised at
any time during its 10 year term. The Director Option shall not be affected by
the holder ceasing to be a director of the Company or becoming an employee or
consultant of the Company or any of its subsidiaries.
Nothing in the Plan or in any option granted under the Plan shall
confer on any individual any right to continue in the employ or as a consultant
or director of the Company, its Parent or any of its Subsidiaries, or interfere
in any way with the right of the Company, its Parent or any of its Subsidiaries
to terminate such relationship at any time for any reason whatsoever without
liability to the Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee dies (a) while
he is employed by the Company, its Parent or any of its Subsidiaries, (b) within
three months after the termination of his employment (unless such termination
was for cause or without the consent of the Company) or (c) within one year
following the termination of his employment by reason of Disability, an Employee
Option may be exercised, to the extent exercisable on the date of his death, by
his executor, administrator or other person at the time entitled by law to his
rights under such option, at any time within one year after death, but not
thereafter and in no event after the date the option would otherwise have
expired.
Any optionee whose employment has terminated by reason of Disability
may exercise his Employee Option, to the extent exercisable upon the effective
date of such
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<PAGE>
termination, at any time within one year after such date, but not thereafter and
in no event after the date the option would otherwise have expired.
The death or Disability of an optionee to whom a Consultant Option
has been granted under the Plan shall not affect the option, except as may
otherwise be provided in the Contract. The term of a Director Option shall not
be affected by the death or Disability of the optionee. In such case, the option
may be exercised at any time during its term by his executor, administrator or
other person at the time entitled by law to the optionee's rights under such
option.
10. COMPLIANCE WITH SECURITIES LAW. It is a condition to the
exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there is an exemption from registration
under the Securities Act for the issuance of shares of Common Stock upon such
exercise. Nothing herein shall be construed as requiring the Company to register
shares subject to any option under the Securities Act.
The Committee may require the optionee to execute and deliver to the
Company his representations and warranties, in form and substance satisfactory
to the Committee, that (i) the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the optionee for his own account,
for investment only and not with a view to the resale or distribution thereof,
and (ii) any subsequent resale or distribution of shares of Common Stock by such
optionee will be made only pursuant to (a) a Registration Statement under the
Securities Act which is effective and current with respect to the shares of
Common Stock being sold, or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption, the optionee
shall prior to any offer of sale or sale of such shares of Common Stock provide
the Company with a favorable written opinion of counsel, in form and substance
satisfactory to the Company, as to the applicability of such exemption to the
proposed sale or distribution.
In addition, if at any time the Committee shall determine in its
discretion that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of an option,
or the issuance of shares of Common Stock thereunder, such option may not be
exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms and conditions not inconsistent herewith
as may be determined by the Committee.
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<PAGE>
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Not withstanding any
other provisions of the Plan, in the event of any change in the outstanding
Common Stock by reason of a stock dividend, recapitalization, merger or
consolidation in which the Company is the surviving corporation, split-up,
spin-off, combination or exchange of shares or the like, the aggregate number
and kind of shares subject to the Plan, the aggregate number and kind of shares
subject to each outstanding option and the exercise price thereof, the number
and kind of shares subject to future grants of Director Options and the 162(m)
Maximum shall be appropriately adjusted by the Board of Directors, whose
determination shall be conclusive.
In the event of (a) the liquidation or dissolution of the Company,
(b) a merger or consolidation in which the Company is not the surviving
corporation, or (c) any other capital reorganization (other than a
recapitalization) in which more than 50% of the shares of Common Stock of the
Company entitled to vote are exchanged, any outstanding options shall terminate,
unless other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors on January 28, 1994 and amended by the Board of Directors
on July 26, 1994, April 18, 1996 and October 4, 1996. No option may be granted
under the Plan after January 27, 2004. The Board of Directors, without further
approval of the Company's shareholders, may at any time suspend or terminate the
Plan, in whole or in part, or amend it from time to time in such respects as it
may deem advisable, including, without limitation, in order that ISO granted
hereunder meet the requirements for "incentive stock options" under the Code, to
comply with the provisions of Rule 16b-3 promulgated under the Exchange Act,
Section 162(m) of the Code and to conform to any change in applicable law or to
regulations or rulings of administrative agencies; provided, however, that no
amendment shall be effective without the requisite prior or subsequent
shareholder approval which would (a) except as contemplated in Paragraph 12,
increase the maximum number of shares of Common Stock for which options may be
granted under the Plan or the 162(m) Maximum, (b) materially increase the
benefits to participants under the Plan or (c) change the eligibility
requirements for individuals entitled to receive options hereunder.
Notwithstanding the foregoing, the provisions regarding the selection of
Directors for participation in, and the amount, the price or the timing of,
Director Options shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act or the rules thereunder. No termination, suspension or amendment of
the Plan shall, without the consent of the holder of an existing option affected
thereby, adversely affect his rights under such option. The power of the
Committee to construe and administer any options granted under the Plan prior to
the termination or suspension of the Plan nevertheless shall continue after such
termination or during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the holder
thereof, only by him or his legal representatives. Except to the extent provided
above, options may not be assigned, transferred,
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<PAGE>
pledged, hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
15. WITHHOLDING TAXES. The Company may withhold cash and/or, with
the authorization of the Committee, shares of Common Stock to be issued with
respect thereto having an aggregate fair market value equal to the amount which
it determines is necessary to satisfy its obligation to withhold Federal, state
and local income taxes or other taxes incurred by reason of the grant or
exercise of an option, its disposition, or the disposition of the underlying
shares of Common Stock. Alternatively, the Company may require the holder to pay
to the Company such amount, in cash, promptly upon demand. The Company shall not
be required to issue any shares of Common Stock pursuant to any such option
until all required payments have been made. Fair market value of the shares of
Common Stock shall be determined in accordance with Paragraph 5.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act, (b) implement the provisions of the Plan or any agreement between the
Company and the optionee with respect to such shares of Common Stock, or (c)
permit the Company to determine the occurrence of a "disqualifying disposition,"
as described in Section 421(b) of the Code, of the shares of Common Stock
transferred upon the exercise of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for its general corporate purposes
as the Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CER TAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the shareholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
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<PAGE>
19. DEFINITIONS.
(a) Subsidiary. The term "Subsidiary" shall have the same definition
as "subsidiary corporation" in Section 424(f) of the Code.
(b) Parent. The term "Parent" shall have the same definition as
"parent corporation" in Section 424(e) of the Code.
(c) Constituent Corporation. The term "Constituent Corporation"
shall mean any corporation which engages with the Company, its Parent or any
Subsidiary in a transaction to which Section 424(a) of the Code applies (or
would apply if the option assumed or substituted were an ISO), or any Parent or
any Subsidiary of such corporation.
(d) Disability. The term "Disability" shall mean a permanent and
total disability within the meaning of Section 22(e)(3) of the Code.
(e) Outside Director. The term "Outside Director" shall mean an
individual who, on the date of grant of a NQSO hereunder, is a director of the
Company but is not a common law employee of the Company or of any of its
Subsidiaries or its Parent.
(f) Employee Option. The term "Employee Option" shall mean an option
granted pursuant to the Plan to an individual who, on the date of grant, is a
key employee of the Company or a Subsidiary of the Company.
(g) Consultant Option. The term "Consultant Option" shall mean a
NQSO granted pursuant to the Plan to a person who, on the date of grant, is a
consultant to the Company or a Subsidiary of the Company and who is not an
employee of the Company or any of its Subsidiaries on such date.
(h) Director Option. The term "Director Option" shall mean a NQSO
granted pursuant to the Plan to a director of the Company who, on the date of
grant, is not an employee of the Company or a Subsidiary of the Company.
20. GOVERNING LAW. The Plan, such options as may be granted
hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of New York.
21. PARTIAL INVALIDITY. The invalidity or illegality of any
provision herein shall not affect the validity of any other provision.
22. SHAREHOLDER APPROVAL. The October 4, 1996 amendment to the Plan
shall be subject to approval by a majority of the votes cast at the next duly
held meeting of the Company's shareholders at which a majority of the
outstanding voting shares are present, in
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person or by proxy, and voting on the Plan. No options granted pursuant to the
amendment may be exercised prior to such approval, provided that the date of
grant of any options granted thereunder shall be determined as if the amendment
to the Plan had not been subject to such approval. Notwithstanding the
foregoing, if the amendment to the Plan is not approved by a vote of the
shareholders of the Company on or before October 4, 1997, the amendment and any
options granted thereunder shall terminate, but the Plan as in effect prior to
the amendment and all options granted thereunder shall remain in full force and
effect.
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1996 STOCK OPTION PLAN
OF
MOTORCAR PARTS & ACCESSORIES, INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to key employees (including officers and
directors who are key employees), Outside Directors (as defined in Paragraph 19)
and consultants of Motorcar Parts & Accessories, Inc., a New York corporation
(the "Company"), and its present and future subsidiary corporations, as defined
in Paragraph 19 ("Subsidiaries"), and to offer an additional inducement in
obtaining the services of such individuals. The Plan provides for the grant of
"incentive stock options" ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options ("NQSOs"), but the Company makes no warranty as to the qualification of
any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12, the aggregate number of shares of Common Stock, $.01 par value per share, of
the Company ("Common Stock") for which options may be granted under the Plan
shall not exceed 30,000. Such shares of Common Stock may, in the discretion of
the Board of Directors of the Company (the "Board of Directors"), consist either
in whole or in part of authorized but unissued shares of Common Stock or shares
of Common Stock held in the treasury of the Company. The Company shall at all
times during the term of the Plan reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of the
Plan. Subject to the provisions of Paragraph 13, any shares of Common Stock
subject to an option which for any reason expires, is cancelled or is terminated
unexercised or which ceases for any reason to be exercisable shall again become
available for the granting of options under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board of Directors which, to the extent it shall determine, may delegate its
powers with respect to the administration of the Plan to a committee of the
Board of Directors (the "Com mittee") consisting of not less than two Directors
(or such greater number as required by law), each of whom shall be a
"non-employee director" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). References in the Plan to determinations or actions by the
Committee shall be deemed to include determinations and actions by the Board of
Directors. A majority of the members of the Committee shall constitute a quorum,
and the acts of a majority of the members present at any meeting at which a
quorum is present, and any acts approved in writing by all members without a
meeting, shall be the acts of the Committee.
<PAGE>
Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion, to determine: the key employees,
Outside Directors and consultants who shall receive options; the times when they
shall receive options; whether an Employee Option shall be an ISO or a NQSO; the
number of shares of Common Stock to be subject to each option; the term of each
option; the date each option shall become exercisable; whether an option shall
be exercisable in whole, in part or in installments, and, if in installments,
the number of shares of Common Stock to be subject to each installment; whether
the installments shall be cumulative; the date each installment shall become
exercisable and the term of each installment; whether to accelerate the date of
exercise of any installment; whether shares of Common Stock may be issued on
exercise of an option as partly paid, and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such
installments; the exercise price of each option; the form of payment of the
exercise price; whether to restrict the sale or other disposition of the shares
of Common Stock acquired upon the exercise of an option and to waive any such
restriction; whether to subject the exercise of all or any portion of an option
to the fulfillment of contingencies as specified in the Contract (as described
in Paragraph 11), including without limitations, contingencies relating to
entering into a covenant not to compete with the Company and its Parent and
Subsidiaries, to financial objectives for the Company, a Subsidiary, a division,
a product line or other category, and/or the period of continued employment of
the optionee with the Company or its Subsidiaries, to determine whether such
contingencies have been met; to construe the respective Contracts and the Plan;
to determine the amount, if any, necessary to satisfy the Company's obligation
to withhold taxes; with the consent of the optionee, to cancel or modify an
option, provided such option as modified would be permitted to be granted on
such date under the terms of the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; and to make all other determinations necessary
or advisable for administering the Plan. The determinations of the Committee on
the matters referred to in this Paragraph 3 shall be conclusive. No member or
former member of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted hereunder.
4. ELIGIBILITY; GRANTS. The Committee may, consistent with the
purposes of the Plan, grant options from time to time, to key employees
(including officers and directors who are key employees), Outside Directors and
consultants of the Company or any of its Subsidiaries. Options granted shall
cover such number of shares of Common Stock as the Committee may determine;
provided, however, that the maximum number of shares subject to options that may
be granted to any employee in any fiscal year of the Company under the Plan (the
"162(m) Maximum") may not exceed 100,000; and FURTHER, PROVIDED, that the
aggregate market value (determined at the time the option is granted) of the
shares of Common Stock for which any eligible employee may be granted ISOs under
the Plan or any other plan of the Company, or of a Parent or a Subsidiary of the
Company, which are exercisable for the first time by such optionee during any
calendar year shall not exceed $100,000. The $100,000 ISO limitation shall be
applied by taking ISOs into account in the order in which they were granted. Any
option (or the portion thereof) granted in excess of such amount shall be
treated as a NQSO.
2
<PAGE>
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each Option shall be determined by the Committee; provided, however, that
the exercise price shall not be less than 100% of the fair market value of the
Common Stock subject to such option on the date of grant; and further provided,
that if, at the time an ISO is granted, the optionee owns (or is deemed to own
under Section 424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, of any of its
Subsidiaries or of a Parent, the exercise price of such ISO shall not be less
than 110% of the fair market value of the Common Stock subject to such ISO on
the date of grant.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average between the high and low sales prices per share of the
Common Stock on such day as reported by such exchange or on a consolidated tape
reflecting transactions on such exchange, (b) if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is
quoted on the National Association of Securities Dealers Automated Quotations
System ("NASDAQ"), and (i) if actual sales price information is available with
respect to the Common Stock, the average between the high and low sales prices
per share of the Common Stock on such day on NASDAQ, or (ii) if such information
is not available, the average between the highest bid and the lowest asked
prices for the Common Stock on such day on NASDAQ, or (c) if the principal
market for the Common Stock is not a national securities exchange and the Common
Stock is not quoted on NASDAQ, the average between the highest bid and lowest
asked prices per share for the Common Stock on such day as reported on the
NASDAQ OTC Bulletin Board Service, National Quotation Bureau, Incorporated or a
comparable service; provided that if clauses (a), (b) and (c) of this Paragraph
are all inapplicable, or if no trades have been made or no quotes are available
for such day, the fair market value of a share of Common Stock shall be
determined by the Committee by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options. The determination
of the Committee shall be conclusive in determining the fair market value of the
stock.
6. TERM. The term of each option granted pursuant to the Plan shall
be such term as is established by the Committee, in its sole discretion, at or
before the time such option is granted; provided, however, that the term of each
ISO granted pursuant to the Plan shall be for a period not exceeding 10 years
from the date of grant thereof, and further, provided, that if, at the time an
ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of
the Code) stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company, of any of its Subsidiaries or of a Parent,
the term of the ISO shall be for a period not exceeding five years from the date
of grant. Options shall be subject to earlier termination as hereinafter
provided. Each Director Option shall be exercisable for a term of 10 years
commencing on the date of grant.
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office (at present 2727 Maricopa Street, Torrence,
California, Attn: Chairman of the Board),
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stating which ISO or NQSO is being exercised, specifying the number of shares of
Common Stock as to which such option is being exercised and accompanied by
payment in full of the aggregate exercise price therefor (or the amount due on
exercise if the Contract permits installment payments) (a) in cash or by
certified check or (b) if the applicable Contract at the time of grant so
permits, with the authorization of the Committee, with previously acquired
shares of Common Stock having an aggregate fair market value, on the date of
exercise, equal to the aggregate exercise price of all options being exercised,
or with any combination of cash, certified check or shares of Common Stock.
The Committee may, in its discretion, permit payment of the exercise
price of an option by delivery by the optionee of a properly executed exercise
notice, together with a copy of his irrevocable instructions to a broker
acceptable to the Committee to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a shareholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for such
shares; provided, however, that until such stock certificate is issued, any
option holder using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a shareholder with
respect to such previously acquired shares.
8. TERMINATION OF RELATIONSHIP. Any holder of an Employee Option
whose employment with the Company (and its Parent and Subsidiaries) has
terminated for any reason other than his death or Disability (as defined in
Paragraph 19) may exercise such option, to the extent exercisable on the date of
such termination, at any time within three months after the date of termination,
but not thereafter and in no event after the date the option would otherwise
have expired; provided, however, that if his employment shall be terminated
either (a) for cause, or (b) without the consent of the Company, said option
shall terminate immediately. Employee Options granted under the Plan shall not
be affected by any change in the status of the holder so long as he continues to
be a full-time employee of the Company, its Parent or any of the Subsidiaries
(regardless of having been transferred from one corporation to another).
For purposes of the Plan, an employment relationship shall be deemed
to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of
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such leave. In addition, for purposes of the Plan, an optionee's employment with
a Subsidiary or Parent of the Company shall be deemed to have terminated on the
date such corporation ceases to be a Subsidiary or Parent of the Company.
The termination of an optionee's relationship as a consultant of the
Company or of a Subsidiary of the Company shall not affect the option except as
may otherwise be provided in the Contract. A Director Option may be exercised at
any time during its 10 year term. The Director Option shall not be affected by
the holder ceasing to be a director of the Company or becoming an employee or
consultant of the Company or any of its subsidiaries.
Nothing in the Plan or in any option granted under the Plan shall
confer on any individual any right to continue in the employ or as a consultant
or director of the Company, its Parent or any of its Subsidiaries, or interfere
in any way with the right of the Company, its Parent or any of its Subsidiaries
to terminate such relationship at any time for any reason whatsoever without
liability to the Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee dies (a) while
he is employed by the Company, its Parent or any of its Subsidiaries, (b) within
three months after the termination of his employment (unless such termination
was for cause or without the consent of the Company) or (c) within one year
following the termination of his employment by reason of Disability, an Employee
Option may be exercised, to the extent exercisable on the date of his death, by
his executor, administrator or other person at the time entitled by law to his
rights under such option, at any time within one year after death, but not
thereafter and in no event after the date the option would otherwise have
expired.
Any optionee whose employment has terminated by reason of Disability
may exercise his Employee Option, to the extent exercisable upon the effective
date of such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
The death or Disability of an optionee to whom a Consultant Option
has been granted under the Plan shall not affect the option, except as may
otherwise be provided in the Contract. The term of a Director Option shall not
be affected by the death or Disability of the optionee. In such case, the option
may be exercised at any time during its term by his executor, administrator or
other person at the time entitled by law to the optionee's rights under such
option.
10. COMPLIANCE WITH SECURITIES LAW. It is a condition to the
exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there is an exemption from registration
under the Securities Act for the issuance of shares of Common Stock upon such
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exercise. Nothing herein shall be construed as requiring the Company to register
shares subject to any option under the Securities Act.
The Committee may require the optionee to execute and deliver to the
Company his representations and warranties, in form and substance satisfactory
to the Committee, that (i) the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the optionee for his own account,
for investment only and not with a view to the resale or distribution thereof,
and (ii) any subsequent resale or distribution of shares of Common Stock by such
optionee will be made only pursuant to (a) a Registration Statement under the
Securities Act which is effective and current with respect to the shares of
Common Stock being sold, or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption, the optionee
shall prior to any offer of sale or sale of such shares of Common Stock provide
the Company with a favorable written opinion of counsel, in form and substance
satisfactory to the Company, as to the applicability of such exemption to the
proposed sale or distribution.
In addition, if at any time the Committee shall determine in its
discretion that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of an option,
or the issuance of shares of Common Stock thereunder, such option may not be
exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms and conditions not inconsistent herewith
as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Not withstanding any
other provisions of the Plan, in the event of any change in the outstanding
Common Stock by reason of a stock dividend, recapitalization, merger or
consolidation in which the Company is the surviving corporation, split-up,
spin-off, combination or exchange of shares or the like, the aggregate number
and kind of shares subject to the Plan, the aggregate number and kind of shares
subject to each outstanding option and the exercise price thereof and the 162(m)
Maximum shall be appropriately adjusted by the Board of Directors, whose
determination shall be conclusive.
In the event of (a) the liquidation or dissolution of the Company,
(b) a merger or consolidation in which the Company is not the surviving
corporation, or (c) any other capital reorganization (other than a
recapitalization) in which more than 50% of the shares of Common Stock of the
Company entitled to vote are exchanged, any outstanding options shall terminate,
unless other provision is made therefor in the transaction.
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13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors on October 4, 1996. No option may be granted under the
Plan after October 3, 2006. The Board of Directors, without further approval of
the Company's shareholders, may at any time suspend or terminate the Plan, in
whole or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISO granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with the provisions of Rule 16b-3 promulgated under the Exchange Act, Section
162(m) of the Code and to conform to any change in applicable law or to
regulations or rulings of admin istrative agencies; provided, however, that no
amendment shall be effective without the requisite prior or subsequent
shareholder approval which would (a) except as contemplated in Paragraph 12,
increase the maximum number of shares of Common Stock for which options may be
granted under the Plan or the 162(m) Maximum, (b) materially increase the
benefits to participants under the Plan or (c) change the eligibility
requirements for individuals entitled to receive options hereunder. No
termination, suspension or amendment of the Plan shall, without the consent of
the holder of an existing option affected thereby, adversely affect his rights
under such option. The power of the Committee to construe and administer any
options granted under the Plan prior to the termination or suspension of the
Plan nevertheless shall continue after such termination or during such
suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the holder
thereof, only by him or his legal representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process.
15. WITHHOLDING TAXES. The Company may withhold cash and/or, with
the authorization of the Committee, shares of Common Stock to be issued with
respect thereto having an aggregate fair market value equal to the amount which
it determines is necessary to satisfy its obligation to withhold Federal, state
and local income taxes or other taxes incurred by reason of the grant or
exercise of an option, its disposition, or the disposition of the underlying
shares of Common Stock. Alternatively, the Company may require the holder to pay
to the Company such amount, in cash, promptly upon demand. The Company shall not
be required to issue any shares of Common Stock pursuant to any such option
until all required payments have been made. Fair market value of the shares of
Common Stock shall be determined in accordance with Paragraph 5.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act, (b) implement the provisions of the Plan or any agreement between the
Company
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and the optionee with respect to such shares of Common Stock, or (c) permit the
Company to determine the occurrence of a "disqualifying disposition," as
described in Section 421(b) of the Code, of the shares of Common Stock
transferred upon the exercise of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for its general corporate purposes
as the Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CER TAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the shareholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
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19. DEFINITIONS.
(a) Subsidiary. The term "Subsidiary" shall have the same definition
as "subsidiary corporation" in Section 424(f) of the Code.
(b) Parent. The term "Parent" shall have the same definition as
"parent corporation" in Section 424(e) of the Code.
(c) Constituent Corporation. The term "Constituent Corporation"
shall mean any corporation which engages with the Company, its Parent or any
Subsidiary in a transaction to which Section 424(a) of the Code applies (or
would apply if the option assumed or substituted were an ISO), or any Parent or
any Subsidiary of such corporation.
(d) Disability. The term "Disability" shall mean a permanent and
total disability within the meaning of Section 22(e)(3) of the Code.
(e) Outside Director. The term "Outside Director" shall mean an
individual who, on the date of grant of a NQSO hereunder, is a director of the
Company but is not a common law employee of the Company or of any of its
Subsidiaries or its Parent.
(f) Employee Option. The term "Employee Option" shall mean an option
granted pursuant to the Plan to an individual who, on the date of grant, is a
key employee of the Company or a Subsidiary of the Company.
(g) Consultant Option. The term "Consultant Option" shall mean a
NQSO granted pursuant to the Plan to a person who, on the date of grant, is a
consultant to the Company or a Subsidiary of the Company and who is not an
employee of the Company or any of its Subsidiaries on such date.
(h) Director Option. The term "Director Option" shall mean a NQSO
granted pursuant to the Plan to a director of the Company who, on the date of
grant, is not an employee of the Company or a Subsidiary of the Company.
20. GOVERNING LAW. The Plan, such options as may be granted
hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of New York.
21. PARTIAL INVALIDITY. The invalidity or illegality of any
provision herein shall not affect the validity of any other provision.
22. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes cast at the next duly held meeting of the Company's
shareholders at which a majority of the outstanding voting shares are present,
in person or by proxy, and voting
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on the Plan. No options granted pursuant to the Plan may be exercised prior to
such approval, provided that the date of grant of any options granted thereunder
shall be determined as if the amendment to the Plan had not been subject to such
approval. Notwithstanding the foregoing, if the Plan is not approved by a vote
of the shareholders of the Company on or before October 4, 1997, the Plan and
any options granted thereunder shall terminate.
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