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U.S. Securities and Exchange Commission
Washington, D.C. 20549
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Form 10-KSB
(Mark One)
[ x ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1943
For the transition period from to
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Commission file number 0-23898
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MITY-LITE, INC.
(Name of small business issuer in its charter)
Utah 87-0448892
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 West 400 North
Orem, Utah 84057
(Address of principal executive offices, zip code)
Issuer's telephone number: (801) 224-0589
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of class
Common Stock, par value $.01
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x
No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to the Form 10-KSB. [x]
The Company's net sales for the fiscal year just ended were $25,337,000.
The aggregate market value of the registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $27,300,000 (computed using
the closing price of $18.375 per share of Common Stock on May 22, 1998 as
reported by Nasdaq). Shares of Common Stock held by each officer and director
(and their affiliates) and each person who owns 5 percent or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
affiliates for purposes of this calculation. The determination of affiliate
status is not necessarily a conclusive determination for other purposes.
There were 3,264,934 shares of the registrant's Common Stock, par value
$.01 per share, outstanding on May 22, 1998.
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TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check one:) Yes No x
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Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on August 20, 1998, which Proxy
Statement will be filed no later than 120 days after the close of the
registrant's fiscal year ended March 31, 1998, are incorporated by reference
in Part III of this Annual Report on Form 10-KSB. Portions of the
registrant's 1998 Annual Report to Shareholders, attached hereto as Exhibit
13, are incorporated by reference in Part II, Items 6 and 7 of this Annual
Report on Form 10-KSB.
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PART I
ITEM 1. BUSINESS
Background
Mity-Lite, Inc. ("Mity-Lite" or the "Company") designs, manufactures and
markets lightweight, durable, folding leg tables, stacking chairs and related
products used in multi-purpose rooms of educational, recreational, hotel and
hospitality, government, office, health care, religious and other public
assembly facilities. The Company typically sells its products directly to end
users. The Company markets its products throughout the United States and in
certain foreign countries.
The Company has developed and currently manufactures and markets 48
different plastic table sizes which come in three standard and a variety of
custom colors. These tables are made with several different folding leg and
custom color options. The Company has successfully applied engineering grade
plastics and sophisticated manufacturing and assembly methods to the
production of tables that weigh less and are more durable than competing
particle board or plywood table products of similar size. The Company's
plastic tables are manufactured using abrasion, stain and water resistant
materials. The Company's cornered tables are constructed using the Company's
proprietary high-impact corners which can withstand a two foot drop without
sustaining debilitating damage. All of the Company's plastic tables include
reinforced edging. Cornered tables are equipped with non-skid pads which
facilitate stacking and storage. Management believes the Company's plastic
table products appeal to its customers because they are durable, lightweight,
easy to handle and attractive.
The Company also manufacturers and sells Elite(TM) and Aluminum(TM)
tables. The Elite(TM) table is a distinctive, lightweight, folding leg wood
conference style table. The table is constructed of real wood veneers or high
pressure laminates, solid wood edges and a polymer honeycomb core. The
Elite(TM) line provides easily removable elegant tables for offices,
conference and training rooms. The Aluminum(TM) table is made for outdoor
use and provides resistance to extreme exposure to ultraviolet light, rain,
snow and other corrosive environments. The Aluminum(TM) tables can hold up to
1600 pounds, yet are 30 to 50 percent lighter than conventional particle board
tables. All of the Company's table products are sold with a five-year
warranty covering materials and workmanship.
In addition to its table products, the Company currently offers five
lines of stacking chairs, the MityTuff(TM), the MityStack(TM), the
MityFlex(TM), the MityDeluxe(TM) and the MityHost(TM). The MityTuff(TM) and
MityStack(TM) chairs are distributed by the Company under original equipment
manufacturer (OEM) arrangements with the chair manufacturers. Portions of the
MityFlex(TM) and the MityDeluxe(TM) chairs are manufactured by the Company.
In addition, the Company performs final assembly on these two chair lines.
The MityHost(TM) stacking chair was introduced in January 1997 and is
manufactured in-house at the Company's facility in Orem, Utah.
The MityTuff(TM) is sold with a seven-year warranty covering materials
and workmanship. The MityStack(TM), MityFlex(TM) and the MityDeluxe(TM) are
sold with a ten-year warranty covering materials and workmanship. The
MityHost(TM) is sold with a ten-year warranty covering the structural
integrity of the metal frame and a one-year warranty covering the upholstery.
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In addition to lightweight, durable tables and stacking chairs, the
Company manufactures and markets accessory products including table and chair
carts, tablecloths, skirting and skirt clips.
In March 1997, Mity-Lite acquired a 49.9 percent equity interest in DO
Group, Inc. ("DO Group"), a manufacturer of office seating and office panel
systems headquartered in Elkhart, Indiana. DO Group markets its products
under the Domore(TM) and DO3(TM) trade names and has manufacturing facilities
in Elkhart, Indiana and Marked Tree, Arkansas. DO Group's seating and system
sales totaled approximately $12 million for the fiscal year ended March 31,
1998.
Mity-Lite purchased its 49.9 percent equity interest in DO Group from an
outside investor group for $868,000 in cash, including transaction-related
expenses. Mity-Lite holds an option to put back its investment to the DO
Group officers at any time until May 15, 2000. At the conclusion of the put
option period and if the put option has not been exercised, the majority
owners of DO Group will have the right to convert their 50.1 percent interest
in DO Group into 115,000 shares of Mity-Lite common stock, at which time DO
Group will become a wholly-owned subsidiary of Mity-Lite. In addition, Mity-
Lite set aside options to purchase 175,000 shares of Mity-Lite Common Stock
for DO Group employees under the 1997 Stock Incentive Plan. These options
will vest only if Mity-Lite does not exercise its put option.
As part of the acquisition, Mity-Lite loaned $1,000,000 in a senior
subordinated note to a wholly-owned subsidiary of DO Group. The note matures
on March 24, 2000 and bears interest at 10 percent payable quarterly. The
Company believes the interest rate approximates the market rate of interest
for similar debt instruments negotiated at arms length.
GROWTH STRATEGY
The Company's strategy is to be a niche supplier of institutional
furniture. Key elements of the Company's business strategy include:
Increase Share of Table Market. The Company intends to continue its
efforts to expand its share of the market for lightweight, durable, folding
leg tables. During the fiscal years ended March 31, 1996, 1997, and 1998, the
Company's table sales increased by 15 percent, 19 percent and 33 percent,
respectively. The Company attributes this growth in sales to increasing
market acceptance of its products, an expanded sales force, an increasing rate
of existing customer re-orders and the Company's ability to generate new
customer leads and close sales. With respect to the hospitality market, the
Company's tables have been approved for use by three major hotel operators.
The Company's table products have been approved for purchase by the General
Services Administration of the United States government. The states of Utah,
Virginia, New Jersey and Louisiana have also approved the Company's table
products for purchase by agencies of those states. The Company's approval as
a qualified vendor by the General Services Administration, and the states of
Utah, Virginia, New Jersey and Louisiana means that agencies of these
authorities can, if they so choose, purchase products from the Company at a
specifically negotiated price. The Company's designation as a qualified
government vendor for these authorities does not extend to any new products
introduced by the Company. The Company intends to continue its efforts to
become a qualified government vendor. The Company also intends to pursue
penetration of international markets primarily through direct marketing and an
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international sales team. The Company has also expanded its table product
line to include higher priced designer tables and aluminum tables, giving the
Company a broader table product line to offer its customers. The Company
further intends to continue emphasizing product quality and convenience,
factors which have enabled the Company to increase sales of its table products
despite the fact that the Company's table products are generally more
expensive than competing table products of similar sizes.
Continue to Introduce New Product Lines to Existing Customers. The
Company currently intends to develop in-house or acquire complementary product
lines of multi-purpose room furniture that can be sold to its customers using
the Company's current marketing strategy. Data collected from existing
customers leads management to believe that a market exists for complementary
multi-purpose room furniture products. Complementary product lines identified
by the Company include stacking and folding chairs, staging, flooring, risers,
bench seating, partitions and podiums. The Company has expanded its product
line to include several lines of stacking chairs. Each line has been
developed for and focuses on varying needs of different customers. The
Company intends to continue to develop or acquire through purchase or license
or through creation of a distributor relationship chair lines which could be
sold to the Company's table customers, are complementary to the Company's
tables and are consistent with specific market needs. The Company believes
that the development or acquisition of new lines of multi-purpose room
furniture products is important to its long-term success.
Market Products Directly to End Users. Unlike its competitors who
usually sell through dealers and distributors, the Company primarily sells its
table and chair products directly to end users. The Company believes that its
strategy of selling directly to end users through its in-house staff of sales
and customer service personnel gives the Company a competitive advantage by
allowing the Company to reduce and control its selling costs and maintain
direct contact with its customers. While the Company's sales and service
representatives will from time to time visit customers in their respective
sales territories, the Company has been able to reduce its selling costs
through a system of following up on leads and closing sales using the
telephone, videos, fax machine, overnight courier services and the mail as its
primary sales tools. The Company intends to continue this strategy for
marketing its existing table products and any future product lines and has
begun to introduce similar techniques at its affiliate, DO Group, Inc. In
addition, the Company intends to continue expanding its domestic and
international in-house sales and customer service staff and believes the
expansion will allow it to focus more aggressively on its current markets.
Expand into New Market Segments. The Company intends to continue to
develop and/or acquire niche businesses in the institutional furniture
industry. This will allow Mity-Lite to expand into new markets, such as the
architectural, design and corporate market segments. In March 1997, the
Company acquired a 49.9 percent equity interest in DO Group, Inc., a closely-
held manufacturer and niche marketer of specialty office seating and easy-to-
assemble office panel systems. The Company will continue to consider
acquiring other companies with businesses or product lines compatible with or
complementary to the Company's businesses or products.
Continue Enhancement of Manufacturing Process. The Company believes its
manufacturing system provides it with a competitive advantage by allowing it
to better control production costs, maintain product quality, increase
productivity and maintain relatively short lead times (the period from
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customer order to delivery). The Company strives to achieve low delivery
costs to its customers and has located its manufacturing operations in an area
with high quality and relatively low cost labor and has equipped its
manufacturing facility with advanced technology and cost effective machinery.
In an effort to control costs and increase productivity, the Company's
management carefully evaluates the Company's production process and often
makes technical modifications and adjustments to reduce costs and improve
productivity. The Company intends to continue efforts to enhance its
manufacturing process.
Forward-Looking Statements. Certain statements made above in this
section are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). In addition,
when used in this filing, the words or phrases "may," "will," "Management
believes," "Company believes," "Company intends," "estimates," "projects,"
"anticipates," "expects" and similar expressions are intended to identify
"forward-looking statements" within the meaning of the Reform Act.
Forward-looking statements contained herein include plans and objectives
of management for future operations, including plans and objectives relating
to the products, marketing, customers, product line expansions, manufacturing
process and potential acquisitions. These forward-looking statements involve
risks and uncertainties and are based on certain assumptions that may not be
realized. Actual results and outcomes may differ materially from those
discussed or anticipated. The forward-looking statements and associated risks
set forth herein and elsewhere in this filing relate to: (i) the Company's
expectation that it will be able to expand its share of the market for
lightweight, durable, folding leg tables, (ii) the Company's anticipation that
it will become a qualified government vendor, (iii) the Company's intentions
to expand the international market for its products, (iv) the Company's plan
to enhance the productivity and efficiency of its manufacturing process, (v)
Management's belief that it will be able to continue to benefit from
relatively low cost labor, (vi) the Company's intention to expand and
introduce new product lines to existing customers, (vii) the Company's ability
to maintain its low product warranty obligations, (viii) the Company's
expectation that it will be able to expand into new market segments by
developing new products or acquiring other products or businesses in such
segments, (ix) the possibility that the Company may exercise its option to
acquire the remaining 50.1 percent of the DO Group, (x) the Company's
expectation of a continued profitable return on its equity interest in the DO
Group, and (xi) the Company's intention to continue to market products
directly to its end users.
All forward-looking statements involve predictions and are subject to
known and unknown risks and uncertainties, including, without limitation,
those discussed below as well as general economic and business conditions,
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. Readers should not place undue
reliance on any such forward-looking statements, which speak only as of the
date made. The considerations listed below and elsewhere in this filing could
affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any views or
statements expressed with respect to future periods. See "Certain
Considerations." Important factors and risks that might cause such
differences, include, but are not limited to (a) lower than expected revenue,
revenue growth and cash flow from operations because of adverse economic or
business conditions or the Company's inability, for any reason, to introduce
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new products or implement its marketing strategies, (b) management's ability
to manage effectively the Company's growth, (c) the Company's ability to
expand successfully its international markets, (d) import restrictions and
economic conditions in the Company's foreign markets, (e) competition in the
Company's existing and future markets, (f) increased expenditures required to
address the Year 2000 issue if the Company's technology requirements change,
(g) the market's acceptance of additional products such as multi-purpose room
furniture, (h) the Company's ability to maintain relatively low cost labor
rates in a period of lower unemployment, (i) the Company's ability to source
acceptable raw materials at current prices, (j) increased product warranty
service costs if warranty claims increase as a result of the Company's new
manufacturing bonding process or for any other reason, (k) the Company's
ability to refine and enhance the quality and productivity of its
manufacturing process, and (l) the Company's ability to manufacture and market
at current margins high quality, high performance products at competitive
prices.
In light of the significant uncertainties inherent in forward-looking
statements, the inclusion of any such statement should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. The Company disclaims any obligation or
intent to update any such factors or forward-looking statements to reflect
future events or developments.
MARKET OVERVIEW
Based upon management's analysis of companies known to sell multi-purpose
room furniture and based upon management's experience and contacts in this
business, management estimates that the domestic market for multi-purpose room
furniture exceeds $1 billion annually. It is estimated that folding tables
alone make up over $250 million of this domestic market. Chairs and other
related seating products are estimated to account for approximately $700
million of the estimated domestic multi-purpose room furniture market. Other
products such as staging, risers, partitions, podiums, and flooring account
for the balance of the estimated domestic market.
SALES AND MARKETING
The Company primarily markets its products directly to end users in the
educational, recreational, hotel and hospitality, governmental, office
products, health care, public assembly and church markets. This strategy
enables the Company to manage selling costs more effectively and maintain
direct contact with its customers. The Company currently employs 40 full-time
in-house sales and customer service employees. The Company's sales and
customer service personnel are compensated on a commission basis and may
qualify for other incentive bonuses based on individual, sales team, and
Company performance. Each sales and customer service employee receives
training in product attributes, customer service, use of the Company's
computerized sales management system and in all aspects of the sales cycle.
The Company typically markets its products by first identifying customers
through internal market research, referrals, trade shows, customer networking
and test marketing. Once a market has been identified, the Company's sales
and marketing staff will attempt to generate leads for prospective purchasers
in such markets by attending trade shows, through mass mailings, and other
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lead oriented advertising. The Company uses a proprietary, computer based
sales management system to qualify, track and manage sales leads for
prospective and existing customers and to compile customer feedback. While
each sales and customer service employee maintains some in-person contact with
such employee's assigned customers, most of the Company's sales efforts are
pursued using the telephone, fax machine, e-mail, internet, videotapes and
overnight mail services. The Company also uses a reference list of customers
in each geographical sales territory in order to promote sales of its
products. The Company has a sampling program and provides prospective
purchasers with product samples for 30-day trial periods. The Company does
not extensively advertise its products in trade publications.
INTERNATIONAL OPERATIONS
Since its inception in 1987, the Company has focused its marketing
efforts primarily on domestic markets. The Company has, however, sold its
table products in Canada, South America, Europe, Asia, Middle East and
Australia. For the fiscal years ended March 31, 1996, 1997, and 1998, the
Company's international sales accounted for 5.8 percent, 7.4 percent and 7.8
percent of the Company's total net sales, respectively. In June 1995, the
Company created an international sales department under the direction of an
international sales manager. Since that time, the Company has been successful
in establishing distributor relationships in Canada, Mexico, Brazil,
Venezuela, Peru, Argentina, Colombia, Dominican Republic, England, France,
Spain, Germany, Israel, Jordan, United Arab Emirates, Hong Kong, China, South
Korea, Taiwan, Singapore, and Malaysia.
MANUFACTURING AND MATERIALS
The Company's manufacturing process for its table products consists
principally of bonding a thermoformed ABS plastic shell to a wood core frame.
Metal legs, which are manufactured and painted in-house, and edge trim are
then attached to the table to complete the process. Since its inception, the
Company has implemented a number of changes to its manufacturing process and
product design which have resulted in increased production volumes, improved
production quality, reduced costs and increased on-time shipping performance.
The Company has designed and manufactured certain proprietary equipment used
in its manufacturing process. The Company believes that its manufacturing
innovations give it a competitive advantage, allowing the Company to reduce
production costs and increase productivity. The Company's typical order to
delivery lead time is between three and five weeks.
The Company's manufacturing process for its chair products consists
principally of the manufacturing and painting of legs and frames, upholstering
seat and back cushions and final assembly of the components.
Raw materials used in the Company's products such as plastic, wood, metal
and fabric are generally available from a number of suppliers. The plastic
used in the Company's products and tubing used in the metal legs are
manufactured according to the Company's specifications. The Company's other
raw materials such as wood, fabric and certain welding compounds are commodity
items. The Company has no raw material supply contracts. The Company
operates without a substantial raw materials inventory by depending on certain
key suppliers to provide raw materials on a "just-in-time" basis. The Company
believes that its raw materials are available from alternative suppliers.
However, any significant interruption in delivery of such items could have a
material adverse effect on the Company's operations.
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COMPETITION
The markets in which the Company participates are highly competitive.
The table, institutional chair and multi-purpose room furniture industry
consists of a fragmented group of approximately 60 major manufacturers and a
host of smaller manufacturers.
Management believes that customers purchase the Company's tables
primarily because of product performance, reputation, on-time delivery,
warranty service and perceived value. The Company markets its table products
based primarily on product performance (lightweight and durability) and
reputation, not price. The Company's average table price is generally higher
than the average price of competing particle board, plywood or metal table
products of its competitors. The Company believes that it has a respected
reputation for product quality, convenience and customer service and that for
these reasons, end users often choose its table products over competitors'
lower cost table products. Because only certain elements of the Company's
table design are patented, the Company's tables may be reverse engineered and
duplicated by competitors who are able to develop the manufacturing equipment
and processes to do so. Introduction of similar products by low cost
producers would put price and profit margin pressure on the Company which
would have a material adverse effect on the Company's results of operations.
Among the Company's primary competitors in the table market are Palmer-Snyder,
Inc., McCourt Manufacturing, Inc., Midwest Folding Products, Krueger
International, Virco Manufacturing Corporation, Inc. and Howe Furniture
Corporation which market a thermoformed plastic table; Southern Aluminum,
Inc., which produces an aluminum table; Krueger International, Inc., U.S.
Industries (Samsonite), Bevis Custom Furniture, Inc., Globe Business
Furniture and Virco Manufacturing Corporation, Inc. which produce particle
board tables; and Howe Furniture Corporation, Midwest Folding Products,
Palmer-Snyder, Inc., and Shelby Williams Industries, Inc. which produce
plywood tables.
Management believes that customers will purchase the Company's chair
products primarily because of product performance, reputation, warranty
service and convenience. The market for institutional chairs is highly
competitive and very fragmented. Although the Company has not yet developed
chairs which offer the same technological and performance advances as the
Company's table products, the Company believes its current chair line has
distinct selling features. The MityTuff(TM) chair offers a strong, durable
leg, rivetless construction, and seat back reinforcements for added strength
and comfort. The lightweight MityFlex(TM) chair has a patented "living hinge"
that flexes and conforms to each individual's back, adding extra comfort. The
Company is party to a distribution agreement with the patent holder related to
the MityFlex(TM) chair. The MityDeluxe(TM) chair is a stylish, lightweight
upholstered chair that is constructed with thick, high grade foam in the seat
and back and has contoured molding. The MityHost(TM) stacking chair is
lighter weight than comparable models and has wider contoured seats without
adding any width to the chair itself. Among the Company's primary competitors
in the institutional chair market are Steelcase, Falcon Products, Inc., Virco
Manufacturing Corporation, Artco-Bell Corporation, Fixtures Manufacturing
Company, Globe Business Furniture, Shelby Williams Industries, Inc., Krueger
International, Inc. and U.S. Industries (Samsonite).
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INTELLECTUAL PROPERTY
The Company has been granted two utility patents relating to the
construction of its table tops. The Company has chosen not to apply for
international patent protection for these two concepts. The Company does not
believe this will have a material adverse effect on the Company. The Company
believes that aspects of its manufacturing processes are trade secrets of the
Company. The Company relies on trade secret law and nondisclosure agreements
to protect its trade secrets. The Company believes that its patents and trade
secrets provide competitive advantages. The Company claims common law
trademark rights in the trademarks Elite(TM), Aluminum(TM), MityTuff(TM),
MityFlex(TM), MityStack(TM), MityDeluxe(TM) and MityHost(TM). The Company
does not own patent rights on any of these chairs.
REGULATION AND ENVIRONMENTAL COMPLIANCE
The Company is subject to various local, state and federal laws and
regulations including, without limitation, regulations promulgated by federal
and state environmental and health agencies, the Federal Occupational Safety
and Health Administration, and laws pertaining to the hiring, treatment,
safety and discharge of employees. The Company's manufacturing operations
must also meet federal, state and local regulatory standards in the areas of
labor, safety and health. Historically, the cost of regulatory compliance has
not had a material adverse effect on the Company's sales or operations. The
Company believes it is in compliance with applicable laws including laws
related to the handling and use of environmentally hazardous materials.
EMPLOYEES
As of March 31, 1998, the Company had 155 full-time employees. Except
for certain executive officers, all of the Company's employees are employed at
will. None of the Company's employees is represented by a labor union. The
Company believes that its relationship with its employees is good.
DO GROUP, INC. AFFILIATE
In March 1997, Mity-Lite acquired a 49.9 percent equity interest in DO
Group, Inc. ("DO Group"), a manufacturer of office seating and office panel
systems headquartered in Elkhart, Indiana. DO Group markets its products
under the Domore(TM) and DO3(TM) trade names and has manufacturing facilities
in Elkhart, Indiana and Marked Tree, Arkansas. DO Group's seating and system
sales totaled approximately $12 million for the fiscal year ended March 31,
1998.
DO Group's systems products include office panels, movable full height
walls, work surfaces, pedestals, storage units, tables and other accessory
items used in office cubicles. DO Group offers two styles of panel systems.
Panel systems sold under the DO3(TM) tradename are a metal based panel using a
post to panel assembly approach whereby panels are hung onto posts. Panels
are available in a variety of fabric, laminate or painted surfaces. DO3(TM)
panel systems are known for ease of installation and reconfiguration.
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Panel systems sold under the Domore(TM) Series System Seven(TM) trade
name are a wood based panel connected by interlocking hinges. Panels are
available in a variety of fabric and laminate surfaces. Domore(TM) panel
systems are known for ease of installation and reconfiguration and are sold at
a value price point. Management believes that Domore(TM) panel systems
compete effectively with many lower priced panel systems on the market today.
Both the DO3(TM) and Domore(TM) panel systems offer the lastest
electrical and voice/data transmission capabilities, including access to CAT5
wiring at beltline level.
DO Group's seating products are marketed under the Domore(TM) tradename
and consist of ergonomic office task, executive, intensive use and custom
seating lines. Management believes that Domore(TM) is a market leader in
intensive use seating, i.e. seating that is used three shifts per day, seven
days per week. Domore(TM) seating includes a unique proprietary control,
spring cushion seat and lumbar support as well as many other ergonomic
features.
Domore(TM) offers a complete line of Big & Tall seating for office and 24
hour use. DO Group believes that it provides the only office seating tested
to 800 pounds capacity in today's market. Management believes the Big & Tall
market segment will grow in the coming years.
DO Group markets its products through independent representatives and
dealers, and to targeted, select national accounts. DO Group also sells its
intensive use seating through an in-house staff of trained sales and customer
service personnel to selected markets.
CERTAIN CONSIDERATIONS
Competition. The markets in which the Company participates are highly
competitive. In the future, the Company expects increased competition from
the Company's existing competitors as well as from other companies which may
enter the markets served by the Company. Only certain elements of the
Company's table products are patented so the unpatented elements could be
reverse engineered and duplicated by competitors who are able to develop the
manufacturing equipment and processes to do so. Many of the Company's
competitors have greater name recognition and greater financial, personnel,
manufacturing and marketing resources than the Company. The Company believes
that competition for multi-purpose room furniture products is generally based
on product quality and characteristics, service and price. The Company's
table products are more expensive than table products sold by the Company's
competitors in the same markets. However, the Company believes that it has
been able to compete in such markets and increase its market share by
emphasizing the quality and performance of its table products as compared to
its competitors' table products. Introduction of similar products by low cost
producers would put price and margin pressure on the Company. The Company's
continued success will depend upon, among other things, its ability to
continue to manufacture and market high quality, high performance tables and
other multi-purpose room furniture products at prices competitive in the
markets served by the Company.
Product Line Expansion Strategies; Entry Into New Markets. One of the
Company's primary growth strategies is to pursue revenue and earnings growth
through the introduction of new lines of complementary multi-purpose room
<PAGE> 12
furniture such as chairs, staging, partitions, podiums, flooring, risers,
bench seating and related furniture products which the Company intends to
acquire or develop in-house. The Company's expansion of its current product
lines is contingent, among other things, upon the Company's ability to develop
and/or acquire additional lines of complementary multi-purpose room furniture
which can be purchased or manufactured in a cost efficient manner and sold at
competitive prices in the Company's markets. Except for DO Group, Inc., the
Company currently has no commitments, agreements or understandings with
respect to any acquisitions of product lines or of companies with
complementary products or businesses. The Company to date has and will
continue to acquire or develop in-house several lines of chairs. The Company
is not in a position to project whether it will be able to develop or acquire
chair lines which can be sold profitably and can meet the Company's quality
standards. Although the Company has successfully penetrated the lightweight,
folding leg table market, and while the Company believes that a number of
complementary product lines can be sold into the Company's existing markets,
no assurances are or can be made that the Company's experience in the folding
leg table market will be repeated in markets for new product lines.
Furthermore, the Company anticipates the development or acquisition of new
product lines and the penetration of new markets will require a substantial
commitment of management's time and the Company's resources.
The Company's ability to manufacture other product lines depends on,
among other things, the timely expansion of its current facility or
construction of additional manufacturing facilities on the property currently
leased by the Company. The Company's ability to increase penetration of the
domestic table market depends in part on the Company's ability to expand its
in-house sales and customer service staff and locate and hire qualified
personnel. No assurances can be or are made that the Company's expansion
strategies will be successful.
Dependence on Management. The Company is dependent on the efforts and
abilities of certain of its senior management, including Gregory L. Wilson,
the Company's Chairman, President, and Chief Executive Officer. Mr. Wilson
is employed under a five-year employment contract expiring in May 2003. The
Company maintains $2,000,000 of "key-man" life insurance on Mr. Wilson. The
loss of any of the Company's key executives could have a material adverse
effect on the Company and its operations and prospects, although the loss of
Mr. Wilson might have a more significant adverse effect on the Company.
Proprietary Rights. The Company has been granted two utility patents
relating to the construction of its table tops. The Company has chosen not to
apply for international patent protection for these two concepts. The
Company's success and future revenue growth will depend, in part, upon its
ability to protect its trade secrets. The Company relies on trade secret law
and non-disclosure agreements to protect its unpatented and proprietary
know-how. There can be no assurance that such measures will provide
meaningful protection for the Company's trade secrets or other proprietary
information. Moreover, in the absence of further patent protection, the
Company's business may be adversely affected by competitors who independently
develop substantially equivalent products and manufacturing processes. The
Company will endeavor to keep its products and processes and the results of
its research and development program proprietary, but it may not be able to
prevent others from using some or all of such information or technology
without compensation to the Company. The Company claims common law trademark
rights in the trademarks MityTuff(TM), MityFlex(TM), MityDeluxe(TM) and
MityHost(TM). The Company does not own patents rights on any of these chairs.
<PAGE> 13
Raw Material Prices and Sources. Both the plastic used in the Company's
products and the tubing used in the Company's table and chair legs are
manufactured according to Company specifications. The Company intends to
operate without substantial inventory levels of raw materials by depending on
certain key suppliers to provide raw materials on a "just-in-time" basis. The
Company has no raw material supply contracts. The Company believes that
necessary materials are generally available from alternate suppliers.
However, any shortages or significant interruptions in the delivery of raw
materials could have a material adverse effect on the Company's production
schedule and operations. Price increases for raw materials used in the
Company's products would put pressure on the Company's profit margins if the
Company were unable to pass such price increases through to customers.
Warranty Service Costs. The Company's tables come with a five year
warranty covering materials and workmanship. The Company's warranty service
costs for fiscal years ended March 31, 1996, 1997, and 1998 totaled 0.9
percent of net sales or $145,000, 1.4 percent of net sales or $267,000, and
1.5 percent of net sales or $373,000, respectively. The Company intends to
continue to offer warranties covering materials and workmanship on its table
and chair products and anticipates providing a warranty covering materials and
workmanship for all complementary product lines developed or acquired by the
Company. While the Company has implemented improved quality control measures
that it expects will reduce warranty claims, it is possible that warranty
servicing costs will increase in future periods. Furthermore, the Company is
not in a position to anticipate the additional warranty service costs that may
be incurred as a result of the Company's expansion into complementary product
lines.
New Manufacturing Process. During the fiscal year, the Company
implemented what it believes will be improvements to its bonding process. The
new system, which utilizes hot melt reactive adhesives, is more
environmentally friendly than the previous system, which used ketone-based
adhesives. The move to the new process was influenced by the Clean Air Act's
Title V permitting requirements. The Clean Air Act requires companies
emitting more than 10 tons of a single hazardous air pollutant each year to
apply for a Title V permit. This new process virtually eliminates ketone,
hence the need to apply for a yearly permit. In addition, the new system will
facilitate faster throughput in the bonding process but will also require
greater process control to ensure a proper bond. However, no assurances can be
given regarding the long term product performance characteristics and
reliability of the new system.
Future Variations in Operating Results. The Company's short-term
profitability could be adversely affected by its decision to develop or
acquire complementary product lines, hire additional sales staff, implement
changes to the Company's sales compensation program and implement a new
management information system. Various factors, including timing of new
product introductions and the cost of penetrating new markets and changes in
product mix, may have an adverse effect on the Company's results of
operations. While the Company believes that the addition of new product lines
will increase the Company's long term profitability, there can be no assurance
that the Company will continue to experience profitability at historical
rates. No assurances can be or are made that the Company will not experience
temporary fluctuations in operations. While the Company has not experienced
substantial negative variations in quarterly operating results during the
fiscal years ended March 31, 1997 and 1998, no assurances can be or are made
that the Company will not experience such quarterly variations in the future.
<PAGE> 14
Regulation and Environmental Considerations. The Company is subject to
various local, state and federal laws and regulations including, without
limitation, regulations promulgated by federal and state environmental, health
and labor agencies. Historically, regulatory compliance has not had a
material adverse effect on the Company's sales or operations. However,
changes in the laws and regulations governing the Company's business may
impose an increased financial burden upon the Company which could adversely
affect the Company's business or operations. Actions by federal, state and
local governments concerning environmental or other matters could result in
regulations that could increase the cost of producing the products
manufactured and sold by the Company. Certain of the Company's operations are
subject to federal, state and local laws and environmental regulations that
impose limitations on the discharge of pollutants into the air. The Company
believes that it is in compliance with applicable air quality laws and
regulations. The Company cannot predict with any certainty its future capital
expenditure requirements relating to environmental compliance because of
continually changing compliance standards and technology. The Company does
not have insurance coverage for environmental liabilities and does not
anticipate obtaining such coverage in the future.
Forward-Looking Statements. Certain statements made in this filing,
including without limitation, the sections entitled "Business Growth
Strategy," and " Manufacturing and Materials" are "forward-looking statements"
within the meaning of the Reform Act. In addition, when used in this filing,
the words or phrases "may," "will," "Management believes," "Company believes,"
"Company intends," "estimates," "projects," "anticipates," "expects" and
similar expressions are intended to identify "forward-looking statements"
within the meaning of the Reform Act. These forward-looking statements may be
impacted by the matters referenced above in this "Certain Considerations"
section.
ITEM 2. PROPERTIES
The Company's corporate headquarters and manufacturing facility is
located in Orem, Utah (approximately 40 miles south of Salt Lake City). This
facility consists of approximately 68,000 square feet of leased manufacturing,
office, research and development and storage space located on approximately
three acres of leased land. The facility and related real estate is leased
from a trust, of which Gregory L. Wilson's uncle is one of the trustees, under
a lease agreement for a five year term expiring in the year 2000. The base
monthly lease payment is $17,100. The Company pays all maintenance costs,
taxes and insurance. The Company believes that by adding additional equipment
and production shifts, its current facility will serve its table manufacturing
needs for the term of the lease. The Company currently anticipates that it
will need additional office space within the next two years and anticipates
either leasing or constructing additional facilities for future expansion.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any material threatened litigation against the Company.
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1998.
PART II
ITEM 5. MARKET VALUE OF THE REGISTRANT'S COMMON STOCK
The Company's Common stock is traded on the Nasdaq National Market System
under the symbol MITY. The Company's Common Stock first began trading on
April 29, 1994.
High Low
------------ ------------
Fiscal Year Ended March 31, 1997:
First Quarter $8.375 $7.500
Second Quarter 9.500 7.000
Third Quarter 14.125 9.125
Fourth Quarter 15.750 10.750
Fiscal Year Ended March 31, 1998:
First Quarter $14.875 $11.500
Second Quarter 19.500 13.875
Third Quarter 21.250 16.500
Fourth Quarter 20.250 14.500
There were approximately 140 security holders of record as of May 22,
1998. In addition, management estimates that there were approximately 1,500
beneficial shareholders. Since the closing of its public offering, the
Company has not declared dividends and intends to retain earnings for use in
the business and for potential acquisitions in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
Company's 1998 Annual Report to Shareholders, extracts of which are attached
as Exhibit 13.
ITEM 7. FINANCIAL STATEMENTS
The information required by this Item is incorporated by reference to the
Company's 1998 Annual Report to Shareholders, extracts of which are attached
as Exhibit 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None to report.
<PAGE> 16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item is incorporated by reference to the
sections of the Company's Proxy Statement filed in connection with its 1998
Annual Meeting of Stockholders entitled "Nominees" and "Directors and
Executive Officers."
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
section of the Company's Proxy Statement filed in connection with its 1998
Annual Meeting of Stockholders entitled "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
section of the Company's Proxy Statement filed in connection with its 1998
Annual Meeting of Stockholders entitled "Security Ownership of Management and
Others."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
sections of the Company's Proxy Statement filed in connection with its 1998
Annual Meeting of Stockholders entitled "Executive Compensation" and "Certain
Transactions."
<PAGE> 17
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Index to Exhibits
Exhibit No. Description Location
- ------------------------------------------------------------------------------
2.1 Contribution Agreement dated as of March 24, 1997
by and among Estate of Chester E. Dekko, David
Kebrdle, Dennis and Mary M. Kebrdle, Domenic and
Martha S. Federico, ChiCol Group, Inc., DO Group,
Inc., Sican Corp., Sican II Corp., DO Group Holding,
Inc. and Mity-Lite, Inc. (5)
2.2 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and Xaio, Inc. (5)
2.3 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and Ellman Equities, Inc. (5)
2.4 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and Key Equity Capital
Corporation. (5)
2.5 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and National City Capital
Corporation. (5)
2.6 Stock Purchase Agreement dated as of March 13, 1997
between Mity-Lite, Inc. and Cardinal Development
Capital Fund I. (5)
2.7 Term Loan Agreement dated as of March 24, 1997 between
Mity-Lite, Inc. and Sican Corp. (5)
2.8 Put Agreement dated as of March 24, 1997 by and among
Mity-Lite, Inc. and Dennis Kebrdle, David Kebrdle,
Domenic Federico, ChiCol Group, Inc., Sican II Corp.,
and DO Group, Inc. (5)
3.1 Amended and Restated Articles of Incorporation of the
Registrant (1)
3.2 Amended and Restated Bylaws of the Registrant (1)
3.3 First Amendment to the Amended and Restated Bylaws of
Registrant (1)
4.1 Form of Stock Certificate (1)
10.1 Revolving Note dated March 16, 1992 and Revolving
Loan Agreement dated March 16, 1992 between the
Registrant and First Security Bank of Utah, N.A. (1)
10.2 Modification Agreement dated March 16, 1993 between
the Registrant and First Security Bank of Utah, N.A. (1)
10.3 Lease Agreement dated November 1, 1993 between the
Registrant and the Walter M. and Orpha M. Lewis
Family Trust (1)
10.4 Trademark License dated November 23, 1993 between
the Registrant and R.D. Werner Co., Inc. (1)
10.5 Solicitation, Offer and Award Contract between the
Registrant and the General Services Administration
Federal Supply Service dated January 27, 1992 (issued
March 6, 1990) and Amendments thereto dated January
27, 1992 (effective July 16, 1990), January 27, 1992
(effective December 1, 1990), January 27, 1992
(effective December 28, 1991) and the Revision of
August 24, 1992 (1)
<PAGE> 18
Index to Exhibits
Exhibit No. Description Location
- ------------------------------------------------------------------------------
10.6 Notice of Contract Award dated June 23, 1993 between
the Registrant and the Commonwealth of Virginia,
Department of General Services Division of Purchases
and Supply (1)
10.7 Agreement dated July 26, 1990 between the Registrant
and the State of Utah, Department of Administrative
Services and Revisions thereto dated March 8, 1991,
June 5, 1991, and May 19, 1992 and March 10, 1993 (1)
10.8 Agreement dated December 17, 1991 between the
Registrant and the Air Force Nonappropriated Fund
Purchasing Office (1)
10.9 Purchasing Contract effective October 1, 1993 between
the Registrant and The Corporation of the Presiding
Bishop of The Church of Jesus Christ of Latter-Day
Saints (1)
10.10 Employment Agreement with attached Proprietary
Information Agreement dated effective as of May 21,
1993 between Registrant and Gregory L. Wilson (1)
10.11 Employment Agreement with attached Proprietary
Information Agreement dated effective as of May 21,
1993 between Registrant and Stanley L. Pool (1)
10.12 Employment Agreement with attached Proprietary
Information Agreement dated effective as of May 21,
1993 between Registrant and Kenneth A. Law (1)
10.13 Employment Agreement with attached Proprietary
Information Agreement dated effective as of
February 16, 1994 between Registrant and Brent Bonham (1)
10.14 Employment Agreement with attached Proprietary
Information Agreement dated effective as of February
16, 1994 between Registrant and Bradley T Nielson (1)
10.15 1990 Stock Option Plan, as amended and Form of Stock
Option Agreements (1)
10.16 Form of Indemnification Agreements between Registrant
and officers and directors of Registrant (1)
10.17 Form of Lock-up Agreements with Shareholders (1)
10.18 Form of Confidentiality Agreement entered into with
employees of the Registrant (1)
10.19 Key-Man Insurance Policy between the Company and
Chubb Sovereign Life Insurance Company (1)
10.20 Distributor Agreement between the Company and Sebel
Furniture Limited dated February 14, 1994 (2)
10.21 Lease Agreement dated March 31, 1995 between the
Company and the Walter M. and Orpha M. Lewis Family
Trust (3)
10.22 Exclusive Distributor Agreement between the Company
and Mobilite International Limited (aka Mity-Lite
(Europe) Limited) (3)
10.23 Purchasing Contract effective October 1, 1995 between
the Registrant and The Corporation of the Presiding
Bishop of The Church of Jesus Christ of Latter-Day
Saints (4)
10.24 Promissory Note dated December 6, 1995 between the
Registrant and Zions First National Bank (4)
<PAGE> 19
Index to Exhibits
Exhibit No. Description Location
- ------------------------------------------------------------------------------
10.25 Promissory Note dated October 27, 1995 between the
Registrant and First Security Bank (6)
10.26 Summary Plan Description and Basic Plan Document for
the 1995 Mity-Lite, Inc. Employee Retirement Plan (6)
10.27 Promissory Note dated January 23, 1997 between the
Registrant and Zions First National Bank (7)
10.28 Modification Agreement (dated October 27, 1996) to
Promissory Note dated October 27, 1995 between the
Registrant and First Security Bank (7)
10.29 Lease Agreement Amendment dated October 31, 1996
between the Company and the Walter M. and Orpha M.
Lewis Family Trust (7)
10.30 Promissory Note dated December 15, 1997 between the
Registrant and Zions First National Bank
10.31 Modification Agreement (dated October 25, 1997) to
Promissory Note dated October 27, 1995 between the
Registrant and First Security Bank
10.32 1997 Stock Incentive Plan and Form of Agreements
11.1 Statement Regarding Computation of Per Share Earnings
13 1998 Annual Report to Shareholders (only contains items
incorporated by reference in this Annual Report on
Form 10-KSB)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Crowe, Chizek and Company LLP
25.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule - Fiscal Year Ended March 31, 1998
27.2 Financial Data Schedule - Restated Fiscal Year Ended
March 31, 1997
99 Independent Auditors' Report to the Directors of
Sican Corp.
- ---------------------------------
(1) Incorporated by reference to the referenced exhibit number to the
Company's Registration Statement on Form SB-2, Reg. No. 33-76758-D.
(2) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-KSB for the year ended March 31, 1994.
(3) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-KSB for the year ended March 31, 1995.
(4) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-QSB for the quarter ended December 31, 1995.
(5) Incorporated by reference to the referenced exhibit number to the
Company's Form 8-K dated March 31, 1997.
(6) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-KSB for the year ended March 31, 1996.
(7) Incorporated by reference to the referenced exhibit number to the
Company's Form 10-KSB for the year ended March 31, 1997.
<PAGE> 20
(b) Reports on Form 8-K
None to report.
<PAGE> 21
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Orem, State of Utah, on June 3,
1998.
MITY-LITE, INC.
By: /s/ Gregory L. Wilson
---------------------------
Gregory L. Wilson, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that undersigned officers or
directors of the Registrant, by virtue of their signatures to this Form 10-KSB
appearing below, hereby constitute and appoint Gregory L. Wilson as attorney-in-
fact in their names, place and stead to execute any and all amendments to
this Registration Statement in the capacities set forth opposite their names
and hereby ratify all that said attorney-in-fact may do by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature Title Date
/s/ Gregory L. Wilson Chairman of the Board, President, June 3, 1998
- ----------------------- and Director
Gregory L. Wilson (Principal Executive Officer)
/s/ Bradley T Nielson Chief Financial Officer and June 3, 1998
- ----------------------- Corporate Secretary
Bradley T Nielson (Principal Financial and Accounting
Officer)
/s/ Ralph E. Crump Director June 3, 1998
- -----------------------
Ralph E. Crump
/s/ Peter Najar Director June 3, 1998
- -----------------------
Peter Najar
/s/ C. Lewis Wilson Director June 3, 1998
- -----------------------
C. Lewis Wilson
<PAGE> 1
Promissory Note
Borrower: MITY-LITE, INC. Lender: ZIONS FIRST NATIONAL BANK
1301 WEST 400 NORTH CENTRAL UTAH COMMERCIAL
OREM, UT 84057 BANKING CENTER
#1 SOUTH MAIN STREET
P.O. BOX 25822
SALT LAKE CITY, UT 84125
Principal Amount: $3,000,000 Initial Rate: 8.500% Date of Note: 12/15/97
PROMISE TO PAY. MITY-LITE, INC. ("Borrower") promises to pay ZIONS FIRST
NATIONAL BANK ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Three Million & 00/100 Dollars
($3,000,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on December 1, 1998. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning January 1, 1998, and all subsequent interest payments are due on the
same day of each month after that. The annual interest rate for this Note is
computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed
or required by applicable law, payments will be applied first to any unpaid
collection costs and any late charges, then to any unpaid interest, and any
remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the ZIONS FIRST
NATIONAL BANK PRIMATE RATE (the "Index"). "PRIME RATE" MEANS AN INDEX WHICH
IS DETERMINED DAILY BY THE PUBLISHED COMMERCIAL LOAN VARIABLE RATE INDEX HELD
BY ANY TWO OF THE FOLLOWING BANKS: CHASE MANHATTAN BANK, WELLS FARGO BANK
N.A., AND BANK OF AMERICA N.T. & S.A. IN THE EVENT NO TWO OF THE ABOVE BANKS
HAVE THE SAME PUBLISHED RATE, THE BANK HAVING THE MEDIAN RATE WILL ESTABLISH
LENDERS' PRIME RATE. IF, FOR ANY REASON BEYOND THE CONTROL OF LENDER, ANY OF
THE AFOREMENTIONED BANKS BECOMES UNACCEPTABLE AS A REFERENCE FOR THE PURPOSE
OF DETERMINING THE PRIME RATE USED HEREIN, LENDER MAY, FIVE DAYS AFTER POSTING
NOTICE IN LENDERS OFFICES, SUBSTITUTE ANOTHER COMPARABLE BANK FOR THE ONE
DETERMINED UNACCEPTABLE. AS USED IN THIS PARAGRAPH, "COMPARABLE BANK" SHALL
MEAN ONE OF THE TEN LARGEST COMMERCIAL BANKS HEADQUARTERED IN THE UNITED
STATES OF AMERICA. THIS DEFINITION OF PRIME RATE IS TO BE STRICTLY
INTERPRETED AND IS NOT INTENDED TO SERVE ANY PURPOSE OTHER THAN PROVIDING AN
INDEX TO DETERMINE THE VARIABLE INTEREST RATE USED HEREIN. IT IS NOT THE
LOWEST RATE AT WHICH LENDER MAY MAKE LOANS TO ANY OF ITS CUSTOMERS, EITHER NOW
OR IN THE FUTURE. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
<PAGE> 2
other rates as well. The interest rate change will not occur more often than
each DAY. The Index currently is 8.500% per annum. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate equal
to the Index, resulting in an initial rate of 8.500% per annum. Notice:
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
DEFAULT. Borrower will be in default if any of the following happens (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest.
This includes a garnishment of any of Borrower's accounts with Lender. (f)
Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (g) A material
adverse change occurs in Borrower's financial condition, or Lender believes
the prospect of payment or performance of the Indebtedness is impaired. (h)
Lender in good faith deems itself insecure. If any default, other than a
default in payment, is curable and if Borrower has not been given a Notice of
a breach of the same provision of this Note within the preceding twelve (12)
months, it may be cured (and no event of default will have occurred) if
Borrower, after receiving written Notice from Lender demanding cure of such
default: (a) cures the default within fifteen (15) days; or (b) if the cure
requires more than fifteen (15) days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on this
Note to 3.000 percentage points over the index. The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower
also will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's reasonable attorney's fees and Lender's legal
expenses whether or not there is a lawsuit, including reasonable attorney's
fees and legal expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. If not prohibited by
applicable law, Borrower also will pay any court costs, in addition to all
<PAGE> 3
other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Utah. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of SALT LAKE County, the State of Utah. Subject to the provisions on
arbitration, the Note shall be governed by and construed in accordance with
the laws of the State of Utah.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed
in writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: GREGORY L. WILSON,
PRESIDENT; STANLEY L. POOL, VICE PRESIDENT/SECRETARY; V. DOUGLAS JOHNSON,
TREASURER; AND BRADLEY T. NIELSON, CHIEF FINANCIAL OFFICER. Borrower agrees
to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation
to advance funds under this Note if: (a) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or
is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan
with Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender
and Borrower.
ARBITRATION DISCLOSURES:
1. AS USED IN THIS ARBITRATION SECTION, THE TERM "PARTIES" MEANS THE
LENDER, ANY OTHER SIGNERS HERETO AND PERMITTED SUCCESSORS AND ASSIGNS.
2. ARBITRATION IS USUALLY FINAL AND BINDING ON THE PARTIES AND SUBJECT TO
ONLY VERY LIMITED REVIEW BY A COURT.
3. THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE IN COURT, INCLUDING
THEIR RIGHT TO A JURY TRIAL.
4. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED AND DIFFERENT FROM
COURT PROCEEDINGS.
<PAGE> 4
5. ARBITRATORS' AWARDS ARE NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR
LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODIFICATION
OF RULINGS BY ARBITRATORS IS STRICTLY LIMITED.
6. A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR WAS
AFFILIATED WITH THE BANKING INDUSTRY.
7. IF YOU HAVE QUESTIONS ABOUT ARBITRATION, CONSULT YOUR ATTORNEY OR THE
AMERICAN ARBITRATION ASSOCIATION.
ARBITRATION PROVISIONS:
(a) Any controversy or claim between or among the parties, including but
not limited to those arising out of or relating to the Agreement or any
agreements or instruments relating hereto or delivered in connection
herewith, and including but not limited to a claim based on or arising
from an alleged tort, shall at the request of any party be determined by
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The arbitration proceedings shall be
conducted in Salt Lake City, Utah. The arbitrator(s) shall have the
qualifications set forth in subparagraph (c) hereto. All statues of
limitations which would otherwise be applicable in a judicial action
brought by a party shall apply to any arbitration or reference
proceedings hereunder.
(b) In any judicial action or proceeding arising out of or relating to
this Agreement or any agreements or instruments relating hereto or
delivered in connection herewith, including but not limited to a claim
based on or arising from an alleged tort, if the controversy or claim is
not submitted to arbitration as provided and limited in subparagraph (a)
hereto, all decisions of fact and law shall be determined by a reference
in accordance with Rule 53 of the Federal Rules of Civil Procedure or
Rule 53 of the Utah Rules of Civil Procedure or other comparable,
applicable reference procedure. The parties shall designate to the court
the referee(s) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored arbitration proceedings. The referee(s) shall have
the qualifications set forth in subparagraph (c) hereto.
(c) The arbitrator(s) or referee(s) shall be selected in accordance with
the rules of the American Arbitration Association from panels maintained
by the Association. A single arbitrator or referee shall be
knowledgeable in the subject matter of the dispute. Where three
arbitrators or referees conduct an arbitration or reference proceeding,
the claim shall be decided by a majority vote of the three arbitrators or
referees, at least one of whom must be knowledgeable in the subject
matter of the dispute and at least one of whom must be a practicing
attorney. The arbitrator(s) or referee(s) shall award recovery of all
costs and fees (including reasonable attorneys' fees, administrative
fees, arbitrator's fees, and court costs). The arbitrator(s) or
referee(s) also may grant provisional or ancillary remedies such as, for
example, injunctive relief, attachment, or the appointment of a receiver,
either during the pendency of the arbitration or reference proceeding or
as part of the arbitration or reference award.
<PAGE> 5
(d) Judgment upon an arbitration or reference award may be entered in
any court having jurisdiction, subject to the following limitation: the
arbitration or reference award is binding upon the parties only if the
amount does not exceed Four Million Dollars ($4,000,000.00); if the award
exceeds that limit, either party may commence legal action for a court
trial de novo. Such legal action must be filed within thirty (30) days
following the date of the arbitration or reference award; if such legal
action is not filed within that time period, the amount of the
arbitration or reference award shall be binding. The computation of the
total amount of an arbitration or reference award shall include amounts
awarded for arbitration fees, attorneys' fees, interest, and all other
related costs.
(e) At the Lender's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of a power of sale under
the deed of trust or by judicial foreclosure. The institution and
maintenance of an action for judicial relief or pursuit of a provisional
or ancillary remedy shall not constitute waiver of the right of any
party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(f) Notwithstanding the applicability of other law to any other
provision of this Agreement, the Federal Arbitration Act, 9 U.S.C. 1 et
seq., shall apply to the construction and interpretation of this
arbitration paragraph.
LOAN AGREEMENT. THIS PROMISSORY NOTE IS MADE IN ACCORDANCE WITH A BUSINESS
LOAN AGREEMENT DATED DECEMBER 6, 1995.
WAIVER OF CLAIMS. BORROWER (i) REPRESENTS THAT IT HAS NO DEFENSES TO OR
SETOFFS AGAINST ANY INDEBTEDNESS OR OTHER OBLIGATIONS OWING TO THE LENDER OR
ITS AFFILIATES (THE "OBLIGATIONS"), NOR CLAIMS AGAINST LENDER OR ITS
AFFILIATES FOR ANY MATTER WHATSOEVER, RELATED OR UNRELATED TO THE OBLIGATIONS,
AND (ii) RELEASES LENDER AND ITS AFFILIATES FROM ALL CLAIMS, CAUSES OF ACTION,
AND COSTS, IN LAW OR EQUITY, EXISTING AS OF THE DATE OF THIS NOTE, WHICH
BORROWER HAS OR MAY HAVE BY REASON OF ANY MATTER OF ANY CONCEIVABLE KIND OR
CHARACTER WHATSOEVER, RELATED OF UNRELATED TO THE OBLIGATIONS, INCLUDING THE
SUBJECT MATTER OF THIS NOTE. THIS PROVISION SHALL NOT APPLY TO CLAIMS FOR
PERFORMANCE OF EXPRESS CONTRACTUAL OBLIGATIONS OWING TO BORROWER BY LENDER OR
ITS AFFILIATES.
PRIOR NOTE. THIS IS A RENEWAL AND INCREASE OF THE PROMISSORY NOTE FROM
MITY-LITE, INC. TO LENDER DATED JANUARY 23, 1997 IN THE ORIGINAL PRINCIPAL
AMOUNT OF $2,000,000.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
<PAGE> 6
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
MITY-LITE, INC.
By: /s/ Gregory L. Wilson By: /s/ Stanley L. Pool
---------------------------- ------------------------
GREGORY L. WILSON, PRESIDENT STANLEY L. POOL, VICE
PRESIDENT/SECRETARY
<PAGE> 7
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Mity-Lite, Inc. Lender: ZIONS FIRST NATIONAL BANK
1301 West 400 North CENTRAL UTAH COMMERCIAL
OREM, UT 84057 BANKING CENTER
#1 SOUTH MAIN STREET
PO BOX 25822
SALT LAKE CITY, UT 84125
LOAN TYPE. This is a Variable Rate (at ZIONS FIRST NATION BANK PRIME RATE,
making an initial rate of 8.500%), Revolving Line of Credit Loan to a
Corporation for $3,000,000.00 due on December 1, 1998. This is an unsecured
renewal of the following described indebtedness: THIS IS A RENEWAL AND
INCREASE OF THE PROMISSORY NOTE FROM MITY-LITE, INC. TO LENDER DATED JANUARY
23, 1997 IN THE ORIGINAL PRINCIPAL AMOUNT OF $2,000,000.00.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: TO RENEW AND INCREASE
A REVOLVING LINE OF CREDIT MADE AVAILABLE FOR POTENTIAL FUTURE ACQUISITIONS.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $3,000,000.00 as follows:
Undisbursed Funds: $3,000,000.00
Note Principal: $3,000,000.00
FINAL AGREEMENT. Borrower understands that the loan documents signed in
connection with this loan are the final expression of the agreement between
Lender and Borrower and may not be contradicted by evidence of any alleged
oral agreement.
DISBURSEMENT AUTHORIZATION. BORROWER HEREBY AUTHORIZES LENDER TO DISBURSE ANY
FUNDS PURSUANT TO FACSIMILE WIRE INSTRUCTIONS WHICH BEAR THE SIGNATURE OF ANY
AUTHORIZED SIGNER.
ALLOCATION OF PROCEEDS. THE PROCEEDS OF THIS LOAN WILL BE USED TO RENEW A
REVOLVING LINE OF CREDIT. THE CURRENT AMOUNT AVAILABLE IS DESCRIBED ABOVE IN
THE SECTION ENTITLED AMOUNT PAID TO OTHERS ON BORROWER'S BEHALF.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL
CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO
LENDER. THIS AUTHORIZATION IS DATED DECEMBER 15, 1997.
<PAGE> 8
BORROWER:
MITY-LITE, INC.
By: /s/ Gregory L. Wilson By: /s/ Stanley L. Pool
---------------------------- ------------------------
GREGORY L. WILSON, PRESIDENT STANLEY L. POOL, VICE
PRESIDENT/SECRETARY
<PAGE> 1
FIRST SECURITY BANK Modification Agreement
First Security Bank, N.A. ("Lender") has extended credit (the "Loan") to Mity-
Lite, Inc. (individually and collectively "Borrower") pursuant
to a promissory note dated October 27, 1995 (the "Note") in the stated
principal amount of $2,000,000.00. The Loan is unsecured.
The Note and any loan agreements, guaranties, subordinations, Collateral
Documents, and other instruments and documents executed in connection
therewith, together with any previous modifications to any of these
instruments or documents, shall be referred to as the "Loan Documents."
Borrower has requested certain modifications to the Loan Documents and
Lender is willing to grant such modifications on the following terms
and conditions:
1. Provided that all conditions stated herein are satisfied, the terms
of the Loan Documents are hereby modified as follows:
MODIFICATIONS TO THE TERMS OF THE NOTE:
The maturity date of the Note is extended to October 25, 1998
This Agreement does not constitute a repayment or extinguishment of
the Note, but only a modification thereof.
2. As preconditions to the terms of this Agreement, Borrower shall
complete or provide the following:
Borrower shall pay or shall have paid all reasonable fees, costs, and
expenses, of whatever kind or nature, incurred by Lender in
connection with this Agreement, including but not limited to
attorney's fees, lien search fees, title reports and policies,
and recording and filing fees.
Borrower shall pay a Modification fee in the amount of $100.00 at
time of closing.
3. It is the intention and agreement of Borrower and Lender that: (i)
all collateral security in which Lender has acquired a security
interest or other lien pursuant to the Loan Documents shall
continue to serve as collateral security for payment and
performance of all the obligations of the Borrower under the
Loan Documents, and (ii) all agreements, representations,
warranties, and covenants contained in the Loan Documents are
hereby reaffirmed in full by Borrower except as specifically
modified by this Agreement.
<PAGE> 2
4. Borrower hereby acknowledges that: (i) the Loan Documents are in
full force and effect, as modified by this Agreement, and (ii) by
entering into this Agreement, Lender does not waive any existing
default or any default hereafter occurring or become obligated to
waive any condition or obligation under the Loan Documents.
5. Borrower hereby acknowledges that Borrower has no claim, demand,
lawsuit cause of action, claim for relief, remedy, or defense against
enforcement of the Loan Documents that could be asserted against
Lender, its affiliates, directors, officers, employees, or agents,
whether known or unknown, for acts, failures to act (whether such act
or failure to act is intentional or negligent), representations,
commitments, statements or warranties, including without limitation
any such conduct arising out of or in any way connected with the Loan
Documents. Notwithstanding the foregoing, Borrower hereby
waives, releases, and relinquishes any and all claims, demands,
lawsuits, causes of action, claims for relief, remedies, or defenses
against enforcement of the Loan Documents that could be asserted
against Lender, its affiliates, directors, officers, employees, or
agents, whether known or unknown.
6. In addition to this Agreement, the Loan Documents, and any
additional documents that this Agreement requires, this finance
transaction may include other written closing documentation such as
resolutions, waivers, certificates, financing statements, filings,
statements, closing or escrow instructions, loan purpose statements,
and other documents that Lender may customarily use in such
transactions. Such documents are incorporated herein by this
reference. All the documents to which this paragraph makes reference
express, embody, and supersede any previous understandings,
agreements, or promises (whether oral or written) with respect
to this finance transaction, and represent the final expression of
the agreement between Lender and Borrower, the terms and conditions
of which cannot hereafter be contradicted by any oral understanding
(if any) not reduced to writing and identified above.
FINAL AGREEMENT. Borrower understands that the loan documents signed in
connection with this loan are the final expression of the agreement between
Lender and Borrower and may not be contradicted by evidence of any alleged
oral agreement.
Effective as of October 25, 1997
LENDER:
First Security Bank, N.A.
/s/ Arthur E. Newell
- -------------------------------------------
Arthur E. Newell, Assistant Vice President
BORROWER:
Mity-Lite, Inc.
/s/ Gregory L. Wilson
- -------------------------------------------
Gregory L. Wilson, President
<PAGE> 1
MITY-LITE, INC.
1997 STOCK INCENTIVE PLAN
1. Purpose. This 1997 Stock Incentive Plan (the "Plan") is intended to
provide incentives: (a) to the officers and other employees of Mity-Lite,
Inc., a Utah corporation (the "Company"), and any present or future 49.9% or
more owned subsidiaries of the Company (individually a "Related Corporation"
and collectively "Related Corporations") by providing them with opportunities
to purchase stock in the Company pursuant to options granted hereunder that
qualify as "incentive stock options" under Section 422A(b) of the Internal
Revenue Code of 1986, as amended and the regulations thereunder (the "Code")
(individually an "ISO" and collectively "ISOs"); (b) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder that do not qualify as ISOs (individually a "Non-Qualified
Option" and collectively "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock in the
Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to
hereinafter individually as an "Option" and collectively as "Options".
Options, Awards and authorizations to make Purchases are referred to
hereinafter collectively as "Stock Rights". As used herein, the terms
"parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation", respectively, as those terms are defined in Section 425 of the
Code.
2. Administration of Plan.
(a) Board or Committee Administration. This Plan shall be
administered solely by the Company's Board of Directors (the "Board") or by a
Compensation Committee (the "Committee") consisting of not less than two (2)
members of the Board. Hereinafter, all references in this Plan to the
"Committee" shall mean the Board if no Committee has been appointed. Subject
to ratification of the grant or authorization of each Stock Right by the
Board, and subject to the terms of this Plan, the Committee shall have the
authority to (i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under Section 3 below
to receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under Section 3 below to receive
Non-Qualified Options and Awards and to make Purchases) to whom Non-Qualified
Options, Awards and authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards may be granted or
Purchases made; (iii) determine the option price of shares subject to each
Option, which price shall not be less than the minimum price specified in
Section 6 below, and the purchase price of shares subject to each Purchase;
(iv) determine whether each Option granted shall be an ISO or a Non-Qualified
Option; (v) determine (subject to Section 7 below) the time or times when each
Option shall become exercisable and the duration of the exercise period;
(vi) determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options, Awards and Purchases and the nature of
<PAGE> 2
such restrictions, if any; and (vii) interpret this Plan and prescribe and
rescind rules and regulations relating to this Plan. If the Committee
determines to issue a Non-Qualified Option, the Committee shall take whatever
actions it deems necessary under Section 422A of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO.
The interpretation and construction by the Committee of any provisions of this
Plan or of any Stock Right granted under this Plan shall be final unless
otherwise determined by the Board. The Committee may from time-to-time adopt
such rules and regulations for carrying out this Plan as it may deem
appropriate. No member of the Board or of the Committee shall be liable for
any action or determination made in good faith with respect to this Plan or
any Stock Right granted under this Plan.
(b) Committee Actions. The Committee may select one of its members
as its chairman, and shall hold meetings at such times and places as it may
determine. Except as otherwise provided by the Company's Bylaws, acts by a
majority of the Committee, or acts reduced to or approved in writing by
unanimous consent of the members of the Committee, shall be the valid acts of
the Committee. From time-to-time the Board may increase the size of the
Committee and appoint additional members thereof, may remove members (with or
without cause) and may appoint new members in substitution therefor, fill
vacancies (however caused), or remove all members of the Committee and
thereafter directly administer this Plan.
(c) Grant of Stock Rights to Board Members. Stock Rights may be
granted to members of the Board, but any such grant shall be made and approved
in accordance with Section 2(d) below, if applicable. All grants of Stock
Rights to members of the Board shall in all other respects be made in
accordance with the provisions of this Plan applicable to other eligible
persons. Members of the Board who are either (i) eligible for Stock Rights
pursuant to this Plan or (ii) have been granted Stock Rights, may vote on any
matters affecting the administration of this Plan or the grant of any Stock
Rights pursuant to this Plan, except that no such member shall act upon the
granting to himself or herself of Stock Rights, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting to him or her of
Stock Rights.
(d) Compliance with Federal and State Securities and Tax Laws and
State Corporate Law. Various restrictions apply to officers and directors and
others who may be deemed insiders under federal and state securities laws and
state corporate law. These laws impose certain restrictions on insiders. Any
Stock Right granted to any director is subject to those restrictions. Holders
of Stock Rights should consult with their legal and tax advisors regarding the
securities law, tax law, corporate law and other effects of transactions under
this Plan. These restrictions relate to holding periods, alternative minimum
tax calculations and other matters and should be clearly understood by the
holders of Stock Rights. The granting of Stock Rights is subject to any
applicable restrictions under state corporate law, including without
limitation, restrictions applicable to conflicting interest transactions
involving directors.
(e) Purpose and Intent of Plan. The purpose of this Plan is to
advance the interest of the Company and its Related Corporations by
stimulating the efforts of employees on behalf of the Company and Related
Corporations, and heightening the desire of employees to continue employment
with the Company and Related Corporations, assisting the Company and Related
<PAGE> 3
Corporations in competing effectively with other enterprises for the services
of new employees necessary for the continued improvement of operations, and to
attract and retain the best available personnel for service as directors to
the Company and Related Corporations and for service as consultants to the
Company and Related Corporations. This Plan is intended to be an "employee
benefit plan" under Rule 16b-3 promulgated under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). This Plan is
also intended to be a "compensatory benefit plan" under Rule 701 promulgated
under the Securities Act of 1933, as amended. Transactions under this Plan
are intended to comply with Rule 16b-3 and Rule 701. To the extent any
provisions of this Plan or any action by the Committee or the Board fails to
comply with such Rules and to the extent any provisions of this Plan or any
action by the Committee or the Board fails to comply with the requirements of
the Code (for options intended to be ISOs hereunder), each such provision(s)
and action(s) shall be deemed to be null and void, to the extent permitted by
applicable law and as deemed advisable by the Committee or the Board.
(f) Shareholder Approval. Grants of ISOs hereunder shall be subject
to shareholder approval of this Plan within twelve (12) months following the
date this Plan is approved and adopted by the Board.
3. Eligible Employees and Others. ISOs may be granted to any employee
of the Company or any Related Corporation. Any officer or director of the
Company who is not also an employee of the Company may not be granted ISOs
under this Plan. Non-Qualified Options, Awards and authorizations to make
Purchases may be granted to any employee, officer or director (whether or not
such person is also an employee of the Company) or to any consultant to the
Company or to any Related Corporation. The Committee may take into
consideration a recipient's individual circumstances in determining whether to
grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. The granting of a Stock Right to any individual or entity shall
neither entitle that individual or entity to, nor disqualify that individual
or entity from, participation in any other grant of Stock Rights.
4. Stock. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner.
Subject to the foregoing, the aggregate maximum number of shares of Common
Stock that may be issued pursuant to this Plan is 300,000 subject to
adjustment as provided below in this Section 4 and in Section 13. Any such
shares may be issued as ISOs, Non-Qualified Options or Awards or to
individuals or entities making Purchases, so long as the number of shares so
issued does not exceed such number, as adjusted. If any Option granted under
this Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or
in part, or if the Company shall reacquire any unvested shares issued pursuant
to Awards or Purchases, the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be available for
grants of Stock Rights under this Plan.
5. Granting of Stock Rights. Stock Rights may be granted under this
Plan at any time until ten (10) years after the date of the approval and
adoption of this Plan by the Board. The date of grant of a Stock Right under
this Plan will be the date specified by the Committee at the time it grants
the Stock Right; provided, however, that such date shall not be prior to the
date on which the Committee acts to approve the grant. The Committee shall
<PAGE> 4
have the right, with the consent of the optionee, to convert an ISO granted
under this Plan into a Non-Qualified Option pursuant to Section 17 below.
6. Minimum Option Price; ISO Limitations.
(a) Price for Non-Qualified Options. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted under
this Plan shall in no event be less than the lesser of (i) the book value per
share of the Common Stock as of the end of the fiscal year of the Company
immediately preceding the date of such grant or (ii) fifty percent (50%) of
the fair market value per share of the Common Stock on the date of such grant.
Subject to the foregoing sentence, the exercise price for Non-Qualified
Options granted hereunder shall be determined by the Committee or the Board in
its sole discretion, taking into account factors it deems relevant.
(b) Price for ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under this Plan shall not be less than
the fair market value per share of the Common Stock on the date of such grant.
In the case of an ISO to be granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Company or of any Related Corporation, the price per share
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of the Common
Stock on the date of grant.
(c) $100,000 Annual Limitation on ISOs. Each eligible employee may
be granted ISOs only to the extent that (in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related Corporation),
such ISOs do not become exercisable for the first time by such employee during
any calendar year in a manner that would entitle the employee to purchase more
than $100,000 in fair market value (determined at the time the ISOs were
granted) of the Common Stock in that calendar year. Any options granted to an
employee in excess of that amount will be granted as Non-Qualified Options.
(d) Awards and Purchases. Awards and Purchases under this Plan
shall be made at prices equal to the fair market value of the Common Stock on
the date of such Award or Purchase. Fair market value shall be determined by
the Committee or the Board in its sole discretion in accordance with Section
6(e) below. Shares of Common Stock may be issued in Award and Purchase
transactions for any lawful consideration determined by the Committee or the
Board in its sole discretion.
(e) Determination of Fair Market Value. If, at the time an Option
is granted under this Plan, the Company's Common Stock is publicly-traded,
"fair market value" shall be determined as of the last business day for which
the prices or quotes discussed in this sentence are available prior to the
date such Option is granted and shall mean (i) the closing price on that date
of the Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then-traded on a national
securities exchange; or (ii) the last reported sale price (on that date) of
the Common Stock on the NASDAQ National Market, if the Common Stock is not
then traded on a national securities exchange; or (iii) the closing bid price
(or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the NASDAQ National Market. However, if the Common Stock is not
publicly-traded at the time an Option is granted under this Plan, "fair market
value" shall be deemed to be the fair value of the Common Stock as determined
<PAGE> 5
by the Committee or the Board in its sole discretion, after taking into
consideration all factors that it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
Sections 9 and 10 below, each Option shall expire on the date specified by the
Committee or the Board, but not more than (i) ten (10) years and one (1) day
from the date of grant in the case of Non-Qualified Options, (ii) ten (10)
years from the date of grant in the case of ISOs generally and (iii) five (5)
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any Related Corporation.
Subject to earlier termination as provided in Sections 9 and 10 below, the
term of each ISO shall be the term set forth in the original instrument
granting such ISO, except with respect to any part of such ISO that is
converted into a Non-Qualified Option pursuant to Section 17 below.
8. Exercise of Options. Subject to the provisions of Sections 9 through
12 below, each Option granted under this Plan shall be exercisable as follows:
(a) Vesting. The Option shall either be fully exercisable on the
date of grant or shall become exercisable thereafter in such installments as
the Committee or Board may specify.
(b) Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee or the Board.
(c) Partial Exercise. Each Option or installment may be exercised
at any time or from time-to-time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
(d) Acceleration of Vesting. The Committee or the Board shall have
the right to accelerate the date of exercise of any installment of any Option;
provided, however, that the Committee or the Board shall not, without the
consent of the optionee, accelerate the exercise date of any installment of
any Option granted to any employee as an ISO (and not previously converted
into a Non-Qualified Option pursuant to Section 17 below) if such acceleration
would violate the annual vesting limitation contained in the Code, as
described in Section 6(c) above.
9. Termination of Employment. Unless otherwise provided in any
instrument evidencing the grant of a Stock Right hereunder, if an ISO optionee
ceases to be employed by the Company or any Related Corporation other than by
reason of death or disability as defined in Section 10 below, no further
installments of such optionee's ISOs shall become exercisable, and such
optionee's vested ISOs shall terminate after the passage of ninety (90) days
from the date of termination of such optionee's employment, but in no event
later than on their specified expiration date(s), except to the extent that
such ISOs (or the unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to Section 17 below. To the extent permitted
under the Code, with respect to ISOs, employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, missionary service, military obligations or
governmental service). A bona fide leave of absence with the written approval
of the Committee or the Board shall not be considered an interruption of
<PAGE> 6
employment under this Plan, provided that such written approval contractually
obligates the Company or any Related Corporation to continue the employment of
the optionee after the approved period of absence. ISOs granted under this
Plan shall not be affected by any change of employment within or among the
Company and any Related Corporations, so long as the optionee continues to be
an employee of the Company or any Related Corporation. Nothing in this Plan
shall be deemed to give any grantee of any Stock Right the right to be
retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. Death; Disability.
(a) Death. If an ISO optionee ceases to be employed by the Company
or any Related Corporation by reason of such optionee's death, any ISO of such
optionee may be exercised, to the extent of the number of shares with respect
to which the optionee could have exercised on the date of the optionee's
death, by the optionee's estate, personal representative or beneficiary who
has acquired the ISO by will or by the laws of descent and distribution, at
any time prior to the earlier of the specified expiration date of the ISO or
one year from the date of the optionee's death.
(b) Disability. If an ISO optionee ceases to be employed by the
Company or any Related Corporation by reason of disability, such optionee (or
such optionee's custodian) shall have the right to exercise any ISO held by
such optionee on the date of termination of employment, to the extent of the
number of shares with respect to which the optionee could have exercised on
that date, at any time prior to the earlier of the specified expiration date
of the ISO or one year from the date of the termination of the optionee's
employment. For purposes of this Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code or
any successor statute.
11. Assignability. No Option or Derivative Security (as that term is
defined in Rule 16b-3 under the 1934 Act) shall be assignable or transferable
by the optionee except as permitted under Rule 16b-3 under the 1934 Act or by
will or by the laws of descent and distribution, and during the lifetime of
the optionee each Option shall be exercisable only by the optionee. No ISO
shall be transferable except as permitted by the Code.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such form as the Committee or the
Board may from time-to-time approve. Such instruments shall conform to the
terms and conditions set forth in Sections 6 through 11 above and may contain
such other provisions as the Committee or the Board deems advisable, which are
not inconsistent with this Plan, including, without limitation, restrictions
applicable to shares of the Company's Common Stock issuable upon exercise of
Options. In granting Non-Qualified Options, the Committee or the Board may
specify that Non-Qualified Options shall be subject to the restrictions set
forth herein with respect to ISOs, or to such other termination and
cancellation provisions as the Committee or the Board may determine. The
Committee or the Board may from time-to-time confer authority and
responsibility on one or more of its members and/or one or more officers of
the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary
or advisable from time-to-time to carry out the terms of such instruments.
<PAGE> 7
13. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to the optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company
regarding such Option:
(a) Stock Dividends and Stock Splits. If the shares of the
Company's Common Stock shall be subdivided or combined into a greater or
smaller number of shares or if the Company shall issue any shares of Common
Stock as a stock dividend on its outstanding Common Stock, the number of
shares of Common Stock deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
(b) Merger; Consolidation; Sale of Assets. Unless otherwise
specified in the instrument evidencing the grant of any Stock Right hereunder,
in the event of a consolidation of the Company, a merger in which the Company
is not the surviving entity, or the sale of all or substantially all of the
Company's assets, the exercisability of any or all outstanding Options shall
automatically be accelerated so that such Options would be exercisable in full
immediately prior to the effective date of such consolidation, merger or asset
sale. However, no such acceleration shall occur if and to the extent any
outstanding Options are, in connection with such consolidation, merger, or
asset sale, either to be assumed by the successor corporation (or parent
thereof or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or a parent thereof). The
determination of such option comparability shall be made by the Committee or
the Board, and such determination shall be final, binding and conclusive.
Immediately following any such consolidation, merger or asset sale, all
Options, to the extent not previously exercised, shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof) in connection with such consolidation, merger or asset sale.
If any outstanding Option hereunder is assumed in connection with any such
consolidation, merger or asset sale, then such Option shall be appropriately
adjusted, immediately after such consolidation, merger or asset sale, to apply
to the number and class of securities which would have been issuable to the
optionee upon consummation of such consolidation, merger or asset sale if the
Options had been exercised immediately prior to any such transaction, and
appropriate adjustment shall also be made to the exercise price for such
Options, provided the aggregate exercise price shall remain the same. This
Plan shall not in any way affect the right of the Company to adjust,
reclassify, reorganize or otherwise change capital or business structure or to
merge, consolidate, dissolve, liquidate, or sell or transfer any part of its
business or assets.
(c) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in Section 13(b) above) pursuant to which securities of the Company
or of another entity are issued with respect to the outstanding shares of
Common Stock, an optionee, upon exercising an Option, shall be entitled to
receive for the purchase price paid upon such exercise the securities the
optionee would have received if the optionee had exercised the Option prior to
such recapitalization or reorganization.
(d) Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to Sections 13(a), (b) or (c) above with respect to
<PAGE> 8
ISOs shall be made only after the Committee or the Board, after consulting
with counsel for the Company, determines whether such adjustments would
constitute a "modification" of such ISOs (as that term is defined in Section
425 of the Code) or would cause any adverse tax consequences for the holders
of such ISOs. If the Committee or the Board determines that such adjustments
made with respect to ISOs would constitute a modification of such ISOs, it may
refrain from making such adjustments.
(e) Issuances of Securities. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or of securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash
or in property other than securities of the Company.
(f) Fractional Shares. No fractional shares shall be issued under
this Plan and each optionee shall receive from the Company cash in lieu of
such fractional shares.
(g) Adjustments. Upon the happening of any of the events described
in Section 13(a), (b) or (c) above, the class and aggregate number of shares
set forth in Section 4 above that are subject to Stock Rights that previously
have been or subsequently may be granted under this Plan shall also be
appropriately adjusted to reflect the events described in such Sections. The
Committee or Board shall determine the specific adjustments to be made under
this Section 13 and, subject to Section 2 above, its determination shall be
conclusive.
If any person or entity owning restricted Common Stock obtained by exercise of
a Stock Right hereunder receives shares or securities in connection with a
corporate transaction described in Sections 13(a), (b) or (c) above as a
result of owning such restricted Common Stock, such shares or securities shall
be subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or
cash were issued, unless otherwise determined by the Committee or Board.
14. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the
Company at its principal office address. Such notice shall (i) identify the
Stock Right being exercised, (ii) specify the number of shares as to which
such Stock Right is being exercised and (iii) contain such representations and
agreements as may be necessary to comply with applicable securities laws,
accompanied by full payment of the purchase price. Payment for the Stock
Right may be made (i) in cash (by check), (ii) by surrender of shares of
Common Stock of the Company having a fair market value equal to the exercise
price of the Stock Right, (iii) where permitted by applicable law and approved
by the Committee in its sole discretion, by tender of a full recourse
promissory note having such terms as may be approved by the Committee, (iv)
where permitted by applicable law, through a "same-day-sale" commitment from
optionee and a broker-dealer that is a member in good standing of the National
Association of Securities Dealers (an "NASD Dealer") whereby optionee
irrevocably elects to exercise the Stock Right and to sell a portion of the
Common Stock so purchased to pay for the exercise price and whereby the NASD
Dealer irrevocably commits upon receipt of such Common Stock to forward the
exercise price directly to the Company, (v) where permitted by applicable law,
through a "margin" commitment from optionee and an NASD Dealer whereby
optionee irrevocably elects to exercise the Stock Right and to pledge the
<PAGE> 9
Common Stock so purchased to the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount of the exercise price, and
whereby the NASD Dealer irrevocably commits upon receipt of such Common Stock
to forward the exercise price directly to the Company, (vi) as permitted by
applicable law, by surrender of the right to acquire shares of Common Stock
underlying the Stock Right having a fair market value equal to the exercise
price in what is commonly referred to as an "immaculate exercise" or (vii) by
any combination of the foregoing, or by any other legal consideration or
means, where approved by the Committee in its sole discretion. The holder of
a Stock Right shall not have the rights of a shareholder with respect to the
shares covered by his, her or its Stock Right until the date of issuance of a
stock certificate for such shares. Except as expressly provided in Section 13
above with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. Compliance with Laws. The grant of Stock Rights and the issuance of
Common Stock upon exercise of any Stock Right shall be subject to and
conditioned upon compliance with all applicable requirements of law, including
without limitation compliance with the Securities Act of 1933 as amended,
compliance with all other applicable state securities laws and compliance with
the requirements of any stock exchange or market on which the Common Stock may
be listed.
16. Term and Amendment of Plan. This Plan was approved and adopted by
the Board on March 4, 1997, subject (with respect to the validation of ISOs
granted under this Plan) to approval of this Plan by the stockholders of the
Company. If the approval of this Plan by the Company's stockholders is not
obtained by March 4, 1998, any grants of ISOs under this Plan made prior to
that date will be rescinded. This Plan shall expire on March 3, 2007 (except
as to Options outstanding on that date). Subject to the provisions of Section
5 above, Stock Rights may be granted under this Plan prior to the date of
stockholder approval of this Plan. The Board may terminate or amend this Plan
in any respect at any time; provided, however, that the Board may not amend
this Plan in any of the following respects without the approval of the
Company's stockholders obtained within twelve (12) months before or after the
Board adopts a resolution authorizing any of the following actions: (a) the
total number of shares that may be issued under this Plan may not be increased
(except by adjustment pursuant to Section 13 above); (b) the provisions of
Section 3 above regarding eligibility for grants of ISOs may not be modified;
(c) the provisions of Section 6(b) above regarding the exercise price at which
shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to Section 13 above); and (d) the expiration date of this
Plan may not be extended. Except as otherwise provided in this Section 16, in
no event may action of the Board or the stockholders alter or impair the
rights of a grantee, without such grantee's consent, under any Stock Right
previously granted to such grantee. The Committee or the Board may amend the
terms of any Stock Right granted if such amendment is agreed to by the
recipient of such Stock Right.
17. Conversion of ISOs Into Non-Qualified Options; Termination of ISOs.
The Committee or the Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
ISOs (or any installments or portions of installments thereof) that have not
been exercised on the date of conversion into Non-Qualified Options at any
time prior to the expiration of such ISOs, regardless of whether the optionee
is an employee of the Company or a Related Corporation at the time of such
<PAGE> 10
conversion. Such actions may include, but shall not be limited to, extending
the exercise period or reducing the exercise price of the appropriate
installments of such Options. At the time of such conversion, the Committee
or the Board (with the consent of the optionee) may impose such conditions on
the exercise of the resulting Non-Qualified Options as the Committee or the
Board in its discretion may determine, provided that such conditions shall not
be inconsistent with this Plan. Nothing in this Plan shall be deemed to give
any optionee the right to have such optionee's ISOs converted into Non-Qualified
Options, and no such conversion shall occur until and unless the
Committee or the Board takes appropriate action. The Committee or the Board,
with the consent of the optionee, may also terminate any portion of any ISO
that has not been exercised at the time of such termination.
18. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under this
Plan shall be used for general corporate purposes.
19. Governmental Regulation. The Company's obligation to sell and
deliver shares of Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
20. Withholding of Additional Income Taxes. Upon the exercise of a Non-
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as that term is defined in Section 21 below) or the vesting of
restricted Common Stock acquired upon the exercise of a Stock Right hereunder,
the Company, in accordance with Section 3402(a) of the Code, may require the
optionee, Award recipient or purchaser to pay additional withholding taxes in
respect of the amount that is considered compensation includable in such
individual's gross income. The Committee or the Board in its discretion may
condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value or
(iv) the vesting of restricted Common Stock acquired by exercising a Stock
Right, on the grantee's payment of such additional withholding taxes.
21. Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any shares of the Company's
Common Stock acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such Common Stock
before the later of (a) two (2) years after the date the employee was granted
the ISO and (b) one (1) year after the date the employee acquired the Common
Stock by exercising the ISO. If the employee dies before such shares of
Common Stock are sold, these holding period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
22. Governing Law; Construction. The validity and construction of this
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of the State of Utah, or the laws of any jurisdiction in which the Company or
its successors in interest may be organized. In construing this Plan, the
singular shall include the plural and the masculine gender shall include the
feminine and neuter, and vice versa, unless the context otherwise requires.
<PAGE> 11
MITY-LITE, INC.
INCENTIVE STOCK OPTION AGREEMENT
MITY-LITE, INC., a Utah corporation (the "Company"), hereby grants this
day of , 199X, to , an individual (the "Employee"),
an option to purchase a maximum of shares of the Company's
Common Stock, at the price of $XX.XXX per share, on the following terms and
conditions:
1. Grant Under 1997 Stock Incentive Plan. This option is granted
pursuant to and is governed by the Company's 1997 Stock Incentive Plan (the
"Plan") and, unless the context requires otherwise, terms used herein shall
have the same meaning as in the Plan. Determinations made in connection with
this option pursuant to the Plan shall be governed by the Plan as it exists on
the date hereof.
2. Grant as Incentive Stock Option; Other Options. This option is
intended to qualify as an incentive stock option under Section 422A of the
Internal Revenue Code of 1986, as amended and regulations thereunder (the
"Code"). This option is in addition to any other options heretofore or
hereafter granted to the Employee by the Company. A duplicate original of
this option shall not effect the grant of another option to the Employee.
3. Vesting of Option if Employment Continues. Provided the Employee is
still employed by the Company on that date, the options granted hereunder
shall become exercisable and vested as follows:
The foregoing rights are cumulative and, while the Employee continues to be
employed by the Company, may be exercised up to and including the date that is
ten (10) years from the date this option is granted. All of the foregoing
rights are subject to Sections 4 and 5 below, as appropriate, if the Employee
ceases to be employed by the Company or dies or becomes disabled while in the
employ of the Company.
4. Termination of Employment. Except as provided in Section 20 below,
if the Employee ceases to be employed by the Company, other than by reason of
death or disability as defined in Section 5 below, before or after the options
granted herein become exercisable as provided in Section 3 above, this option
shall terminate after the passage of ninety (90) days from the date employment
ceases, but in no event later than the scheduled expiration date of this
option. In such a case, the Employee's only rights hereunder shall be those
relating to options that are exercisable on the date of termination or become
exercisable within said ninety (90) day period or are properly exercised
before the termination of this option.
5. Death; Disability. If the Employee dies while in the employ of the
Company, this option may be exercised to the extent of the number of shares
with respect to which the Employee could have exercised on the date of the
Employee's death, by the Employee's estate, personal representative or
beneficiary to whom this option has been assigned pursuant to Section 10
<PAGE> 12
below, at any time within 180 days after the date of death, but not later than
the scheduled expiration date of this option. If the Employee ceases to be
employed by the Company by reason of the Employee's disability (as defined in
the Plan), this option may be exercised, to the extent of the number of shares
with respect to which the Employee could have exercised this option on the
date of the termination of the Employee's employment, at any time within 30
days after such termination, but not later than the scheduled expiration date
of this option. At the expiration of such 30 day period or the scheduled
expiration date, whichever is the earlier, this option shall terminate and the
only rights hereunder shall be those as to which the option was properly
exercised before such termination.
6. Partial Exercise. The exercise of this option up to the extent
above-stated may be made in part at any time and from time-to-time within the
above limits, except that this option may not be exercised for a fraction of a
share unless such exercise is with respect to the final installment of stock
subject to this option and a fractional share (or cash in lieu thereof) must
be issued to permit the Employee to exercise completely such final
installment. Any fractional share with respect to which an installment of
this option cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to this option and shall be available
for later purchase by the Employee in accordance with the terms hereof.
7. Payment of Option Price. The option price is payable in United
States dollars in cash or by check or in any manner permitted under the Plan
equal in amount to the option price. No person shall be entitled to the
privileges of stock ownership in respect of any shares issuable upon the
exercise of this option, unless and until such shares have been issued to such
person as fully paid shares. No certificate(s) for shares of stock purchased
upon the exercise of this option shall be issued and delivered prior to the
admission of such shares to listing on any stock exchange on which shares of
that class are then listed, nor unless and until, in the opinion of counsel
for the Company, such securities may be issued and delivered without causing
the Company to be in violation of or to incur any liability under any federal,
state or other securities law, rule or regulation, any requirement of any
securities exchange listing agreement to which the Company may be a party or
any other requirement of law or of any regulatory agency or body having
jurisdiction over the Company or its securities.
8. Agreement to Purchase for Investment. By acceptance of this option,
the Employee agrees that a purchase of shares under this option is for the
Employee's own account and will not be made with a view to their distribution
(as that term is used in the Securities Act of 1933, as amended (the "1933
Act"), unless in the opinion of counsel to the Company such distribution is in
compliance with or exempt from the registration and prospectus requirements of
the 1933 Act, and the Employee agrees to sign a certificate to such effect at
the time of exercising this option and agrees that the certificate(s) for the
shares of the Company's Common Stock so purchased may be inscribed with a
legend (in form and substance acceptable to the Company) to ensure compliance
with the requirements of the 1933 Act. The Employee thus understands that the
shares purchased upon exercise of this option are restricted and cannot be
resold or transferred except as provided above. The Employee understands the
merits and risks of an investment in the Company and has had access to all
information required by the Employee to make an informed investment decision
and the Employee has had an opportunity to review to his or her satisfaction
the business of the Company and determine, based upon his or her own analysis,
<PAGE> 13
the value of the option and the Common Stock underlying the option. The
Employee is able to bear the loss of his or her entire exercise price.
9. Method of Exercising Option. Subject to the terms and conditions set
forth herein, this option may be exercised by written notice to the Company at
the principal executive office of the Company or to such transfer agent as the
Company shall designate. Such notice shall state the election to exercise
this option and the number of shares of the Company's Common Stock in respect
of which this option is being exercised and shall be signed by the
individual(s) exercising this option. Such notice shall be accompanied by
payment of the full purchase price of such shares of the Company's Common
Stock, and the Company shall deliver a certificate(s) representing such shares
as soon as practicable after the notice shall be received. The certificate(s)
for the shares as to which this option shall have been so exercised shall be
issued in the name of the individual(s) so exercising this option (or, if this
option shall be exercised by the Employee and if the Employee shall so request
in the notice of exercise, shall be issued in the name of the Employee and
another individual jointly, with full rights of survivorship) and shall be
delivered as provided above to or upon the written order of the individual(s)
exercising this option. In the event this option shall be exercised, pursuant
to Section 5 above, by any individual(s) other than the Employee, such notice
of exercise shall be accompanied by appropriate proof of the right of such
individual(s) to exercise this option. All shares of the Company's Common
Stock that shall be purchased upon the exercise of this option as provided
herein shall be fully paid and non-assessable.
10. Option Not Transferable. This option is not transferable or
assignable except to the extent ISOs may be assigned under the Code and except
as permitted by Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act"). During the Employee's lifetime, this
option may be exercised only by the Employee.
11. No Obligation to Exercise Option. The grant and acceptance of this
option imposes no obligation on the Employee to exercise this option.
12. No Obligation to Continue Employment. The Company and any Related
Corporation (as that term is defined in the Plan) are not by the Plan or this
option obligated to continue the Employee in employment.
13. No Rights as Stockholder Until Option Exercised. The Employee shall
have no rights as a stockholder with respect to shares of the Company's Common
Stock subject to this option until a stock certificate(s) therefor has been
issued to the Employee and is fully paid for. Except as is expressly provided
in the Plan with respect to certain changes in the capitalization of the
Company, no adjustment shall be made for dividends or similar rights for which
the record date is prior to the date a stock certificate is issued.
14. Capital Changes and Business Successions. Subject to Section 20
below, the Plan contains provisions regarding the treatment of options in a
number of contingencies such as stock splits, mergers, consolidations and the
sale of all or substantially all of the Company's assets. Provisions in the
Plan for adjustment with respect to shares of the Company's Common Stock
subject to options and the related provisions with respect to successors to
the business of the Company are hereby made applicable hereunder and are
incorporated herein by reference.
<PAGE> 14
15. Early Disposition. The Employee agrees to notify the Company in
writing immediately after the Employee makes a Disqualifying Disposition (as
that term is defined below) of any shares of the Company's Common Stock
received pursuant to the exercise of this option. A "Disqualifying
Disposition" is any disposition (including any sale) of shares of the
Company's Common Stock before the later of (a) two (2) years after the date
the Employee was granted this option and (b) one (1) year after the date the
Employee acquired Common Stock by exercising this option. If the Employee
dies before such stock is sold, these holding period requirements do not apply
and no Disqualifying Disposition can occur thereafter. The Employee also
agrees to provide the Company with any information that it shall request
concerning any such disposition. The Employee acknowledges that he or she
will forfeit the favorable income tax treatment otherwise available with
respect to the exercise of this ISO if the Employee makes a Disqualifying
Disposition of the stock received upon the exercise of this option.
16. Withholding Taxes. If the Company in its discretion determines that
it is obligated to withhold tax with respect to a Disqualifying Disposition
(as that term is defined in Section 15 above) of shares of the Company's
Common Stock received by the Employee upon the exercise of this option, the
Employee hereby agrees that the Company may withhold from the Employee's wages
the appropriate amount of federal, state and local withholding taxes
attributable to such Disqualifying Disposition. If any portion of this option
is treated as a Non-Qualified Option, the Employee hereby agrees that the
Company may withhold from the Employee's wages the appropriate amount of
federal, state and local withholding taxes attributable to the Employee's
exercise of such Non-Qualified Option. At the Company's discretion, the
amount required to be withheld may be withheld in cash from such wages, or
(with respect to compensation income attributable to the exercise of this
option) in kind from the Common Stock otherwise deliverable to the Employee
upon the exercise of this option. The Employee further agrees that, if the
Company does not withhold an amount from the Employee's wages sufficient to
satisfy the Company's withholding obligation, the Employee will reimburse the
Company upon demand, in cash, for the amount underwithheld.
17. No Exercise of Option if Employment Terminated for Misconduct. If
the employment of the Employee is terminated for "Misconduct," this option
shall terminate on the date of such termination of employment and all unvested
or unexercised options shall thereupon no longer be exercisable to any extent
whatsoever. For purposes of this Section 17, "Misconduct" is conduct, as
determined by the Board, involving one or more of the following: (i) the
substantial and continuing failure of the Employee to render services to the
Company in accordance with the Employee's assigned duties; (ii) a
determination by two-thirds (2/3) of the members of the Board that the
Employee has inadequately performed the duties of the Employee's employment;
(iii) disloyalty, gross negligence, dishonesty or breach of a fiduciary duty
owed to the Company; (iv) the commission of an act of embezzlement, fraud,
disloyalty, dishonesty or deliberate disregard of the rules or policies of the
Company that results in loss, damage or injury to the Company, whether
directly or indirectly; (v) the unauthorized disclosure of any trade secret or
confidential information owned by the Company; or (vi) the commission of an
act that constitutes unfair competition with the Company or that induces any
customer or client of the Company to break a contract or agreement with the
Company. In making such determination, the Board shall act fairly and in good
faith and shall give the Employee an opportunity to appear and be heard at a
hearing before the Board or the Committee and to present evidence on the
Employee's behalf. For purposes of this Section 18, termination of employment
<PAGE> 15
shall be deemed to occur when the Employee receives notice that the Employee's
employment is terminated.
18. Changes in Control. Notwithstanding any other provision hereof, and
in addition to any rights granted under the Plan, this option shall accelerate
so that the Employee shall have the right, at all times until the expiration
or earlier termination of the option, to exercise the unexercised portions of
this option, including the portions thereof that would, but for this Section
20, not yet be exercisable, from and after any Involuntary Termination (as
that term is defined below) within 30 days after a Change in Control (as that
term is defined below) that occurs while the Employee is an employee of the
Company or any Related Corporation. For purposes of this Section 20: (a) an
"Involuntary Termination" is any termination of the Employee's employment with
the Company or with any Related Corporation for reasons other than (i) the
Employee's death, (ii) the Employee's total disability (as that term is
defined in the Plan), (iii) the Employee's retirement under circumstances that
entitle the Employee to full benefits under one or another of his employer's
retirement or pension plans or programs generally applicable to salaried
employees or (iv) termination for Misconduct (as that term is defined in
Section 18 above); and (b) a "Change in Control" means any of the following
events if they occur after the date of grant of this option and after the
class of stock then subject to this option becomes registered under the 1934
Act: the direct or indirect beneficial ownership (within the meaning of
Section 13(d) of the 1934 Act and Regulations 13D through G thereunder) of
thirty percent (30%) or more of the class of securities then subject to this
option is acquired or becomes held by any person or group of persons (within
the meaning of Section 13(d)(3) of the 1934 Act), or the sale, mortgage, lease
or other transfer in one or more transactions not in the ordinary course of
the Company's business or assets or earning power constituting more than fifty
percent (50%) of the assets or earning power of the Company and its Related
Corporations (taken as a whole) to any such person or group of persons.
19. Provision of Documentation to Employee. By signing this option the
Employee acknowledges receipt of a copy of this option and a copy of the Plan.
20. Governing Law. This option shall be governed by and interpreted in
accordance with the laws of the State of Utah.
21. Holding Period. The Employee acknowledges that if the shares
acquired upon exercise of this option are not held for at least six (6) months
following the date of grant, the grant of this option will be deemed a
purchase that may be matched against any sale of the Company's securities
occurring within six (6) months of the grant and may create liability for the
Employee pursuant to Section 16(b) of the 1934 Act. Certain holding periods
are also required under the Code in order for this option to qualify as an
ISO.
IN WITNESS WHEREOF the Company and the Employee have caused this option
to be executed, and the Employee whose signature appears below acknowledges
receipt of a copy of the Plan and of an original copy of this option.
THE EMPLOYEE: THE COMPANY:
MITY-LITE, INC.
By:
<PAGE> 16
MITY-LITE, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
Mity-Lite, Inc., Utah corporation (the "Company"), hereby grants this
day of 199X, to , an individual (the
"Optionee"), an option to purchase a maximum of shares of
the Company's Common Stock, $.01 par value per share, at the price of $XX.XXXX
per share, on the following terms and conditions:
1. Grant Under 1997 Stock Incentive Plan. This option is granted
pursuant to and is governed by the Company's 1997 Stock Incentive Plan (the
"Plan") and, unless the context requires otherwise, terms used herein shall
have the same meanings as set forth in the Plan. Determinations made in
connection with this option pursuant to the Plan shall be governed by the Plan
as it exists on the date hereof.
2. Grant as Non-Qualified Option; Other Options. This option shall be
treated for federal income tax purposes as a Non-Qualified Option (rather than
as an ISO), and the Committee (as that term is defined in the Plan) or the
Board (as that term is defined in the Plan) will take appropriate action, if
necessary, to achieve this result. This option is in addition to any other
options heretofore or hereafter granted to the Optionee by the Company. A
duplicate original of this instrument shall not effect the grant of another
option to the Optionee.
3. Extent of Option if Business Relationship Continues. If the Optionee
has continued to serve the Company or any Related Corporation (as defined in
the Plan) in the capacity of an employee, officer, director or consultant
(such service is described herein as maintaining or being involved in a
"Business Relationship" with the Company) on the following dates, the Optionee
may exercise this option for the number of shares set opposite the applicable
date:
The foregoing rights are cumulative and, while the Optionee continues to
maintain a Business Relationship with the Company, may be exercised up to and
including the date that is ten (10) years from the date this option is
granted. All of the foregoing rights are subject to Sections 4 and 5 below,
as appropriate, if the Optionee ceases to maintain a Business Relationship
with the Company or dies, becomes disabled or undergoes dissolution while
involved in a Business Relationship with the Company.
4. Termination of Business Relationship. If the Optionee ceases to
maintain a Business Relationship with the Company, other than by reason of
death or disability (as those terms are defined in Section 5 below), no
further installments of this option shall become exercisable and this option
shall terminate upon the passage of ninety (90) days from the date the
Business Relationship ceases, but in no event later than the scheduled
expiration date of this option. In such a case, the Optionee's only rights
hereunder shall be those that are properly exercised before the termination of
this option.
<PAGE> 17
5. Death; Disability; Dissolution. If the Optionee is a natural person
who dies while involved in a Business Relationship with the Company, this
option may be exercised, to the extent of the number of shares with respect to
which the Optionee could have exercised on the date of the Optionee's death,
by the Optionee's estate, personal representative or beneficiary to whom this
option has been assigned pursuant to Section 10 below, at any time within one
(1) year after the date of death, but not later than the scheduled expiration
date of this option. If the Optionee is a natural person whose Business
Relationship with the Company is terminated by reason of Optionee's disability
(as that term is defined in the Plan), this option may be exercised, to the
extent of the number of shares with respect to which the Optionee could have
exercised on the date the Business Relationship was terminated, at any time
within one (1) year after the date of such termination, but not later than the
scheduled expiration date of this option. At the expiration of such one (1)
year period or the scheduled expiration date of this option, whichever is the
earlier, this option shall terminate and the only rights hereunder shall be
those as to which the option was properly exercised before such termination.
If the Optionee is a corporation, partnership, trust or other entity that is
dissolved, liquidated, becomes insolvent or enters into a merger or
acquisition with respect to which such Optionee is not the surviving entity at
the time when such entity is involved in a Business Relationship with the
Company, this option shall immediately terminate as of the date of such event,
and the only rights hereunder shall be those as to which this option was
properly exercised before such dissolution or other event.
6. Partial Exercise. Exercise of this option up to the extent above-
stated may be made in part at any time and from time-to-time within the above
limits, except that this option may not be exercised for a fraction of a share
unless such exercise is with respect to the final installment of stock subject
to this option and a fractional share (or cash in lieu thereof) must be issued
to permit the Optionee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Optionee in accordance with the terms hereof.
7. Payment of Option Price. The option price is payable in United
States dollars in cash or by check or in any manner permitted under the Plan,
equal in amount to the option price. No individual or entity shall be
entitled to the privileges of stock ownership in respect of any shares of
Common Stock issuable upon exercise of this option, unless and until such
shares of Common Stock have been issued to such individual or entity as fully
paid shares. No certificate(s) for shares of Common Stock purchased upon the
exercise of this option shall be issued and delivered prior to the admission
of such shares to listing on any stock exchange on which shares of that class
are then listed, nor unless and until, in the opinion of counsel for the
Company, such securities may be issued and delivered without causing the
Company to be in violation of or to incur any liability under any federal,
state or other securities law, rule or regulation, any requirement of any
securities exchange listing agreement to which the Company may be a party or
any other requirement of law or of any regulatory agency or body having
jurisdiction over the Company or its securities.
8. Agreement to Purchase for Investment. By acceptance of this option,
the Employee agrees that a purchase of shares under this option is for the
Employee's own account and will not be made with a view to their distribution
(as that term is used in the Securities Act of 1933, as amended (the "1933
<PAGE> 18
Act"), unless in the opinion of counsel to the Company such distribution is in
compliance with or exempt from the registration and prospectus requirements of
the 1933 Act, and the Employee agrees to sign a certificate to such effect at
the time of exercising this option and agrees that the certificate(s) for the
shares of the Company's Common Stock so purchased may be inscribed with a
legend (in form and substance acceptable to the Company) to ensure compliance
with the requirements of the 1933 Act. The Employee thus understands that the
shares purchased upon exercise of this option are restricted and cannot be
resold or transferred except as provided above. The Employee understands the
merits and risks of an investment in the Company and has had access to all
information required by the Employee to make an informed investment decision
and the Employee has had an opportunity to review to his or her satisfaction
the business of the Company and determine, based upon his or her own analysis,
the value of the option and the Common Stock underlying the option. The
Employee is able to bear the loss of his or her entire exercise price.
9. Method of Exercising Option. Subject to the terms and conditions set
forth herein, this option may be exercised by written notice to the Company at
the principal executive office of the Company, or to such transfer agent as
the Company shall designate. Such notice shall state the election to exercise
this option and the number of shares of the Company's Common Stock in respect
of which this option is being exercised and shall be signed by the
individual(s) so exercising this option. Such notice shall be accompanied by
payment of the full purchase price of such shares of the Company's Common
Stock, and the Company shall deliver a certificate(s) representing such shares
as soon as practicable after the notice shall be received. The certificate(s)
for the shares as to which this option shall have been so exercised shall be
registered in the name of the individual(s) so exercising this option (or, if
this option shall be exercised by the Optionee and if the Optionee shall so
request in the notice of exercise, shall be registered in the name of the
Optionee and another individual jointly, with full rights of survivorship) and
shall be delivered as provided above to or upon the written order of the
individual(s) exercising this option. In the event this option shall be
exercised, pursuant to Section 5 above, by any individual(s) other than the
Optionee, such notice of exercise shall be accompanied by appropriate proof of
the right of such individual(s) or persons to exercise this option. All
shares of the Company's Common Stock that shall be purchased upon the exercise
of this option as provided herein shall be fully paid and non-assessable.
10. Option Not Transferable. This option is not transferable or
assignable except by will or by the laws of descent and distribution and
except as permitted by Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "1934 Act"). During the Optionee's lifetime,
this option may only be exercised by the Optionee.
11. No Obligation to Exercise Option. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise this option.
12. No Obligation to Continue Business Relationship. The Company and any
Related Corporation is not, pursuant to the Plan or this option, obligated to
continue to maintain a Business Relationship with the Optionee.
13. No Rights as Stockholder Until Option Exercised. The Optionee shall
have no rights as a stockholder with respect to shares of the Company's Common
Stock subject to this option until a stock certificate(s) therefor has been
issued to the Optionee and is fully paid for. Except as is expressly provided
in the Plan with respect to certain changes in the capitalization of the
<PAGE> 19
Company, no adjustment shall be made for dividends or similar rights for which
the record date is prior to the date a stock certificate is issued.
14. Capital Changes and Business Successions. Subject to Section 17
below, the Plan contains provisions regarding the treatment of options in a
number of contingencies such as stock splits and mergers. Provisions in the
Plan for adjustment with respect to shares of the Company's Common Stock
subject to options and the related provisions with respect to successors to
the business of the Company are hereby made applicable hereunder and are
incorporated herein by reference. In general, the Optionee should not assume
that options necessarily would survive the acquisition of the Company.
15. Withholding Taxes. The Optionee hereby agrees that the Company may
withhold from the Optionee's wages or other remuneration the appropriate
amount of federal, state and local taxes attributable to the Optionee's
exercise of any installment of this option. At the Company's discretion, the
amount required to be withheld may be withheld in cash from such wages or
other remuneration, or in kind from the Common Stock otherwise deliverable to
the Optionee upon the exercise of this option. The Optionee further agrees
that, if the Company does not withhold an amount from the Optionee's wages or
other remuneration sufficient to satisfy the Company's withholding obligation,
the Optionee will reimburse the Company upon demand, in cash, for the amount
underwithheld.
16. No Exercise of Option if Business Relationship Terminated for
Misconduct. If the Business Relationship of the Optionee is terminated for
"Misconduct," this option shall terminate on the date of such termination of
the Business Relationship and all unvested or unexercised options shall
thereupon no longer be exercisable to any extent whatsoever. For purposes of
this Section 16, "Misconduct" is conduct, as determined by the Board in its
sole discretion, involving one or more of the following: (i) the substantial
and continuing failure of the Optionee to render services to the Company in
accordance with the terms or requirements of the Business Relationship; (ii) a
determination by two-thirds (2/3) of the members of the Board that the
Optionee has inadequately performed the requirements of the Business
Relationship; (iii) disloyalty, gross negligence, dishonesty or breach of a
fiduciary duty owed to the Company; (iv) the commission of an act of
embezzlement, fraud, disloyalty, dishonesty or deliberate disregard of the
rules or policies of the Company that results in loss, damage or injury to the
Company, whether directly or indirectly; (v) the unauthorized disclosure of
any trade secret or confidential information owned by the Company; or (vi) the
commission of an act that constitutes unfair competition with the Company or
that induces any customer or client of the Company to break a contract or
agreement with the Company. In making such determination, the Board shall act
fairly and in good faith and shall give the Optionee an opportunity to appear
and be heard at a hearing before the Board or the Committee and to present
evidence on the Optionee's behalf. For purposes of this Section 16,
termination of the Business Relationship shall be deemed to occur when the
Optionee receives notice that the Business Relationship is terminated.
17. Changes in Control. Notwithstanding any other provision hereof, this
option shall accelerate so that the Optionee (if the Optionee is an employee
of the Company or any Related Corporation) shall have the right, at all times
until the expiration or earlier termination of the option, to exercise the
unexercised portions of this option, including the portions thereof that
would, but for this Section 17, not yet be exercisable, from and after any
Involuntary Termination (as that term is defined below) within twenty-four
<PAGE> 20
(24) months after a Change in Control (as that term is defined below) that
occurs while the Optionee is an employee of the Company or any Related
Corporation. For purposes of this Section 17: (a) an "Involuntary
Termination" is any termination of the Optionee's employment with the Company
or any Related Corporation for reasons other than (i) the Optionee's death,
(ii) the Optionee's total disability (as that term is defined in the Plan),
(iii) the Optionee's retirement under circumstances that entitle the Optionee
to full benefits under one or another of his employer's retirement or pension
plans or programs generally applicable to salaried employees or (iv)
termination for Misconduct (as that term is defined in Section 16 above) and
(b) a "Change in Control" means any of the following events if they occur
after the date of grant of this option and after the class of stock then
subject to this option becomes registered under the 1934 Act: the direct or
indirect beneficial ownership (within the meaning of Section 13(d) of the 1934
Act and Regulations 13D through G thereunder) of thirty percent (30%) or more
of the class of securities then subject to this option is acquired or becomes
held by any person or group of persons (within the meaning of Section 13(d)(3)
of the 1934 Act), or the sale, mortgage, lease or other transfer in one or
more transactions not in the ordinary course of the Company's business or
assets or earning power constituting more than fifty percent (50%) of the
assets or earning power of the Company and its Related Corporations (taken as
a whole) to any such person or group of persons.
18. Governing Law. This option shall be governed by and interpreted in
accordance with the laws of the State of Utah.
19. Holding Period. The Optionee acknowledges that if the shares
acquired upon exercise of this option are not held for at least six (6) months
following the date of grant, the grant of this option will be deemed a
purchase that may be matched against any sale of the Company's securities
occurring within six (6) months of the grant and may create liability for the
Optionee pursuant to Section 16(b) of the 1934 Act.
IN WITNESS WHEREOF, the Company and the Optionee have caused this option
to be executed, and the Optionee whose signature appears below acknowledges
receipt of a copy of the Plan and of an original copy of this option.
THE OPTIONEE: THE COMPANY:
MITY-LITE, INC.
By:
Three months ended Twelve months ended
March 31, March 31,
1998 1997 1998 1997
--------- --------- ---------- ----------
Net income as reported . . . . . $775,000 $640,000 $3,189,000 $2,485,000
========= ========= ========== ==========
BASIC:
Weighted average number of
common shares outstanding. 3,260,585 3,161,359 3,227,850 3,120,433
========= ========= ========== ==========
Basic earnings per share. . . $0.24 $0.20 $0.99 $0.80
========= ========= ========== ==========
DILUTED:
Common and common equivalent shares
outstanding:
Weighted average number of
common shares outstanding. 3,260,585 3,161,359 3,227,850 3,120,433
Common stock equivalents
from options computed on
the treasury-stock method
using the average fair
market value of common
stock during the period. . 154,723 162,175 161,604 158,902
--------- --------- ---------- ----------
Shares used in the
computation. . . . . . . . 3,415,308 3,323,534 3,389,454 3,279,335
========= ========= ========== ==========
Diluted earnings per share. . . $0.23 $0.19 $0.94 $0.76
========= ========= ========== ==========
<PAGE>1
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements and the Notes thereto included in this Annual Report to
Shareholders. The statement of income data set forth below with respect to
the fiscal years ended March 31, 1997 and 1998 and the balance sheet data at
March 31, 1997 and 1998 are derived from, and should be read in conjunction
with the audited Financial Statements included in this Annual Report to
Shareholders. The statement of income data set forth below with respect to
the fiscal year ended March 31, 1996 and the balance sheet data at March 31,
1996 are derived from audited financial statements not included in this Annual
Report to Shareholders.
STATEMENT OF INCOME DATA
Fiscal Year Ended March 31,
- ------------------------------------------------------------------------------
1996 1997 1998
- ------------------------------------------------------------------------------
(in thousands, except for per share data)
Net sales $15,383 $18,680 $25,337
Cost of products sold 9,125 10,921 15,988
- ------------------------------------------------------------------------------
Gross profit 6,258 7,759 9,349
Expenses:
Selling 2,194 2,969 3,782
General and administrative 707 865 843
Research and development 511 375 488
Expenses related to potential
acquisitions 128 -- --
- ------------------------------------------------------------------------------
Income from operations 2,718 3,550 4,236
Interest and other, net 219 339 707
- ------------------------------------------------------------------------------
Income before provision for income taxes 2,937 3,889 4,943
Provision for income taxes 1,009 1,404 1,754
- ------------------------------------------------------------------------------
Net income $ 1,928 $ 2,485 $ 3,189
==============================================================================
Basic earnings per share $0.62 $0.80 $0.99
==============================================================================
Weighted average common shares
outstanding - basic 3,085,801 3,120,433 3,227,850
==============================================================================
Diluted earnings per share $0.60 $0.76 $0.94
==============================================================================
Weighted average common and common
equivalent shares - diluted 3,235,061 3,279,335 3,389,453
==============================================================================
<PAGE> 2
BALANCE SHEET DATA
MARCH 31,
- ------------------------------------------------------------------------------
1996 1997 1998
- ------------------------------------------------------------------------------
(in thousands)
Total assets $11,321 $14,264 $18,556
Working capital 8,918 9,454 12,895
Current portion of long-term debt -- -- --
Long-term debt less current portion -- -- --
Stockholders' equity 10,231 12,933 16,819
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company designs, manufactures and markets lightweight, durable, folding
leg tables, stacking chairs, and other related products used in multi-purpose
rooms of educational, recreational, hotel and hospitality, government, office,
health care, religious and other public assembly facilities. Historically,
the Company's growth has come from an expanding base of new customers and from
increasing sales to existing customers. The Company's current and future
growth is largely dependent upon its ability to continue increasing table
sales to new and existing customers and its ability to successfully introduce
and market new product lines of institutional furniture such as folding and
stacking chairs, staging, flooring, partitions, podiums, risers, bench
seating, office seating and office systems. The Company anticipates that over
the next 12 months its primary business strategy and emphasis will be on
expanding domestic and international table sales while seeking appropriate
product line expansion through acquisitions.
In addition to its table products, the Company currently offers five lines of
stacking chairs, the MityTuff(TM), the MityStack(TM), the MityFlex(TM), the
MityDeluxe(TM) and the MityHost(TM). The MityTuff(TM) and MityStack(TM)
chairs are distributed by the Company under OEM arrangements with the chair
manufacturers. Portions of the MityFlex(TM) and the MityDeluxe(TM) chairs are
manufactured by the Company. In addition, the Company performs final assembly
on these two chair lines. The MityHost(TM) is manufactured in-house at the
Company's facility in Orem, Utah.
Net sales of the Company's table products have increased during the fiscal
years ended March 31,1996, 1997 and 1998. Management expects, but cannot
assure, that this trend will continue. Gross margins and expenses associated
with chairs and other new product lines are difficult to predict during start
up periods but the Company believes that by applying its management techniques
to these product lines, profitability rates slightly less than those achieved
on table products can ultimately be reached. However, no assurance can be
given that these results will be realized.
Manufacturing and labor costs have increased and the Company has developed and
has started to implement measures designed to increase the productivity and
efficiency of its manufacturing operations. As part of this plan and in an
effort to reduce turnover and increase the quality of its workforce, the
Company has increased its manufacturing workforce wage rates.
<PAGE> 3
On March 31, 1997, the Company completed the acquisition of a 49.9 percent
equity interest in DO Group, Inc., a privately-held manufacturer of office
seating and office panel systems headquartered in Elkhart, Indiana. DO Group
markets its products under the Domore(TM) and DO3(TM) trade names and has
manufacturing facilities in Elkhart, Indiana and Marked Tree, Arkansas. DO
Group's total sales and net income for the year ended March 31, 1998 were
$12,145,000 and $1,203,000 respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
net sales represented by items included in or derived from the Company's
Statements of Income:
Fiscal Year Ended March 31,
- ------------------------------------------------------------------------------
1996 1997 1998
- ------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of products sold 59.3 58.5 63.1
- ------------------------------------------------------------------------------
Gross profit 40.7 41.5 36.9
Operating expenses:
Selling 14.3 15.9 14.9
General and administrative 4.6 4.6 3.4
Research and development 3.3 2.0 1.9
Expenses related to potential
acquisitions 0.8 -- --
- ------------------------------------------------------------------------------
Income from operations 17.7 19.0 16.7
Interest and other, net 1.4 1.8 2.8
- ------------------------------------------------------------------------------
Income before tax 19.1 20.8 19.5
Provision for income taxes 6.6 7.5 6.9
- ------------------------------------------------------------------------------
Net income 12.5% 13.3% 12.6%
==============================================================================
COMPARISON OF FISCAL YEARS 1997 AND 1998
Net Sales
The Company's fiscal 1998 net sales of $25,337,000 increased 35.6 percent over
net sales in the prior fiscal year. The increase reflected sales growth of
33.4 percent in the table product lines and 76.5 percent in the chair product
lines. Chair sales represented 8.9 percent and 6.9 percent of net sales for
the fiscal years ended March 31, 1998 and 1997, respectively. International
sales represented 7.8 percent and 7.4 percent of net sales for the same
respective time periods. The sales increase has resulted mainly from
increased sales in the hospitality, church, public assembly and education
market segments and an overall higher average unit sales price realized on
table sales.
Gross Profit
Gross profit as a percentage of net sales decreased over the prior year by 4.6
percentage points, to 36.9 percent for the fiscal year ended March 31, 1998.
The decrease was caused by increased production costs related to a new bonding
process, additional production and labor costs associated with implementing a
second production shift, increasing labor rates and staffing levels,
<PAGE> 4
increasing freight costs, and increasing chair sales which, when compared to
table products, have lower gross profit margins.
Operating Expenses
Selling expenses were 14.9 percent of net sales in fiscal 1998 as compared to
15.9 percent for the prior fiscal year. Actual spending increased by 27.4
percent, or $813,000, resulting from higher personnel, international selling,
and advertising costs.
General and administrative expenses were 3.4 percent 4.6 percent of net sales
in fiscal 1998 and 1997, respectively. Actual spending decreased by 2.5
percent, or $22,000. The decrease in spending resulted primarily from
decreases in personnel related expenses and rent expenses.
Research and development expenses were 1.9 percent of net sales in fiscal 1998
as compared to 2.0 percent for the prior fiscal year. Actual spending
increased by 30.1 percent, or $113,000. The increase in research and
development expenditures primarily resulted from increases in personnel
related expense partially offset by lower prototyping costs.
Other Income/Expense
Other income and expense netted to $707,000 in fiscal 1998. Investment income
was $375,000, an increase of $15,000 from the prior fiscal year due to a
slightly greater average balance of cash and cash equivalents and available-for-
sale securities. Mity-Lite recognized income of $340,000 from its
investment in the DO Group. The $340,000 represents Mity-Lite's proportionate
share of DO Group's net income for the year ended March 31, 1998, less certain
additional amortization and depreciation created as a result of the purchase.
During fiscal 1998, Mity-Lite also incurred an $8,000 loss from the
disposition of certain assets.
Net Income
For reasons stated above, the Company's 1998 fiscal year net income of
$3,189,000 increased 28.3 percent over net income in the prior fiscal year.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly financial data for
the most recent eight quarters. This quarterly financial data reflects, in
the opinion of Management, all adjustments necessary to present fairly the
results of operations for such periods. The operating results for any quarter
are not necessarily indicative of results for any future period. The Company
anticipates that operating results may fluctuate on a quarterly basis
depending upon a number of factors. Earnings per share information may not
add to match annual earnings per share information due to rounding.
<PAGE> 5
Unaudited Quarterly Financial Information:
- ------------------------------------------------------------------------------
Q1 97 Q2 97 Q3 97 Q4 97 Q1 98 Q2 98 Q3 98 Q4 98
- ------------------------------------------------------------------------------
in thousands, except per share amounts
Net sales $4,647 $4,939 $4,517 $4,577 $6,296 $7,341 $5,667 $6,033
Gross profit 2,006 2,046 1,865 1,842 2,423 2,780 2,003 2,143
Income before provision
for income tax 922 1,057 929 981 1,247 1,562 1,023 1,111
Net income 585 672 588 640 786 984 644 775
Basic earnings per
share 0.19 0.22 0.19 0.20 0.25 0.31 0.20 0.24
Diluted earnings per
share 0.18 0.21 0.18 0.19 0.24 0.29 0.19 0.23
The Company's quarterly operating results can fluctuate significantly
depending on factors such as timing of new product introductions, market
acceptance of new products, increased competitive pressures, growth in the
institutional furniture market, acquisitions, expansion of international
operations, timing and expansion into complementary products such as chairs,
changes in raw material sources and costs, and adverse changes in general
economic conditions in any of the countries in which the Company does
business. The Company's ability to develop and market tables and
complementary products that successfully adapt to current market needs may
also have an impact on future quarterly results of operations. No assurances
can be or are made that the Company will not experience such quarterly
variations in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which consist primarily of high-quality municipal
bonds and tax-advantaged money market instruments, totaled $9.27 million at
March 31, 1998 as compared to $7.65 million at March 31, 1997. In addition,
the company holds available-for-sale securities totaling $1.21 million at
March 31, 1998. The increase in cash and cash equivalents was due primarily
to cash generated from operations ($3.18 million), net proceeds related to the
exercise of stock options ($0.43 million), and interest received from
affiliate ($0.10 million). This increase was partially offset by cash used to
purchase highly liquid available-for-sale securities ($1.21 million), to
purchase manufacturing and computer equipment, furniture, and make certain
leasehold improvements ($0.78 million) and to buy back small amounts of the
Company's common stock ($0.10 million).
In recent history, the Company has financed its growth through cash from
operations. In addition, the Company has revolving credit facilities with
Zions First National Bank and First Security Bank of Utah, N.A. The
agreements, which expire on December 1, 1998 and October 25, 1998,
respectively, allow the Company to draw up to a combined $5,000,000 under the
credit facilities. As of March 31, 1998, the Company had no amounts drawn
under these facilities. The credit facilities require the maintenance of
certain financial ratios and levels of working capital, all of which were met
as of March 31, 1998.
The Company believes that cash flow from its current operations together with
existing cash reserves will be sufficient to support its working capital
requirements for its existing operations for at least the next 12 months.
<PAGE> 6
However, the Company's working capital requirements may significantly increase
if other acquisitions are consummated. No assurances can be given as to the
sufficiency of the Company's working capital to support the Company's
operations following any such acquisitions. If the existing cash reserves,
cash flow from operations and debt financing are insufficient or if working
capital requirements are greater than estimated, the Company could be required
to raise additional capital. There can be no assurance the Company will be
capable of raising additional capital or that the terms upon which such
capital will be available to the Company will be acceptable. Additional
sources of equity capital are available to the Company through the exercise by
holders of outstanding options. At March 31, 1998, the proceeds which would
have been received by the Company upon exercise of outstanding options which
were exercisable on that date were approximately $583,000. There is no
assurance that such options will be exercised.
The Company's material cash commitments at March 31, 1998 consisted primarily
of current liabilities to be repaid from funds generated from operations. At
March 31, 1998, the Company had total current liabilities of $1,640,000. The
Company has also entered into a lease agreement from a related party for its
production and office facility under which it is obligated to pay $17,100 per
month through March 2000.
INFORMATION SYSTEMS AND THE YEAR 2000
As is the case with most other companies using computers in their operations,
the Company is in the process of addressing the Year 2000 problem. The
Company is currently engaged in a comprehensive project to upgrade its
information, technology, manufacturing and facilities computer software to
programs that will consistently and properly recognize the Year 2000. Many of
the Company's systems include new hardware and packaged software recently
purchased from large vendors who have represented that these systems are
already Year 2000 compliant. The Company is in the process of testing these
systems and obtaining assurances from vendors that timely updates will be made
available to make all remaining purchased software and upgrades Year 2000
compliant.
The Company will utilize internal resources to test all of its software for
Year 2000 compliance and, where necessary, upgrade or replace noncompliant
systems. The Company expects to complete the project in early 1999. Since
many of the Company's systems include new hardware and packaged software
recently purchased from large vendors who have represented that these systems
are already Year 2000 compliant, the estimated cost of this project, including
the cost of new systems which will be capitalized, is less than $50,000. This
cost will be funded though operating cash flows. Failure by the Company
and/or vendors and customers to complete Year 2000 compliance work in a timely
manner could have a material adverse effect on certain of the Company's
operations.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification
plans and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
<PAGE> 7
IMPACT OF INFLATION AND ENVIRONMENTAL REGULATIONS
The Company believes that inflation has not had a material effect on its
operating results. However, significant increases in the price of raw
materials could have a material adverse impact on the Company's results of
operations. In addition, compliance with environmental laws or regulations
has not had a material effect on the Company's operations.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS
Certain statements made above in this section are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). In addition, when used in this filing, the words or
phrases "may," "will," "Management believes," "Company believes," "Company
intends," "estimates," "projects," "anticipates," "expects" and similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Reform Act.
Forward-looking statements contained herein include plans and objectives of
management for future operations, including plans and objectives relating to
the products, marketing, customers, product line expansions, manufacturing
process and potential acquisitions. These forward-looking statements involve
risks and uncertainties and are based on certain assumptions that may not be
realized. Actual results and outcomes may differ materially from those
discussed or anticipated. The forward-looking statements and associated risks
set forth herein and elsewhere in this filing relate to: (i) the Company's
expectation that it will be able to expand its share of the market for
lightweight, durable, folding leg tables, (ii) the Company's anticipation that
it will become a qualified government vendor, (iii) the Company's intentions
to expand the international market for its products, (iv) the Company's plan
to enhance the productivity and efficiency of its manufacturing process, (v)
Management's belief that it will be able to continue to benefit from
relatively low cost labor, (vi) the Company's intention to expand and
introduce new product lines to existing customers, (vii) the Company's ability
to maintain its low product warranty obligations, (viii) the Company's
expectation that it will be able to expand into new market segments by
developing new products or acquiring other products or businesses in such
segments, (ix) the possibility that the Company may exercise its option to
acquire the remaining 50.1 percent of the DO Group, (x) the Company's
expectation of a continued profitable return on its equity interest in the DO
Group, and (xi) the Company's intention to continue to market products
directly to its end users.
All forward-looking statements involve predictions and are subject to known
and unknown risks and uncertainties, including, without limitation, those
discussed below as well as general economic and business conditions, that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. Readers should not place undue
reliance on any such forward-looking statements, which speak only as of the
date made. The considerations listed below and elsewhere in this filing could
affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any views or
statements expressed with respect to future periods. See "Certain
Considerations." Important factors and risks that might cause such
differences, include, but are not limited to (a) lower than expected revenue,
revenue growth and cash flow from operations because of adverse economic or
business conditions or the Company's inability, for any reason, to introduce
<PAGE> 8
new products or implement its marketing strategies, (b) management's ability
to manage effectively the Company's growth, (c) the Company's ability to
expand successfully its international markets, (d) import restrictions and
economic conditions in the Company's foreign markets, (e) competition in the
Company's existing and future markets, (f) increased expenditures required to
address the Year 2000 issue if the Company's technology requirements change,
(g) the market's acceptance of additional products such as multi-purpose room
furniture, (h) the Company's ability to maintain relatively low cost labor
rates in a period of lower unemployment, (i) the Company's ability to source
acceptable raw materials at current prices, (j) increased product warranty
service costs if warranty claims increase as a result of the Company's new
manufacturing bonding process or for any other reason, (k) the Company's
ability to refine and enhance the quality and productivity of its
manufacturing process, and (l) the Company's ability to manufacture and market
at current margins high quality, high performance products at competitive
prices.
In light of the significant uncertainties inherent in forward-looking
statements, the inclusion of any such statement should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. The Company disclaims any obligation or
intent to update any such factors or forward-looking statements to reflect
future events or developments.
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Mity-Lite, Inc.
We have audited the accompanying balance sheets of Mity-Lite, Inc. as of March
31, 1998 and 1997, and the related statements of income, stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of Mity-Lite's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit
the financial statements of Sican Corp., Mity-Lite's investment in which is
accounted for by use of the equity method. Mity-Lite's equity of $1,108,000
in the Sican Corp.'s net assets at March 31, 1998, and of $340,000 in that
company's net income for the year ended March 31, 1998 are included in the
accompanying financial statements. The financial statements of Sican Corp.
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for such company, is
based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
financial statements present fairly, in all material respects, the financial
position of Mity-Lite, Inc. at March 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
May 13, 1998
<PAGE> 10
BALANCE SHEETS
March 31, 1998 1997
- ------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 9,266,000 $ 7,646,000
Available-for-sale securities 1,207,000 --
Accounts receivable, less allowances of
$259,000 at March 31, 1998 and $161,000
at March 31, 1997 2,586,000 2,196,000
Inventories 960,000 700,000
Prepaid expenses and other current assets 324,000 88,000
Deferred income tax assets 192,000 142,000
- ------------------------------------------------------------------------------
Total current assets 14,535,000 10,772,000
Property and equipment, net 1,912,000 1,629,000
Investment in affiliate 1,108,000 862,000
Note receivable from affiliate 1,000,000 1,000,000
Intangibles 1,000 1,000
- ------------------------------------------------------------------------------
$18,556,000 $14,264,000
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,144,000 $ 833,000
Accrued expenses 496,000 485,000
- ------------------------------------------------------------------------------
Total current liabilities 1,640,000 1,318,000
Deferred income tax liabilities 97,000 13,000
Commitments and contingencies (Note 10) -- --
Stockholders' equity:
Preferred stock, par value $.10 per share;
authorized 3,000,000 shares; no shares
issued and outstanding -- --
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued and
outstanding 3,260,585 shares at March 31,
1998 and 3,161,359 shares at March 31, 1997 33,000 32,000
Additional paid-in capital 7,721,000 6,952,000
Retained earnings 9,065,000 5,949,000
- ------------------------------------------------------------------------------
Total stockholders' equity 16,819,000 12,933,000
- ------------------------------------------------------------------------------
$18,556,000 $14,264,000
==============================================================================
See accompanying notes to financial statements.
<PAGE> 11
STATEMENTS OF INCOME
Year Ended March 31, 1998 1997
- ------------------------------------------------------------------------------
Net sales $25,337,000 $18,680,000
Cost of products sold 15,988,000 10,921,000
- ------------------------------------------------------------------------------
Gross profit 9,349,000 7,759,000
Selling 3,782,000 2,969,000
General and administrative 843,000 865,000
Research and development 488,000 375,000
- ------------------------------------------------------------------------------
Total operating expenses 5,113,000 4,209,000
- ------------------------------------------------------------------------------
Income from operations 4,236,000 3,550,000
Other income (expense):
Interest expense -- (2,000)
Investment income 375,000 360,000
Equity in income of affiliate 340,000 --
Other (8,000) (19,000)
- ------------------------------------------------------------------------------
Total other income, net 707,000 339,000
- ------------------------------------------------------------------------------
Income before provision for income taxes 4,943,000 3,889,000
Provision for income taxes 1,754,000 1,404,000
- ------------------------------------------------------------------------------
NET INCOME $3,189,000 $2,485,000
==============================================================================
Basic earnings per share $0.99 $0.80
==============================================================================
Weighted average number of common
shares - basic 3,227,850 3,120,433
==============================================================================
Diluted earnings per share $0.94 $0.76
==============================================================================
Weighted average number of common and
common equivalent shares - diluted 3,389,454 3,279,335
==============================================================================
See accompanying notes to financial statements.
<PAGE> 12
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Additional Total
Stock Par Paid-In Retained Stockholders'
Value Capital Earnings Equity
- ------------------------------------------------------------------------------
Balance at April 1, 1996 $31,000 $6,744,000 $3,456,000 $10,231,000
Net income 2,485,000 2,485,000
Issuance of 62,317 shares
of common stock from the
exercise of options 1,000 170,000 171,000
Issuance of 2,750 shares
of common stock to the
Company's 401(k) plan 20,000 20,000
Deferred compensation 8,000 8,000
Tax benefit of employee
stock options 18,000 18,000
- ------------------------------------------------------------------------------
Balance at March 31, 1997 32,000 6,952,000 5,949,000 12,933,000
Net income 3,189,000 3,189,000
Issuance of 100,738 shares
of common stock from the
exercise of options 1,000 383,000 384,000
Issuance of 4,152 shares
of common stock to the
Company's 401(k) plan 50,000 50,000
Purchase and retirement of
common stock (30,000) (73,000) (103,000)
Tax benefit of employee
stock options 366,000 366,000
- ------------------------------------------------------------------------------
Balance at March 31, 1998 $33,000 $7,721,000 $9,065,000 $16,819,000
==============================================================================
See accompanying notes to financial statements.
<PAGE> 13
STATEMENTS OF CASH FLOWS
Year Ended March 31, 1998 1997
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $3,189,000 $2,485,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 492,000 394,000
Deferred compensation -- 8,000
Deferred tax expense 34,000 (38,000)
Equity in income of affiliate (340,000) --
Loss on disposal of property and equipment 8,000 19,000
Tax benefit from exercise of stock options 366,000 18,000
Changes in assets and liabilities:
Accounts receivable (390,000) (588,000)
Inventories (260,000) (191,000)
Prepaid expenses and other current assets (236,000) 12,000
Related party receivable -- 353,000
Accounts payable 311,000 86,000
Accrued expenses 11,000 142,000
- ------------------------------------------------------------------------------
Net cash provided by operating activities 3,185,000 2,700,000
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (2,660,000) --
Sales of available-for-sale securities 1,453,000 --
Proceeds from sale of property and equipment -- 6,000
Purchases of property and equipment (783,000) (735,000)
Note receivable from affiliate -- (1,000,000)
Investment in and cash received from affiliate 94,000 (862,000)
- ------------------------------------------------------------------------------
Net cash used in investing activities (1,896,000) (2,591,000)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from exercise of stock options 434,000 191,000
Purchase and retirement of common stock (103,000) --
- ------------------------------------------------------------------------------
Net cash provided by financing activities 331,000 191,000
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,620,000 300,000
Cash and cash equivalents at beginning of period 7,646,000 7,346,000
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of period $9,266,000 $7,646,000
==============================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $1,594,000 $1,426,000
==============================================================================
See accompanying notes to financial statements.
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
Mity-Lite, Inc. (the "Company") designs, manufactures and markets lightweight,
durable, folding leg tables, stacking chairs and related products used in
multi-purpose rooms of educational, recreational, hotel and hospitality,
government, office, health care, religious and other public assembly
facilities. The Company typically sells its products directly to end users
using a proprietary, computerized sales management system and an in-house
staff of trained sales and customer service personnel. The Company markets
its products throughout the United States and in certain foreign countries.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments which have a term
maturity not greater than three months.
Available-for-Sale Securities
Debt securities, which consist of municipal bonds, are classified as
available-for-sale. The amortized cost of available-for-sale securities
approximates fair value due to the relative short-term nature of these
securities. The amortization of premiums and discounts on debt securities in
this category are included in investment income and reflected in the amortized
cost of the debt securities. The cost of securities sold during the period is
based on the specific identification method. Interest on securities in this
category are included in investment income.
Available-for-sale securities held at March 31, 1998 are summarized below:
Amortized Cost Fair Value
- ------------------------------------------------------------------------------
Due in one year or less $676,000 $677,000
Due after one year through two years 531,000 530,000
- ------------------------------------------------------------------------------
$1,207,000 $1,207,000
==============================================================================
Inventories
Inventories are stated at the lower of cost, on a first in, first out basis,
or market.
Advertising
Advertising costs consist primarily of print advertising costs which are
charged to expense as incurred. Advertising costs expensed during the years
ended March 31,1997 and 1998 were $103,000 and $153,000, respectively.
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are
charged to operations as incurred, whereas major replacements and improvements
are capitalized and subsequently depreciated. Depreciation and amortization
on the company's equipment, furniture, and fixtures are provided on a
straight-line basis over the estimated useful lives of the related assets (3
to 7 years). Improvements to leased properties are amortized over their
estimated useful lives or the remaining term of the lease, whichever is
shorter (5 to 15 years).
Revenue Recognition
Revenue is recognized upon shipment of product.
<PAGE> 15
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables and cash equivalents.
In the normal course of business, the company provides credit terms to its
customers. Accordingly, the Company performs ongoing credit evaluations of
its customers and maintains allowances for possible losses which, when
realized, have been within the range of management's expectations.
Fair Value of Financial Instruments
The fair value of the note receivable from affiliate approximates its book
value at March 31, 1998 and 1997. The fair value of available-for-sale
securities approximates cost as of March 31, 1998.
Income Taxes (see Note 9)
Mity-Lite uses an asset and liability approach for financial accounting and
reporting for income taxes. Deferred income taxes are provided for temporary
differences in the bases of assets and liabilities as reported for financial
statement purposes and income tax purposes.
Stock Based Compensation
Statement of Financial Account Standards (SFAS) No. 123 "Accounting for Stock-
based Compensation" requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Since Mity-Lite has decided to continue applying APB 25 (as permitted by SFAS
No. 123), the appropriate required disclosure of the effects of SFAS No. 123
are included in Note 7.
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and of Long-Lived Assets to be Disposed Of," the Company evaluates the
carrying value of long-term assets based on current and anticipated
undiscounted cash flows and recognizes impairment when such cash flows will be
less than the carrying values. During the years ended March 31, 1998 and
1997, there were no impairments.
Reclassifications
Certain reclassifications have been made to 1997 balances to be consistent
with the 1998 presentation.
Earnings Per Share
During the year ended March 31, 1998, Mity-Lite adopted SFAS No. 128,
"Earnings Per Share," which established new standards for computing and
presenting earnings per share data. Upon adoption, Mity-Lite restated its
earnings per share for all prior periods to conform with SFAS No. 128. The
computations of earnings per share under SFAS No. 128 are summarized below:
<PAGE> 16
1998 1997
- ------------------------------------------------------------------------------
Per- Per-
Average Share Average Share
Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------
EPS - Basic:
Income available
to common
stockholders $3,189,000 3,227,850 $0.99 $2,485,000 3,120,433 $0.80
Effect of dilutive
options 161,604 158,902
- ------------------------------------------------------------------------------
EPS - Dilutive: $3,189,000 3,389,454 $0.94 $2,485,000 3,279,335 $0.76
==============================================================================
2. Inventories
Inventories consisted of the following:
March 31, 1998 1997
- ------------------------------------------------------------------------------
Materials and supplies $812,000 $611,000
Work-in-progress 58,000 58,000
Finished goods 90,000 31,000
- ------------------------------------------------------------------------------
$960,000 $700,000
==============================================================================
3. Property and Equipment
Property and equipment consisted of the following:
March 31, 1998 1997
- ------------------------------------------------------------------------------
Equipment $1,835,000 $1,605,000
Furniture and fixtures 1,130,000 770,000
Leasehold improvements 620,000 509,000
- ------------------------------------------------------------------------------
3,585,000 2,884,000
Less accumulated depreciation and amortization (1,673,000) (1,255,000)
- ------------------------------------------------------------------------------
$1,912,000 $1,629,000
==============================================================================
4. Investment in and Note Receivable from Affiliate
On March 31, 1997, the Company completed the acquisition of a 49.9 percent
equity interest in DO Group, Inc., a privately-held manufacturer of office
seating and office panel systems headquartered in Elkhart, Indiana. DO Group,
Inc. is a shell corporation whose only asset is 100 percent of the common
stock of Sican Corp. DO Group markets its products under the Domore(TM) and
DO3(TM) trade names and has manufacturing facilities in Elkhart, Indiana and
Marked Tree, Arkansas. Relevant financial information is summarized below:
<PAGE> 17
Twelve months ended March 31, 1998 Dec. 31, 1996
- ------------------------------------------------------------------------------
Net sales $12,145,000 $14,235,000
Net income (loss) 1,203,000 (480,000)
Total assets 7,477,000 7,411,000
Total liabilities 7,088,000 8,264,000
Mity-Lite's share of DO Group's
net assets (deficit) 194,000 (426,000)
Mity-Lite purchased its 49.9 percent equity interest for $750,000 in cash and
the payment of certain closing and due diligence costs totaling $118,000.
Mity-Lite holds a put option to put back its investment to the DO Group
officers at any time until May 2000. The price of the put option equals the
greater of Mity-Lite's cost of investment plus 10 percent per annum or the
value of Mity-Lite's interest in DO Group using Mity-Lite's then current price
earnings ratio applied to the earnings of DO Group. Mity-Lite's put option is
collateralized by the remaining 50.1 percent interest in DO Group. When the
put option expires, the majority owners of DO Group will have the right to
convert their 50.1 percent interest in DO Group into 115,000 shares of
Mity-Lite common stock, at which time DO Group will become a wholly owned
subsidiary of Mity-Lite.
Mity-Lite utilizes the equity method of accounting for its investment. Under
the equity method, Mity-Lite recognizes its proportionate share of the
earnings or losses of DO Group as incurred. For the year ended March 31,
1998, DO Group contributed $340,000 to Mity-Lite's pretax profit. Mity-Lite
Management estimates that the difference between Mity-Lite's investment and
its share of the underlying equity in DO Group's net assets is approximately
$866,000. Various components of this amount are being amortized over periods
up to 30-years.
As part of the acquisition, Mity-Lite loaned $1,000,000 in a senior
subordinated note to a wholly owned subsidiary of DO Group. The note, which
is subordinated to a financial institution's interest, is secured by
inventories, receivables, machinery & equipment, furniture and fixtures, real
property, and all other assets of DO Group. The note is callable in the event
the put option is exercised. The note matures on March 24, 2000 and bears
interest at 10 percent payable quarterly. The Company believes the interest
rate approximates the market rate of interest for similar debt instruments
negotiated at arms length. Because of the expected positive net income and
cash flows of DO Group, Management believes the investment in DO Group will be
recoverable and the note receivable will be collectible.
5. Debt
The Company has an unsecured $3,000,000 line of credit with Zions First
National Bank which expires in December 1998 with interest at the bank's base
rate (8.50 percent at March 31, 1998). In addition, the Company has an
unsecured $2,000,000 line of credit with First Security Bank which expires in
October 1998 with interest at the bank's prime rate (8.50 percent at March 31,
1998). No balances were outstanding on either line as of March 31,1998 and
1997. Among other restrictions, debt covenants related to the lines of credit
require the Company to maintain certain financial ratios and levels of working
capital, all of which were met at March 31, 1998 and 1997.
<PAGE> 18
6. Accrued Expenses
Accrued expenses consisted of the following:
March 31, 1998 1997
- ------------------------------------------------------------------------------
Accrued payroll and payroll taxes $341,000 $336,000
Accrued warranty 155,000 140,000
Other -- 9,000
- ------------------------------------------------------------------------------
$496,000 $485,000
==============================================================================
7. Common Stock Options
At March 31, 1998, the Company has two stock incentive plans, the 1990 Stock
Incentive Plan (the "1990 Plan") and the 1997 Stock Incentive Plan (the "1997
Plan"). Under the 1990 Plan, Mity-Lite authorized and reserved a total of
500,000 shares of common stock for issuance under the plan. Under the 1997
Plan, Mity-Lite authorized and reserved a total of 300,000 shares of common
stock for issuance under the plan. The purchase price for the shares under
the Plans is equal to the fair value of the Common Stock at the date the
options are granted as determined by the closing price listed on Nasdaq. A
table of stock option activity is shown below:
Weighted
Number Average
Of Options Exercise Price
- ------------------------------------------------------------------------------
Outstanding at April 1, 1996 304,299 $ 4.07
Granted 187,150 13.65
Exercised (62,317) 2.81
Forfeited (4,542) 6.79
- ------------------------------------------------------------------------------
Outstanding at March 31, 1997 424,590 8.45
Granted 69,000 15.13
Exercised (100,738) 3.84
Forfeited (7,725) 11.23
- ------------------------------------------------------------------------------
Outstanding at March 31, 1998 385,127 $10.79
==============================================================================
Options exercisable at March 31, 1998 and 1997 were 123,951 and 182,694,
respectively. Options vest over a one to four year period.
The following table summarizes the combined information from the 1990 and 1997
Stock Incentive Plans' options outstanding at March 31, 1998:
<PAGE> 19
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (in years) Price Exercisable Price
- ------------------------------------------------------------------------------
$ 2.73-$ 3.50 78,528 1.07 $ 3.13 78,528 $ 3.13
6.00- 8.63 60,118 2.88 7.06 38,282 7.11
9.13- 11.63 36,481 3.96 9.95 7,141 9.13
14.50- 17.75 210,000 4.45 14.87 -- --
- ------------------------------------------------------------------------------
$ 2.73-$17.75 385,127 3.47 $10.79 123,951 $ 4.70
==============================================================================
Mity-Lite applied APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its
stock option plans. Had compensation cost of Mity-Lite's two stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123, Mity-
Lite's net income and earnings per share would have changed to the pro forma
amounts indicated below:
Year ended March 31, 1998 1997
- ------------------------------------------------------------------------------
Net income:
As reported $3,189,000 $2,485,000
Pro forma 2,992,000 2,431,000
- ------------------------------------------------------------------------------
Earnings per share - basic:
As reported $0.99 $0.80
Pro forma $0.93 $0.78
Earnings per share - diluted:
As reported $0.94 $0.76
Pro forma $0.88 $0.74
- ------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively: expected
volatility of 30 percent and 31 percent, risk free interest rates of 5.48
percent and 6.02 percent, and expected lives of one to four years. Under SFAS
No. 123, the weighted average fair value per share of options issued during
the years ended March 31, 1998 and 1997 were $3.36 and $3.85, respectively.
8. Employee Benefit Plans
In January 1995, The Company established a defined contribution plan which
qualifies under Section 401(k) of the Internal Revenue Code. The plan
provides retirement benefits for employees meeting minimum age and service
requirements. Participants may contribute up to 20 percent of their gross
wages, subject to certain limitations. The plan provides for discretionary
matching contributions by the company, as determined by the Board of
Directors. The discretionary amounts contributed to the plan for the years
ended March 31, 1998 and 1997 were $39,000 and $35,000, respectively.
<PAGE> 20
In October 1996, the Board of Directors reserved up to 25,000 shares of Mity-
Lite common stock to be issued under the provisions of the 401(k) plan.
Shares are issued to the plan on a quarterly basis. The number of shares
issued to the plan for the years ended March 31, 1998 and 1997 were 4,152 and
2,570, respectively. As of March 31, 1998, 6,722 shares had been issued under
the provisions of the plan.
9. Income Taxes
Income tax provision consisted of the following components:
Year ended March 31, 1998 1997
- ------------------------------------------------------------------------------
Current:
Federal $1,495,000 $1,242,000
State 225,000 200,000
- ------------------------------------------------------------------------------
Total current 1,720,000 1,442,000
- ------------------------------------------------------------------------------
Deferred:
Federal 31,000 (35,000)
State 3,000 (3,000)
- ------------------------------------------------------------------------------
Total deferred 34,000 (38,000)
- ------------------------------------------------------------------------------
$1,754,000 $1,404,000
==============================================================================
The tax provisions were at effective rates as follows:
Year ended March 31, 1998 1997
- ------------------------------------------------------------------------------
Federal statutory tax rates 34.0% 34.0%
State income taxes, net of federal benefit 3.3 3.3
Tax exempt interest (1.6) (1.4)
Other (0.2) 0.2
- ------------------------------------------------------------------------------
35.5% 36.1%
==============================================================================
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows:
<PAGE> 21
Year Ended March 31, 1998 1997
- ------------------------------------------------------------------------------
Current Long-Term Current Long-Term
- ------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful
accounts $36,000 $28,000
Inventory 2,000 2,000
Vacation accrual 25,000 19,000
Warranty reserve and
accrual 119,000 84,000
Other accruals 10,000 9,000
- ------------------------------------------------------------------------------
Total 192,000 142,000
Deferred tax liabilities:
Depreciation ($8,000) ($13,000)
Investment in affiliate (89,000)
- ------------------------------------------------------------------------------
Net deferred tax asset
(liability) $192,000 ($97,000) $142,000 ($13,000)
==============================================================================
10. Commitments and Related Party Transactions
The Company leases its building facilities from a related party under an
operating lease which expires in March 2000 and is renewable at the then
current market rates for an additional ten years. The agreement requires
minimum lease payments of $205,000 per year until expiration. The Company
also has other month to month lease agreements. Total rent expense was
$209,000 and $208,000 for the years ended March 31, 1998 and 1997,
respectively.
11. Recently Issued Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general purpose
financial statements. This Statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement
and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The adoption of SFAS No. 130 will require Mity-Lite to add disclosure to the
financial statements about comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which redefines how public business
enterprises report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about
products and services, geographical areas, and major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997. In the initial year of application, comparative information for earlier
<PAGE> 21
years is to be restated. The Company is evaluating this statement to
determine the impact on its reporting and disclosure requirements.
We consent to the incorporation by reference in the Post-Effective Amendment
No. 2 to Registration Statement No. 333-11355 of Mity-Lite, Inc. on Form S-8
of our report dated May 13, 1998, appearing and incorporated by reference in
this Annual Report on Form 10-KSB of Mity-Lite, Inc. for the year ended March
31, 1998.
Deloitte & Touche LLP
Salt Lake City, Utah
June 3, 1998
We consent to the incorporation by reference in the Post-Effective Amendment
No. 2 to Registration Statement No. 333-11355 of Mity-Lite, Inc. on Form S-8
of our report dated May 13, 1998, appearing and incorporated by reference in
this Annual Report on Form 10-KSB of Mity-Lite, Inc. for the year ended March
31, 1998.
Crowe, Chizek and Company LLP
Elkhart, Indiana
June 3, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at March 31, 1998 and Statements of Income for the twelve months
ended March 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 9,266,000
<SECURITIES> 1,207,000
<RECEIVABLES> 2,845,000
<ALLOWANCES> 259,000
<INVENTORY> 960,000
<CURRENT-ASSETS> 14,535,000
<PP&E> 3,585,000
<DEPRECIATION> 1,673,000
<TOTAL-ASSETS> 18,556,000
<CURRENT-LIABILITIES> 1,640,000
<BONDS> 0
0
0
<COMMON> 7,754,000
<OTHER-SE> 9,065,000
<TOTAL-LIABILITY-AND-EQUITY> 18,556,000
<SALES> 25,337,000
<TOTAL-REVENUES> 25,337,000
<CGS> 15,988,000
<TOTAL-COSTS> 15,988,000
<OTHER-EXPENSES> 5,113,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,943,000
<INCOME-TAX> 1,754,000
<INCOME-CONTINUING> 3,189,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,189,000
<EPS-PRIMARY> .99
<EPS-DILUTED> .94
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Balance Sheets and unaudited Statements of Income for the twelve
month period presented below and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,646,000
<SECURITIES> 0
<RECEIVABLES> 2,357,000
<ALLOWANCES> 161,000
<INVENTORY> 700,000
<CURRENT-ASSETS> 10,772,000
<PP&E> 2,884,000
<DEPRECIATION> 1,255,000
<TOTAL-ASSETS> 14,264,000
<CURRENT-LIABILITIES> 1,318,000
<BONDS> 0
0
0
<COMMON> 6,984,000
<OTHER-SE> 5,949,000
<TOTAL-LIABILITY-AND-EQUITY> 14,264,000
<SALES> 18,680,000
<TOTAL-REVENUES> 18,680,000
<CGS> 10,921,000
<TOTAL-COSTS> 10,921,000
<OTHER-EXPENSES> 4,209,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,889,000
<INCOME-TAX> 1,404,000
<INCOME-CONTINUING> 2,485,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,485,000
<EPS-PRIMARY> .80
<EPS-DILUTED> .76
</TABLE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Sican Corp.
Elkhart, Indiana
We have audited the balance sheet of Sican Corp. as of March 31,
1998, and the related statements of income and accumulated deficit and cash
flows for the year then ended (which do not appear herein). Those financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sican Corp. as of March 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Elkhart, Indiana
May 12, 1998
