<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-25844
TAITRON COMPONENTS INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
CALIFORNIA 95-4249240
(State Or Other Jurisdiction of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
25202 ANZA DRIVE
SANTA CLARITA, CALIFORNIA 91355
(Address Of Principal Executive Offices)
(805) 257-6060
(Registrant's Telephone Number, Including Area Code)
NONE
(Former Name, Address and Fiscal Year, if Changed Since Last Report)
Check whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
----- -----
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date:
Class A Common Stock, $.001 par value, 5,462,696 shares outstanding as of
July 15, 1998
Class B Common Stock, $.001 par value, 762,612 shares outstanding as of
July 15, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
- ----- --------
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION 13
Item 6. 13
</TABLE>
Page 2 of 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TAITRON COMPONENTS INCORPORATED
Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
(Unaudited)
Current assets:
Cash and cash equivalents $ 141 163
Trade accounts receivable, net 4,700 5,398
Inventory 37,940 35,757
Prepaid expenses 155 169
Other current assets 232 436
------- -------
Total current assets 43,168 41,923
Property and equipment, net 2,795 2,309
Deferred income taxes 716 716
Other assets 35 37
------- -------
Total assets $ 46,714 44,985
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 14,619 12,969
Trade accounts payable 3,347 3,235
Accrued liabilities 632 935
------- -------
Total current liabilities 18,598 17,139
------- -------
Long-term debt, less current portion 3,465 3,475
------- -------
Shareholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000
shares; none issued or outstanding -- --
Class A common stock, $.001 par value. Authorized
20,000,000 shares; issued and outstanding
6,318,374 shares 5 5
Class B common stock, $.001 par value. Authorized,
issued and outstanding 762,612 shares 1 1
Additional paid-in capital 12,358 12,997
Foreign currency translation adjustment (69) (57)
Retained earnings 12,356 11,425
------- -------
Total shareholders' equity 24,651 24,371
------- -------
Total liabilities and shareholders' equity $ 46,714 44,985
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements
Page 3 of 14
<PAGE>
TAITRON COMPONENTS INCORPORATED
Statements of Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 7,646 $ 8,502 $ 16,219 $ 16,518
Cost of goods sold 5,392 5,983 11,465 11,554
-------- -------- --------- ---------
Gross profit 2,254 2,519 4,754 4,964
Selling, general and administrative expenses 1,213 1,337 2,577 2,527
-------- -------- --------- ---------
Operating earnings 1,041 1,182 2,177 2,437
Interest expense, net 318 219 608 456
Other expense (income), net 7 (10) 15 (9)
-------- -------- --------- ---------
Earnings before income taxes 716 973 1,554 1,990
Income tax expense 288 392 623 800
-------- -------- --------- ---------
Net earnings $ 428 $ 581 $ 931 $ 1,190
-------- -------- --------- ---------
-------- -------- --------- ---------
Basic earnings per share $ .07 $ .09 $ .15 $ .18
-------- -------- --------- ---------
-------- -------- --------- ---------
Diluted earnings per share $ .07 $ .09 $ .15 $ .18
-------- -------- --------- ---------
-------- -------- --------- ---------
Basic weighted average shares outstanding 6,244,000 6,670,000 6,244,000 6,670,000
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted weighted average shares outstanding 6,290,000 6,752,000 6,290,000 6,752,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements
Page 4 of 14
<PAGE>
TAITRON COMPONENTS INCORPORATED
Statements of Shareholders' Equity
Six Months Ended June 30, 1998 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Class A Class B Additional Foreign Total
Common Common Paid-in Retained Currency Shareholders'
Stock Stock Capital Earnings Translation Equity
-------- -------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $5 $1 $12,997 $11,425 $(57) $24,371
Repurchase of Class A Common (350) (350)
Foreign currency translation - -
Net earnings 503 503
----- ----- ------- ------- ---- -------
Balance at March 31, 1998 $5 $1 $12,647 $11,928 $(57) $24,524
Options exercised 12 12
Repurchase of Class A Common (301) (301)
Comprehensive income (12) (12)
Net earnings 428 428
----- ----- ------- ------- ---- -------
Balance at June 30, 1998 $5 $1 $12,358 $12,356 $(69) $24,651
----- ----- ------- ------- ---- -------
----- ----- ------- ------- ---- -------
Balance at January 1, 1997 $6 $1 $14,531 $9,575 - $24,113
Repurchase of Class A Common (404) (404)
Net earnings 609 609
----- ----- ------- ------- ---- -------
Balance at March 31, 1997 $6 $1 $14,127 $10,184 - $24,318
Repurchase of Class A Common (622) (622)
Net earnings 581 581
----- ----- ------- ------- ---- -------
Balance at June 30, 1997 $6 $1 $13,505 $10,765 - $24,277
----- ----- ------- ------- ---- -------
----- ----- ------- ------- ---- -------
</TABLE>
Page 5 of 14
<PAGE>
Taitron Components Incorporated
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
1998 1997
------------- -----------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net earnings $ 931 $ 1,190
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 91 108
Changes in:
Trade accounts receivable 698 (1,568)
Inventory (2,183) 1,647
Prepaid expenses and other current assets 218 55
Other assets 2 (20)
Trade accounts payable 112 1,233
Accrued liabilities (303) (52)
Income taxes payable - 12
------- ------
Total adjustments (1,365) 1,415
------- ------
Net cash provided by (used in) operating activities (434) 2,605
------- ------
Cash flows from investing activities - acquisitions of property
and equipment (577) (354)
------- ------
Cash flows from financing activities:
Net borrowings (repayments) of notes payable 1,650 (1,350)
Repurchase of Class A Common Stock (651) (1,026)
Exercise of stock options 12 -
Change in foreign currency translation (12) -
Payments on long-term debt (10) (8)
------- ------
Net cash provided by (used in) financing activities 989 (2,384)
------- ------
Net increase (decrease) in cash and cash equivalents (22) (133)
Cash and cash equivalents, beginning of period 163 300
------- ------
Cash and cash equivalents, end of period $ 141 $ 167
------- ------
------- ------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 667 $ 517
------- ------
------- ------
Cash paid for income taxes $ 522 $ 750
------- ------
------- ------
</TABLE>
See accompanying notes to financial statements
Page 6 of 14
<PAGE>
TAITRON COMPONENTS INCORPORATED
Notes to Financial Statements
(All amounts are unaudited except the balance sheet as of December 31, 1997)
(1) BASIS OF PRESENTATION
The financial information furnished herein is unaudited, but, in the
opinion of the management of Taitron Components Incorporated, includes all
adjustments (all of which are normal, recurring adjustments) in conformity
with the accounting principles reflected in the financial statements
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1997. The results of
operations for interim periods are not necessarily indicative of results to
be achieved for full fiscal years.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. The financial statements and
notes should, therefore, be read in conjunction with the financial
statements and notes thereto in the Annual Report on Form 10-K for the year
ended December 31, 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is recognized upon shipment of the merchandise. Reserves for sales
allowances and customer returns are established based upon historical
experience and management's estimates as shipments are made. Sales returns
for the quarters ended June 30, 1998 and 1997 aggregated $220,000 and
$282,000, respectively and for the six months ended June 30, 1998 and 1997
aggregated $505,000 and $501,000, respectively.
ALLOWANCE FOR SALES RETURNS AND DOUBTFUL ACCOUNTS
The allowance for sales returns and doubtful accounts at June 30, 1998 and
December 31, 1997 aggregated $150,000 and $135,000, respectively.
INVENTORY
Inventory, consisting principally of products for resale, is stated at the
lower of cost or market, using the first-in, first-out method. The value
presented is net of valuation allowances of $1,485,000 and $1,291,000 at
June 30, 1998 and December 31, 1997, respectively.
(3) NET EARNINGS PER SHARE
On December 31, 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings Per Share" which replaces the presentation of primary earnings
per share with a presentation of basic earnings per share and replaces the
presentation of fully diluted earnings per share with diluted earnings per
share. Basic earnings per share is computed by dividing net income
available to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock that then were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in earnings of
the Company. Diluted earnings per share is computed similarly to fully
diluted earnings per share pursuant to APB Opinion No. 15. Earnings per
share for the three months and the six months ended June 30, 1998 and 1997
have been restated to comply with SFAS No. 128.
Page 7 of 14
<PAGE>
(4) SHAREHOLDERS' EQUITY
On April 19, 1995, the Company sold 2,530,000 shares of Class A Common
Stock at $5.25 per share in connection with its initial public offering.
The net proceeds from this offering aggregated approximately $11.3 million,
net of approximately $2 million of issuance costs, which proceeds were used
to pay off the previous bank line of credit, to retire long-term debt, to
expand inventory and for general corporate purposes.
(5) BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Second trust deed loan payable, bearing interest at 6.359%,
due December 1, 2013 $ 484,000 $ 494,000
Revolving line of credit, maximum of $16 million,
expires June, 2000 14,600,000 12,950,000
8% convertible subordinated debentures, due May 18, 2001 3,000,000 3,000,000
------------ -------------
18,084,000 16,444,000
Less current portion 14,619,000 12,969,000
------------ -------------
$ 3,465,000 $ 3,475,000
------------ -------------
------------ -------------
</TABLE>
On May 6, 1997, the Company replaced its $15 million revolving line of
credit with a new revolving line of credit facility which provides the
Company with up to $16 million for operating purposes and up to an
additional $4 million for business acquisition purposes, which matures on
June 2, 2000. The agreement governing these credit facilities contains
covenants that require the Company to be in compliance with certain
financial ratios. Borrowings on the line of credit are secured by
substantially all of the Company's assets.
Both the old and new revolving lines of credit contain security agreements
which essentially cover all assets of the Company and bear interest at the
bank's prime rate (8.5% at June 30, 1998 and 1997) or at the option of the
Company, at LIBOR plus 1.35 % after May 6, 1997 and 1.5% prior to that date.
(6) COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting comprehensive
income and its components in the financial statements. The adoption of SFAS
No. 130 has no material impact on the Company's balance sheets, statements
of earnings or statements of cash flows for the three months or the six
months ended June 30, 1998 and 1997.
(7) CONTINGENT LIABILITY
In April, 1998 the Company was notified by the Internal Revenue Service
(IRS) that they are conducting an audit of the Company concerning excise
taxes imposed on chemicals that deplete the ozone layer. This tax is
imposed on imported products containing or manufactured with certain
chemicals. The Company believes that most of the products it imports do not
contain and are not manufactured with ozone depleting chemicals. However,
the Company must prove this to the satisfaction of the IRS. The Company is
in the process of obtaining the necessary information from its suppliers.
If the Company is unable to prove to the IRS that its products are free of
ozone depleting chemicals, the liability may be substantial and no provision
has been made in the accompanying financial statements for this tax.
Page 8 of 14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company distributes a wide variety of transistors, diodes and other
semiconductors and optoelectronic devices and beginning in 1997 passive
components to other electronic distributors, original equipment manufacturers
and to contract manufacturers who incorporate them in their products.
The following table sets forth, for the periods indicated, certain operating
amounts and ratios as a percentage of net sales.
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
June 30, June 30,
-------------------------- ---------------------------
(Dollars in thousands) 1998 1997 1998 1997
- ---------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 7,646 $ 8,502 $ 16,219 $ 16,518
Cost of goods sold 5,392 5,983 11,465 11,554
Gross profit 2,254 2,519 4,754 4,964
% of net sales 29.5% 29.6% 29.3% 30.1%
Selling, general and administrative expenses 1,213 1,337 2,577 2,527
% of net sales 15.8% 15.7% 15.9% 15.3%
Operating earnings 1,041 1,182 2,177 2,437
% of net sales 13.6% 13.9% 13.4% 14.8%
Interest expense, net 318 219 608 456
% of net sales 4.2% 2.6% 3.8% 2.8%
Net earnings $ 428 $ 581 $ 931 $ 1,190
% of net sales 5.6% 6.8% 5.7% 7.2%
</TABLE>
Page 9 of 14
<PAGE>
THREE MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTH PERIOD ENDED
JUNE 30, 1997
Net sales for the three months ended June 30, 1998 were $7,646,000,
compared with net sales for the three months ended June 30, 1997 of $8,502,000,
a decrease of $856,000 or 10.1%. This sales decrease was attributable to a
decrease in the per unit price on domestic sales, partially offset by an
increase in the volume of units sold to new and existing customers and a
reduction in sales returns and allowances. Export sales also decreased by
$196,000 over the three months ended June 30, 1997. For the three months
ended June 30, 1998, the average unit selling price was approximately 13.3%
less than for the three months ended June 30, 1997. The Company believes the
decrease in the per unit price is a result of industry wide market pressure on
selling prices resulting principally from the Asian economic crises.
Cost of goods sold decreased by $591,000 to $5,392,000 for the three month
period ended June 30, 1998, a decrease of 9.9% from the three month period
ended June 30, 1997. Cost of goods sold decreased principally as a result of
lower per unit costs, partially offset by an increase in the number of units
sold. Gross profits decreased by $265,000 to $2,254,000 for the three months
ended June 30, 1998 from $2,519,000 for the same period in 1997. Gross profit
as a percentage of net sales was 29.5% for the three months ended June 30,
1998, a decrease from 29.6% for the same period in 1997.
The Company is currently undergoing an audit by the IRS concerning excise
taxes imposed on chemicals that deplete the ozone layer. This tax may be
imposed on products imported by the Company to the extent that products that it
imports contain or are manufactured with such chemicals. Should the Company
not be successful in proving to the IRS that the products it imports do not
contain ozone depleting chemicals, cost of goods sold may increase causing both
gross profit and net earnings to decrease. See Note 7 to the financial
statements for further description.
Selling, general and administrative expenses decreased by $124,000 or 9.3%
for the three months ended June 30, 1998 compared to the same period of 1997.
The decrease was attributable to decreased commissions paid to outside
representative firms and advertising expenses offset by increased payroll costs
principally as a result of the geographic expansion of the Company's direct
sales force. These costs, as a percentage of net sales, increased to 15.8% for
the three months ended June 30, 1998 from 15.7% for the three months ended June
30, 1997.
Operating earnings decreased by $141,000 or 11.9% between the three month
period ended June 30, 1998 and 1997, and decreased as a percentage of net sales
to 13.6% from 13.9%. Operating earnings decreased principally as a result of
the lower per unit sales prices discussed above.
Interest expense, net of interest income for the three months ended June
30, 1998 increased $100,000 compared to the three months ended June 30, 1997.
This increase is due to increased borrowings made to purchase inventory, to
implement the Oracle Applications System and to repurchase shares of the
Company's Class A Common Stock.
Income taxes were $288,000 in the three months ended June 30, 1998,
representing an effective tax rate of 40.2%, compared to $392,000 for the same
period in 1997, an effective tax rate of 40.3%.
The Company had net earnings of $428,000 for the three months ended June
30, 1998 as compared with net earnings of $581,000 for the three months ended
June 30, 1997, a decrease of $153,000 or 26.4% for the reasons discussed above.
Net earnings as a percentage of net sales decreased to 5.6% from 6.8%.
SIX MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTH PERIOD ENDED
JUNE 30, 1997
Net sales for the six months ended June 30, 1998 were $16,219,000, compared
with the six months ended June 30, 1997 of $16,518,000, a decrease of $299,000
or 1.8%. This sales decrease was attributable to a decrease in the per unit
price on domestic sales partially offset by an increase in the volume of units
sold. Export sales increased by $352,000 over the six months ended June 30,
1997. For the three months ended June 30, 1998, the average unit selling
price was approximately 15.2% less than for the six months ended June 30, 1997.
The Company believes the decrease in the per unit price is a result of industry
wide market pressure on selling prices resulting principally from the Asian
economic crises.
Page 10 of 14
<PAGE>
Cost of goods sold decreased by $89,000 to $11,466,000 for the six months
ended June 30, 1998, a decrease of .8% from the six month period ended June 30,
1997. Gross profits decreased by $210,000 to $4,754,000 for the six months
ended June 30, 1998 from $4,964,000 for the same period in 1997 and decreased
as a percentage of net sales to 29.3% from 30.1%.
The Company is currently undergoing an audit by the IRS concerning excise
taxes imposed on chemicals that deplete the ozone layer. This tax may be
imposed on products imported by the Company to the extent that products that it
imports contain or are manufactured with such chemicals. Should the Company
not be successful in proving to the IRS that the products it imports do not
contain ozone depleting chemicals, cost of goods sold may increase causing both
gross profit and net earnings to decrease. See Note 7 to the financial
statements for further description.
Selling, general and administrative expenses increased by $50,000 or 2.0%
for the six months ended June 30, 1998 compared to the same period of 1997.
These costs, as a percentage of net sales, were 15.9% for the six months ended
June 30, 1998 and 15.3% for the six months ended June 30, 1997. The increase
in selling, general and administrative expenses was principally a result of
increased expenses associated with geographically expanding its sales force,
partially offset by lower commissions and advertising expenses.
Earnings from operations decreased by $260,000 or 10.7% for the period
ended June 30, 1998 compared to the same period of 1997 and decreased as a
percentage of net sales to 13.4% from 14.8% due principally to lower margins as
a result of lower gross selling prices of the Company's products.
Interest expense, net of interest income, for the six months
ended June 30, 1998 increased $152,000 compared to the six months ended June
30, 1997. This increase is due to increased borrowings made to purchase
inventory, to implement the Oracle Applications System and to repurchase shares
of the Company's Class A Common Stock.
Income taxes were $623,000 for the six months ended June 30, 1998,
representing an effective tax rate of 40.1% compared to $800,000 for the six
months ended June 30, 1997, an effective tax rate of 40.2%.
The Company had net earnings of $931,000 for the six months ended June
30, 1998 compared to net earnings of $1,190,000 for the same period in 1997, a
decrease of $259,000 or 21.8% for the reasons discussed above. Net earnings as
a percentage of net sales decreased to 5.7% for the six months ended June 30,
1998 compared to 7.2% for the same period in 1997.
SUPPLY AND DEMAND ISSUES
Beginning in 1996 and continuing through June 30, 1998 the supply of most
products distributed by the Company has been more than sufficient to meet
customers demand for these products. The weak demand left suppliers with large
amounts of uncommitted production capacity. During the last several years the
Company has taken advantage of this situation by intensifying its long standing
purchasing strategy by making opportunistic purchases of suppliers' uncommitted
capacity, at favorable pricing. The Company believes this strategy of
opportunistic purchasing will posture the Company to be price competitive,
while still maintaining acceptable profit margins. The Company's competitive
edge is its ability to fill customer orders immediately from stock held in
inventory. Thus, management believes it has structured inventory levels in
such a way as to poise the Company to take advantage of a recovery in the
discrete semiconductor market. At the same time, if the market recovery is
slow in taking place, and management deems such action prudent the Company may
reduce inventory levels in order to avoid an unwarranted financial burden on
the Company's earnings.
Readers are cautioned that the foregoing statements are forward looking
and are necessarily speculative. There can be no guarantee that a recovery in
the discrete semiconductor market will take place. Also, if prices of
components held in inventory by the Company decline or if new technology is
developed that displaces products distributed by the Company and held in
inventory, the Company's business could be materially adversely affected. See
"Cautionary Statement Regarding Forward Looking Information".
Page 11 of 14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since 1993, the Company has satisfied its liquidity requirements
principally through cash generated from operations, short-term commercial loans
and the sale of equity securities, including its initial public offering in
April 1995. A summary of the Company's cash flows provided by (used in)
operating, investing and financing activities for the six months ended June 30,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
(In thousands)
Operating activities..........................................$ (434) $ 2,605
Investing activities.......................................... (577) (354)
Financing activities.......................................... 989 (2,384)
</TABLE>
In positioning itself as a "Discrete Components Superstore", the Company
has been required to significantly increase its inventory levels over the past
several years. Inventory levels may increase as the Company adds new lines of
product, such as passive components, and new suppliers such as Siliconix. The
use of cash in operating activities is principally a result of increasing
inventory levels.
The discrete semiconductor products distributed by the Company are mature
products, used in a wide range of commercial and industrial applications. As a
result, the Company has never experienced any material amounts of product
obsolescence. The Company also attempts to control its inventory risks by
matching large customer orders with simultaneous orders to suppliers.
Nonetheless, the high levels of inventory carried by the Company increase the
risks of price fluctuations and product obsolescence.
The use of cash in investing activities is principally a result of
implementing Oracle Applications Software and purchasing of computer equipment.
In May 1997, the Company replaced its $15 million revolving line of
credit that had been in place since March 1996. The new revolving line of
credit provides the Company with up to $16 million for operating purposes and
up to an additional $4 million for business acquisition purposes. Both
facilities mature on June 2, 2000. The agreement governing these credit
facilities contains covenants that require the Company to be in compliance with
certain financial ratios. The increase in cash provided by financing
activities is the result of additional bank borrowings.
The Company believes that funds generated from operations and the amended
bank revolving lines of credit will be sufficient to finance its working
capital and capital expenditure requirements for the foreseeable future.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
Several of the matters discussed in this document contain forward looking
statements that involve risks and uncertainties. Such forward looking
statements are usually denoted by words or phrases such as "believes,"
"expects," "projects," "estimates," "anticipates," "will likely result,"
"Plans," or similar expressions. The Company wishes to caution readers that
all forward looking statements are necessarily speculative and not to place
undue reliance on such forward looking statements, which speak only as of the
date made, and to advise readers that actual results could vary due to a
variety of risks and uncertainties. Factors that could cause the forward
looking statements to be inaccurate and could otherwise impact the Company's
future results are set forth in detail in the Company's most recent annual
report on Form 10-K. In addition to the other information contained in this
document, readers should carefully consider the information contained in the
Company's Form 10-K for the year ended December 31, 1997 under the heading
"Cautionary Statements and Risk Factors."
Page 12 of 14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.2 Taitron Components Incorporated 1995 Stock Incentive Plan, As
Amended
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
Page 13 of 14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TAITRON COMPONENTS INCORPORATED
Date: August 12, 1998 By: /s/ David M. Batt
---------------------------
David M. Batt
Chief Financial Officer
(Principal Financial Officer)
(Chief Accounting Officer)
Page 14 of 14
<PAGE>
EXHIBIT 10.2
TAITRON COMPONENTS INCORPORATED
1995 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
1995 STOCK INCENTIVE PLAN..................................................................................
1
ARTICLE 1 General Purpose of Plan.........................................................................
1
ARTICLE 2 Definitions..................................................................................... 1
ARTICLE 3 Administration.................................................................................. 3
Section 3.1 Administrator........................................................................ 3
Section 3.2 Powers in General.................................................................... 3
Section 3.3 Specific Powers...................................................................... 4
Section 3.4 Decisions Final...................................................................... 4
Section 3.5 The Committee........................................................................ 4
ARTICLE 4 Stock Subject to Plan........................................................................... 4
Section 4.1 Stock Subject to the Plan............................................................ 4
Section 4.2 Unexercised Rights; Reacquired Shares................................................ 4
ARTICLE 5 Eligibility..................................................................................... 4
ARTICLE 6 Stock Options................................................................................... 4
Section 6.1 General.............................................................................. 4
Section 6.2 Terms and Conditions of Stock Options................................................ 5
(a) Number of Shares..................................................................... 5
(b) Type of Option....................................................................... 5
(c) Exercise Price....................................................................... 5
(d) Value of Shares...................................................................... 5
(e) Medium and Time of Payment........................................................... 5
(f) Term and Exercise of Stock Options................................................... 5
ARTICLE 7 Stock Appreciation Rights....................................................................... 6
Section 7.1 General.............................................................................. 6
Section 7.2 Terms and Conditions of SARs......................................................... 6
(a) Number of SARs....................................................................... 6
(b) Initial Valuations................................................................... 6
(c) Term and Exercise of SARs............................................................ 6
(d) Securities Laws...................................................................... 8
(e) Limitations on Amounts Payable....................................................... 8
ARTICLE 8 Mandatory Grants to Committee Members........................................................... 8
Section 8.1 Mandatory Grants to Committee Members................................................ 8
Section 8.2 Prohibition of Other Grants to Committee Members..................................... 8
Section 8.3 Prohibition Against Certain Amendments............................................... 8
ARTICLE 9 Adjustments..................................................................................... 9
Section 9.1 Effect of Certain Changes............................................................ 9
(a) Stock Dividends, Splits, Etc......................................................... 9
(b) Liquidating Event.................................................................... 9
(c) Merger or Consolidation.............................................................. 9
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
(d) Where Company Survives............................................................... 10
(e) Surviving Corporation Defined........................................................ 10
(f) Par Value Changes.................................................................... 10
Section 9.2 Decision of Administrator Final...................................................... 10
Section 9.3 No Other Rights...................................................................... 11
Section 9.4 No Rights as Shareholder............................................................. 11
ARTICLE 10 Amendment and Termination...................................................................... 11
ARTICLE 11 General Provisions............................................................................. 11
Section 11.1 General Restrictions................................................................. 11
(a) Limitations on Granting of Rights.................................................... 11
(b) No View to Distribute................................................................ 11
(c) Legends.............................................................................. 11
Section 11.2 Other Compensation Arrangements...................................................... 12
Section 11.3 Disqualifying Dispositions; Withholding Taxes........................................ 12
(a) Disqualifying Disposition............................................................ 12
(b) Withholding Required................................................................. 12
(c) Withholding Right.................................................................... 12
(d) Exercise of Withholding Right........................................................ 12
(e) Effect............................................................................... 13
Section 11.4 Indemnification...................................................................... 13
Section 11.5 Loans................................................................................ 13
Section 11.6 Special Terminating Events........................................................... 14
Section 11.7 Termination of Employment............................................................ 14
Section 11.8 Non-Transferability of Rights........................................................ 14
Section 11.9 Regulatory Matters................................................................... 14
Section 11.10 Recapitalizations.................................................................... 14
Section 11.11 Delivery............................................................................. 14
Section 11.12 Rule 16b-3........................................................................... 14
Section 11.13 Other Provisions..................................................................... 15
ARTICLE 12 Effective Date of Plan......................................................................... 15
ARTICLE 13 Term of Plan................................................................................... 15
ARTICLE 14 Information to Rights Holders.................................................................. 15
</TABLE>
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TAITRON COMPONENTS INCORPORATED
1995 STOCK INCENTIVE PLAN
ARTICLE 1
GENERAL PURPOSE OF PLAN
The name of this plan is the Taitron Components Incorporated 1995 Stock
Incentive Plan (the "PLAN"). The purpose of the Plan is to enable Taitron
Components Incorporated, a California corporation (the "COMPANY"), and any
Parent or any Subsidiary to obtain and retain the services of the types of
employees, consultants, officers and Directors who will contribute to the
Company's long range success and to provide incentives which are linked directly
to increases in share value which will inure to the benefit of all shareholders
of the Company.
ARTICLE 2
DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"ADMINISTRATOR" shall have the meaning as set forth in Section 3.1 of the
Plan.
"BOARD" means the Board of Directors of the Company.
"CASH ELECTION" shall have the meaning set forth in Section 7.2(c)(vii) of
the Plan.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.
"COMMITTEE" means a committee of the Board designated by the Board to
administer the Plan and composed of not less than the minimum number of persons
from time to time required both by the Rule and Section 162(m) of the Code, each
of whom is a Disinterested Person and an Outside Director.
"COMPANY" means Taitron Components Incorporated, a corporation organized
under the laws of the State of California (or any successor corporation).
"DATE OF GRANT" means the date on which the Administrator adopts a
resolution expressly granting Rights to a Participant, or if a different date is
set forth in such resolution as the Date of Grant, then such date as is set
forth in such resolution.
"DIRECTOR" means a member of the Board.
"DISABILITY" means permanent and total disability as defined by the
Administrator.
"DISINTERESTED PERSON" shall have the meaning set forth in Rule
16b-3(c)(2)(i) under the Exchange Act, or any successor definition adopted by
the SEC.
"ELECTION" shall have the meaning set forth in Section 11.3(d)(i) of the
Plan.
"ELIGIBLE PERSON" means an employee, officer, consultant or, subject to the
limitations set forth in Article 5 of the Plan, Director of the Company, any
Parent or any Subsidiary.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" shall have the meaning set forth in Section 6.2(c) of the
Plan.
"FAIR MARKET VALUE" per share at any date shall mean (i) if the Stock is
listed on an exchange or exchanges, or admitted for trading in a market system
which provides last sale data under Rule 11Aa3-1 of the General Rules and
Regulations of the SEC under the Exchange Act (a "MARKET SYSTEM"), the last
reported sales price per share on the last business day prior to such date on
the principal exchange on
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which it is traded, or in a Market System, as applicable, or if no sale was made
on such day on such principal exchange or in such a Market System, as
applicable, the last reported sales price per share on the most recent day prior
to such date on which a sale was reported on such exchange or such Market
System, as applicable; or (ii) if the Stock is not then traded on an exchange or
in a Market System, the average of the closing bid and asked prices per share
for the Stock in the over-the-counter market as quoted on NASDAQ on the day
prior to such date; or (iii) if the Stock is not listed on an exchange or quoted
on NASDAQ, an amount determined in good faith by the Administrator.
"GRANTEE" means a Participant who is granted a SAR pursuant to the Plan.
"LIQUIDATING EVENT" shall have the meaning set forth in Section 9.1(b) of
the Plan.
"LIQUIDITY EVENT" means any Reorganization Event which the Administrator
determines, in its sole and absolute discretion, to treat as such an event.
"INCENTIVE STOCK OPTION" means a Stock Option intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
"INITIAL VALUATION" shall have the meaning set forth in Section 7.2(b) of
the Plan.
"NON-STATUTORY STOCK OPTION" means a Stock Option intended to not qualify as
an Incentive Stock Option.
"OPTIONEE" means a Participant who is granted a Stock Option pursuant to the
Plan.
"OUTSIDE DIRECTOR" means a Director who is not (a) a current employee of the
Company (or any related entity), (b) a former employee of the Company (or any
related entity) who is receiving compensation for prior services (other than
benefits under a tax-qualified retirement plan), (c) a former officer of the
Company (or any related entity), or (d) a consultant or person otherwise
receiving compensation or other remuneration, either directly or indirectly, in
any capacity other than as a Director.
"PARENT" means any present or future corporation which would be a "parent
corporation" as that term is defined in Section 424 of the Code.
"PARTICIPANT" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority set forth in Article 3 of the Plan, to
receive grants of Rights.
"PLAN" means this Taitron Components Incorporated 1995 Stock Incentive Plan,
as the same may be amended or supplemented from time to time.
"RELATED SAR OPTION" shall have the meaning set forth in Section 7.1 of the
Plan.
"REORGANIZATION EVENT" shall have the meaning set forth in Section 9.1(c) of
the Plan.
"RETIREMENT" means retirement from active employment with the Company or any
Parent or Subsidiary as defined by the Administrator.
"RIGHTS" means Stock Options and/or SARs.
"RULE" means Rule 16b-3 and any future rules promulgated in substitution
therefore under the Exchange Act.
"SAR" means a stock appreciation right granted alone or in tandem with a
Stock Option pursuant to Article 7.
"SEC" means the Securities and Exchange Commission.
"SECTION 16(B) PERSON" means a person subject to Section 16(b) of the
Exchange Act.
"SPECIAL TERMINATING EVENT" with respect to a Participant means the death or
Disability of that Participant.
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<PAGE>
"SPREAD" shall have the meaning set forth in 7.2(c)(iv) of the Plan.
"STOCK" means the Class A Common Stock, par value $.001 per share, of the
Company.
"STOCK OPTION" means an option to purchase shares of Stock granted pursuant
to Article 6 of the Plan.
"STOCK OPTION AGREEMENT" shall have the meaning set forth in Section 6.2 of
the Plan.
"SAR AGREEMENT" shall have the meaning set forth in Section 7.2 of the Plan.
"SUBSIDIARY" means any present or future corporation which would be a
"subsidiary corporation" as that term is defined in Section 424 of the Code.
"SURVIVING CORPORATION" shall have the meaning set forth in Section 9.1(e)
of the Plan.
"TAX DATE" shall have the meaning set forth in Section 11.3(d)(iii) of the
Plan.
"TEN PERCENT SHAREHOLDER" means a person who on the Date of Grant owns,
either directly or through attribution as provided in Section 424(d) of the
Code, Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of any Parent or Subsidiary.
"WINDOW PERIOD" shall have the meaning set forth in Section 7.2(c)(vi) of
the Plan.
"WITHHOLDING RIGHT" shall have the meaning set forth in Section 11.3(c) of
the Plan.
ARTICLE 3
ADMINISTRATION
SECTION 3.1 ADMINISTRATOR. The Plan shall be administered by the Committee
(referred to herein as the "ADMINISTRATOR").
SECTION 3.2 POWERS IN GENERAL. The Administrator shall have the power and
authority to grant to Eligible Persons, pursuant to the terms of the Plan: (i)
Stock Options; (ii) SARs or (iii) any combination of the foregoing.
SECTION 3.3 SPECIFIC POWERS. In particular, the Administrator shall have
the authority: (i) to construe and interpret the Plan and apply its provisions;
(ii) to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on behalf
of the Company, any instrument required to carry out the purposes of the Plan;
(iv) to determine when Rights are to be granted under the Plan; (v) from time to
time to select, subject to the limitations set forth in this Plan, those
Eligible Persons to whom Rights shall be granted; (vi) to determine the number
of shares of Stock to be made subject to each Right; (vii) to prescribe the
terms and conditions of each Stock Option, including, without limitation, the
Exercise Price and medium of payment and vesting provisions, to determine
whether the Stock Option is to be an Incentive Stock Option or a Non-Statutory
Stock Option and to specify the provisions of the Stock Option Agreement
relating to such Stock Option; (viii) to prescribe the terms and conditions of
each SAR including, without limitation, to determine whether such SAR is to be
granted alone or in tandem with Stock Options during the term of the Related SAR
Option, and to specify the provisions of the SAR relating to such SAR including,
without limitation, the Initial Valuation and vesting provisions; (ix) to amend
any outstanding Rights for the purpose of modifying the time or manner of
vesting, the Initial Valuation or Exercise Price, as the case may be, thereunder
or otherwise, subject to applicable legal restrictions and to the consent of the
other party to such agreement; (x) to determine when a consultant's relationship
with the Company is sufficient to constitute the equivalent of employment with
the Company for purposes of the Plan; (xi) to determine the duration and purpose
of leaves of absences which may be granted to a Participant without constituting
termination of their employment for purposes of the Plan; and (xii) to make any
and all other determinations which it determines to be necessary or advisable
for administration of the Plan.
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SECTION 3.4 DECISIONS FINAL. All decisions made by the Administrator
pursuant to the provisions of the Plan shall be final and binding on the Company
and the Participants.
SECTION 3.5 THE COMMITTEE. The Board may, in its sole and absolute
discretion, from time to time delegate any or all of its duties and authority
with respect to the Plan to the Committee whose members are to be appointed by
and to serve at the pleasure of the Board. Once appointed, the Committee shall
continue to serve until otherwise directed by the Board. From time to time, the
Board may increase or decrease (to not less than the minimum number of persons
from time to time required by both the Rule and Section 162(m) of the Code) the
size of the Committee, add additional members to, remove members (with or
without cause) from, appoint new members in substitution therefor, and fill
vacancies, however caused, in the Committee. The Committee shall act pursuant to
a vote of the majority of its members or, in the case of a committee comprised
of only two members, the unanimous consent of its members, whether present or
not, or by the written consent of the majority of its members or, in the case of
a committee comprised of only two members, the unanimous written consent of its
members, and minutes shall be kept of all of its meetings and copies thereof
shall be provided to the Board. Subject to the limitations prescribed by the
Plan and the Board, the Committee may establish and follow such rules and
regulations for the conduct of its business as it may determine to be advisable.
ARTICLE 4
STOCK SUBJECT TO PLAN
SECTION 4.1 STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided
in Article 9, the total number of shares of Stock reserved and available for
issuance under the Plan shall be <#>440,000</#> 740,000 shares. Solely for the
purposes of determining the number of shares of Stock reserved and available for
issuance under the Plan, each SAR granted without relation to a Stock Option
shall be treated as a Stock Option.
SECTION 4.2 UNEXERCISED RIGHTS; REACQUIRED SHARES. To the extent that any
Rights expire or are otherwise terminated without being exercised, the shares of
Stock underlying such Rights (and shares related thereto) shall again be
available for issuances in connection with future Rights under the Plan. If and
to the extent that the Company receives shares of Stock in payment of all or a
portion of the purchase price for any Stock, or in payment of any tax
liabilities, the receipt of such shares will not increase the number of shares
available for issuance under the Plan.
ARTICLE 5
ELIGIBILITY
Directors who are not members of the Committee, members of the Committee
(but only subject to the provisions of Article 8 hereof), officers, employees
and consultants of the Company, any Parent or any Subsidiary, who are
responsible for or contribute to the management, growth or profitability of the
business of the Company, any Parent or any Subsidiary, shall be eligible to be
granted Rights hereunder, subject to limitations set forth in this Plan;
provided, however, that only officers and employees shall be eligible to be
granted Incentive Stock Options hereunder.
ARTICLE 6
STOCK OPTIONS
SECTION 6.1 GENERAL. Stock Options may be granted alone or in addition to
other Rights granted under the Plan. Each Stock Option granted under the Plan
shall be in such form and under such terms and conditions as the Administrator
may from time to time approve; provided, that such terms and conditions are not
inconsistent with the Plan. The provisions of Stock Option Agreements entered
into under the Plan need not be identical with respect to each Optionee. Stock
Options granted under the Plan may be either Incentive Stock Options or
Non-Statutory Stock Options.
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SECTION 6.2 TERMS AND CONDITIONS OF STOCK OPTIONS. Each Stock Option
granted pursuant to the Plan shall be evidenced by a written option agreement
between the Company and the Optionee (the "Stock Option Agreement"), which shall
comply with and be subject to the following terms and conditions.
(a) NUMBER OF SHARES. Each Stock Option Agreement shall state the number
of shares of Stock to which the Stock Option relates.
(b) TYPE OF OPTION. Each Stock Option Agreement shall identify the portion
(if any) of the Stock Option which constitutes an Incentive Stock Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall state the price at
which shares subject to the Stock Option may be purchased (the "EXERCISE
PRICE"), which, with respect to Incentive Stock Options, shall not be less than
100% of the Fair Market Value of the shares of Stock on the Date of Grant;
provided however, that in the case of an Incentive Stock Option granted to a Ten
Percent Shareholder, the Exercise Price shall not be less than 110% of such Fair
Market Value. With respect to Non-Statutory Stock Options, the Exercise Price
shall not be less than 85% of the Fair Market Value of the shares of Stock on
the Date of Grant of the Non-Statutory Stock Option.
(d) VALUE OF SHARES. The Fair Market Value of the shares of Stock
(determined as of the Date of Grant) with respect to which Incentive Stock
Options are first exercisable by an Optionee under this Plan and all other
incentive option plans of the Company and any Parent or Subsidiary in any
calendar year shall not, for such year, in the aggregate, exceed $100,000;
provided, however, that if the aggregate Fair Market Value of such shares
exceeds $100,000, then the incremental portion in excess of $100,000 shall be
treated as Non-Statutory Stock Options (and not as Incentive Stock Options);
provided, further, that this Section 6.2(d) shall not affect the right of the
Administrator to accelerate or otherwise alter the time of vesting of any Stock
Options granted as Incentive Stock Options, even, if as a result thereof, some
of such Stock Options cease being Incentive Stock Options.
(e) MEDIUM AND TIME OF PAYMENT. The Exercise Price shall be paid in full,
at the time of exercise, (i) in cash or cash equivalents, (ii) with the approval
of the Administrator, in shares of Stock which have been held by the Optionee
for a period of at least six calendar months preceding the date of surrender and
which have a Fair Market Value equal to the Exercise Price, (iii) in a
combination of cash, cash equivalents and Stock, or (iv) in any other form of
legal consideration acceptable to the Administrator, and may be effected in
whole or in part (x) with monies received from the Company at the time of
exercise as a compensatory cash payment; or (y) with monies borrowed from the
Company in accordance with Section 11.5.
(f) TERM AND EXERCISE OF STOCK OPTIONS. Stock Options shall vest or become
exercisable over the exercise period at the times the Administrator may
determine, as reflected in the related Stock Option Agreements; provided,
however, that the Optionees shall have the right to exercise the Stock Options
at the rate of at least 20% per year over five years from the Date of Grant of
such Stock Options. Unless a different vesting schedule is established by the
Administrator and reflected in the Stock Option Agreement, each Optionee shall
have the right to exercise the Stock Options evidenced thereby as follows: 33%
of the Stock Options (rounded up to the nearest whole share) shall vest on the
first anniversary of the Date of Grant of the Stock Options, 33% of the Stock
Options (rounded up to the nearest whole share) shall vest on the second
anniversary of the Date of Grant of the Stock Options, and the remaining Stock
Options shall vest on the third anniversary of the Date of Grant of the Stock
Options. The exercise period of any Stock Option shall be determined by the
Administrator, but shall not exceed ten years from the Date of Grant of the
Stock Option. In the case of an Incentive Stock Option granted to a Ten Percent
Shareholder, the exercise period shall be determined by the Administrator, but
shall not exceed five years from the Date of Grant of the Stock Option. The
exercise period shall be subject to earlier termination upon the occurrence of
either a Special Terminating Event, as provided in Section 11.6, or the
termination of employment, as provided in Section 11.7. A Stock Option may be
exercised, as to any or all full shares of
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Stock as to which the Stock Option has become exercisable, by giving written
notice of such exercise to the Company.
ARTICLE 7
STOCK APPRECIATION RIGHTS
SECTION 7.1 GENERAL. The Administrator shall have the authority to grant
SARs in tandem with Stock Options granted under this Plan or under any other
stock option plan of the Company (the "RELATED SAR OPTION") with respect to all
or some of the shares of Stock covered by the Related SAR Option. SARs granted
in tandem with Related SAR Options may be granted either at the time of grant of
the Related SAR Option or at any time thereafter during the term of the Related
SAR Option. The Administrator shall also have the authority to grant SARs
without relation to any Stock Option granted under this Plan or under any other
stock option plan of the Company. Each SAR shall be granted on such terms and
conditions not inconsistent with the Plan as the Administrator may determine.
The provisions of the various SAR awards need not be the same with respect to
each Grantee.
SECTION 7.2 TERMS AND CONDITIONS OF SARS. Each SAR granted pursuant to the
Plan shall be evidenced by a written SAR agreement between the Company and the
Grantee (the "SAR AGREEMENT"), which shall comply with and be subject to the
following terms and conditions.
(a) NUMBER OF SARS. Each SAR Agreement shall state the number of shares of
Stock to which the SAR relates.
(b) INITIAL VALUATIONS. Each SAR Agreement shall provide that each SAR
granted in tandem with a Related Stock Option is valued at the Exercise Price of
the Related SAR Option and that each SAR granted without relation to a stock
Option is valued at the Fair Market Value of a share of Stock on the Date of
Grant (the "INITIAL VALUATION").
(c) TERM AND EXERCISE OF SARS.
(i) Each SAR granted otherwise than in tandem with a Stock Option shall be
exercisable as determined by the Administrator, but in no event after 10 years
from the Date of Grant. Each other SAR shall be exercisable only if, and to the
extent that, the Related SAR Option is exercisable and has not yet terminated or
expired, and in the case of a SAR granted in respect of an Incentive Stock
Option, only when the Fair Market Value per share of the Stock exceeds the
Exercise Price of the Related SAR Option; and upon the exercise of a SAR, the
related SAR Option shall cease to be exercisable to the extent of the shares of
Stock with respect to which such SAR is exercised, but shall be considered to
have been exercised to that extent for purposes of determining the number of
shares available for the grant of further Rights pursuant to the Plan. Upon the
exercise or termination of a Related SAR Option, the SAR granted in tandem with
such Related SAR Option shall terminate to the extent of the shares of Stock
with respect to which the Related SAR Option was exercised or terminated.
(ii) To exercise a SAR granted in tandem with a Related SAR Option, the
Grantee shall (A) give written notice thereof to the Company specifying the
number of shares of Stock with respect to which the SAR is being exercised and
the percentage of the total amount the Grantee is entitled to receive which the
Grantee elects to receive in cash or shares of Stock with respect to the
exercise of the SAR; and (B) if requested by the Administrator, deliver the
Related SAR Option agreement to the Secretary of the Company, who shall endorse
thereon a notation of such exercise and return the Related SAR Option agreement
to the Grantee. To exercise a SAR granted without relation to a Stock Option,
the Grantee shall give written notice thereof to the Company specifying the
number of shares of Stock with respect to which the SAR is being exercised and
the percentage or sum of the total amount the Grantee is entitled to receive
which the Grantee elects to receive in cash, and the percentage or sum the
Grantee elects to receive in shares of Stock, with respect to the exercise of
the SAR. The date of exercise of a SAR which is
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validly exercised shall be deemed to be the date on which there shall have been
delivered to the Company the appropriate aforesaid instruments.
(iii) Upon the exercise of a SAR, the holder thereof, subject to Section
7.2(c)(vii), shall be entitled at the holder's election to receive either:
(A) a number of shares of Stock equal to the quotient computed by
dividing the Spread (as defined in Section 7.2.(c)(iv)) by the Fair Market
Value per share of Stock on the date of exercise of the SAR; provided,
however, that in lieu of fractional shares, the Company shall pay in cash or
cash equivalents an amount equal to the same fraction of the Fair Market
Value per share of Stock on the date of exercise of the SAR; or
(B) an amount payable in cash or cash equivalents equal to the Spread;
or
(C) a combination of an amount payable in cash or cash equivalents and a
number of shares calculated as provided in Section 7.2.(c)(iii)(A) (after
reducing the Spread by such cash amount); plus any amounts payable in lieu
of any fractional shares as provided above.
(iv) The term "SPREAD" as used in Section 7.2(c) shall mean an amount equal
to the product computed by multiplying (A) the excess of (x) the Fair Market
Value per share of Stock on the date the SAR is exercised, over either (y) in
the case of an SAR in tandem with a Related SAR Option, the Exercise Price per
share of the Related SAR Option, or (z) in the case of an SAR not granted in
tandem with a Stock Option, the Initial Valuation of the SAR; by (B) the number
of shares with respect to which such SAR is being exercised.
(v) Notwithstanding the provisions of this Section 7.2, and while the SAR
Agreement may provide for longer vesting periods, no SAR may be exercised during
the first six months following its Date of Grant, and, with respect to SARs
granted in tandem with a Related SAR Option, neither the SAR nor the Related SAR
Option may be exercised during the first six months following the Date of Grant
of the SAR, unless, in either case, prior to the expiration of such six-month
period, the holder of the SAR ceases to be an employee of the Company or any
Parent or Subsidiary by reason of such holder's Special Terminating Events.
(vi) Notwithstanding the provisions of this Section 7.2 or the related SAR
Agreement to the contrary, any Grantee who at the date of the exercise of the
SAR or any portion thereof is a Section 16(b) Person, may only make a Cash
Election (as defined below) and related exercise during the period beginning on
the third business day following the date of release for publication of the
quarterly or annual summary statements of sales and earnings of the Company and
ending on the twelfth business day following such date (the "WINDOW PERIOD").
Additionally, no Section 16(b) Person shall have the right to make any Cash
Election unless the Company has been subject to the reporting requirements of
Section 13(a) of the Exchange Act for at least a year prior to the transaction
and has filed all reports and statements required to be filed pursuant to that
Section for that year.
(vii) Notwithstanding the provisions of this Section 7.2, the Administrator
shall have sole discretion to approve or disapprove a Participant's election to
receive any amounts payable in cash or cash equivalents in whole or in part
("CASH ELECTION") upon the exercise of a SAR. Such approval or disapproval may
be given at any time after the election to which it relates and until approval
is given, no amounts will be due or payable to such Participant. If the
Administrator shall disapprove a Cash Election, the exercise of the SAR with
respect to which the Cash Election was made shall be of no effect, but without
prejudice to the right of the holder to exercise such SAR in the future in
accordance with its terms.
(viii) Notwithstanding the foregoing, in the case of a SAR granted in tandem
with an Incentive Stock Option, the holder may not receive an amount in excess
of such amount as will enable the Stock Option to qualify as an Incentive Stock
Option.
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(d) SECURITIES LAWS. The Company intends that this Section 7.2 shall
comply with the requirements of the Rule during the term of the Plan. Should any
provision of Section 7.2 not be necessary to comply with the requirements of the
Rule or should any additional provisions be necessary for Section 7.2 to comply
with the requirements of the Rule, the Board may amend the Plan to add to or
modify the provisions of the Plan accordingly.
(e) LIMITATIONS ON AMOUNTS PAYABLE. Notwithstanding Section 7.2(c)(iii),
the Administrator may place a limitation on the amount payable in cash, Stock or
both upon exercise of a SAR. Any such limitation must be determined as of the
Date of Grant, and noted on the instrument evidencing the Participant's SAR
granted hereunder.
ARTICLE 8
MANDATORY GRANTS TO COMMITTEE MEMBERS
SECTION 8.1 MANDATORY GRANTS TO COMMITTEE MEMBERS. Notwithstanding any
other provision of this Plan, the grant of Stock Options to members of the
Committee shall be subject to the following limitations of this Article 8.
(a) Upon the initial election or appointment of a member of the Committee by
the Board, the Committee shall grant to such member, at the first meeting of the
Committee following the date of such election or appointment, a ten year
Non-Statutory Stock Option to purchase 5,000 shares of Stock.
(b) The Committee shall grant to each member, effective as of each
anniversary of the election or appointment of such member to the Committee, a
ten year Non-Statutory Stock Option to purchase 5,000 shares of Stock.
(c) All Stock Options granted to members of the Committee under this Article
8 shall be exercisable at an Exercise Price equal to 100% of the Fair Market
Value of a share of Stock on the Date of Grant.
(d) All Stock Options granted to members of the Committee under this Article
8 will vest or become exercisable as follows: 33% of the Stock Options (rounded
up to the nearest whole share) shall vest on the first anniversary of the Date
of Grant of the Stock Options, and 33% of the Stock Options (rounded up to the
nearest whole share) shall vest on the second anniversary of the Date of Grant
of the Stock Options, and the remaining Sock Options shall vest on the third
anniversary of the Date of Grant of the Stock Options.
(e) Unless otherwise provided in the Plan, all provisions regarding the
terms of Non-Statutory Stock Options, other than those pertaining to the Date of
Grant, the number of shares covered by such grant, term and Exercise Price shall
be applicable to the Stock Options granted to members of the Committee under
this Article 8.
SECTION 8.2 PROHIBITION OF OTHER GRANTS TO COMMITTEE
MEMBERS. Notwithstanding any other provisions in this Plan, the mandatory
grants described in this Article 8 shall constitute the only grants under the
Plan permitted to be made to members of the Committee.
SECTION 8.3 PROHIBITION AGAINST CERTAIN AMENDMENTS. Notwithstanding any
other provisions of this Plan, the provisions of this Article 8 shall not be
amended more than once every six months, other than to comport with changes in
the Code, the Employee Retirement Income Security Act, or the rules thereunder.
8
<PAGE>
ARTICLE 9
ADJUSTMENTS
SECTION 9.1 EFFECT OF CERTAIN CHANGES.
(a) STOCK DIVIDENDS, SPLITS, ETC. If there is any change in the number of
outstanding shares of Stock through the declaration of Stock dividends or
through a recapitalization resulting in Stock splits, or combinations or
exchanges of the outstanding shares, however, not including a change resulting
from the conversion of the Company's Class B Common Stock, par value $.001 per
share, for shares of Stock, (i) the number of shares of Stock available for
Rights, (ii) the number of shares covered by outstanding Rights, (iii) the
number of shares set forth under Section 11.1(a) and (iv) the Exercise Price or
Initial Value of any Stock Option or SAR, in effect prior to such change, shall
be proportionately adjusted by the Administrator to reflect any increase or
decrease in the number of issued shares of Stock; provided, however, that any
fractional shares resulting from the adjustment shall be eliminated.
(b) LIQUIDATING EVENT. In the event of the proposed dissolution or
liquidation of the Company, or in the event of any corporate separation or
division, including, but not limited to, a split-up, split-off or spin-off
(each, a "Liquidating Event"), the Administrator may provide that the holder of
any Rights then exercisable shall have the right to exercise such Rights (at the
price provided in the agreement evidencing the Rights) subsequent to the
Liquidating Event, and for the balance of its term, solely for the kind and
amount of shares of Stock and other securities, property, cash or any
combination thereof receivable upon such Liquidating Event by a holder of the
number of shares of Stock for or with respect to which such Rights might have
been exercised immediately prior to such Liquidating Event; or the Administrator
may provide, in the alternative, that each Right granted under the Plan shall
terminate as of a date to be fixed by the Board; provided, however, that not
less than 30 days written notice of the date so fixed shall be given to each
Rights holder and if such notice is given, each Rights holder shall have the
right, during the period of 30 days preceding such termination, to exercise his
or her Rights as to all or any part of the shares of Stock covered thereby,
without regard to any installment or vesting provisions in his or her Rights
agreement, on the condition, however, that the Liquidating Event actually
occurs; and if the Liquidating Event actually occurs, such exercise shall be
deemed effective (and, if applicable, the Rights holder shall be deemed a
shareholder with respect to the Rights exercised) immediately preceding the
occurrence of the Liquidating Event (or the date of record for shareholders
entitled to share in such Liquidating Event, if a record date is set).
(c) MERGER OR CONSOLIDATION. In the case of any capital reorganization,
any reclassification of the Stock (other than a change in par value or
recapitalization described in Section 9.1(a) of the Plan), or the consolidation
of the Company with, or a sale of substantially all of the assets of the Company
to (which sale is followed by a liquidation or dissolution of the Company), or
merger of the Company with another person (a "REORGANIZATION EVENT"), the
Administrator shall be obligated to determine, in its sole and absolute
discretion, whether the Reorganization Event shall constitute a "LIQUIDITY
EVENT," and to deliver to the Rights holders at least 15 days prior to such
Reorganization Event (or at least 15 days prior to the date of record for
shareholders entitled to share in the securities or property distributed in the
Reorganization Event, if a record date is set) a notice which shall (i) indicate
whether the Reorganization Event shall be considered a Liquidity Event and (ii)
advise the Rights holder of his or her rights pursuant to the agreement
evidencing such Rights. If the Reorganization Event is determined to be a
Liquidity Event, (i) the Surviving Corporation may, but shall not be obligated
to, tender stock options or stock appreciation rights to the Rights holder with
respect to the Surviving Corporation, and such new options and rights shall
contain terms and provisions that substantially preserve the rights and benefits
of the applicable Rights then outstanding under the Plan, or (ii) in the event
that no stock options or stock appreciation rights have been tendered by the
Surviving Corporation pursuant to the terms of item (i) immediately above, the
Rights holder shall have the right, exercisable during a 10 day period ending on
the fifth day prior to the Reorganization Event (or ending on the fifth day
prior to the date of record for shareholders entitled to share in the securities
or property distributed in the Reorganization Event, if a record date is set),
to
9
<PAGE>
exercise his or her rights as to all or any part of the shares of Stock covered
thereby, without regard to any installment or vesting provisions in his or her
Rights agreement, on the condition, however, that the Reorganization Event is
actually effected; and if the Reorganization Event is actually effected, such
exercise shall be deemed effective (and, if applicable, the Rights holder shall
be deemed a shareholder with respect to the Rights exercised) immediately
preceding the effective time of the Reorganization Event (or on the date of
record for shareholders entitled to share in the securities or property
distributed in the Reorganization Event, if a record date is set). If the
Reorganization Event is not determined to be a Liquidity Event, the Rights
holder shall thereafter be entitled upon exercise of the Rights to purchase the
kind and number of shares of stock or other securities or property of the
Surviving Corporation receivable upon such event by a holder of the number of
shares of the Stock which the Rights would have entitled the Rights holder to
purchase from the Company if the Reorganization Event had not occurred, and in
any such case, appropriate adjustment shall be made in the application of the
provisions set forth in this Plan with respect to the Rights holder's rights and
interests thereafter, to the end that the provisions set forth in the agreement
applicable to such Rights (including the specified changes and other adjustments
to the Exercise Price) shall thereafter be applicable in relation to any shares
or other property thereafter purchasable upon exercise of the Rights.
(d) WHERE COMPANY SURVIVES. Section 9.1(c) shall not apply to a merger or
consolidation in which the Company is the Surviving Corporation, unless shares
of Stock are converted into or exchanged for securities other than
publicly-traded common stock, cash (excluding cash in payment for actual shares)
or any other thing of value. Notwithstanding the preceding sentence, in case of
any consolidation or merger of another corporation into the Company in which the
Company is the Surviving Corporation and in which there is a reclassification or
change (including a change to the right to receive an amount of money payable by
cash or cash equivalents or other property) of the shares of Stock (other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares into two or
more classes or series of shares), the Administrator may provide that the holder
of each of the Rights then exercisable shall have the right to exercise such
Rights solely for the kind and amount of shares of Stock and other securities
(including those of any new direct or indirect Parent of the Company), property,
cash or any combination thereof receivable upon such reclassification, change,
consolidation or merger by the holder of the number of shares of Stock for which
such Rights might have been exercised.
(e) SURVIVING CORPORATION DEFINED. The determination as to which party to
a merger or consolidation is the "SURVIVING CORPORATION" shall be made on the
basis of the relative equity interests of the shareholders in the corporation
existing after the merger or consolidation, as follows: if immediately following
any merger or consolidation the holders of outstanding voting securities of the
Company immediately prior to the merger or consolidation own equity securities
possessing more than 50% of the voting power of the corporation existing
following the merger or consolidation, then for purposes of this Plan, the
Company shall be the Surviving Corporation. In all other cases, the Company
shall not be the Surviving Corporation. In making the determination of ownership
by the shareholders of a corporation immediately after the merger or
consolidation, of equity securities pursuant to this Section 9.1(e), equity
securities which the shareholders owned immediately before the merger or
consolidation as shareholders of another party to the transaction shall be
disregarded. Further, for purposes of this Section 9.1(e) only, outstanding
voting securities of a corporation shall be calculated by assuming the
conversion of all equity securities convertible (immediately or at some future
time) into shares entitled to vote.
(f) PAR VALUE CHANGES. In the event of a change in the Stock of the
Company as presently constituted which is limited to a change of all of its
authorized shares with par value, into the same number of shares without par
value, or any subsequent change in the par value, the shares resulting from any
such change shall be "Stock" within the meaning of the Plan.
SECTION 9.2 DECISION OF ADMINISTRATOR FINAL. To the extent that the
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Administrator, whose
10
<PAGE>
determination in that respect shall be final, binding and conclusive; provided,
however, that each Incentive Stock Option granted pursuant to the Plan shall not
be adjusted without the prior consent of the holder thereof in a manner that
causes such Stock Option to fail to continue to qualify as an Incentive Stock
Option.
SECTION 9.3 NO OTHER RIGHTS. Except as expressly provided in this Article
9, no Rights holder shall have any rights by reason of any subdivision or
consolidation of shares of Stock or the payment of any dividend or any other
increase or decrease in the number of shares of Stock of any class or by reason
of any Liquidating Event, merger, or consolidation of assets or stock of another
corporation, or any other issue by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class; and except as
provided in this Article 9, none of the foregoing events shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Stock subject to Rights. The grant of Rights pursuant to the Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassification, reorganizations or changes of its capital or
business structures or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or part of its business or assets.
SECTION 9.4 NO RIGHTS AS SHAREHOLDER. Except as specifically provided in
this Article 9, a Rights holder or a transferee of Rights shall have no rights
as a shareholder with respect to any shares covered by the Rights until the date
of the issuance of a Stock certificate to him or her for such shares, and no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions of other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in Section 9.1.
ARTICLE 10
AMENDMENT AND TERMINATION
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of a
Participant under any Rights theretofore granted without such Participant's
consent, or which without the approval of the shareholders would:
(a) except as provided in Article 9, materially increase the total number of
shares of Stock reserved for the purposes of the Plan;
(b) materially increase the benefits accruing to Participants or Eligible
Persons under the Plan; or
(c) materially modify the requirements for eligibility under the Plan.
The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Article 3, no such amendment
shall impair the rights of any holder without his or her consent.
ARTICLE 11
GENERAL PROVISIONS
SECTION 11.1 GENERAL RESTRICTIONS.
(a) LIMITATION ON GRANTING OF RIGHTS. Subject to adjustment as provided in
Article 9, no Participant shall be granted Rights with respect to more than
100,000 shares of Stock during any one year period.
(b) NO VIEW TO DISTRIBUTE. The Administrator may require each person
acquiring shares of Stock pursuant to the Plan to represent to and agree with
the Company in writing that such person is acquiring the shares without a view
towards distribution thereof. The certificates for such shares may include any
legend which the Administrator deems appropriate to reflect any restrictions on
transfer.
(c) LEGENDS. All certificates for shares of Stock delivered under the Plan
shall be subject to such stop transfer orders and other restrictions as the
Administrator may deem advisable under the rules,
11
<PAGE>
regulations and other requirements of the SEC, any stock exchange upon which the
Stock is then listed and any applicable federal or state securities laws, and
the Administrator may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
SECTION 11.2 OTHER COMPENSATION ARRANGEMENTS. Nothing contained in this
Plan shall prevent the Board from adopting other or additional compensation
arrangements, subject to shareholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.
SECTION 11.3 DISQUALIFYING DISPOSITIONS; WITHHOLDING TAXES.
(a) DISQUALIFYING DISPOSITION. The Stock Option Agreements shall require
Optionees who make a "DISPOSITION" (as defined in the Code) of all or any of the
Stock acquired through the exercise of Stock Options within two years from the
date of grant of the Stock Option, or within one year after the issuance of
Stock relating thereto, to immediately advise the Company in writing as to the
occurrence of the sale and the price realized upon the sale of such Stock; and
each Optionee shall agree that he or she shall maintain all such Stock in his or
her name so long as he or she maintains beneficial ownership of such Stock.
(b) WITHHOLDING REQUIRED. Each Participant shall, no later than the date
as of which the value derived from Rights first becomes includable in the gross
income of the Participant for income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
federal, state or local taxes of any kind required by law to be withheld with
respect to the Rights or their exercise. The obligations of the Company under
the Plan shall be conditioned upon such payment or arrangements and the
Participant shall, to the extent permitted by law, have the right to request
that the Company deduct any such taxes from any payment of any kind otherwise
due to the Participant.
(c) WITHHOLDING RIGHT. The Administrator may, in its discretion, grant to
a Rights holder the right (a "WITHHOLDING RIGHT") to elect to make such payment
by irrevocably requiring the Company to withhold from shares issuable upon
exercise of the Rights that number of full shares of Stock having a Fair Market
Value on the Tax Date (as defined below) equal to the amount (or portion of the
amount) required to be withheld. The Withholding Right may be granted with
respect to all or any portion of the Rights.
(d) EXERCISE OF WITHHOLDING RIGHT. To exercise a Withholding Right, the
Rights holder must follow the election procedures set forth below, together with
such additional procedures and conditions as may be set forth in the related
Rights agreement or otherwise adopted by the Administrator.
(i) The Rights holder must deliver to the Company his or her written
notice of election (the "ELECTION") to have the Withholding Right apply to
all (or a designated portion) of his or her Rights prior to the date of
exercise of the Right to which it relates.
(ii) Unless disapproved by the Administrator as provided in Subsection
(iii) below, the Election once made will be irrevocable.
(iii) No Election is valid unless the Administrator consents to the
Election; the Administrator has the right and power, in its sole discretion,
with or without cause or reason therefor, to consent to the Election, to
refuse to consent to the Election, or to disapprove the Election; and if the
Administrator has not consented to the Election on or prior to the date that
the amount of tax to be withheld is, under applicable federal income tax
laws, fixed and determined by the Company (the "TAX DATE"), the Election
will be deemed approved.
(iv) If the Rights holder on the date of delivery of the Election to the
Company is a Section 16(b) Person, the following additional provisions will
apply:
(A) the Election cannot be made during the six calendar month period
commencing with the date of the grant of the Withholding Right (even if
the Rights to which such Withholding
12
<PAGE>
Right relates have been granted prior to such date); provided, that this
Subsection (A) is not applicable to any Rights holder at any time
subsequent to the death, Disability or Retirement of the Rights holder;
(B) the Election (and the exercise of the related Right) can only be
made during the Window Period; and
(C) notwithstanding any other provision of this Section 11.3, no
Section 16(b) Person shall have the right to make any Election unless the
Company has been subject to the reporting requirements of Section 13(a)
of the Exchange Act for at least a year prior to the transaction and has
filed all reports and statements required to be filed pursuant to that
Section for that year.
(e) EFFECT. If the Administrator consents to an Election of a Withholding
Right:
(i) upon the exercise of the Rights (or any portion thereof) to which
the Withholding Right relates, the Company will withhold from the shares
otherwise issuable that number of full shares of Stock having an actual Fair
Market Value equal to the amount (or portion of the amount, as applicable)
required to be withheld under applicable federal and/or state income tax
laws as a result of the exercise; and
(ii) if the Rights holder is then a Section 16(b) Person who has made an
Election, the related Rights may not be exercised, nor may any shares of
Stock issued pursuant thereto be sold, exchanged or otherwise transferred,
unless such exercise, or such transaction, complies with an exemption from
Section 16(b) provided under Rule 16b-3.
SECTION 11.4 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as Directors or members of the Committee, and
to the extent allowed by applicable law, the Administrators shall be indemnified
by the Company against the reasonable expenses, including attorney's fees,
actually incurred in connection with any action, suit or proceeding or in
connection with any appeal therein, to which they or any one of them may be
party by reason of any action taken or failure to act under or in connection
with the Plan or any option granted under the Plan, and against all amounts paid
by them in settlement thereof (provided that the settlement has been approved by
the Company, which approval shall not be unreasonably withheld) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Administrator did not act in good faith and in a manner
which such person reasonably believed to be in the best interests of the
Company, and in the case of a criminal proceeding, had no reason to believe that
the conduct complained of was unlawful; provided, however, that within 60 days
after institution of any such action, suit or proceeding, such Administrator
shall, in writing, offer the Company the opportunity at its own expense to
handle and defend such action, suit or proceeding.
SECTION 11.5 LOANS. The Company may make loans to Optionees (other than
Directors who are not also employees or officers of the Company) as the
Administrator, in its discretion, may determine in connection with the exercise
of outstanding Stock Options granted under the Plan. Such loans shall (i) be
evidenced by promissory notes entered into by the holders in favor of the
Company; (ii) be subject to the terms and conditions set forth in this Section
11.5 and such other terms and conditions, not inconsistent with the Plan, as the
Administrator shall determine; and (iii) bear interest, if any, at such rate as
the Administrator shall determine. In no event may the principal amount of any
such loan exceed the Exercise Price less the par value, if any, of the shares of
Stock covered by the Stock Option, or portion thereof, exercised by the
Optionee. The initial term of the loan, the schedule of payments of principal
and interest under the loan, the extent to which the loan is to be with or
without recourse against the holder with respect to principal and applicable
interest and the conditions upon which the loan will become payable in the event
of the holder's termination of employment shall be determined by the
Administrator; provided, however, that the term of the loan, including
extensions, shall not exceed 10 years. Unless the Administrator determines
otherwise, when a loan shall have been made, shares of Stock having a Fair
Market Value at
13
<PAGE>
least equal to the principal amount of the loan shall be pledged by the holder
to the Company as security for payment of the unpaid balance of the loan and
such pledge shall be evidenced by a security agreement, the terms of which shall
be determined by the Administrator, in its discretion; provided, however, that
each loan shall comply with all applicable laws, regulations and rules of the
Board of Governors of the Federal Reserve System and any other governmental
agency having jurisdiction.
SECTION 11.6 SPECIAL TERMINATING EVENTS. If a Special Terminating Event
occurs, all Rights theretofore granted to such Rights holder may, unless earlier
terminated in accordance with their terms, be exercised by the Rights holder or
by his or her estate or by a person who acquired the right to exercise such
Rights by bequest or inheritance or otherwise by reason of the death or
Disability of the Rights holder, at any time within one year after the date of
the Special Terminating Event.
SECTION 11.7 TERMINATION OF EMPLOYMENT. Except as provided in Section 11.6
or this Section 11.7, Rights may not be exercised unless the Rights holder is
then a Director, or in the employ of the Company or any Parent or Subsidiary, or
rendering services as a consultant to the Company or any Parent or Subsidiary,
and unless he or she has remained continuously so employed or engaged since the
Date of Grant. If the employment or services of a Rights holder shall terminate
(other than by reason of a Special Terminating Event), all Rights previously
granted to the Rights holder which are exercisable at the time of such
termination may be exercised for the period ending 90 days after such
termination, unless otherwise provided in the Stock Option Agreement or SAR
Agreement; provided, however, that if the employment or services of a Rights
holder is terminated "for cause," such Rights may be exercised for the period
ending 30 days after such termination; provided, further, that no Rights may be
exercised following the date of their expiration. Nothing in the Plan or in any
Rights granted pursuant to the Plan shall confer upon an employee any right to
continue in the employ of the Company or any Parent or Subsidiary or interfere
in any way with the right of the Company or any Parent or Subsidiary to
terminate such employment at any time.
SECTION 11.8 NON-TRANSFERABILITY OF RIGHTS. Each Stock Option Agreement
and SAR Agreement shall provide that the Rights granted under the Plan shall not
be transferable otherwise than by will or by the laws of descent and
distribution, and the Rights may be exercised, during the lifetime of the Rights
holder, only by the Rights holder or by his or her guardian or legal
representative.
SECTION 11.9 REGULATORY MATTERS. Each Stock Option Agreement and SAR
Agreement shall provide that no shares shall be purchased or sold thereunder
unless and until (i) any then applicable requirements of state or federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel; and (ii) if required to do so by the Company,
the Optionee or Grantee shall have executed and delivered to the Company a
letter of investment intent in such form and containing such provisions as the
Administrator may require.
SECTION 11.10 RECAPITALIZATIONS. Each Stock Option Agreement and Stock
Purchase Agreement shall contain provisions required to reflect the provisions
of Article 9.
SECTION 11.11 DELIVERY. Upon exercise of Rights granted under this Plan,
the Company shall issue Stock or pay any amounts due within a reasonable period
of time thereafter. Subject to any statutory obligations the Company may
otherwise have, for purposes of this Plan, 30 days shall be considered a
reasonable period of time.
SECTION 11.12 RULE 16B-3. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of the Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator.
14
<PAGE>
SECTION 11.13 OTHER PROVISIONS. The Stock Option Agreements and SAR
Agreements authorized under the Plan may contain such other provisions not
inconsistent with this Plan, including, without limitation, restrictions upon
the exercise of the Rights, as the Administrator may deem advisable.
ARTICLE 12
EFFECTIVE DATE OF PLAN
The Plan shall become effective on the date on which the Plan is adopted by
the Board, subject to approval by the Company's shareholders, which approval
must be obtained within one year from the date the Plan is adopted by the Board.
ARTICLE 13
TERM OF PLAN
No Rights shall be granted pursuant to the Plan on or after March 31, 2005,
but Rights theretofore granted may extend beyond that date.
ARTICLE 14
INFORMATION TO RIGHTS HOLDERS
The Company will cause a report to be sent to each Rights holder not later
than 120 days after the end of each fiscal year. Such report shall consist of
the financial statements of the Company for such fiscal year and shall include
such other information as is provided by the Company to its shareholders.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 141
<SECURITIES> 0
<RECEIVABLES> 4,150
<ALLOWANCES> 150
<INVENTORY> 37,541
<CURRENT-ASSETS> 43,168
<PP&E> 3,614
<DEPRECIATION> 819
<TOTAL-ASSETS> 46,714
<CURRENT-LIABILITIES> 18,598
<BONDS> 3,465
0
0
<COMMON> 6
<OTHER-SE> 24,651
<TOTAL-LIABILITY-AND-EQUITY> 46,714
<SALES> 16,219
<TOTAL-REVENUES> 16,219
<CGS> 11,465
<TOTAL-COSTS> 11,465
<OTHER-EXPENSES> 2,522
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 608
<INCOME-PRETAX> 1,554
<INCOME-TAX> 623
<INCOME-CONTINUING> 931
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 931
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
