UNITED STATES 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 March 31, 1996
OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number: 0-26544
PREMENOS TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0367912
(State of incorporation) (IRS Employer
Identification No.)
1000 Burnett Avenue
Concord, California 94520
(Address of principal executive offices)
510-688-2700
(Registrant's telephone number, including area code)
Indicate by check mark 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 [ ]
The number of shares outstanding of the registrant's common stock as of
May 1, 1996 was 10,635,246.
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<TABLE>
PREMENOS TECHNOLOGY CORP.
INDEX TO MARCH 31, 1996 FORM 10-Q
<CAPTION>
Page
PART I - Financial Information
Item 1 Financial Statements (unaudited)
<S> <C>
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - Other Information
Items 1, 2, 3, 4, 5 and 6 12
SIGNATURE 13
</TABLE>
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<TABLE>
PREMENOS TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
( in thousands, except share data )
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 62,623 $ 11,495
Short-term investments - 51,722
Trade accounts receivable, net of allowances
of $309 and $404 in 1996 and 1995,
respectively 5,492 7,182
Income taxes recoverable 95 80
Prepaid expenses and other assets 1,405 735
Restricted cash 50 50
Deferred income taxes 1,376 1,376
---------- ----------
Total current assets 71,041 72,640
Property and equipment, net 4,190 3,526
Capitalized software development costs, net 3,483 3,054
Deposits and other long-term assets 331 243
---------- ----------
Total assets $ 79,045 $ 79,463
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,236 $ 1,483
Accrued liabilities 2,367 3,215
Income taxes payable 185 -
Deferred revenue 5,974 5,658
Current portion of capital lease obligations 343 333
Current portion of long-term debt 306 348
--------- ----------
Total current liabilities 10,411 11,037
Long-term portion of capital lease obligations 374 459
Long-term debt 266 310
Deferred revenue 564 634
Deferred income taxes 1,319 1,319
--------- ----------
Total liabilities 12,934 13,759
--------- ----------
Minority interest in consolidated subsidiary 18 18
--------- ----------
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<PAGE>
Stockholders' equity:
Preferred stock - -
Common stock 106 106
Additional paid-in capital 62,114 62,006
Deferred compensation (117) (137)
Retained earnings 3,990 3,711
--------- ---------
Total stockholders' equity 66,093 65,686
--------- ---------
Total liabilities and stockholders' equity $ 79,045 $ 79,463
========= =========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
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<TABLE>
PREMENOS TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( unaudited )
( in thousands, except per share data )
<CAPTION>
Three Months Ended March 31,
1996 1995
----------- ------------
Revenues:
<S> <C> <C>
Software licenses $ 3,924 $ 2,572
Services 2,630 1,816
--------- ---------
Total revenues 6,554 4,388
--------- ---------
Cost of revenues:
Software licenses 707 636
Services 1,150 734
--------- ---------
Total cost of revenues 1,857 1,370
--------- ---------
Gross margin 4,697 3,018
--------- ---------
Operating expenses:
Product development 1,797 1,420
Sales and marketing 2,349 1,739
General and administrative 846 398
--------- ---------
Total operating expenses 4,992 3,557
Loss from operations (295) (539)
Interest income 801 9
Interest expense (44) (44)
--------- ---------
Income (loss) before provision (credit)
for income taxes and minority interest 462 (574)
Provision (credit) for income taxes 185 (232)
Minority interest (2) (50)
--------- ---------
Net income (loss) $ 279 $ (292)
========= =========
Net income (loss) per share $ 0.02 $ (0.05)
========= =========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
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<PAGE>
<TABLE>
PREMENOS TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
( unaudited )
( in thousands )
<CAPTION>
Three Months Ended March 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 990 $ 888
---------- ----------
Cash flows from investing activities:
Proceeds from sale of short-term investment 51,855 -
Capitalized software development costs (669) (450)
Purchases of property and equipment (1,001) (250)
---------- ----------
Net cash provided by (used in) investing activities 50,185 (700)
---------- ----------
Cash flows from financing activities:
Principal payments on capital lease obligations (75) (126)
Principal payments on bank borrowings (87) (21)
Proceeds from exercise of options 115 -
---------- ----------
Net cash used in financing activities (47) (147)
---------- ----------
Increase in cash and cash equivalents 51,128 41
Cash and cash equivalents, beginning of period 11,495 3,167
---------- ----------
Cash and cash equivalents, end of period $ 62,623 $ 3,208
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE>
PREMENOS TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( unaudited )
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared on the same basis as the audited annual consolidated
financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the financial position, results of
operations, and cash flows. The results of operations for the three
months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year. Certain information and
footnote disclosures normally contained in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the annual Consolidated Financial
Statements contained in the Company's December 31, 1995 annual report on
Form 10-K.
Note 2. Business Combinations
On May 14, 1996, the acquired Don Valley Technology Corporation (Don
Valley). Under the terms of the agreement, the Company purchased Don
Valley for 56,657 shares of newly-issued common stock and approximately
$1.1 million in cash. The transaction will be accounted for as a
purchase transaction, and, accordingly the results of operations of Don
Valley will be reflected in the Company's consolidated financial
statements from the date of acquisition.
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<PAGE>
Item 2
PREMENOS TECHNOLOGY CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position
and operating results during the periods included in the accompanying
condensed consolidated financial statements.
Revenues
Total revenues for the first quarter of 1996 were $6.6 million, up from
$4.4 million in the same quarter of 1995, representing an increase of
49.4%.
Software licenses. Revenues from license fees and royalties increased
from $2.6 million in the first quarter of 1995 to $3.9 million in the
first quarter of 1996, representing an increase of 52.6%. This increase
was primarily attributable to increased market acceptance of EDI
technology and the Company's products, and hardware system upgrades of
existing customers.
Services. Revenues from services were $1.8 million and $2.6 million in
the first quarters of 1995 and 1996, respectively, representing an
increase of 44.8%. Services revenues include maintenance revenues of
$1.5 million and $2.2 million for the first quarters of 1995 and 1996,
respectively, representing an increase of 44.7%. Generally, increases
in licensing activity have resulted in increases in recurring revenues
from services related to maintenance.
Gross Margin
Gross margins for the first quarters of 1995 and 1996 were $3.0 million
and $4.7 million, representing 68.8% and 71.7% of total revenues,
respectively.
Gross margins from licenses were $1.9 million and $3.2 million, for the
first quarters of 1995 and 1996, respectively. As a percentage of
revenues from licenses, gross margins were 75.3% and 82.0% for the first
quarters of 1995 and 1996, respectively. Cost of licenses revenues
fluctuates as third party license and distribution fees vary.
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<PAGE>
Gross margins from services were $1.1 million and $1.5 million for the
first quarters of 1995 and 1996, respectively. As a percentage of
revenues from services, gross margins were 59.6% and 56.3% for the first
quarters of 1995 and 1996, respectively. Cost of services revenues
consists primarily of the personnel costs related to providing
maintenance, training and contract services, and have increased as the
Company has added staff and invested in infrastructure to support its
new version release of its EDI/e product and its Templar product
offering.
Operating Expenses
Product Development. Product development expenditures consist primarily
of personnel and equipment costs required to conduct the Company's
research and development efforts, including project engineers, product
documentation, internal testing and development, standards and quality
assurance. Product development expenses, net of capitalized software
development costs, were $1.4 million and $1.8 million in the first
quarters of 1995 and 1996, respectively. As a percentage of revenues,
product development expenses decreased from 32.4% in the first quarter
of 1995 to 27.4% in the first quarter of 1996. The Company capitalized
software development costs of $450,000 and $669,000 in the first
quarters of 1995 and 1996, respectively, in accordance with Statement of
Financial Accounting Standards No. 86. The amounts capitalized
represented 24.1% and 27.1% of gross product development expenditures of
$1.9 million and $2.5 million, respectively, in the first quarters of
1995 and 1996.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and commissions of sales and marketing personnel and outside
marketing and promotional expenses. Sales and marketing expenses
increased from $1.7 million in the first quarter of 1995 to $2.3 million
in the first quarter of 1996 due to the expansion of the sales and
marketing organizations. As a percentage of revenues, sales and
marketing costs decreased from 39.6% in the first quarter of 1995 to
35.8% in the first quarter of 1996.
General and Administrative. General and administrative expenses were
$398,000 and $846,000 in the first quarters of 1995 and 1996,
respectively. This increase resulted primarily from increased staffing
and associated costs of supporting the Company's growth and requirements
relating to operating as a publicly held company. General and
administrative expenses increased as a percentage of revenues from 9.1%
in the first quarter of 1995 to 12.9% in the first quarter of 1996.
Interest Income and Interest Expense. Net interest expense was $35,000
in the first quarter of 1995, while in the first quarter of 1996 net
interest income was $757,000. As a percentage of revenues, net interest
expense was .8% in the first quarter of 1995 while net interest income
was 11.6% in the first quarter of 1996. Interest earned on proceeds
from the Company's initial public offering of common stock accounts for
the change between periods.
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<PAGE>
Provision for Income Taxes. The Company's provision (credit) for income
taxes was $(232,000) in the first quarter of 1995 and $185,000 in the
first quarter of 1996, representing an effective income tax rate of 40%
in both periods.
Minority Interest. Minority interest of $50,000, and $2,000 in the
first quarters of 1995 and 1996, respectively, represents the minority
stockholders' proportionate share of net loss of the Company's
subsidiary, Premenos Corp.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled $62.6 million at March
31, 1996, which collectively represented approximately 80% of total
assets.
Cash generated from operations has been sufficient to finance the
Company's operations. Cash flow provided by operating activities was
$.9 million and $1.0 million for the first three months of 1995 and
1996, respectively. The improvement in net income for the first three
months of 1996 was offset largely by higher days sales outstanding in
receivables arising from increased distributor royalties.
Cash used in investing activities was $.7 million in the first three
months of 1995 and cash provided by investing activities was $50.2
million for the comparable period in 1996. Cash provided by investing
activities in 1995 consisted of software development costs that were
capitalized and purchases of property and equipment. Cash used in
investing activities in 1996 consisted primarily of proceeds from the
sale of a short-term investment which were reinvested in cash
equivalents.
Cash used in financing activities was $147,000 and $47,000 for the first
three months of 1995 and 1996, respectively. Cash used in financing
activities in both 1995 and 1996 consisted of payments on capital lease
obligations and repayments of bank borrowings. In addition, proceeds
from the exercise of options in 1996 offset the capital lease and bank
payments.
The Company's principal commitments consist of leases on its office
facilities and obligations under its bank credit facility and capital
leases. On May 14, 1996, the Company signed an agreement to acquire Don
Valley Technology Corporation. Under the terms of the agreement, the
Company purchased Don Valley Technology Corporation for 56,657 shares of
newly-issued common stock and approximately $1.1 million in cash.
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<PAGE>
The Company believes that its current cash balances, primarily resulting
from net proceeds from the sale of common stock from its initial public
offering in 1995 and cash flow from operations, will be sufficient to
meet its working capital and capital expenditure requirements through
the foreseeable future.
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<PAGE>
Part II
PREMENOS TECHNOLOGY CORP.
Other Information
Items 1, 2, 3, and 4
The above items have been omitted as inapplicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.26 - Amendment to Premenos Technology Corp. Incentive Program
11 - Statement of Computation of Earnings Per Common Share
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 1996.
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<PAGE>
PREMENOS TECHNOLOGY CORP.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMENOS TECHNOLOGY CORP.
By:
/s/ H. Ward Wolff
- - ---------------------------------
H. Ward Wolff
Vice President of Finance and Administration
(Principal Financial and Accounting Officer)
Date: May 15, 1996
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<TABLE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>
Three Months Ended March 31,
1996 1995
----------------------------
<S> <C> <C>
Weighted average number of common shares outstanding 10,578,564 5,851,749
Shares issuable pursuant to warrants and employee
stock option plan, less shares assumed repurchased
at the average fair value during the period (1) 1,058,767 -
Shares issuable pursuant to warrants and stock options
issued during the 12 month period prior to the filing
of the initial public offering registration statement,
less shares assumed repurchased at the offering price
of $18 per share - 142,063
Effect of August 1995 exchange offer-additional
common shares outstanding - 967,564
---------- ---------
Number of shares for computation of earnings per share 11,637,331 6,961,376
========== =========
Net income (loss) $ 279,000 $ 292,000)
Minority interest (2) - (49,000)
---------- ---------
Net income (loss) for computation of
net income (loss) per share $ 279,000 $ (341,000)
========== ==========
Net income (loss) per share (3) $ 0.02 $ (0.05)
========== ==========
<FN>
(1) Excluded in loss periods as impact would be anti-dilutive.
(2) To adjust net loss for minority interest related to the minority shares exchanged.
(3) There is no difference between primary and fully diluted net income (loss) per share.
</TABLE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from Form
10Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 62,623
<SECURITIES> 0
<RECEIVABLES> 5,492
<ALLOWANCES> 309
<INVENTORY> 0
<CURRENT-ASSETS> 71,041
<PP&E> 4,190
<DEPRECIATION> 337
<TOTAL-ASSETS> 79,045
<CURRENT-LIABILITIES> 10,411
<BONDS> 0
0
0
<COMMON> 106
<OTHER-SE> 65,987
<TOTAL-LIABILITY-AND-EQUITY> 79,045
<SALES> 6,554
<TOTAL-REVENUES> 6,554
<CGS> 1,857
<TOTAL-COSTS> 4,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 462
<INCOME-TAX> 185
<INCOME-CONTINUING> 279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 279
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
PREMENOS TECHNOLOGY CORP.
INCENTIVE PROGRAM
RESTATED AS OF December 13, 1995
The Incentive Program (the "Program") authorizes one or more
committees of the Board of Directors (the "Committee") to provide
officers, directors and employees of Premenos Technology Corp. and its
direct and indirect subsidiaries (collectively, the "Company"), and
certain consultants to the Company, with certain rights to acquire
shares of the Company's common stock, par value $.01 per share (the
"Common Stock"). The Company believes that this Program will cause
those persons to contribute materially to the growth of the Company,
thereby benefiting its stockholders.
I. Administration.
The Program shall be administered and interpreted by the
Committee (or Committees) consisting of not less than two persons
appointed by the Board of Directors of the Company from among its
members. The Board of Directors may appoint different Committees to
handle different duties under the Program. The Committee or Committees
with respect to directors and officers subject to the reporting
requirements of Section 16 (the "Reporting Persons") promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
must be constituted in such manner as to permit the Program and
transactions thereunder to comply with Rule 16b-3 under the Exchange
Act, or any successor rule thereto. The Committee shall determine the
fair market value of the Common Stock for purposes of the Program. The
Committee's decisions shall be final and conclusive with respect to the
interpretation and administration of the Program and any Grant made
under it.
2. Grants.
Incentives under the Program shall consist of incentive
stock options, non-qualified stock options, stock appreciation rights in
tandem with stock options or freestanding, or restricted stock grants
(any of the foregoing, in any combination, collectively, "Grants"). All
Grants shall be subject to the terms and conditions set out herein and
to such other terms and conditions consistent with this Program as the
Committee deems appropriate. The Committee shall approve the form and
provisions of each Grant. Grants under a particular section of the
Program need not be uniform, and Grants under two or more sections may
be combined in one instrument.
3. Eligibility for Grants.
Grants may be made to any employee of the Company who is an
officer, director or other key executive, professional or administrative
employee or to any consultant or advisor to the Company provided that
bona fide services shall be rendered by consultants or advisors and such
services are not in connection with the offer or sale of securities in a
capital-rising transaction (collectively, "Eligible Employee") or,
pursuant to Section 8 hereof, to directors of the Company who are not
employees of the Company or any subsidiary of the Company. The
Committee shall select the persons to receive Grants ("Grantees") from
among the Eligible Employees and determine the number of shares subject
to any particular Grant.
4. Shares Available for Grant.
(a) Shares Subject to Issuance or Transfer. Subject to
adjustment as provided in Section 4(b), the aggregate number of shares
of Common Stock (the "Shares") that may be issued or transferred under
the Program is 2,630,000 Shares. The Shares may be authorized but
unissued Shares or Treasury Shares. The number of Shares available for
Grants at any given time shall be reduced by the aggregate of all Shares
previously issued or transferred plus the aggregate of all Shares which
may become subject to issuance or transfer under then-outstanding and
then-currently exercisable Grants. The maximum number of shares for
which options may be granted under the Program to any person during any
calendar year on or after September 12, 1995 is 150,000.
(b) Recapitalization Adjustment. If any subdivision or
combination of shares of Common Stock or any stock dividend, capital
reorganization, recapitalization, consolidation, or merger in which the
Company is the surviving corporation occurs after the adoption of the
Program, the Committee shall make such proportional adjustments as it
determines appropriate in the number of shares of Common Stock that may
be issued or transferred thereafter under Sections 4(a) or 8 hereof.
The Committee shall similarly adjust the number of Shares subject to
such Stock Option and Option Price in all outstanding Grants made before
the event within 60 days of the event.
5. Stock Options.
The Committee may grant options qualifying as incentive
stock options under the Internal Revenue Code of 1986, as amended
("Incentive Stock Options"), or non-qualified options not entitled to
special tax treatment under Section 422A of the Internal Revenue Code of
1986 (the "Code"), as amended (collectively, "Stock Options"). The
following provisions are applicable to Stock Options, including those
granted pursuant to Section 8 hereof:
(a) Exercise of Option. A Grantee may exercise a Stock
Option by delivering a notice of exercise to the Company, either with or
without accompanying payment of the Option Price. The notice of
exercise, once delivered, shall be irrevocable.
(b) Satisfaction of Option Price. The Grantee shall pay
the Option Price in cash, or with the Committee's permission, by
delivering shares of Common Stock already owned by the Grantee and
having a fair market value on the date of exercise equal to the Option
Price, or a combination of cash and Shares. The Grantee shall pay the
Option Price not later than thirty (30) days after the date of a
statement from the Company following exercise setting forth the Option
Price, fair market value of Common Stock on the exercise date, the
number of shares of Common Stock that may be delivered in payment of the
Option Price, and the amount of withholding tax due, if any. If the
Grantee fails to pay the Option Price within the thirty (30) day period,
the Committee shall have the right to take whatever action it deems
appropriate, including voiding the option exercise. The Company shall
not issue or transfer shares of Common Stock upon exercise of a Stock
Option until the Option Price is fully paid.
(c) Share Withholding. With respect to any non-qualified
option or SAR (as defined below), the Committee may, in its discretion
and subject to such rules as the Committee may adopt, permit the Grantee
to satisfy, in whole or in part, any withholding tax obligation which
may arise in connection with the exercise of the non-qualified option or
SAR by electing to have the Company withhold shares of Common Stock
having a fair market value equal to the amount of the withholding tax.
Notwithstanding the foregoing, as a condition of the Grant of any Stock
Option or SAR to a Reporting Person, the Committee shall require, upon
the exercise of any Stock Option or SAR by any Reporting Person, at a
time when the Company shall be required to file periodic reports under
Section 13 of the Exchange Act, that the number of shares of Common
Stock otherwise issuable upon the exercise of such Stock Option or SAR
shall be reduced by the number of shares of Common Stock having an
aggregate fair market value equal to the amount of the Guarantee's
liability for any and all taxes required by law to be withheld.
(d) Price and Term. The exercise price per share and term
of the option shall be specified by the grant, as limited by the
provisions of paragraph 5(e) hereof, or Section 8, below, if granted
pursuant to such Section.
(e) Limits on the Incentive Stock Options. The aggregate
fair market value of the stock covered by Incentive Stock Options
granted under the Program or any other stock option plan of the Company
or any subsidiary or parent of the Company that become exercisable for
the first time by any employee in any calendar year shall not exceed
$100,000. The aggregate fair market value will be determined at the
time of grant. The period for exercise of an Incentive Stock Option
shall not exceed ten years from the date of the Grant (or five years if
the Grantee is also a 10% stockholder). The price at which Common Stock
may be purchased by the Grantee under an Incentive Stock Option ("Option
Price") shall be the fair market value (or 110% of the fair market value
if the Grantee is a 10% stockholder) of Common Stock on the date of the
Grant.
6. Stock Appreciation Right.
The Committee may grant a Stock Appreciation Right ("SAR")
either independently or in conjunction with any Stock Option granted
under the Program either at the time of grant of the option or
thereafter. The following provisions are applicable to each SAR:
(a) Options to Which Right Relates. Each SAR which is
issued in conjunction with a Stock Option shall specify the Stock Option
to which the SAR is related, together with the Option Price and number
of option shares subject to the SAR at the time of its grant.
(b) Requirement of Employment. An SAR may be exercised
only while the Grantee is in the employment of the Company, except that
the Company may provide for partial or complete exceptions to this
requirement as it deems equitable.
(c) Exercise. A Grantee may exercise an SAR in whole or in
part by delivering a notice of exercise to the Company, except that the
Committee may provide for partial or complete exceptions to this
requirement as it deems equitable.
(d) Payment and Form of Settlement. If a Grantee
exercises an SAR which is issued in conjunction with a Stock Option, he
shall receive the aggregate of the excess of the fair market value of
each share of Common Stock with respect to which the SAR is being
exercised over the Option Price of each such share. Payment, in any
event, may be made in cash, Common Stock or a combination of the two, in
the discretion of the Committee. Fair market value shall be determined
as of the date of exercise.
(e) Expiration and Termination. Each SAR shall expire on
a date determined by the Committee at the time of grant. If a Stock
Option is exercised in whole or in part, any SAR related to the Shares
purchased in connection with such exercise shall terminate immediately.
7. Restricted Stock Grants.
The Committee may issue or transfer shares of Common Stock
to a Grantee under a Restricted Stock Grant. Upon the issuance or
transfer, the Grantee shall be entitled to vote the shares and to
receive any dividends paid. The following provisions are applicable to
Restricted Stock Grants:
(a) Requirement of Employment. If the Grantee's
employment terminates during the period designated in the Grant as the
"Restriction Period", the Restricted Stock Grant terminates and the
shares of Common Stock must be returned immediately to the Company.
However, the Committee may provide for partial or complete exceptions to
this requirement as it deems equitable.
(b) Restrictions of Transfer and Legend on Stock
Certificate. During the Restriction Period, a Grantee may not sell,
assign, transfer, pledge, or otherwise dispose of the shares of Common
Stock except to a Successor Grantee under Section 11(a). Each
certificate for shares issued or transferred under a Restricted Stock
Grant shall contain a legend giving appropriate notice of the
restrictions applicable to the Grant.
(c) Lapse of Restrictions. All restrictions imposed under
the Restricted Stock Grant shall lapse upon the expiration of the
Restriction Period provided that all of the conditions stated in
Sections 7(a) and (b) have been met, as of the date of such lapse. The
Grantee shall then be entitled to have the legend removed from the
certificate.
8. Director Stock Options.
(a) Eligible Directors. All directors of the Company
shall be eligible to receive Stock Options pursuant to this Section of
the Program unless they are (1) employees of the Company or (2)
employees of any subsidiary of the Company (the directors who are
eligible to receive Stock Options pursuant hereto shall be referred to
herein as the "Eligible Directors"). Any or all powers vested in the
Committee with respect to this Section 8 of the Program, if the Board of
Directors so directs, may be exercised by any committee (the "Alternate
Committee") of two or more persons not eligible to receive Stock Options
pursuant to this Section 8 appointed the Board of Directors.
(b) Non-Qualified Options. All options granted under this
Section 8 shall be non-qualified options not entitled to special tax
treatment under Section 422A of the Code.
(c) Grant of Options. Any options granted by the Company
pursuant to its previously existing Director Stock Option Plan shall be
governed by the terms thereof. For each calendar year commencing with
calendar year 1996, Stock Options shall be granted to the Eligible
Directors automatically on January 2 (or if January 2 is not a business
day, on the next succeeding business day) to purchase 5,260 Shares at an
exercise price per share equal to the fair market value per share of the
Common Stock on such date.
(d) Terms. Stock Options granted pursuant to this Section
8 shall become exercisable immediately upon issuance. Stock Options
granted pursuant to this Section 8 shall terminate upon the expiration
of ten (10) years from the date upon which such options were granted
(subject to prior termination as hereinafter provided).
(e) Termination. All rights of a director in a Stock
Option granted pursuant to this Section 8, to the extent that it has not
been exercised, shall terminate two years after such director's
termination as a director for any reason other than removal for cause,
in which latter event all of his options then outstanding hereunder
shall terminate ten (10) days after such removal. Notwithstanding the
foregoing, in the event of the death of a director, his Stock Options
outstanding pursuant to this Section 8 shall terminate upon failure of
the designated representative to exercise the Stock Options in
accordance with the last sentence of this paragraph (e). Any Stock
Option granted to a director under this Section 8 and outstanding on the
date of his death may be exercised by the personal representative of the
deceased director or the person or persons to whom the Stock Option
shall have been transferred by the director's will or in accordance with
the laws of descent and distribution, at any time prior to the specified
expiration date of such option or the first anniversary of the
director's death, whichever is the first to occur.
(f) Limitation on Amendment. In no event may this Section
8 of the Incentive Program relating to Director Stock Options be amended
more frequently than once every six months, except to comport with
changes in the Internal Revenue Code, the Employee Retirement Income
Security Act, or the Rules thereunder
9. Amendment and Termination of the Program.
(a) Amendment. The Board of Directors may amend the
Program except that it may not, with respect to Incentive Stock Options
granted hereunder, (i) increase the maximum number of Shares in the
aggregate which may be sold pursuant to such options granted hereunder;
(ii) change the manner of determining the minimum option prices, other
than to change the manner of determining the fair market value of any
Shares underlying the option to conform to any than applicable
provisions of the Internal Revenue Code or regulations thereunder, (iii)
increase the periods during which such options may be granted or
exercised or (iv) change the employees or class of employees eligible to
receive such options hereunder. In any event, no termination,
suspension, modification or amendment of the Program may adversely
affect the rights of any Grantee without his consent.
(b) Termination of the Program. The Program shall
terminate on the tenth anniversary of its effective date unless
terminated earlier by the Board or unless extended by the Board.
(c) Termination and Amendment of Outstanding Grants. A
termination or amendment of the Program that occurs after a Grant is
made shall not result in the termination or amendment of the Grant
unless the Grantee consents or unless the Committee acts under Section
10(e). The termination of the Program shall not impair the power and
authority of the Committee or the Alternate Committee with respect to
outstanding Grants. Whether or not the Program has terminated, an
outstanding Grant may be terminated or amended under Section 10(e) or
may be amended by agreement of the Company and the Grantee consistent
with the Program.
10. General Provisions.
(a) Prohibitions Against Transfer. Only a Grantee or his
authorized representative may exercise rights under a Grant. Such
persons may not transfer those rights, except upon the express written
consent of the Company, which may be granted or denied in the Company's
discretion. Except as otherwise expressly provided herein or in the
instrument of grant, when a Grantee dies, the personal representative or
other person entitled under a Prior Stock Option or a Grant under the
Program to succeed to the rights of the Grantee ("Successor Grantee")
may exercise the rights. A Successor Grantee must furnish proof
satisfactory to the Company of his or her right to receive the Grant
under the Grantee's will or under the applicable laws of descent and
distribution.
(b) Suitable Grants. The Committee may make a Grant to an
employee of another corporation who becomes an Eligible Employee by
reason of a corporate merger, consolidation, acquisition of stock or
property, reorganization or liquidation involving the Company in
substitution for a stock option, stock appreciation right, performance
award, or restricted stock grant granted by such corporation
("Substituted Stock Incentive"). The terms and conditions of the
substitute Grant may vary from the terms and conditions required by the
Program and from those of the Substituted Stock Incentives. The
Committee shall prescribe the exact provisions of the substitute Grants,
preserving where possible the provisions of the Substitute Stock
Incentives. The Committee shall also determine the number of shares of
Common Stock to be taken into account under Section 4.
(c) Subsidiaries. The term "subsidiary" means a
corporation in which the Company owns directly or indirectly 50% or more
of the voting power.
(d) Fractional Shares. Fractional shares shall not be
issued or transferred under a Grant, but the Committee or Subcommittee
may pay cash in lieu of a fraction or round the fraction.
(e) Compliance with Law. The Program, the exercise of
Grants, and the obligations of the Company to issue or transfer shares
of Common Stock under Grants shall be subject to all applicable laws and
to approvals by any governmental or regulatory agency as may be
required. The Committee or Subcommittee may revoke any Grant if it is
contrary to law or modify a Grant to bring it into compliance with any
valid and mandatory government regulation. The Committee or
Subcommittee may also adopt rules regarding the withholding of taxes on
payment to Grantees.
(f) Ownership of Stock. A Grantee or Successor Grantee
shall have no rights as a stockholder of the Company with respect to any
Shares covered by a Grant until the Shares are issued or transferred to
the Grantee or Successor Grantee on the Company's books.
(g) No Right to Employment. The Program and the Grants
under it shall not confer upon any Grantee the right to continue in the
employment of the Company or affect in any way the right of the Company
to terminate the employment of a Grantee at any time.
(h) Effective Date of the Program. The Program shall
become effective upon its approval by the Company's stockholders.
